The need for a new approach to regulating fixed networks

The increasing danger of excess capacity in the regulated fixed networks calls into question the established long-standing pricing standards for wholesale services based on forward-looking long-run incremental costs (FL-LRAIC). Within the EU “Regulatory Framework for Electronic Communications and Services”, the FL-LRAIC standard has worked quite well in expanding markets, although even there price-squeeze problems have appeared. In contracting markets the price-squeeze issue, however, becomes paramount and lower prices both at the wholesale and retail levels would be efficient. Because both expansion and contraction could be relevant in the future, this paper suggests an optional approach based on the wholesale price formula p=min{FL-LRAIC, Retail-Minus} with an optional replacement of per-minute charges by capacity-based access charges (CBC). This will generally protect alternative competitors against price-squeeze while at the same time allowing the fixed-network incumbent full downward price flexibility. It also protects alternative competitors and end users against excessively high prices.     

Price Regulation for Independent Transmission Companies

This paper considers methods of price structure regulation of electricity transmission in the context of an independent transmission company (TRANSCO). The focus is on two-part tariffs where the variable part would reflect congestion charges (and ancillary services) while the fixed part would reflect capacity costs. The two-part tariffs form a price-cap index, and the firm could rebalance prices, as long as the index satisfies the price-cap constraint. The firm would then have incentives to trade off congestion against capacity expansion in such a way that it becomes profitable to expand, whenever the costs of congestion on average exceed the costs of expansion. However, with chained Laspeyres weights in the price-cap index expansion may be suboptimal. We therefore discuss ways to improve the expansion factor. Implementing the regulatory schemes considered suggests a hybrid approach combining a TRANSCO with an independent system operator (ISO).     

Central Bank Policy in a More Perfect Financial System

Financial innovation increases markets' liquidity and provides economic agents with new instruments to better handle risks, but it reduces the efficacy of monetary policy while strengthening the logic and force of the “unholy trinity”. Increased liquidity of financial markets and increased leverage of financial positions imply that speculators can attack unsustainable fixed exchange rates faster and more powerfully than ever. The rapid innovation of new financial instruments in these markets also implies the futility to “throw sand in the wheels” through regulation or the introduction of transaction taxes. The higher asset substitutability generated by the emergence of derivatives makes the definition of “money,” particularly of broad monetary aggregates, increasingly difficult. In a more complete financial market system central banks find it harder to predict the effect of a given monetary impulse on real output and employment with any reasonable precision. Discretionary monetary policies aimed at output and employment become more uncertain. Consequently, central banks should focus on the long-run goal of price stability.     

Does Outsourcing to Central and Eastern Europe Really Threaten Manual Workers’ Jobs in Germany?

Starting from the observation of significant within‐industry skill‐upgrading, this paper analyses how international outsourcing has affected the relative demand for manual workers in German manufacturing during the 1990s. We combine trade and input‐output data to disentangle international outsourcing and trade in final goods and differentiate between the effects of narrowly and broadly defined outsourcing towards Central and Eastern Europe (CEEC), the European Union (EU15) and the rest of the world. Accounting for the endogeneity of international outsourcing by applying instrumental variable techniques, the empirical analysis showed that international outsourcing is indeed an important explanatory factor for the observed decline in relative demand for manual workers in German manufacturing. Particularly, outsourcing towards CEEC plays a major role, irrespective of whether a narrow or wide measure of outsourcing is applied. Using a narrow outsourcing measure and controlling for the adverse demand effects of skill‐biased technological change, time‐changing industry characteristics, wages as well as industry unobserved characteristics, international outsourcing towards CEEC is found to have lowered the manual workers’ wage bill share by 2.7 per‐centage points between 1991 and 2000. In its magnitude this effect is comparable to the skill‐biased effect of technological progress, as captured by our controls. Outsourcing towards countries outside CEEC and outside the EU15 is found to have small negative effects on the relative demand for manual workers, but only if one follows the broad definition of international outsourcing. Outsourcing towards the EU15 is, however, always found to be insignificant.     

Constructing Generalized FGM Copulas by Means of Certain Univariate Distributions

In this paper we focus on specific generalized Fairlie- Gumbel-Morgenstern (or Sarmanov) copulas which are generated by a single function (so-called generator or generator function) defined on the unit interval. In particular, we introduce a class of generators based on density-quantile functions of certain univariate distributions. Many of the generator functions from the literature are recovered as special cases. Moreover, two new generators are suggested, implying to new copulas. Finally, the opposite way around, it is shown how to calculate the univariate distribution which belongs to a given copula generator function.     

III. Weltwirtschaft und Wirtschaft einzlner Länder und Gebiete

Ohne Zusammenfassung     

Rezensionen

Ohne Zusammenfassung     

Inhumane Arbeitsbedingungen auf dem globalen Markt — Wer kann, wer soll handeln?

Workers in Asian factories producing for Western markets suffer under inhumane working conditions. Suicides at Chinese suppliers of computer manufacturers and a fire in a Bangladesh garment factory recently drew public attention to this problem. But would workers in developing countries really benefit from better working conditions and higher wages? It may be more likely that countries implementing these improvements would lose in global competition. Therefore, developing countries are limited in their ability to raise labour standards on their own. This competitive situation, however, is the very reason why labour rights have to be negotiated internationally. Existing voluntary international standards of the UN, ILO or OECD are useful but not sufficient, and trade sanctions in the WTO framework pose dangers of disguised protectionism. More promising but still imperfect avenues are Free Trade Agreements that could be used to enforce minimum ILO labour standards and transparent certifications, e.g. for fair trade products.