A case for water utilities as cooperatives and the UK experience

This article explores the creation of consumer cooperatives as a means of privatizing water utilities. The first section examines the structure of ownership and sets out Hansmann's theoretical basis for determining which category of persons is most efficiently assigned ownership. The section extends the discussion of market contracting costs by considering the externalities and social costs associated with a water utility. The heart of the paper is the second section which applies the theory of efficiently assigned ownership to the case of water utilities. The third section briefly reviews the literature on the relative efficiency of private and public utilities and also succinctly applies the theory of the firm to the question of vertical integration in the case of water utilities. The fourth section discusses the UK's experience with water utilities. The final section draws together the paper's conclusions.   The application of Hansmann's general theoretical scheme for assigning ownership leads to the conclusion that water utilities should be consumer cooperatives. Consumer-owned utilities would confront lower market contracting and ownership costs, than would investor-owned utilities. Additionally, the social costs and externalities that are particular to water are better left to consumers who are more prone to take them into account in their decisions.     

A long-run cost allocation problem in the political economy of electric utility power pools

Summary and Conclusions Discussants of the electric power industry point to three principal reasons for corporately unaffiliated electric utility companies to establish formal interorganizational relations: optimal short-run dispatching of production facilities, the scale economies (more precisely, the subadditivity) of long-run costs, and the advantage of pooling the risk of equipment failure. This paper has analyzed the organizational properties of power pools established to realize the advantages of subadditive long-run costs. A formal organizational model of a power pool was presented, recognizing the economic and normative structure of a pool. The normative structure chosen was the subsidy freedom equity concept familiar in the literature on natural monopoly and in game theory. The principal result of the paper is the construction of a subsidy-free cost allocation rule for the deterministic multiple-technology long-run system planning problem.The applicability of this result depends on the organization of the power pool as an entity capable of contracting for the power needed by the members. Conspicuously in the model used here, the optimal poolwide cost is allocated but ownership of the generating plants is not.In power ppols of independently owned utilities (IOUs), capacity planning may be centralized but, with the exception of joint ventures in individual generating plants, ownership is maintained at the level of the member firms. IOU power pools allocate separately the fixed and variable costs of the system. Pool members often take turns in building new plants for the pool, thereby indirectly allocating system capacity costs. Having identifiable ownership in the generating plants, the members can allocate the energy costs of the system in a subsidy-free manner using the short-run marginal cost of energy established by central dispatching or energy brokering (Herriot 1985). But that is an approach to short-run energy charges which is very differet from the energy charge in the peaker rule studied here, and it may result in an allocation of total costs that is not subsidy-free.There are partnership among rural electric distribution cooperatives, called generation and transmission (G&T) co-ops, which do share costs without allocating ownership interests. G&T co-ops build generating plants or secure power contracts from IOUs sufficient to meet their members' requirements at an agreed level of reliability. Ownership of the plants, and liability for the contracts, is not disaggregated. Yet in most cases the G&T co-op does not sell power to non-members, so all costs must be allocated among the member firms.The ownership structure presumed here could also obtain under the scenarios for electric power deregulation envisioned by Joskow and Schmalensee (1983). If the distribution segment is disaggregated from generation and transmission, then locally franchised distribution firms mist face in common the subadditive long-run cost function discussed in the second section. The regional bulk power market would therefore have the structure of a natural monopsony, so the distribution firms would have an incentive to pool their forecast loads and collectively negotiate long-term power contracts with the independent generating firms. Ownership of generation would rest with the generation firms, but the cost of the regionally optimal portfolio of power contracts would have to be allocated among the pooled distribution firmsThe deterministic system planning model used here is somewhat simplistic, certainly as must any model to be admit a closed-form solution in a contexts where the real capacity planning problems are solved using very large scale linear programs and simulation. However, the cost allocation rule derived for this model may be useful guidepost for the development of practical cost-sharing rules in power pools. An important implication of the peaker rule (4) is the equity of not attempting to allocate separately the fixed and variable costs of a system. Though adjustments must be made to the peaker rule to account fully for the uncertainties, indivisibilities, unreliabilities, and nonhomogeneities faced by system planners, as well as for the growth of future loads and the development of new generation technologies, this cost-allocation rule appears to be helpful as a starting point in power pool rate design.     

OWNERSHIP,CONTROL, AGENCY AND RESIDUAL CLAIMS IN HEALTHCARE: INSIGHTS ON COOPERATIVES AND NON‐PROFIT ORGANIZATIONS

Many issues surrounding healthcare entities’ performance can be traced to their governance and ownership. Increasingly, public services are being provided by non‐profit organizations and/or cooperatives, particularly in the healthcare sector. This is not unproblematic. We draw on the conceptual separation of ownership and control, and the notion of firm ownership to derive a taxonomy of dimensions along which a contractual‐ and property rights theory of the firm can be structured, in order to determine the nature of firms’ differences. We utilize the taxonomy to illustrate important distinctions between non‐profit and cooperative firms in the primary healthcare sector and propose testable hypotheses. Funders and regulators must recognise the differences between these firms, if public funding of healthcare is to achieve the expected outcomes.     

Regulation of State-Owned and Privatized Utilities: Ukraine Electricity Distribution Company Performance*

Both ownership and regulation affect the behavior of utility managers. Private ownership rewards managerial decisions that enhance shareholder value. Regulatory incentives reward behavior that affects profits and costs. An empirical analysis of 24 Ukraine electricity distribution companies from 1998 to 2002 indicates that privately owned firms do respond to incentives that add to net cash flows (associated with reducing commercial and non-commercial network losses). However, they also respond more aggressively than do state-owned distribution utilities to mark-up (cost-plus) regulatory incentives that increase shareholder value but decrease cost efficiency. This study was initiated while Val Tsaplin was a PURC Visiting Scholar with funding from the FSA Contemporary Issues Fellowship Program. Michael Pollitt, David Sappington, Fernando Damonte, and an unknown reviewer provided very helpful comments on earlier drafts. We thank Patricia Mason for copy-editing the paper. The conclusions do not necessarily represent the views of organizations with which the researchers are affiliated.     

股权激励与代理成本

传统以管理费用率作为代理成本的替代不能恰当地反映管理者在职消费和职务侵占的真实水平,本文用经过Jones模型纠正的费用率作为代理成本的替代,考察了所有权性质、总经理持股与否及持股比例对代理成本的影响。本文提供了私有制下总经理适当持股有利于降低代理成本的可靠证据,为中国上市公司即将展开的股权激励计划提供证据的支持。     

Fuel inventory and price relationships in the U.S. electric power sector under regulatory and market change

Long-run relationships among coal inventories at U.S. electric power plants, corporate bond rates and coal, natural gas, and electricity prices are estimated over the period July 1976 to October 2014. Tests for constancy of the long-run relationships show periods of instability which coincide with major regulatory events in the electric power sector. Deregulation of the natural gas and electricity markets are likely sources of instability for the period mid-1994 to mid-2001. Additionally, inventory behavior may have had a smoothing effect over instability caused by natural gas prices during the recent U.S. shale boom. Policy makers should be aware that altering the regulatory environment can result in considerable fluctuations in how firms’ inventory decisions interact with input and output markets and opportunity costs in the long run.     

我国上市公司风险管理决策的实证研究

本文应用公司财务理论,对我国上市公司风险管理费用的决定因素进行实证研究。从公司的财务困境成本、代理成本、税率等因素出发讨论了公司风险管理决策行为,并建立了单变量和多变量模型分析我国公司风险管理费用的决定因素。在风险管理方面,研究表明,对于我国公司在风险管理方面的决策行为,地方政府的保护行为有很大的影响。     

Multinational companies and indirect employment: measurement and evidence

This study suggests a new approach towards measuring the indirect employment effects of multinational companies (MNCs) using a simple Cobb-Douglas production function. Based on the assumption that domestic sales by indigenous firms in a sector are supplies for multinationals in that sector rather than final goods, indirect employment effects are measured as the effect of an increase in domestically purchased inputs on employment in indigenously-owned suppliers. Applying this measure to data for the electronics sector in Ireland we find that there have been positive indirect effects of MNCs on employment in indigenous firms. The value of the estimated coefficients depends somewhat on the specification of the model estimated but the standard specification suggests that a 10% increase in domestically sold output by indigenous firms leads to an employment growth of around 2% in these firms.     

The Determinants of Firm Performance and Bribery: Evidence from Manufacturing Firms in Nigeria

This paper uses ordinary least squares with firm effects and Probit regression models to investigate the determinants of firm performance and the likelihood of firms to pay bribes. Results for the manufacturing firms in Nigeria show that skilled workforce, exports, foreign ownership and capital investment influence firm performance. Conversely, poor electricity delivery and difficulty obtaining finance impede firm performance. Total sales and time spent dealing with government regulations increase the likelihood of firms to pay bribes. Surprisingly, foreign firms are as much likely to pay bribes as domestic firms. Policy implications from the findings are important considering that the manufacturing sector assumes an important role in the Lewis theory of economic development.     

The “Dark Side” of Deregulation: How Competition Affects the Size of the Shadow Economy

This paper builds a theory that explains the dramatic expansion of the underground economy in the late 1990s by the sharp increase in market competition worldwide. I model an oligopoly game where firms first decide on entry and sector, and then compete in price. Operating in the underground sector reduces variable costs, but comes at the risk of being detected and fined. As competition intensifies (i.e., as consumers become more and more price‐sensitive), underground firms attract more demand, thus stealing business and profits from official firms. As a consequence, more firms enter the underground economy. A lenient policy toward the underground economy may increase welfare when markups are high, but will be welfare‐detrimental when markups are low.     

The macro-economic impact of changing the rate of corporation tax

This paper considers the impact of changes in the rate of corporation tax in Ireland affecting the business and financial services sector. A model is estimated that relates services exports and output to world activity, competitiveness and the rate of corporation tax. This model indicates that a reduction in the rate of corporation tax in the 1990s stimulated exports and, even allowing for profit repatriations by foreign firms and replacement of lost tax revenue, it resulted in an increase in domestic output. The increase in profitability suggests that some of the increased output involved relocation of profits to Ireland by multinational firms.     

The Performance of Public and Private Enterprise under Conditions of Active and Passive Ownership and Competition and Monopoly

Privatisation is driven by the belief that public ownership is cost inefficient, in particular under monopoly. However, some theoretical and empirical studies have questioned whether privatisation will necessarily lead to efficiency gains. This paper focuses on the impact of ownership when owners can be either active or passive. Active owners decide on output, whereas passive owners delegate this decision to a risk-averse manager. It turns out that managerial slack as reflected in the marginal costs will actually be the same or higher in a private monopoly than under public ownership. The impact of entry is theoretically ambiguous, but an increased number of firms in an oligopoly may lead to lower efficiency.     

Partial vertical ownership

A backward ownership interest held by a downstream firm yields a partial rebate of the upstream margin. Input demand increases with backward ownership, and the upstream firm optimally responds by raising price. With symmetric costs, every downstream firm's equilibrium input/output choice is invariant across a class of ownership profiles, including uniform ownership. Moreover, equity trading results in uniform holdings, so partial vertical ownership may have no real effects. With asymmetric costs ex ante, equity trading amplifies the asymmetries and shifts output toward lower-cost firms. With homogeneous goods, this improves producer and total surplus. With differentiated goods, it may harm consumers.     

Bertrand versus Cournot competition in a downstream mixed oligopoly with foreign ownership

Focusing on foreign ownership in the private firm, we examine the Cournot-Bertrand comparison in a mixed oligopolistic market with vertical market structure. We have found that if public and private firms were charged with uniform price for their inputs, then Cournot-Bertrand ranking in market outcomes confirms those obtained by Ghosh and Mitra (2010). This implies that under uniform pricing in the upstream sector, the vertical market structure does not have substantial influences on Cournot-Bertrand ranking. However, if discriminatory pricing is adopted, firm's profits, output, and social welfare are often reversed to those obtained from uniform pricing in the upstream sector. Given the closeness of products, if the share of foreign ownership is sufficiently low, social welfare in Cournot competition can exceed that of Bertrand competition, contrasting with the standard welfare ranking that Bertrand welfare is strictly higher than Cournot. This implies that Cournot competition can be more socially desirable than Bertrand in mixed oligopoly with vertical market structure if discriminatory pricing scheme is adopted by foreign upstream monopolists.     

Family ownership,altruism and agency costs in Australian small- and medium-sized enterprises

Given the continuing uncertainty about whether family firms enjoy lower agency costs, this article hypothesizes that a combination of the effects of family ownership, altruism and self-control is instead at play. To begin with, family ownership can indeed reduce agency costs through better aligning the interests of owners and managers. This is a ‘determining’ effect in that it independently mitigates one source of agency problems. However, altruism combined with self-control problems arising from the highly concentrated ownership often found in family firms can also increase agency costs. This is an ‘embedding’ effect as it is rooted in the personal relationships within the family firm. Using the Business Longitudinal Database compiled by the Australian Bureau of Statistics on small- and medium-sized enterprises (SMEs), we find that for larger SMEs (those with 20–200 employees), the gains in lower agency costs arising from family ownership are almost completely offset by the losses from altruism and the lack of self-control.     

Public Sector Banks in India: Rationale and Prerequisites for reform

This paper contributes to the debate on public sector banks by suggesting several rationales for government ownership of banks in India. The paper then proceeds to argue that due to high economic costs, the current public sector banking system is unsustainable. Although a policy of wider private ownership was introduced in the 1990s, it is suggested that there are several prerequisites to be met before such a reform can be more fully implemented. It is argued that these prerequisites arise from the rationales for government ownership, and they include a credible bank regulatory regime, and government promotion of co‐operative banks and credit unions.     

Start up costs, limited enforcement, and the hidden economy

This paper examines how much of the difference in the size of the informal sector and in per capita income across countries can be accounted by regulation costs and enforcement of financial contracts. It constructs and solves numerically a general equilibrium model with credit constrained heterogenous agents, occupational choices over formal and informal businesses, financial frictions and a government sector which imposes taxes and regulations on formal firms. The benefit from formalization is better access to outside finance. The quantitative exercises suggest that: (i) regulation costs and not the level of enforcement account for differences in the size of the informal sector between United States and Mediterranean Europe; (ii) for a developing country like Peru, however, contract enforcement and regulation costs are equally important in accounting for the size of the informal sector; and (iii) regulation costs and contract enforcement do not account for most of the income differences observed among countries.     

Capacity,sustainability, and the community benefits of municipal utility ownership in the United States

ABSTRACT

Most literature on utility sustainability focuses on internal operations; this misses the role that utilities could play within a community. This study measures the impact of municipal ownership of water and electric utilities on the sustainability policymaking of local governments. I find that municipalities with government-owned water utilities adopt more sustainability measures than those with investor-owned service. Similarly, municipally-owned electric utilities have higher levels of energy sustainability in the community, but not in government operations. The utilities provide fiscal and technical capacity to municipalities. Interdepartmental coordination also strongly predicts sustainability policymaking. This study brings potential community benefits to the discussion of private investment in public service delivery.     

一个中国私营部门发展模型

为讨论民营化、市场化对中国私营部门发展的影响,本文根据中国企业行为模式建立了一个简单经济数学模型。该文认为,由于中国的国有企业、私营企业和其他经济实体具有偏离利润最大化的多重目标,与单纯追求利润最大化的企业比较,它们倾向于利用更多的劳动力和资本生产更多的产品,但是,它们却只能获得更低的利润甚至亏损。这是中国经济高增长低效率的原因。本文还讨论了非利润目标和“准入成本”对企业数量和规模的影响。另外,模型分析表明,企业的管理能力和企业规模之间存在匹配问题,是中国的渐进式改革成功与俄罗斯大爆炸式改革失败的部分原因     

Dynamic factor demands and market structure under rational expectations: some estimates for the Italian manufacturing system

This paper deals with a dynamic model of the behaviour of firms under rational expectations. The adjustment cost framework is followed to describe production technologies. The objective of firms is to maximize the stream of future profits under rational expectation. First-order conditions for the optimum are derived with respect to input demands and one output supply. The output market structure is modelled in order to test price taking behaviour. The adjustment costs of quasi-fixed inputs are internal and interrelated. The model is estimated for the Italian manufacturing system with encouraging results.