Archive for the ‘Regulation’ Category

Requiring firms to do pro bono work

February 23, 2010

I read earlier in the week that the Attorney-General is considering requiring law firms who win government contracts to do a certain amount of pro bono work (ie legal work which is in the public interest performed for free or at a discounted rate) as a condition of the contract.

I’m sympathetic to the idea of encouraging lawyers to do pro bono work but I hope that the Attorney-General and the Minister of Justice take some economic (as well as legal) advice before implementing any new policy in this area.  In particular I worry about what will happen if the government ends up specifying a list of approved clients who firms on government contracts must do pro bono work for.  There could be at least two unintended consequences of such a policy:

  1. Depending on how the policy is designed, firms who already do pro bono work may have an incentive to switch from providing services to their existing pro bono clients to providing services to clients on the approved list.  That is, the effect of the policy may simply be to change the organisations that firms do pro bono work for rather than to increase the amount for pro bono work done.
  2. Firms may charge the government higher rates to absorb part of the cost of the pro bono work.

Mobile Termination Rates

February 22, 2010

Many are getting outraged at New Zealand’s high mobile termination rates – the cost of terminating a call on another network. Many of the comparisons made to other countries – in particular those made by Drop the Rate Mate campaign – are false.

New Zealand operates a calling party pays (CPP) regime – the party that makes the call pays for the cost of the call. The examples of countries which have no termination rates (the United States, Singapore, Hong Kong, etc.) operate receiving party pays (RPP) regimes. If you think about it, it becomes very clear why CPP rates are higher than RPP rates.

When I buy a phone, I care about the cost to me of terminating on other networks. But I cannot control that price, because it is charged by other networks. Equally, I care little about the cost of terminating a call on my cellphone – because I don’t pay that – the people that call me pay that. In technical language, under CPP the terminating network has the incentive to exploit subscribers from originating networks due to its monopolistic market power.

RPP has one draw back – sometimes people refuse to answer the phone if they think the conversation will not be worth the price. Equally however, in CPP regimes, some people do not make calls that are worth it from the point of view of the receiving party. Some phone calls which would have net utility are not made under either regime. It is my understanding that regulation required mobile companies to operate CPP regimes. Now we are considering regulation to bring MTRs down (or the threat of regulation, which is forcing the mobile companies to lower rates). The whole regulatory issue of MTRs has arisen by virtue of prior intervention!

This article has a lot more on the interface between calling regimes and regulation.