Assessing gas market liberalization

On April 23 2009, TILEC will organize an Energy Economics Policy Seminar in The Hague, in cooperation with the Netherlands Bureau for Economic Policy Analysis (CPB), the Dutch Ministry of Economic Affairs, and the Dutch competition authority (NMa). As the process of liberalizing gas markets started about a decade ago in continental Europe, and about two decades ago in the U.K. and the US, it is now time to assess the results. Christoph Riechmann (Frontier Economics) will discuss the factors driving gas prices, such as scarcity, resource rents, market power and the relationship with oil prices. He will also address the relationship between different geographic market platforms for gas such as TTF and NBP and between spot and bilateral contract markets for gas. Christian von Hirschhausen (TU Berlin and DIW) will discuss whether liberalization has improved the efficiency of investments in transportation and storage infrastructure or whether it has, one way or another, created new obstacles. Using evidence from the U.S. and the E.U. he will draw lessons for the future. Attendance to the seminar is free but advance registration is required.

Accounting for the crisis

The unfolding of the current financial crisis has raised many questions as to the impact of accounting rules and practices on market efficiency and cyclicality. Have accounting firms failed to be true to their auditing obligations? Are accounting regulations themselves responsible for amplifying the variations in financial asset prices? The research group on accounting at Tilburg University regularly organizes Accounting Camps where academics and high-profile practitioners can discuss topical issues in an intimate setting. This year's Spring Camp, to be held at Tilburg University on April 22, is organized in cooperation with the TILEC-AFM Research Network on financial market regulation, and focuses on the role of regulation in financial reporting. Clive Lennox (HKUST Business School) will examine how auditing firms are themselves inspected. Ray Ball (University of Chicago) will discuss the recent accounting scandals. Jonathan Rogers (University of Chicago) will present evidence on disclosure tone and shareholder litigation. Steven Crawford (Rice University) will study how market forces and legal institutions affect bonding cross-listed firms. The meeting is organized by Tilburg professors Stephan Hollander, Philip Joos and Jeroen Suijs. Attendance is by invitation only. Invitation for the few remaining seats can be requested by e-mail. More details can be found on the camp's webpage .

Trading rules in stock exchange competition

In a recent TILEC discussion paper TILEC member Sofia Johan and co-author Douglas J. Cumming (York University) examine stock exchange trading rules for market manipulation, insider trading and broker agency conduct across countries and over time for 42 stock exchanges around the world. Some stock exchanges have extremely detailed rules which explicitly prohibit specific manipulative practices, while others use less precise and broadly framed rules. The authors investigate whether those rules influence investors' decision to trade on a specific exchange. To this end, the paper examines whether differences in trading velocity across exchanges are attributable to differences in rules. A hypothesis is tested that vague regulations create inefficiency as investors and/or traders are not clear as to which activities are acceptable and which ones are in breach of the spirit of the rules. Conversely, one may argue that detailed regulations create inefficiency as investors and/or traders are able to take advantage of inevitable loopholes. The data show a strongly positive and robust effect of trading rules on trading velocity, suggesting that trading rules are an important information source to consider for explaining differences in trading activity among stock exchanges around the world.

Workshop on auctions: a learning experience

Last month, a workshop on the theory and practice of auctions took place in Tilburg. This meeting was organized by Hans Schumacher and Cédric Argenton, under the joint umbrella of the Royal Dutch Mathematical Society (KWG-ITW) and TILEC, with the generous support of the Econometrics and Operations Research Department at Tilburg University. TILEC director Eric van Damme offered an overview of the way auction theory developed over time. Advances, although stunning, were made only recently and the properties of many relevant auction designs are still unknown, as exemplified by the problems besetting the Dutch home care market. Jean-Jacques Herings (Maastricht University) discussed the desirable properties of the so-called bisection auction design
(developed by Jean-Jacques and co-authors), in particular its speed, as measured by the number of bidding rounds it takes to reach the optimal allocation. Sven de Vries (University of Trier) introduced the audience to the use of discrete optimization techniques to study multi-unit auctions. Emiel Maasland (Erasmus University, Rotterdam) presented the (sophisticated) rules governing the auction of the 2.6GHz radio spectrum band to be held by the Dutch government in the near future. The meeting was well-attended and participants got a chance to experience the classical over-bidding effect in several laboratory experiments run by CentERlab director Jan Potters.

Workshop on competition policy and regulation in media markets

On Thursday 4 and Friday 5 June 2009, TILEC will host an intensive workshop whose aim is to bring together economists and lawyers working on media-related issues. A growing number of academics in various fields work on media-related topics, but often independently from one another. There is still much to be gained by bringing them together. Scholars in law and economics typically have different approaches and often move in different policy circles. However, economic reasoning and analysis are playing an increasingly important role in the application of law in the broad field of media, both in the area of sector-specific regulation and in competition law. Moreover, the electronic communications sector (telecom, broadcasting, Internet) is of upmost importance to economic development and social cohesion. Hence, it is essential that media scientists from the two disciplines share their expert knowledge in order to propose high quality regulation to policymakers. Invited speakers for this special event are: Simon Anderson (University of Virginia), Joel Waldfogel (University of Pennsylvania) Nico van Eijk (University of Amsterdam) and Rachael Craufurd Smith (Edinburg Law School). A call for papers is open until 29 March 2009.

Renewable energy sources, renewed concerns

Energy has come to the forefront of the public debate in the past decade. Renewable energy certificates (RECs) are instruments that allow countries to promote energy generation from renewable sources and can be part of domestic policies aimed at climate change mitigation and adaptation. In a recent TILEC discussion paper TILEC member Panagiotis Delimatsis
discusses the issues raised by the nature of RECs, which can be traded in secondary markets. Concerns arise from the General Agreement on Trade in Services (GATS) and the multilateral regulation of trade in financial services, notably in the case where World Trade Organization (WTO) Members undertook sweeping commitments in financial services which equally apply to trade in RECs. The alleged dichotomy between trading in emission allowances and trading in RECs may also be problematic. The paper argues that WTO Members may be interested in considering whether a unified approach regarding energy-related services and trading of related financial instruments (such as RECs or emission rights) makes sense in the medium term. Indeed, as things now stand with the current classification system, Members may ultimately realize that they have already undertaken commitments in energy-related sectors,
e.g. in financial services, that they had not intended to liberalize. The paper is to appear in the World Trade Review.

Settling scores with financial markets

Do financial markets properly price new information? This question has taken on renewed relevance since the outburst of the financial crisis. Soccer clubs listed on the London Stock Exchange provide a unique way of testing stock price reactions to different types of news, as showed by TILEC member Luc Renneboog and co-authors Frédéric Palomino (ENSAE) and Chendi Zhang (Warwick) in a recent discussion paper. For each firm, two pieces of information are released on a weekly basis: experts' expectations about game outcomes through the betting odds, and the game outcomes themselves. The stock market reacts strongly to news about game results, generating significant abnormal returns and trading volumes. There is evidence that the abnormal returns for the winning teams do not reflect rational expectations but are high due to overreactions induced by investor sentiment. This is not the case for losing teams. In contrast, there is no market reaction to the release of new betting information although these betting odds are excellent predictors of the game outcomes. The reasons for this discrepancy are thoroughly investigated by the authors. The paper is forthcoming in the Journal of Corporate Finance.

Entrepreneurship and consumer interests in healthcare markets

On 6 February 2009, TILEC hosted a double inaugural lecture by Professors Wolf Sauter and Marcel Canoy. A workshop on "Competition in healthcare markets", opened by Frank de Grave (Dutch health care markets regulator, NZa) focused on the right standard for merger control and the influence of EC law on healthcare markets. In his lecture, Wolf Sauter emphasised the importance of putting the consumer interest at the forefront of enforcement of regulation. This consumer interest can be characterised in terms of quality, accessibility and affordability; elements that can in principle be measured and henceforth be weighed against each other. Sauter suggested to quantify these public interests as much as possible to achieve sound regulatory decision-making in the future. In addition, he paid attention to how the European concept of service of general economic interest can be used by Member States to ensure provision of essential services in competitive conditions. Marcel Canoy highlighted the importance of making room for entrepreneurship in healthcare markets. Two additional, intermediate goals of healthcare regulation he identifies are the minimization of information rents and the motivation of healthcare workers. He argued that when competition is properly implemented, these three goals will reinforce each other. The lectures are available in Dutch:
Lecture Wolf Sauter
Lecture Marcel Canoy