Economia sociala

25Axiology and Hermeneutics. Some Considerations

TABLE OF CONTENTS3Residual Variable Methods of Interpretation

Professor Constantin ANGHELACHE, Ph.DProfessor Ioan PARTACHI, Ph.D.

Professor Radu Titus MARINESCU, Ph.D.

Senior Lecturer Alexandru MANOLE, Ph.D.

Lecturer Ioana Mihaela POCAN, Ph.D.Digital Business Ecosystem10Ioan SACAL, Ph.D.

Mihnea MOISESCUMihail SACALAEnvironmental Policy Instruments: Taxes and Expenditures19Nicolae TODEAIonela Cornelia STANCIUDoina Maria TILEAStatistical Models Applied in Quantitative Economic Analysis32Senior Lecturer Elena BUGUDUI, Ph.D.

European Financial Markets in the Context of the Financial Crisis35Professor Gabriela ANGHELACHE, Ph.D.

Sanda NAN, Ph.D. StudentDecline and Useless Sufferance of the Population44Professor Constantin ANGHELACHE, Ph.D.Aurel ASMARANDEI, Ph.D. CandidateOvidiu POCAN, Ph.D.

Senior Lecturer Anca Sorina POPESCU CRUCERU, Ph.D.Senior Lecturer Virginia CUCU, Ph.D.Methods and Models of Managing Intangible Assets Macroeconomic50Alexandru IOANCEA, Ph.D. Candidate

Management and Types of Managers57Professor Mircea UDRESCU, Ph.D.

Professor Constantin CODERIE, Ph.D.

Senior lecturer Dan NASTASE, Ph.D.

Investments in Constructions and Production of Services62Professor Gabriela Victoria ANGHELACHE, Ph.D.

Professor Constantin ANGHELACHE, Ph.D.

Professor Ion IARCA, Ph.D.

Adina Elena FETCU (STOICA), Ph.D. StudentEconomia social70Prof.univ.dr. Dan CRUCERUAsist. univ. Alina GHEORGHEMecanisme ale sistemului educaional81Lector univ. drd. Doina Maria TILEATehnici de analiz utilizate n auditul performanei87Conf.univ.dr. Dan OGOEErori manageriale capitale n calea obinerii de rezultate superioare93Prof. univ. dr. Mircea UDRESCUProf. univ. dr. Constatin CODERIEConf. univ. dr. Dan NSTASEStudiu privind motricitatea studenilor din facultatile economice i preferintele lor n ceea ce priveste activitile sportive101Lector univ. drd. Antoanela ILIESCU

Residual Variable Methods of Interpretation

Professor Constantin ANGHELACHE, Ph.D.Academy of Economic Studies, Bucharest

Artifex University of Bucharest

Professor Ioan PARTACHI, Ph.D.Academy of Economic Studies, ChisinauProfessor Radu Titus MARINESCU, Ph.D.Senior Lecturer Alexandru MANOLE, Ph.D.Artifex University of Bucharest

Lecturer Ioana Mihaela POCAN, Ph.D..Academy of Economic Studies, Bucharest

Abstract

This paper presents the authors proposal to use the econometric model toolbox for the interpretation of the residual variable. The article describes the steps that will be passed through during this process. The fist step is the ascertainment of the significant linear dependence between the parameters of a regression model.

Key words: residual, dependency, correlation, measure, variable

The residual variable can be interpreted also through the calculation of the linear correlation quotient.

First, we shall examine if between the variables of the model a significant linear dependence really exists. We consider that we have the sample . The linear correlation quotient emphasizes the presence or the absence of the linear between the two variables of the regression model, the sign of the connection and its intensity.

Generally, to study the characteristics of the linear dependency between the two variables, the co-variance is used.

This measure is rarely used, because if has two major drawbacks: the covariance is not a normalized indicator. Not being included in a certain interval of values, the indicator shall not provide exact information for the characterization of the dependency intensity and depends on the measurement units of the two variables, satisfying the relation

An indicator that is supposed to remove the inconvenient must start from the value domain of the co-variance: .

By dividing the terms of the inequality by , the following inequality results:

.

We will obtain a new indicator that depends on the measure units of the two variables, being also a statistical normalized measure, named linear correlation quotient.

This indicator was introduced in statistics by K. Pearson and is calculated with the relation:

We appreciate the fact that this linear correlation quotient is efficient to measure the intensity of the dependency between variables only if it is linear.

We will express some appreciations regarding the properties of the linear correlation quotient, by establishing the calculation relationships for the estimators of the linear regression model parameters depending on its value. Essentially, we emphasize the following significant relations:

The linear correlation quotient, as a symmetric measure, complies with the equality r(x,y) = r(y,x).

The linear correlation quotient is invariant at the transformation of data and changes of origin and unity of data series.

Considering the data series and , that comply with the relations ui = b + axi and vi = c + dyi , with , then the linear correlation quotients calculated for the two series are equal.

If we consider the properties of dispersion and covariance, it results:

The analysis of the regression model can be made by using the transformations:

and .

The estimator of the quotient of the regression line slope has the formula:

For the reciprocal line, we use the calculation relation: .

After calculation, and r have the same sign and three cases can be observed:

If r > 0, then> 0, the dependency between the two variables is direct;

When r = 0 and = 0, and we do not have linear dependencies between variables (the regression model is a line parallel to ox axis);

When r > 0, the estimator of the regression line slope will have a negative value; the dependency being inverse.

The variables of the linear regression model being linearly independent, then the value of the linear correlation quotient is zero. The reciprocal is not always true, because the null value of the linear correlation quotient calculated for the variables of the model does not automatically implies the independence of the variables.

The variables are independent if the reciprocal regression lines are perpendicular. From this, it results that the two quotients satisfy the equality = 0. Therefore, when the variables are linearly independent, r = 0.

The linear correlation quotient is not a transitive measure.

In the case of two variables, the relationship r2 = 1 is verified if the X and Y variables are functionally correlated too.

To demonstrate this affirmation, we start from the relation , from which we obtain the equality , resulting that the two reciprocal lines are parallel, functionally correlated. The reciprocal of this affirmation is demonstrated if we consider that the two variables are independent. The reciprocal regression lines are parallel and satisfy the relation r2 = 1.

The measure r2 expresses the intensity of the linear dependency between the two variables. We deduce that the value of the linear correlation quotient in reversely proportional to the angle between the two reciprocal regression lines.

If the considered variables X and Y are linearly independent, then the linear correlation quotient and the determination report lead to the equality:

The interpretation of the linear correlation quotient is made through the relation:

.

This property is not reciprocal. When the dependency between variables is linear and if for the measurement of dependency intensity both indicators are calculated, they verify the order relation.

In the situation in which the data series is presented under the form of a table with dual input, , the correlation quotient is calculated with the relationship:

There is a situation when the series of values will have the realization of a normally distributed pair of variables, then r is for each series of values, the realizations of the random series .

If the two variables are linearly independent, = 0, then we obtain:

. (tn-2 is the Student distribution with n-2 degrees of liberty)

The interpretation of the values for the linear correlation quotient obtained for a series of values must take into consideration the following:

The use of the indicator for the measurement of the intensity of the dependency between the two variables will be based on the dimension of the sample, which has to be extended enough.

As a significant measure of the intensity of the dependency, the indicator is calculated only if the points are situated along a line.

The linear correlation quotient is calculated for a sample, and the significance will be appreciated in a probabilistic context. The extreme limits of the interval of values are determined by the sample size and the possibility to guarantee the results.

Then the significance limit is , and we have four dimensions of the sample, we can appreciate that, if the data series is small enough (n = 20), the linear correlation quotient significantly differs from zero if ; by doubling the size of the sample at 40 (n=40), results that ; n = 50, the limit value decreases, resulting; if n = 100, we have the condition.

By decreasing the possibility of warranty for results, at , for that value of the significance limit, the analysis on the four dimensions of the sample leads to the situations: sample of reduced size, n = 20, the conditionis satisfied; when n = 40, ; n = 50, ; the size n = 100, the value decreases, satisfying the relation.

We can appreciate that as the volume of the sample increases over a defined significance limit, the critical value of the linear correlation quotient decreases, if the size of the sample is defined; it grows as the significance limit decreases.

When = 0, the repartition of the variable is difficult to establish. As the value of departs from zero, the dispersion of the variable decreases, and the repartition departs more and more from a symmetrical repartition.

In this case, the values of the variable are:

and

If the data series is sufficient enough (n>25):

By using the linear correlation quotient, we will appreciate that the variables of the linear regression model are linearly independent, only if .

In the case of the bilateral test the null hypothesis is rejected if the equality is satisfied. The unilateral test > 0 leads to the rejection of the null hypothesis if , and for < 0 H1 is accepted, if .

In the case of the linear regression model, represents the residual variable, and ei or measure the difference between the real value yi and the value adjusted through regression model.

To establish an estimation for the two parameters of the regression line, we will determine an estimation for the dispersion of the residual variable, starting form the properties:

- in the series of offsets , the sum of its terms is equal to zero, that is: .

If we take into account the calculation formula for the offset, the one for the free term estimator and the fact that the sum of the offsets for the terms of a series in report to the average is zero, we obtain:

- the dispersion of the residual variable for the classical regression model is estimated through the relation:

.

By taking into consideration the offers that the classical regression model is based on: , , and for all of the indexes i, we calculate ei 2 and by applying the average operator, for each index i results the equality:

Then, we take into account the non-displaced estimator too .

In the linear regression model, the size of the dispersion for the offset series is higher as the series of values for the resultant characteristic is higher, but smaller if the dependency between the two characteristics is stronger.

Between the dispersion of the offset series, of the values of the endogenous characteristic and the linear correlation quotient, the equality: is verified.

We will determine a trust interval for the dispersion of the residual variable if a significance limit is fixed, given by the relationship:

. ( and are values provided by the repartition for n-2 degrees of liberty and a set significance limit).

The graphical representation of the points verifies empirically if the homoscedasticity hypothesis is respected. Two cases may occur: the points define a cloud of points, then the hypothesis is not satisfied; or the points are dispersed as a horizontal line.

Selective bibliography

Anghelache C., Mitru. C, Bugudui, E., Deatcu, C. (2010) Econometrics, Artifex Publishing House, Bucharest, ISBN 978-973-7631-76-3

Anghelache C., Anghelache, G.V. (2010) Equilibrium models for macroeconomic forecasts, Romanian Statistical Review, Issue 9/2010, supplement

Anghelache C., Dinu M., Barbu C.M. (2010) - Estimation of the regression functions transformation, Metalurgia Internaional Vol. XV (2010)

Anghelache C. (2009) - Models and methods used in the analysis of the economic crisis, 57th Conference Statistics past, present and future, ISBN 978-90-73592-29-2, Durban 2009

Colander, David C. (2009) Economists, incentives, judgment, and the European CVAR approach to macroeconometrics, Kiel Institute for the World Economy in Economics: The Open-Access, Open-Assessment E-Journal

Fernandez-Villaverde, J., Rubio-Ramirez, J. (2009) Two Books on the New Macroeconometrics, Taylor and Francis Journals, Econometric Reviews

Johansen, S., Nielsen, M.. (2010) - "Likelihood inference for a fractionally cointegrated vector autoregressive model", CREATES Research Papers 2010-24, School of Economics and Management, University of Aarhus

Digital Business Ecosystem

Ioan SACAL, Ph.D. Artifex University of Bucharest

Mihnea MOISESCU

Mihail SACALA

AbstractInformation, both structured and filtered, is nowadays a commodity, sustaining the knowledge representation and management within the framework of knowledge driven economy, from recession towards sustainability of next generation of Future Internet Enterprise Systems (FInES). The purpose of the present paper is concerning with the fundamental concept of the Systems of Systems (SoS) taking into consideration the Future Internet Enterprise Systems (FInES) paradigm. Furthermore, an analysis of the Systems that compose FInES and their relationships within the Systems of Systems will be carried out.

The case study involves a FInES oriented supply chain management system based on intelligent objects capable of extracting information that generates knowledge within the knowledge management enterprise system. The case study emphasis the relationship between emerging FInES systems within the enterprise SoS.

Key words: Future Internet Enterprise Systems, Digital Business EcoSystem, Knowledge Management

Introduction

The Information, both structured and filtered, is nowadays a commodity, sustaining the knowledge representation and management within the framework of knowledge driven economy, from recession towards sustainability of next generation of Future Internet Enterprise Systems (FInES). During the Lisbon European Council (March, 2000) and the Digital Agenda 2020 (September, 2010), the European Union representatives set the goal of making Europe the worlds most competitive Knowledge based Economy (KbE).

The new models are concerned with exploiting the new business opportunities [e.g. IST-IP-project "COIN" 2007]. They are going to manage the challenges posed by the socio-economic and technical support developed in the XX century. The Framework 6th-IST-project "Virtual Organization road MAP" [Camarinha-Matos 2003] provided also an interesting assessment "Every sustainable enterprise should have beyond 2012 the capability to networking in Virtual Organization within turbulent, global market".

Santucci also stressed that "the concept of Digital Business EcoSystem (DBES) initiative responds ideally to this challenge of creating ICT instruments together with collaborative practices and paradigms that support economic growth and include all the societal and economic actors in the process. It has been commonly recognized as a new frontier for Research and Technology Development (RTD) in the knowledge-based economy. Indeed, Small and Medium Enterprises (SMEs) and local clusters are now competing in a global and dynamic market where they need more interrelations, more specialized resources, more research and innovation as well as access to global value chains and knowledge. The research driven within the DBE Initiative supports all these necessities by offering an open infrastructure that combines knowledge and practices, human capital, technical infrastructure, business and financial conditions, all modeled within the European industrial policy agenda.

Lessons learnt from Intelligent Manufacturing Systems development

Emerging economics, social and political transition and ways of doing business are changing the world dramatically. These trends suggest that the competitive environment for manufacturing enterprises will be significantly different than it has been. To be successful in tomorrows more competitive climate, manufacturing enterprises will require improved technological managerial and logistic capabilities [Nof, 2006], [Panetto, 2009], [Stanescu, 2011]. Globalization, with respect to macro economy criteria, addressing the responsibility, within the e-democracy framework, strongly influenced our Contextual System of Systems during Digital Era [Stanescu, 2007].

In the famous book written by T.S. Kuhn (1970), the postwar phenomenon that one could identified as Scientific Crisis the following phenomenon: the best professional practices persistently prove inadequate for solving intrinsically important (complex) problems it is calling for the definition of new concepts within a comprehensive methodological framework.

In this context we can consider T.S Kuhns following important contributions regarding the progress of knowledge: Science undergoes periodic paradigm shifts instead of progressing in a linear and continuous way. These paradigm shifts open up new approaches to understanding that scientists would never have considered valid before

The new generation of collaborative enterprises (virtual, extended, collaborative networks, learning organizations, a.s.o.) are sustainable if and only if they are able to be networked in few days after capturing a business opportunity.

A Work Flow Management System (WFMS) provides procedural automation of large scale business processes chains by managing the sequences of activities and invoking the Business Process Monitoring and Management System (BPM2).

The main purpose of the paper is to launch a debate about the multi faced approach of interoperability. As specified, the paper will provide as a basis for interoperability in Digital Business Ecosystems -oriented organizations, concepts involving intelligent objects in the context of system of systems oriented management.

By focusing on the subject to discuss in this paper, the Digital Business EcoSystems (DBES) concept represents high potentiality key-concepts of Next Generation of complex adaptive, enterprises. The concept of Digital Business EcoSystem (DBES) initiative responds ideally to this challenge of creating ICT instruments together with collaborative practices and paradigms that support economic growth and include all the societal and economic actors in the process. It has been commonly recognized as a new frontier for RTD in the knowledge-based economy. Indeed, SMEs and local clusters are now competing in a global and dynamic market where they need more interrelations, more specialized resources, more research and innovation as well as access to global value chains and knowledge.

New model for contextual metasystem modeling, analysis and design

Knowledge management and intelligent objects in Internet of Things oriented Systems

In the following chapter we will analyze a FInES supply chain management case study involving intelligent objects in the context of system of systems oriented management.

Knowledge management is recognizing and taking into account two main kind of knowledge co-existing in an organization (Dalkir, 2005): explicit knowledge, which is the only form of knowledge possessed by non-human agents, and which has been codified and structured and tacit knowledge, which is the intangible knowledge that only human agents can have.

Organizational knowledge management approach focuses especially on procedures to transform tacit knowledge into explicit. Consider the following scenario: a new problem is raised, eventually by the strategic level of a manufacturing enterprise. At this level, problem specification is made taking into account very general knowledge, as enterprise purpose, technologies and theories that are available a.s.o. Problem specification is made in terms of initial conditions and final results. The problems solution will be handled and implemented at the operational level which is defined as the level where different stakeholders (individuals, departments), with diverse skills, store and share knowledge.

To solve this problem a Knowledge Management System which binds the two models (internal model and external model,) into a shared, modular knowledge model has been proposed. The central World Model (WM) module stores an internal representation of the world which is operated on by an Integrator agent (dynamically updates the model from the environment) and a Manager agent that acts as a facilitator for interfacing with knowledge requests from the other modules. The Integrator agent is interfaced with the environment with the help of: a Collector which gathers information from the external environment related to the FInERs propagates it up-stream to the Enterprise Systems and a Parser agent that translates external information into standardized knowledge by applying domain specific ontology pre-defined with the knowledge warehouse. The several knowledge pieces provided by the Parser are further processed by the Integrator and combined into a target product specification sheet.

In this case "knowledge module" will refer to a sequence of primitive activities with assigned resources that are necessary to fulfill a given objective. It will be also considered that by an activity is denoted the implementation of knowledge at a lower level of granularity, by a task, the implementation of a primitive action.

It is clear that in an appropriate context, a problem could have several solutions. On the other hand, the state space of possible solutions could explode, imposing the necessity of a control mechanism that will eliminate trajectories which are obviously false. This mechanism is represented by a value judgment block.

Criteria for eliminating unpromising partial solutions could reside in implementation conditions (unavailable infrastructure, for instance), or in more complex and flexible domain-dependent structures, that can improve by learning.

Obviously, a very important problem is the implementation of such a knowledge architecture. Some of the implementation requirements include distribution, capacity of decomposition and aggregation for knowledge modules as well as knowledge hierarchy and classification.

Internet of Future oriented Enterprise Systems will allow for the implementation of such new concepts and technologies aiming at improving enterprise efficiency. The research in the area of intelligent objects capable of unrestricted communication and interoperability with other similar objects as well as with any service within the entire enterprise system is focused on supporting that goal.

In this context the development of methods used to transform common objects involved in the enterprise business processes into intelligent objects is regarded as a highly benefic. The first step for such an approach is to be able to identify the object and to distinguish it from the environment. The recent progress of the RFID technology has boosted the capability of object identification and allowed for the development of new identification technologies as EPC code and ucode as discussed in the previous section. These technologies require that the information suitable for the identification of an object should be accessed from a remote database. With the development of new and more powerful data storage devices we can focus on a different approach: storing the data on the tag attached to the object and accessing that data when ether necessary.

The second step is to integrate such objects with the enterprise systems the information attached to the tag should be not exclusively divided in the following categories: object proprieties, object functionality or in a broader meaning object behavior, description of the planned processes (at task level) which involve the object, and the description of the actual processes as experienced by the object.

The defined process attached to the object is associated with the process models as described in the Process Modeling level of the Enterprise Architecture. This approach will allow for the creation of a map of the processes that the object will be subjected to and for a better integration with the services included in the Enterprise Systems. In such a case any enterprise system or production cell will be able to read the process map and proceed with the object accordingly. An example can be represented by a product that is going to be shipped. The shipping service will be able to read the process map, identify the shipping sub-process and act according to the predefined tasks.

Intelligent objects represented as FInER within the FInES Knowledge Management System

As the predefined processes may differ to the actual processes completed by the object, a record to register the changes can be defined. An example in this area can be identified at the level of an adaptive supply chain. Such a record can provide valuable feedback related to the insight of the sub-processes and tasks. This information can be further processed in order to produce valuable knowledge within the Enterprise Management System.

Internet of Things architecture

In this context a recent study regarding the balance between organizational structure and enterprise efficiency for different kind of enterprises and environments has provided the following conclusions:

- There is an inverted U-shaped relationship between structure and performance, that is asymmetric: too little structure leads to a catastrophic performance decline while too much structure leads to only a gradual decay

- The key dimension of the market dynamism is unpredictability that underlines the tension between too much and too little structure. The range of optimal structures varies inversely with unpredictability: in unpredictable environments, there is only a very narrow range of optimal structures with catastrophic drops on either side that are likely to be difficult to manage.

- Other dimensions of market dynamism (i.e. velocity, complexity, and ambiguity) have their own unique effects on performance. The Intelligent Object Agents are digital representations of the physical object, capable of gathering information about the object and its environment from different sensors, devices, users (local agents) or by accessing the Internet. It can also have the same capabilities as the embedded Intelligent Object Agents acting in cyberspace as a virtual intelligent object.

The second solution is also based on the RFID technology, but in this case the manufacturer needs to encapsulate on the RFID tag itself the information needed to build the agent. In this case we propose to use PML language for proprieties description and XTND-XML (Transition Network Definition Language) language for describing the behaviours of the object as a set of states and possible transitions [Stanescu, Moisescu, Sacala, 2010]. The Agent Creation component does not need Internet access in this case, but it will build the agent as it seems fit, which can result in undesired global behaviour.

Conclusions

The concepts, proposed within the Internet of Things, paradigm are becoming a reality due to the research efforts leading towards the development of new devices and services.

Knowledge management in particular, owing to its evolution that parallels that of manufacturing paradigms, is expected to issue new methods allowing humans to both benefit from - and increase the value of technological advances. A hybrid knowledge structure can be foreseen, where the interaction between human and non-human knowledge stakeholders will became transparent and will allow creation and use of meta-knowledge.

Selective bibliographyCamarinha-Matos, L., Afsarmanesh, H., Novais, P., Analide, C. (2007) Establishing the Foundation of Collaborative Networks, PROVE Virtual Enterprise 2007, Springer Verlag ISBN, 978-0-387-73797-3.

FInES (2009) Internet of Things 2020, A Roadmap to the Future, European Technology Platform on Smart Systems Integration, Available from: http://ec.europa.eu/information _society /policy/rfid/documents /iotprague2009.pdf Internet of Things: an early reality of the Future Internet Accessed: 10-08-2009

Molina, A, Chen, D., Panetto, H., Vernadat, F., Whitman, L. (2005) - Enterprise Integration and Networking: Issues, Trends and Vision, in Knowledge Sharing in the Integrated Enterprise, P. Bernus, M. Fox and J.B.M. Goossenaerts (Editors), Springer / Kluwer, ISBN 0-387- 26608-9, pp. 303 - 313.

Santucci G., (2009) From Internet of Data to Internet of Things, Available from: http://ec.europa.eu/ information _society/ policy/rfid/, accessed 4.1.2010.

Stanescu, A.M., Dumitrache,I., Pouly, M., Caramihai,S.I., Moisescu,M.A (2007) Towards a General Systems Theory approach to design the future of Concurrent Engineering Science, In Loureiro,G.;.; Curran,R.; (eds.) Complex Systems Concurrent Engineering Collaboration Technology Innovation and Sustainability, pp 3-10, Springer Verlag

Stanescu, A.M., Ionescu, L.M., Georgescu, V., Badea, L., Moisescu, M.A., Sacala. I.S. (2010) Toward Digital Business EcoSystem Analysis In Gunasekaran,A.; Sandhu,M. (Eds): Handbook On Business Information Systems, World Scientific Books

Moisescu, M.A., Dumitrache, I., Caramihai, I.S., Stanescu, A.M, Sacala, I.S. (2010) The Future of Knowledge in Manufacturing Systems in the Future Eraof Internet of Things, IFAC- MCPL 2010, 8-10th September, Coimbra, Portugal,Stnescu, A., Karagiannis, D., Moisescu, M.A., Sacal, I.S., Manoiu, V. (2008) - Towards a Holistic Approach for Intelligent Manufacturing Systems Synthesis, IMS'08: Proceedings of the 9th IFAC Workshop on Intelligent Manufacturing Systems, Szczecin, Pologne, October 2008, ISBN: 9781617389924

Alcaraz, C., Najera, P., Lopez, J. and Roman, R.(2010) Wireless Sensor Networks and the Internet of Things: Do we need a complete integration?, In Proc. Of 1st International Workshop on the Security of the Internet of Things(SecIoT 2010), Tokyo, Japan.

Castellani, A.P., Bui, N., Casari, P., Rossi, M., Shelby, Z. and Zorzi, M. (2010) Architecture and Protocols for the Internet of Things: A Case Study, In Proc. Of 1st International Workshop on Web of Things (WoT 2010), pp.678-683, Mannheim, Germany.

Katasonov, A., Kaykova, O., Khriyenko, O., Nikitin, S. and Terziyan, V.(2008) Smart Semantic Middleware for the Internet of Things, In Proc. Of 5th International Conference on Informatics in Control, Automation and Robotics (ICINCO08), pp. 169-178, Funchal, Madeira, Protugal.

Moisescu, M.A., Sacala, I.S., Stanescu, A.M. (2010) Towards the Development of Internet of Things Oriented Intelligent Systems, U.P.B. Scientific Bulletin, Series C, Vol. 72, Issue 4, Romania.

Ramirez, E.H. and Brena, R.F.(2006) Multi-Agent Systems Integration in Enterprise Environments Using Web Services, In Vijayan sugumaran (Ed.), International Journal of Intelligent Information Technologies (IJIIT), Vol. 2, Issue 3, IGI Publishing, pp 72-88.

Environmental Policy Instruments: Taxes and Expenditures

Nicolae TODEA

University 1 Decembrie 1918 Alba Iulia

Ionela Cornelia STANCIU

Doina Maria TILEA

University Valahia Trgovite

Abstract

The purpose of this article is to present certain aspects regarding environmental policy instruments, namely: environmental taxes and expenditure for environmental protection. The paper focused its attention on clarifying the concepts of environmental tax and environmental expenditure, on presenting the different criteria for their classification, on presenting the accounting treatment applicable to environmental expenses, on presenting the environmental charges dynamic by type of expenditure and by type of producer in Romania during the 2006-2009 period and of environmental taxes in the EU between 1999 and 2008. Given the aimed objectives, the scientific approach is based on deduction from general to particular regarding environmental taxes and environmental expenditure and how they are recorded in accounting, combining quantitative with qualitative studies. In this paper, we used research methods such as documentation, analysis, synthesis, comparison, statistical study, being part of the positivist research current. Key words: environmental policy, environmental accounting, environmental taxes, environmental expenditure

Introduction

The current global context that mankind is going through requires new formulas for building a sustainable economy in which restoring economic growth without deepening the environmental crisis is the main challenge. The current crisis should be seen as an opportunity to change the economic model, by switching to an economy with low environmental impact and with an efficient use of natural resources. To respond to these challenges, both the private sector and the government should identify and implement the active or voluntary instruments that guide economic and social activities towards ensuring their sustainability.

For over 20 years, starting with the Conference on Human Environment in Stockholm in 1972, mankind has started to acknowledge that environmental issues are inseparable from issues of welfare and from economic processes in general. Lately, an increasing number of entities are granting growing importance to environmental aspects also, which, in certain circumstances, can have a significant impact over financial statements, being of growing interest for the users of financial statements (investors, creditors, suppliers, clients, public institutions and other authorities, employees, the public).

Considering the intense normalization and standardization process in the area of accounting, it should be known that in terms of environmental management and protection, there are sustained efforts for a common representation of the activities of this kind in order to achieve comparability between methods and to identify the good practices applicable to several areas of activity. Most organizations are more and more concerned to achieve and demonstrate an adequate environmental performance, controlling the impact of their own activities, services and products on the environment, and, to meet the demands, but at lower costs. This growing concern for preventing and controlling pollution, but also for protecting human health, is a logical consequence of tighter legislation, of sustainable economic development, of acknowledging and sensitizing the parties interested in environmental issues and of spreading the concept of sustainable development. In terms of the role and attitude of the accounting profession regarding environmental issues, environmental protection is considered an opportunity for the accounting profession to prove that its facing contemporary problems and it can handle and manoeuvre new opportunities and modern issues. Environmental issues are approached differently from country to country and even within a country, a lack of a unitary ecological vision being necessary when treating them. Adopting an environmental policy would involve various information users, such as: public authorities, creditors, investors, environmental associations, etc. The existence of conflicting interests leads to different attitudes, starting from a tolerant system, governed by the principle that pollution is not a serious phenomenon and there will always be a solution in the future. Lately, environmental aspects have started to be a priority for the management of entities, many of them being affected due to the major deterioration of environmental decommissioning. Also, the financial impact of environmental destruction is far from being negligible, and entities must present information about environmental policies, objectives and implemented programs, about the expenditure in this field. The assessment of actions taken by the entities to protect the environment is an initiative that should be encouraged.

Environmental issues, together with associated costs, revenues and benefits, are a growing concern for citizens and corporate leaders in most countries of the world. As noted, accounting practices dont provide sufficient information to support the decision-making process of managing environmental responsibilities. The main instruments used by the state to direct the actions of entities and consumers in order to ensure and maintain environmental protection are environmental taxes and environmental expenditure, which will be presented below.

Environmental taxes: definition and classification

The environmental fees are those fees which aim at the modifying of the behavior of the enterprises concerning the integration of the destructions cost in the price of the services or the goods which generate the pollution.

The first category of the environmental includes:

a) The taxes on pollution: the main objective of this is to reduce the pollution and to introduce clean productions. To accomplish this objective, it is necessary the accomplishment of some condition as:

- The possibility of measuring the damages produced by pollution;

- The exact establishment of the qualitative parameters of the environment, through standards of environment;

- The establishment of an optimal stimulating level of the tax.

b) Taxes for the usage of a resource: in the resources category enters a definite, classic resource, but also the industrial or domestic offals. This kind of taxes is meant or to discourage the use of a rare resource, non-generative, or to encourage a service in treating the offals to give them an economical use or to neutralize the undesired effects.

c) Taxes on the product: have the main aim the coverage of the necessary expenses removing the possible damages, which the production a the consume of same goods may cause. As they are components of the price of the goods, these taxes may have also negative results: their effect may be reduced, if the products sell very well and enlarge the cashing of the oneness, the aim for which they were established stays collateral. When they were established stays collateral. When different products address to the some need, differentiated taxes apply on the product to encourage the production and the consume of the less polluted.

d) Administrative taxes: are made for the constitution of the necessary funds to the financing an action of management of the environment. These taxes collect at the registering of same firms with polluting activities, at the delivery of same licenses of functioning. It is necessary that the registered incomes from the collecting of these to be used in life of those measures which effectively take to the solving of some environment problems. The disadvantage of these taxes is connected to the lack of possibilities of establishing a direct connection between the contribution of the polluters and the cost involved by the implementation of the environmental programmers. In 2007, environmental taxes in most European countries ranged from 2% to 3% of GDP. In 2007, revenues from environmental taxes in EU-27 were 304 billion and represented about 2.5% of GDP and 6.2% of total taxes and social contributions. In addition to revenues recorded, environmental taxes can also be useful to discourage potentially harmful environmental behavior, providing incentives to reduce environmental pressures in the economy, thus, environmental taxes can help in the implementation of the principle "polluter pays". The level of environmental taxes in the period 1997-2008 is as follows:Environmental tax revenue on European Union (U.E. 27)

Surs: http://epp.eurostat.ec.europa.eu/

Increasing revenues from environmental taxes should be interpreted with caution. The increase may be caused by the introduction of new taxes or an increase in tax rates, but also by an increase of the tax base, i.e. higher emissions or increased use of products with a negative impact on the environment.

Environmental tax revenue in 2008

Surs: http://epp.eurostat.ec.europa.eu/Denmark recorded the highest level of environmental taxes in the EU (5.9% of GDP). In four countries, the Netherlands, Malta, Bulgaria and Cyprus, environmental taxes are recorded at between 3% and 4% of GDP. Only two Member States, Spain and Lithuania, levels of environmental taxes were less than 2% of GDP.Another classification of the environmental taxes is that offered by the Eurostat regulations, which group the environmental taxes in four types:

Energy taxes: these include the taxes on the emergence products used for aims of stationary (for example: coal, fuel oils, natural gas and electricity). At the E.U. level, the taxes on energy in 2007 represented almost 72% of the total environmental taxes;

Transport taxes: include mainly the taxes connected to the holding and usage of the motor vehicles, and represented 24% of the total environmental taxes of E.U. in 2007. This type of environmental taxes was essentially higher in some European countries, as, in Malta, Cyprus, Ireland, Greece and Norway, where their weight was bigger than 40% in the total of taxes;

Pollution taxes: include taxes on extraction of raw materials, on the emissions measured or estimated in air and mater, the produced noise and the administration of the offals. The measure of these taxes were of 4% in 2007, but some countries like Estonia, Slovakia, Holland, Denmark and Norway scored higher percentages than 10% of the total environmental taxes;

Resource taxes: because of the low weight in the total environmental taxes, the taxes on resources were analyses together with the pollution taxes.

The level of the environmental taxes registered at the level of the European Union presents this way:

Environmental taxes by countries and by type of tax, 2007- million euros-

CountriesEnergy taxesTransportTaxesTaxes onPollution/ resourcesTotalEnvironmentalTaxes

E.U 219.244,1471.884,8713.139,32304.268,33

Belgium4468,802.024,90498,906.992,60

Bulgaria881,0787,6624,94993,66

Czech Republic2.939,03212,7133,423.185,16

Denmark 4.872,255.023,923.419,6213.315,79

Germany45.2758.9102054.205

Estonia289,908,8354,45353,19

Ireland2.305,602.367,894,934.678,42

Greece2.7391.88804.627

Spain14.6394.28719819.124

France27.86211.0872.03540.984

Italy31.715,707.86049140.066,70

Cyprus280,36254,850535,21

Latvia361,8359,9215,46437,21

Lithuania459,3529,8718,34507,56

Luxembourg887,82660953,82

Hungary2.008,98647,03141,812.797,81

Malta97,5891,3216,44205,34

Netherlands10.2677.7433.68821.698

Austria4.453,192.086,5881,966.621,73

Poland7.403,60739,752088.351,35

Portugal3.330,401.453,361,654.785,40

Romania2.110,01432,3122,432.564,75

Slovenia807,38169,3661,691.038,43

Slovakia1.004,23110,4447,171.161,84

Finland2.9611.8471264.934

Sweden7.317,871.414,801248.856,66

United Kingdom37.506,211.0981,381.806,1250.293,71

Norway3.716,833.988,52798,488.503,84

Source: http://epp.eurostat.ec.europa.eu/Systematizing the presence, the situation of environmental taxes at EU level is as follows:

Environmental taxes in E.U. 2007

Environmental taxesMillion euro% of total environmental

Taxes% of GDP% of total revenues

From total taxes and social contributions

Energy taxes219.244,14721,774,46

Transport taxes71.884,87240,581,46

Pollution/Resource taxes13.139,3340,110,27

Total environmental taxes304.268,331002,466,19

Source: http://epp.eurostat.ec.europa.eu/

It can be noticed that in 2007, the environmental taxes in E.U. were 304 billions of euro and represented almost 2,5% of GDP and 6,2% of the total of the taxes and of the social contributions. Denmark registered the highest level of environmental taxes in E.U. (5,9% of GDP). In four countries, Netherlands, Malta, Bulgaria and Cyprus, the environmental taxes registered values between 3% and 4% of GDP. Only in two countries, Spain and Lithuania, the registered levels of the environmental taxes were under 2% of GDP.

Reflecting environmental expenditure in financial accounting

No matter what their activity is, entities must be within the general rules of an open democratic society; one of the most important rules of democracy is transparency. Transparency requires activity "in daylight" or "sight". From this point of view, the entities cannot hide behind secrecy, at least some of their aspects. They are forced to provide information about aspects of their activities in order to allow control of the company on these issues. From the aspects of the entities activities are detaching the aspects related to the economical and financial activity. Such aspects concern how to obtain funding necessary to conduct normal business conditions, the use of these funds, their efficiency, entities providing such information to various categories of users, including public, the result of the existence and operation of an economically information system. The idea is drawn from the international accounting standards, namely IFRS (2007) which show that "the objective of financial statements is to provide information about the financial position, financial performance and changes of the financial position of an entity; this information is useful to a broader sphere of users in making economic decisions".

An important aspect of environmental accounting refers to the recognition of the environmental costs. Obviously this requires defining environmental costs. Such a definition is found in international and European accounting rules. According to the IASB and the FASB, environmental costs are determined environmental costs, which resulted in a benefit that has expired and which is detailed along with income in the income statement.

Recommendation of CE, 453/2001, defines environmental costs as "those costs to prevent, reduce or recover damages that the entity has caused or is likely to cause on the environment as a result of its activities. These include prevention, elimination or reduction of waste and wastewater, air emissions, treatment of contaminated soil, groundwater, noise and vibration levels, the landscape changes, research and innovation of products and cleaner production processes, control of environmental quality".

Canadian Institute of Chartered Accountants (CICA, 1998) present environmental costs as environmental costs which generate, directly or indirectly benefits of the current period, the period in which they occur, providing a series of details in this regard. Thus we have:

Costs generating direct benefits of the current period: expenditure on waste treatment and monitoring, recovery or cleanup costs associated with current business of the entity;

Indirect costs which generates the current period's benefits: the costs of administrative activities, compliance, evaluation and environmental audit, courses and seminars related to staff training on environmental protection;

Costs regarded as losses for the period: costs that do not generate future economic benefits that cannot be capitalized (costs related to research performed to design cleaner products and processes, costs of participation in recycling programs), costs related to activities undertaken but that generated a benefit that expired (cost recovery and cleaning of polluted land), costs that have not generated any benefit (fines, penalties, failure to comply with environmental regulations and legislation).As shown in the list above, we can see that the costs of penalties and fines for failure to comply with environmental legislation are not included in the environmental category. In our opinion they should be part of the environmental costs, at least in terms of the sanctioned entity.The National Institute of Statistics, at the macroeconomic level, reflect environmental costs of financing environmental flows and include payments for economic activities aimed at production of specific services to prevent, reduce or control environmental damage. They are grouped into: investment and running costs which in turn include internal current expenditure (salaries and social security contributions, consumption of raw materials, fuel, energy, water and other auxiliary materials, expenses for research and development, training, information) and current external costs (costs of environmental protection services purchased from third parties and environmental taxes paid). According to the sources, expenditure in this category in 2006-2009 in Romania is as follows:

In 2009, the expenditure on environmental protection at national level was approximately 12.2 billion lei, representing 2.4% of GDP compared with 2.8% in 2008, 2.7% in 2007 and 2.3% in 2006. Based on these data, we can see that a significant share of total expenditure on environmental protection spent by producers is represented by the charges incurred by specialized producers (64% in 2009, 65% in 2008, 72% in 2007 and 68% in 2006), to the detriment of charges incurred by non-specialized producers (36% in 2009, 35% in 2008, 28% in 2007 and 32% in 2006). In 2008, compared with 2007, the share of expenses incurred by specialized producers for environmental protection increased in absolute size by 1.288.880 thousand lei and in relative size by 18%, followed in 2009 (compared with 2008) by a drop of 1.377.080 thousand lei in absolute size and 17% in relative size. By analyzing the other considered component, namely the environmental protection expenditure incurred by non-specialized producers, we can see that these charges recorded a significant growth in 2008. Thus, in 2008, compared to 2007, they increased by 1.773.103 thousand lei in absolute size and by 65% in relative size, followed in 2009 (compared to 2008) by a drop of 586.927 thousand lei in absolute size or 13% in relative size. The explanation of this evolution lies in Romanias accession to the European Union and in the necessity of economic agents to comply with the environmental requirements imposed by the community acquits.

Expenditure for environmental protection sectors and categories expenditure, 2006-2009

- Thousand, %- 2006200720082009

Nominal

values%Nominal

values%Nominal

values%Nominal

values%

Specialized

producers (total)

from which:5.297.3046870.393.54728.328.234656.951.15464

- investments793.154101.048.084111.716.516131.046.72010

- internal current

expenses4.101.018535.487.074565.637.738445.070.25347

- external current

expenses403.1325504.1965973.9808834.1818

Unspecialized

producers (total)

from which:2.460.918322.743.422284.516.525353.929.59836

- investments1.125.384151.329.980141.550.499121.773.14016

- internal current

expenses961.41612913.84792.153.762171.324.52412

- external current

expenses374.1185499.5955812.2646831.9348

Total environment

protection

expenses7.758.2221009.782.77610012.844.75910010.880.752100

Source: www.insse.roThe result of these expenses is mainly materialized in endowing enterprises with equipments, machinery and facilities for environmental protection: equipments for capturing dust (the cement industry), equipments for capturing, neutralizing and exploiting gases, equipments for water protection and treatment, equipments for waste collection and treatment. By executing some works as auxiliary or secondary activities, in addition to their main activity, some non-specialized producers ensure the rising of quality parameters for their own activity, but also contribute to the improvement of environmental factors. Among these are included: works to prevent flooding and to remove the effects of floods, land protection, fighting erosions and sliding banks.

The accounting treatment of environmental expenditure and their reporting The accounting treatment of environmental charges is influenced by the tax laws in force. The Fiscal Code of Romania treats expenditure for environmental protection and resource preservation as deductible expenses. Therefore, entities will multiply pollution prevention activities in case the costs generated by these activities are deductible. Some expenses, such as fines for violating environmental regulations or certain remediation costs are not tax deductible. Entities will try to reduce non-deductible tax expenses, such as fines and penalties, and will increase the number of environmental protection activities, which makes tax treatment an important tool in changing the entitys attitude towards the environment.

Regardless of the environmental charges level, there is no accounting standard that stipulates their separate recognitions and evaluation within financial statements and the reporting of environmental expenditure is viewed differently. Thus, EUs Accounting Advisory Forum recommends the reporting of environmental expenditure through the profit and loss account. Another recommendation that comes from the European Commission is Recommendation 453/2001, which stipulates that environmental charges are reported through explanatory notes to the financial statements, through the value recorded in the profit and loss account and through the computation method of these values.

The involvement of Romanian accounting in environmental protection activities is stronger with the entry into force on January 1st 2010 of Order 3055/2009 for the approval of Accounting Regulations in accordance with European Directives, which also includes issues concerning the environment, as follows:

- introducing a new account, namely account 652 Environmental protection expenditure. This account helps to keep track of environmental protection expenditure recorded in the related period, such as: paid environmental taxes, acquired certificates for greenhouse gas emissions;

- the off balance sheet recording of received greenhouse gas emissions certificates, which dont have a value and, therefore, cant be recognized in balance sheet accounts account 806 Greenhouse gas emissions certificates.

In our opinion, only the introduction of these two accounts is not sufficient because they cant reflect expenditure on distinct elements, such as materials, wages, contributions, environmental protection machineries.

Conclusions

Without claiming to exhaust the approached topic, the fundamental objective of this paper was to underline the essential aspects regarding environmental taxes and environmental charges and their evolution over time. From the above, we can see that the recognition and separate presentation of fines and environmental taxes represent an indication that the entity doesnt give importance to the implementation of environmental regulations. An appropriate accounting treatment of environmental expenditure is in the benefit of investors due to the simple differentiation of environmental expenses from other types of expenditure.

At the level of the European Union, in order to implement environmental policies, one has to resort to financial instruments such as environmental taxes. We presented the level of environmental taxes in the European Union, as well as categories of this type of taxes: energy tax, which recorded a value of 219.244,14 million euro in 2007, transport tax in the amount of 71.884,87 million euro, as well as pollution tax in the amount of 13.139,33 lei. In 2007, the total value of environmental taxes was 304.268 million euro, representing 2% of GDP. In addition to the recorded revenues, environmental taxes can also be useful for:

discouraging the potentially harmful behaviour for the environment

providing incentives to reduce the economic pressure put on the environment

forcing the enterprise to develop new production and depollution techniques that will allow them to avoid paying the tax.

As we can see from the information presented above, the inclusion of environmental aspects within financial statements is important for most categories of users of financial and accounting information: investors, banks (to determine financial profitability and the incidence of environmental risks over financial statements), shareholders, public authorities (to determine the economic impact of environmental protection actions) and therefore its necessary for the accounting profession to get involved in the environmental issues that may emerge at the level of the entity. We must act in a way so that the entire activity will unfold in complete harmony with the environment, ensuring sustainable development, and this effort should include all the forces on humanity, including financial accounting disciplines.

Selective bibliographyAnghelache, C. (2008) Environment and protection programs in Romania, Romanian Statistical Review. no.1Beianu, L. (2008) Total quality of the environment accounting, Alexandru Ioan Cuza University Publishing House, Iai

Canadian Institute of Chartered Accountants (1998) - Examination of national standards and regulations for environmental financial accounting, International Financial Reporting Standards (2009), CECCAR PublishingIuga, I. (2011) - Environmental Taxes In The European Countries. Comparative Analysis Regarding Environmental Taxes and Environmental Expenses In E.U Member States, Books of abstracts International U.A.B. B.En. A Conference, Alba IuliaPohoa, I. (2003) Economic philosophy and policy of sustainable development, Economic Publishing House, Bucureti

Todea, N. (2009) Theory accounting and financial reporting, Aeternitas Publishing House, Alba IuliaVoineagu, V., Mndricelu, C-tin., tefnescu, D. (2010) - Beyond GDP - through accounting environment, Romanian Statistical Review, no. 6, available at: http://www.revistadestatistica.ro, accessed in May 20, 2011Law no. 571/2003 regarding the Fiscal Code Art.21 alin.2 letter l, with subsequent amendments including those in Law no. 188/14.10.2010, Published in the Official Gazette of Romania no. 699/20.10.2010Order 3055/2009 for the approval of Accounting Regulations in accordance with European Directives, published in Official Gazette no. 766/10.11.2009http://epp.eurostat.ec.europa.eu/, accessed May 12, 2011www.insse.ro, accessed May 30, 2011Statistical Models Applied in Quantitative Economic Analysis

Senior Lecturer Elena BUGUDUI, Ph.D.Artifex University of Bucharest

Abstract

The economic phenomena, most often, develop onto nonlinear paths. Often, the simplicity of the linear model leads us to use of it in statistical applications, although a linear evolution is more appropriate. There are models none linear for variables but linear in report with the parameters that are to be estimated, but models that cannot be approached through Least Squares. An example of linearization of an economical phenomenon with non-linear evolution is the Cobb-Douglas function

Key words: regression, parameters estimation, economic variables, econometric model, nonlinear function

Many times, the dependencies between two economic variables are not defined directly through linear function, but through nonlinear functions. From them, if possible, to estimate parameters, it use a series of elementary changes that can lead to a linear model.

To estimate parameters is made to one of the following methods:

I. Is estimated the parameters by the method of least squares. The example in this case is the method used to estimate the hyperbolic model parameters.

II. By different transformations, the nonlinear function is linearized and then, the parameters are estimated by the method of least squares. The example is the semi-logarithmic model or logarithmic model.

III. Determination of parameters by numerical methods. For example, is the case of the logistic model.

A model used in economics is Multiplicative Model.

Multiplicative model defined by exogenous variables X1, X2,, Xk, is represented by:

[1]

Where it is a residual variable that has a normal distribution of zero mean zero and variance.

Multiplicative model [1] is linearized by logarithmic manner:

The best known model is represented by the Cobb-Douglas function:

.

[2]

where, production

Kt fixed capitalLt human capitalWhen the production function incorporates technical progress, then this is defined by the relation:

.

Those two parameters provide important information on the characteristics of the production process. So, those two parameters are partial elasticity in relation to each factor of production process:

i) is the partial elasticity in relation to fixed capital

ii) is the partial elasticity of production in relation to human capital

iii) sum is the elasticity of scale.

To estimate the model parameters [2] is used one of the following strategies:

The nonlinear function is linearized [2] by logarithmic manner. From this transformation is obtained the triple logarithmic model

[4]

Those three parameters of regression model [4] will be estimated using the method of least squares.

It will use the representation of Cobb - Douglas production function [2] by a trans-log function:

.

[5]

In fact [5] Taylor series function [4] is in the point (1,1). As an example, to compare the two methods we estimate the parameters of Cobb - Douglas function that data in the table below are known for the three variables, taking into account a number of 25 companies.

For the two methods were obtained the following results:

EMBED Equation.3

The value of statistics F = 22.19 sows that the model adjusts well enough range of values for endogenous variable. Note that production function is decreasing scale yield.

Where it is included the technical progress, after the estimation of the parameters by (MCMMP) was obtained the following model:

Following the estimations obtained for the parameters corresponding for exogenous variables is noted that the production function is decreasing scale yield (). So, the economy composed by the 25 companies is inefficient. Moreover, the increase of these two factors by one unit lead to an increase by 0.5 units of the production.

Selective bibliography

Anghel M. G., Deatcu C. (2009) - Statistical and econometrical models used in the analysis the portfolios, Metalurgia international, vol XIV, ISSN 1582-2214.

Andrei T., Bourbonnais R.. (2008) Econometrics, Economica Publishing House, Bucharest.

Anghelache C. (2008) - Interconnections between the external balance indicators and the macroeconomic outcomes aggregates, Metalurgia International Issue 2/2008 Special Issue, ISSN 1582-2214, pp. 168-171, Category A (ISI)

Anghelache C. (2009) - Statistical possibilities for the analysis of migration, Metalurgia International Vol. XIV (2009), 14th Special Issue, F.M.R. Scientific, quoted in the international databases SCOPUS, EBSCO, THOMSON SCIENTIFIC MASTER JOURNAL LIST, Sci Search, pp. 155-156, ISSN 1582-2214, category ISI.

European Financial Markets in the Context of the Financial Crisis

Professor Gabriela ANGHELACHE, Ph.D.Academy of Economic Studies, Bucharest

Sanda NAN, Ph.D. StudentLucian Blaga University, Sibiu

Abstract

Three models of financial supervision are practiced in Europe: a three pillar model - banking, insurance and securities, a two pillar model - prudential v. conduct of business and an integrated model - all types of supervision under one roof. Given the financial crisis situation, the European Union has supported the necessity of developing measures for stabilizing, supervising and strengthening the financial sector.

Key words: supervision approach, Level 3 Committees, European Securities and Markets Authority, macro-prudential supervision, micro-prudential supervisionObjectives of the surveillance in the context of the financial crisis

Regulation of financial markets in the European Union member states starts from the intention to assure a unique market in the area of financial services, a market that would function according to joint and unitary rules. In this context, it is important that the market would function in compliance with certain objectives and requirements and with the mode in which these requirements will affect the operation manner of the financial markets.The regulations start with the premise that the effective and transparent financial markets contribute to the formation of a unitary European market. A single community market will be the guarantor of economic growth, will sustain the creation of new work places, a better allocation of capital and a reduction of operational costs for the financial markets. The purpose of the unique market is to assure the presentation of the information on companies in a correct, complete and timely manner, with direct result on the increase of the investors trust in the improvement of financial assets and business performances evaluation. All these will be concretized in better protection of the investors and in the increase of the financial markets efficiency.

New objectives in the regulation and surveillance of financial instruments markets:

Assurance of the trust of the investors present on the financial instruments markets through the promotion of high standards of quality regarding the transparency of information and the assurance of an equivalent level of transparency in all the European financial markets;

Offering various and competitive possibilities of placement for investors, and also a level of information presentation and an adequate protection of their requirements;

Reduction of operational costs on the financial instruments markets and the increase of access to capital. The cost of access to capital for the investors should be acceptable, without leading to supplementary requirements of reporting for issuers. The issuers should benefit form the free competition of the media operators and suppliers of information in choosing the information channels;

Assurance of investors access to information about issuers in an organized form, at the level of the European Community, to promote the integrity of the capital markets. Investors from all member states din should have equal access to information. This could be assured only if the member states assure the compliance with a set of minimum standards of quality regarding the transmission of information in the European Community, in a quick an non-discriminating manner, based on the content information;

Avoiding the information management errors, that can generate imbalances and can affect transparency, even to opacity. These situations can jeopardize the operation of financial markets, and can, at the same time, affect the usual consumers and the small investors.

As regards the investors, the financial crisis emphasized major deficiencies of the corporate governance in the financial institutions: the activity of surveillance and control performed by the management board on the leadership presented vulnerabilities, the risk management was weak, the inadequate payment structures for directors and trades resulted in assuming excessive risks on short term, and the shareholders of the financial institution did not have any control on the risks assumed by the institution. The identification of these problems determined the European Commission to initiate a public debate in order to increase the efficiency of the corporate governance in the financial institution, which details possibilities of approaching the following matters:

Establishing rules regarding the competence of the management boards of the financial institutions and their modality of operation in order to improve the surveillance of the personnel inside the superior leadership;

Establishment a risk culture at all the levels of a financial institution, to warrant the long-term support of the institutional interests;

Increase of the involvement of shareholders, financial surveyors and external auditors in the matters regarding the corporate governance;

Modification of payment policies in companies in order to discourage the assumption of excessive risks.

The effects of these deficiencies were visible in the context of the crisis, but performing periodic controls on the governance systems could contribute in the future to the prevention of crisis.

Approaches in the surveillance of financial markets

The financial turbulences manifested in the last years have tested the regulations and surveillance authorities abilities to effectively respond to the effects of the financial crisis. For some countries it was more and more evident the need to revise and reformulate the structures that regulate and survey the financial sector. The challenges presumed by the more efficient surveillance of the financial sector have determined the shape, in time, of different approaches.

The institutional approach is the approach through which the judicial statute of the entity (for example: credit institution, investment firm or insurance company) determines which authorities have attributions in the surveillance of the activities, both from the perspective of security and solidity of the entity, and of the conduct rules.

The functional approach is the one through which the surveillance is determined by the services offered by the entity without taking into account its judicial status. In this type of approach, each service provided has its functional regulator.

The integrated approach is the approach through which a single authority surveys both the security and solidity of the entity and the regulation of the conduct rules for all sectors regarding the financial services.

The twin peaks approach is characterized by a separation of the regulation and surveillance functions between two entities, one of which has attribution to survey the security and solidity of the entities and one whose attributions are the regulation and the survey of the conduct rules.

In the last years, finding an adequate formula for the regulation and surveillance of financial activity generated a considerable interest across Europe.

The Level 3 committees for the financial sectors

The European Commission has brought into the attention of the EU member states the analysis of the European financial surveillance system and, subsequently, has proposed a new architecture for the surveillance of the financial markets. It has been ascertained that the various surveillance-related national mandates make this aspect hard to unitary treatment, and the cooperation between authorities, including the exchange of information, proved to be ineffective.

The main objectives that have determined the existence of the Level 3 Committees (CESR, CEBS and CEIOPS) created in the context of the Lamfalussy process were:

Improvement of the coordination between national regulators and surveyors;

Assurance of consistent, correct and timely implementation of the community law in the member states of the European Union.

At European level there are two committees functioning for each of the financial sectors: the Regulatory Committee and the Committee of Supervisors. The Regulatory Committees are: for the securities markets the European Securities Committee (ESC), for the banking sector - European Banking Committee (EBC) and for the insurance and pensions sector - European Insurance & Occupational Pensions Committee (EIOPC). The surveillance committees are: for the securities sector - Committee of European Securities Regulators (CESR), for the banking sector - Committee of European Banking Supervisors (CEBS) and for the insurance and pensions sector - Committee of European Insurance & Occupational Pensions Supervisors (CEIOPS).

CESR, established in 2001, is the oldest level 3 committee. Its attributions cover the securities market and the administration of investments. The members of CESR are the presidents of the national competent authorities with a member for each state member of the European Union, Norway and Iceland.

CEBS, established in 2003, covers the banking sector. It is constituted of the high-level representatives of the banking surveillance authorities and of the central bans in the member states of the European Union, Norway and Iceland.

CEIOPS, established in 2003, covers the insurance and pensions sector. It is constituted of the high-level representatives of insurance surveillance authorities and occupational pensions in the member states of the European Union, Norway and Iceland.

The three Level 3 Committees develop an intense activity, but their competencies are limited, which explains the lack of the effective contribution in the management of the financial crisis too. For example, the three committees could not take joint decisions in the problem of monetary funds or the problem of selling operations in absentia.

The new surveillance architecture at the European level

The European Commission sustained the need for the development of measures destined to stability, surveillance and consolidation of the transparency of the financial sector.

The measures taken for the recovery of the capital markets following the impact of the financial crisis, such as: the temporary suspension of sales in absentia non-covered, monitor of the impact of recent events from the market on the investment funds, protection of investors, monitor of the application of accounting standard and function of the post-transaction infrastructures to assure the finalization of the transactions during the period of financial instability were completed by the proposals to modify the legal framework at European level. An initial action taken by the European Commission since October 2008 was to designate a workgroup formed of eight high individuals at European level, led by Jacques de Larosire, whose objective consisted in the ellaboration of a set of proposals for the reinforcement of surveillance arrangements within all financial sectors, with the scope of establishing a more effective, integrated and sustainable European surveillance system.

The surveillance problems outlined by the Larosire Report proven to be: the lack of an adequate macro-prudential surveillance, the existence of ineffective prevention mechanisms, the lack of cooperation between the surveillance authorities, the absence of the consistent surveillance powers in the member countries, the lack of procedures for effective enforcement of the surveillance authorities decisions.

The proposals for modification of the surveillance architecture at European level assume:

The surveillance attributions at macro-prudential level to be given to ECB;

The creation of a new committee, named European Systemic Risk Board (ESRB) to review the macro-economic conditions and the prudential requirements;

The creation of a new system: the European System of Financial Supervisors (ESFS) formed of national surveillance authorities that continue to be responsible of the surveillance at the micro-prudential level (current surveillance);

The replacement of the Level 3 Committees with three new European authorities that are to coordinate the application of the surveillance standards at European level.

As it can be seen from the schema presented below, the new surveillance architecture at European level is structured in respect to the attributions regarding the surveillance at macro-prudential and micro-prudential levels.

The legal package regarding the new surveillance was elaborated by the European Commission on the base of the Larosire Report, included in the European Commission communicate, published in May 27th, 2009. It was forwarded to the European Parliament, in the co-decision process, by the EU Council, and includes three proposals for regulations regarding the European System for Financial Surveyors (ESFS) that aims the establishment and function of the new European authorities: for the banking activity - European Banking Authority (EBA), for securities and markets - European Securities & Markets Authority (ESMA) and for insurance and private pensions - European Insurance & Occupational Pensions Authority (EIOPA).

The new surveillance architecture envisions the creation of an European System for Financial Surveyors, with attributions in micro-prudential surveillance, constituted of a network of national surveillance authorities in close cooperation with the new European surveillance authorities: EBA, ESMA and EIOPA.

For the three authorities, a series of objectives was proposed, such as:

Takeover of the Level 3 Committee attributes, that function at community level;

Elaboration of technical standards, mandatory for the national surveillance authorities, and monitoring their unitary implementation at community level;

Assurance of mediation between the national authorities and issue of mandatory decisions for solving the conflicts between them;

Monitor of the compliance with the community legislative provisions by the surveillance authorities at community level and the financial institutions;

Surveillance of some pan-European entities (for example: the rating agencies);

Collection of information with micro-prudential character;

Coordination in emergency situations.

All the efforts were taken, so that EBA, ESMA and EIOPA will become operational from January 1st 2011. During this period, the national authorities finish the establishment of measures that will assure the proper cooperation with the corresponding authorities at community level and with the other authorities at the level of the EU member states.

ESMA will have a statute of authority that will be established and will function on the basis of a regulation of the European Union whose provisions are mandatory for all member states. According to the regulations, the activity of the authority is coordinated by a surveillance board and a management board. The surveillance board of ESMA is formed of: the President of ESMA (without right to vote), managers of competent authorities form each member state of EU, a representative form the Commission (without right to vote), a representative of the European Council against risk CERS (without right to vote), and a representative for each one of the European surveillance activities EBA and EIOPA (without right to vote). The members of the ESMA surveillance board meet personally at least twice a year. The mandate of the members is two years and a half.

The management board is formed of the president of ESMA and other six members of the surveillance board with the right to vote. The management board meets at least five times a year and the mandates are attributed by rotation. The chief executive officer of ESMA and a representative of the commission participate, without right to vote, at the sessions of the management board. ESMA is financing from the mandatory contributions of the national competent authorities (60%), a subvention on behalf of the European Union provisioned in the general budget of EU (40%), other tariffs paid in cased described in the law (it is appreciated that these sums will not be significant). There is a budget projection for the first five years of functioning. The amount of contributions for the competent authorities is established according to the percentage of vote included in a Protocol which is annex to the Treaty of the European Union.

Recently, the European Commission has decided to confer to ESMA the exclusive competency in surveying the rating agencies registered in the European Union and the European subsidiaries of the agencies from non-member states.

Conclusions

In an European plan, the financial crisis determined the start of an intense process of reformation for the central institution and reorganization of the financial markets in the conditions of reestablishment of the new principles meant to assure a prudential business environment but to ensure the development of competition in the sector of integrated financial services. So, the European Commission took a series of decisions regarding the surveillance of the financial markets, passing to an approach based on two surveillance system, one of which would perform the surveillance at macro-prudential level and the second at micro-prudential level.

Selective bibliography

Eddy Wymeersch (2006) "The Structure of Financial Supervision in Europe. About single, twin peaks and multiple financial supervisors", Working Paper, Ghent University - Financial Law Institute, Belgium

Eddy Wymeersch (2005) "The Futures of Regulation and Supervision in Europe", Working Paper, Ghent University - Financial Law Institute, Belgium

International Centre for Financial Regulation (2009) "The proposed EU, US and International Supervisory Architecture", The High-level Group on Financial Supervision in the EU chaired by Jacques de Larosire, Report, Brussels, 2009Decline and Useless Sufferance of the Population

Professor Constantin ANGHELACHE, Ph.D.Aurel ASMARANDEI, Ph.D. CandidateAcademy of Economic Studies, Bucharest

Ovidiu POCAN, Ph.D.BancPost SpecialistSenior lecturer Anca Sorina POPESCU CRUCERU, Ph.D.Senior lecturer Virginia CUCU, Ph.D. Artifex University of BucharestAbstract

After 1990 it has been hoped that the Romanian economy will achieve in little time the specific characteristics of the capitalist economies in the Western European countries. This did not happened even after twenty years of, many times useless, sacrifice of the population.

Key words: decline, suffering, transition, economy, inheritance, reserve

The main characteristic of the Romanian economy, as it was inherited in 1990, was that of over-centralization (planning, command and control). The Romanian economy manifested during the period 1950-1990 an extensive evolution, being over-dimensioned, energy-intensive and in many segments had relatively weak technical and technological endowment. Until 1990 our economy had a structure predominantly based on the market of raw materials and selling market of CAER and mainly that of the former USSR respectively.

Despite the fact that extremely great efforts were made, the allocation for development accounting for more than a third of the national income, there was a continuous decrease of the percentage of the national income in the social product, meaning that each unit of national income was obtained with higher and higher expenses. At December, 31st 1989 the currency reserves of Romania were of 1,8 billions of USD and the monetary resources raised well above 900 billions of lei. So it can be said that there was a good premise for launching the Romanian economy in a transition process towards modern market capitalist economy. The way of evolution of the Romanian economy after 1990 was exactly the contrary of what the society expected.

More serious, an objective analyses of the tendencies that manifest today in the Romanian economy proves that the way it is engaged ad lead on does not go towards the "civilized Europe of the development" but towards the "third world of underdevelopment and poverty".

We are inside the most profound and serious economic crisis that Romania known since the crisis of 19291933.

The end of this year records that the downfall of the industrial production cannot been stopped, this representing a new decrease of more than 8% against the previous year.The Gross Internal Product permanently diminishes ad this trend deepens.

In agriculture, there is a system crisis, of resources and means, the indicators regarding the cultivated surfaces, the production of cereals, as well as the effectives of animals reaching one of the lowest values in the last ten years.

In the sector of small and medium enterprises, that should represent the "backbone" of any modern economy, it can be observed a significant process of involution: more than 30% of the SMEs are in state of bankruptcy and 85% of the remaining ones have dramatically reduced their activity. The incomes at the state budget originating from the SME sector decreased in the last two years with more than 55% and the investments in this sector diminished with 60%. At the end of the previous year, a negative record of unemployment was ascertained, the number of unemployed persons going over 1,6 millions, affecting approximately 11% of the active population of the country.

The unemployment ratio of young people with ages between 15-24 years is 2-3 times greater that the average unemployment ratio.

The foreign investments in Romania, as an expression of the lack of confidence in the foreign capital and of the unfavorable economic environment reached at the end of 1999 the value of 200 millions of USD, representing only 70% of the foreign investments made in Romania in 1998 and only 30% of the foreign investments in Romania at the level of 1990. The year 1999 is the weakest after 1990 from the point of view of the foreign investments. Romania still experiences an excessive inflation, in report with the evolutions in foreign countries where this process was tempered in the last years. In spite of the excessive optimistic forecasts, expressed with high superficiality in the beginning of 1999, when the rate of inflation was forecasted for 25%, it had been reached, at the end of previous year, following successive waves of price rises, an inflation of around 50%.

Serious is also the fact that a high rate of inflation determines a high level of interests, level that in 1999, did not go in average, below 60 65%, that cannot, in no situation, an effective process of economic revival.

The suffocating fiscal regime, the fragility of the banking system, the precarious capital markets, the legal instability and the toleration of the corruption also were other reasons that permanently deepened the economic crisis. The counter-performances recorded by the Romanian economy in the last ten years put an impact on the living standard of the population. After 1990 the living standard of the population had a continuous decrease, so during the 1996 1999 period it suffered a real downfall. In 1999 the average salary per economy and the pensions decreased in real terms with more than 20% against 1996.

The prices rise with almost 100% in 1997, with 50% in 1998 and two-thirds of the country population lives under the limit of poverty at the end of 1999.

Since three consecutive years the consumption of the population decreases dramatically, following the diminishing of incomes. The level of consumption of food, non-food goods and services recorded at the end of the last year a decrease by 25% against 1996 and by 50% against 1990.

The economic decline, the inflation and the fall of the general living standard have determined the expansion and aggravation of poverty. The number of paupers reached almost 7 millions of people, of which almost 1,5 millions are retired.

Maybe a most serious and alarming problem is represented by the demographic decline, as a natural consequence of the economic decline.And possibly the gravest fact is that the commercial balance is seriously deteriorating, while the degree of foreign debt rises, going currently over 9 billions of USD. The public external debt represents more than 5,6% of the GIP. In the same time, the analyses show us that the budget deficit rises exponentially following the interests engaged by the public debt. The sums that have been paid from the budget with this pu