Fashions and fads in finance: contingent emulation and the political economy of sovereign wealth fund creation. IHS Political Science Series No. 131, July 2012

Sovereign wealth funds (SWFs), government-owned or managed investment vehicles, have proliferated at a remarkable rate over the past decade, even as political controversy has surrounded them. Why? The extant literature depicts the process of SWF creation as driven by functional imperatives associated with “excess” revenue and reserves accumulated from commodity booms and large current account surpluses. I argue that SWF creation also reflects in large part a process of contingent emulation in which first this policy has been constructed as appropriate for countries with given characteristics, and then when countries took on these characteristics, they followed their peers. Put simply, fashions and fads in finance matter for policy diffusion. I assess this argument using a new dataset on SWF creation that covers nearly 80 countries from 1984 to 2007. The results suggest peer-based contingent emulation has been a crucial factor shaping the decision of many countries to create a SWF, especially among fuel exporters. An earlier version of this paper was presented at the annual meeting of the American Political Science Association, Washington, DC, 2 – 5 September 2010. The author would like to thank Eric Neumayer for his many suggestions and comments on previous versions of the manuscript. The author would also like to thank Zachary Elkins for sharing data. Finally, the author would like to acknowledge the research assistance of Natali Bulamacioglu and Christopher Gandrud.

Multilateral Interchange Fees: Competition and regulation in light of recent legislative developments. ECRI Research Report No. 14, 31 January 2014

Two-sided payment card markets generate costs that have to be distributed among the participating actors. For this purpose, payment card networks set an interchange fee, which is the fee paid by the merchant’s bank to the cardholder’s bank per transaction. While in recent years many antitrust authorities all over the world - including the European Commission - have opened proceedings against card brands in order to verify whether agreements to collectively establish the level of interchange fees are anticompetitive, the Reserve Bank of Australia – as a regulator - has directly tried to address market failures by lowering the level of interchange fees and changing some network rules. The US has followed with new legislation on financial consumer protection, which also intervenes on interchange fees. This has opened a strong debate not only on legitimacy of interchange fees, but also on the appropriateness of different public tools to address such issues. Drawing from economic and legal theories and a comparative analysis of recent case law in the EU and other jurisdictions, this work investigates whether a regulation rather than a purely competition policy approach would be more appropriate in this field, considering in particular, at EU level, all of the competition and regulatory concerns that have arisen from the operation of SEPA with multilateral interchange fees. The paper concludes that a wider regulation approach could address some of the shortcomings of a purely antitrust approach, proving to be highly beneficial to the development of an efficient European single payments area.

The changing landscape of financial markets in Europe, the United States and Japan. Bruegel Working Paper 2013/02, 18 March 2013

We compare the structure of the financial sectors of the EU27, Japan and the United States, looking at a set of 23 indicators. We find a large variation within the European Union in the structure of the financial sector. Using principal components analysis, we identify robust groups of EU countries. One group consists of the eastern European members that entered the EU more recently.These have substantially smaller financial sectors than the old member states. A second group can be classified as market-based (MBEU) and the third group is more bank-based (BBEU). We compare US, MBEU, BBEU, Eastern EU and Japan with the following main results. First, the groups within Europe are geographically related. Second, in many indicators, MBEU countries are closer to the (market-based) US, while BBEU countries more closely resemble Japan. Paradoxically, however, market-based EU countries also have large banking sectors. Banks in market-based countries have larger cross-border assets and liabilities, and derive a larger fraction of their income from fees, rather than interest income, than banks in bank-based countries. Finally, for most indicators, the ordering of groups of countries is quite stable over time, but while the crisis has had no impact on the relative ordering of the groups, it has slightly widened the gap between the US and all EU regions insome respects. We also find that during the crisis, substitution between market-based and bank-based sources of finance occurred in the US, and to a lesser extent in MBEU and BBEU countries.

Saving the Monopsony: Exclusivity, Innovation and Market Power in the Media Sector. Research Papers in Law, 7/2006

From the Introduction. The Media Sector has experienced a technological revolution in the last 15 years. Digital encoding of television signals made possible a more efficient use of the radiospectrum. Digital terrestrial television (hereinafter, “DTT”) allows now for the reception of a significant number of free-to-air channels.1 Moreover, the use of new transmission platforms (hereinafter,“platforms”), namely cable and direct-to-home satellite (hereinafter, “DTH”) paved the way for the arrival in Europe of pay-TV operators, which finance their activities mainly via subscription fees. This changing technological landscape is subject to further evolution in the near future, as incumbent telecommunications operators become increasingly interested in making available broadcasting content2 as part of their broadband offer and 3G mobile handsets can be used for the reception of TV signals....The present paper seeks to ascertain whether the Commission “regulatory approach” towards the exclusive sale of premium content is a sound one, in particular in view of the constant technological evolution outlined above. The assumptions underlying landmark Commission decisions will be compared with recent developments of the media sector in Italy. In the NewsCorp./Telepiù case, decided in 2003, the Commission imposed very strict conditions to allow the merger giving birth to Sky Italia, on the assumption that the operation created a lasting near-monopsony in the different upstream markets for the acquisition of premium intervened against the media conglomerate Mediaset (which controls, inter alia, the main three private free-to-air channels in Italy) for an alleged abuse of dominant position.17 In fact, and contrary to the forecasts made by the Commission, Mediaset was in a position to acquire the broadcasting rights of the main Italian football teams, thereby excluding the incumbent (and near-monopolist) pay-TV operator, Sky Italia. This may go to show that the reality of the sector is more complex and evolves faster than one may infer from the Commission practice, thus putting into question its stance regarding exclusivity. The experience of the evolution of the Italian media sector will be used as the starting point for the evaluation of alternative regulatory options.

Government failure, opposition success? Electoral performance in Portugal and Italy at the time of the crisis. Jean Monnet Occasional Paper 05/2014

The costs of the crisis in Southern European countries have not been only economic but political. Economic crises tend to lead to government instability and termination while political challengers are expected to exploit this contingent window of opportunity to gain an advantage over incumbents in national elections. The current crisis seems to make no exception, looking at the results of the general elections recently held in Southern Europe. However, this did not always lead to a clear victory of the main opposition parties. In most of the elections, in fact, the incumbent parties’ loss did not coincide with the official opposition’s gain. The extreme case is represented by Italy, where both the outgoing government coalition led by Silvio Berlusconi – setting aside for the moment the technocratic phase – and its main challenger, the centre left coalition, ended up losing millions of voters and a new political force, the Five Star Movement, obtained about 25 per cent of votes. On the opposite side there is Portugal. Only in Portugal did the vote increase for the centre right PSD, in fact, exceed the incumbent socialists’ loss. The present work aims at exploring the factors which might account for this significant divergence between the two cases.

The policy dilemma of the unitary patent. Bruegel Working Paper 2014/13, 27 November 2014

This paper provides new evidence about the budgetary consequences – for patent offices – of the coexistence of the forthcoming Unitary Patent (UP) with the current European Patent (EP). Simulation results illustrate a dilemma between (1) high UP renewal fees to ensure enough financial income for all national patent offices (NPOs) and (2) low UP renewal fees to make the UP system affordable, with very few NPOs losing on financial revenues. The simulations help to understand the positions of several patent offices, and underline an alternative way to proceed with the negotiations while reducing financial risks for the whole system.

Between energy security and energy market integration. Guidelines for the future development of the EU’s external energy policy in Europe’s neighbourhood. OSW Report, June 2011

For many years the European Union has been improving the efficient use of energy resources and yet the demand for energy in the EU continues to increase. When Europe belonged to one of the world’s key energy markets with relatively easy access to energy resources, growing energy needs were not seen as a source of concern. Today, however, as the competition for energy resources is intensifying and the global position of the EU energy market is being challenged by growing economies in the developing countries, above all China and India, the EU needs to adopt bold policies to guarantee the sustainable supply of energy. This report argues the EU needs to develop a fully-fledged external energy policy; i.e. a common, coherent, strategic approach that build bridges between the interests and needs of the EU integrated energy market on the one hand and supplier countries on the other. The EU’s external energy policy has two main objectives. The first one is to ensure a sustainable, stable and cost-effective energy supply. The second is to promote energy market integration and regulatory convergence with neighbouring countries (often but not always this supports the achievement of the first objective). However, in order to improve its effectiveness, the EU’s external energy policy needs to be seen in a broader economic and political context. Any progress in energy cooperation with third countries is contingent upon the EU’s general stance and offer to those countries.

Rebalancing the EU-Russia-Ukraine gas relationship. Bruegel Policy Contribution ISSUE 2014/15, DECEMBER 2014

The October 2014 agreement on gas supplies between Russia, Ukraine and the European Union did not resolve the Ukraine-Russia conflict over gas. The differences between parties in terms of objectives, growing mistrust and legacy issues make it unlikely that a long-term stable arrangement will be achieved without further escalation. Without EU pressure and support, Ukraine is likely to enter a new unfavourable gas arrangement with Russia, which could have repercussions beyond the energy sector. Key highlights: To reduce prices and increase the security of imports, the EU as a bloc should redefine its gas relationship with Russia and Ukraine and overcome the diverging interests of EU member states on second-order issues. Implementation of a joint strategy rests on enforcement of EU competition and gas market rules, a strengthened role for the Energy Community and the establishment of a market-based instrument for supply security. For Ukraine, the EU should serve as an anchor for comprehensive gas sector reform. Contingent on Ukraine’s reform efforts, EU financial and technical assistance, the enabling of reverse flows from the EU to Ukraine and pressure on Gazprom, should eventually enable Ukraine to obtain a sustainable gas-supply contract with Russia. This should make a sustainable and mutually beneficial Russia-Ukraine-EU gas relationship possible. However, during the transition, the EU should be prepared for possible frictions.

Do Clusters Generate Greater Innovation and Growth? An Analysis of European Regions. Bruges European Economic Research (BEER) Papers 21/October 2011

The analysis of clusters has attracted considerable interest over the last few decades. The articulation of clusters into complex networks and systems of innovation -- generally known as regional innovation systems -- has, in particular, been associated with the delivery of greater innovation and growth. However, despite the growing economic and policy relevance of clusters, little systematic research has been conducted into their association with other factors promoting innovation and economic growth. This article addresses this issue by looking at the relationship between innovation and economic growth in 152 regions of Europe during the period between 1995 and 2006. Using an econometric model with a static and a dynamic dimension, the results of the analysis highlight that: a) regional growth through innovation in Europe is fundamentally connected to the presence of an adequate socioeconomic environment and, in particular, to the existence of a well-trained and educated pool of workers; b) the presence of clusters matters for regional growth, but only in combination with a good ‘social filter’, and this association wanes in time; c) more traditional R&D variables have a weak initial connection to economic development, but this connection increases over time and, is, once again, contingent on the existence of adequate socioeconomic conditions.

On the periphery of global jihad. The North Caucasus: the illusion of stabilisation. OSW Point of View Number 45, November 2014

The situation in the North Caucasus has stabilised, in comparison with previous years, mainly as regards the activity of the Islamic military underground. This is an effect of ideological changes among the militants which have led to a dilution of the Caucasian armed struggle and its marginalisation in global jihad, since top priority has been granted to the Middle Eastern front. The factors which have contributed to this stabilisation are the organisational crisis in the Caucasus Emirate and the outflux of militants to the Middle East, as well the successful ‘carrot and stick’ policy adopted by Moscow. However, the partial stabilisation in the Caucasus is inherently precarious, being a contingent outcome of the situation rather than the result of systemic change. The region’s pressing problems remain unresolved; and these problems are generating chronic instability and cauing the Caucasus to drift away from Russia in civilisational terms. An economic or political crisis in the Russian Federation may result in the conflicts in the Caucasus unfreezing, including a reactivation of the idea of Chechen independence as well as the idea of the Caucasus Emirate, which is a part of global jihad.