DOES IT PAY TO BE GREEN? AN EMPIRICAL EXAMINATION OF THE RELATIONSHIP BETWEEN EMISSION REDUCTION AND FIRM PERFORMANCE

Evidence can be marshalled to support either the view that pollution abatement is a cost burden on firms and is detrimental to competitiveness, or that reducing emissions increases efficiency and saves money, giving firms a cost advantage. In an effort to resolve this seeming paradox, the relationship between emissions reduction and firm performance is examined empirically for a sample of S&P 500 firms using data drawn from the Investor Responsibility Research Center's Corporate Environmental Profile and Compustat. The results indicate that efforts to prevent pollution and reduce emissions drop to the ‘bottom line’ within one to two years of initiation and that those firms with the highest emission levels stand the most to gain.     

SMEs and public procurement policy

In this paper, we characterize an optimal procurement policy as a mechanism design problem when an allotment of the contract is available, i.e., when a government faces both SMEs and large firms for carrying out a heterogeneously divisible project. Our model allows us to analyze all procurement policies (set-asides, favoritism, non-discriminatory rules), taking into account both efficiency and distributive arguments and derive a normative framework. We show that set-asides are not generally optimal, whatever the industrial preferences of the government are, while the optimal preferential treatments of firms implies complex non-linear rules. We prove that the optimal policy can be implemented using a modified Vickrey-type auction. We also consider that the firms can reduce their cost by a non observable effort, and exhibit the specific impact of cost reduction incentives on the optimal policies.Received: 24 September 2001, JEL Classification: D44Pierre-HenriMorand : I am grateful to the anonymous referees for comments. The usualdisclaimer applies.     

投资者认知、审计质量与公司价值

投资者认知是决定市场资源配置的重要因素,认知水平越高,公司价值越大。审计作为一种降低信息不对称的制度安排,能够影响公司信息传递,进而正向调节认知效应;审计还具有缓解代理冲突的功能,而代理成本与审计质量存在对应关系,因此审计质量也体现为对认知效应的负向调节。我国股市目前主要体现为后一种情况,表明审计提升公司价值的主要路径是缓解公司的代理冲突,公司对高质量审计的需求动机远比满足投资者信息需求的动机更为强烈。聘用大型事务所能够向市场投资者传递积极信号,对认知提升公司价值的效应有正向调节作用。审计模式选择需要考虑公司的信息传递特征,并与投资者对公司的认知水平相契合。     

Optimal effort in the principal-agent problem with time-inconsistent preferences

This paper incorporates an agent’s time-inconsistent preferences into the Sannikov (2008) contract model to explore the effects of an agent’s preferences on his own behaviors: the incentive effort choice, the optimal retirement time and the consumption flow during his whole career life. We find the agent’s time inconsistency makes it difficult for him to be motivated and makes him need more compensation. An agent’s time-inconsistency erodes both the principal and his own income. The time-inconsistent agent will choose a lower incentive effort level, retire at an earlier time and have a lower consumption flow compared with his time-consistent peer. The time-inconsistent preference exactly influences the agents behavior and makes the agency problem more serious. Therefore, the firm has to cost more to stimulate such a time-inconsistent agent, which will damage the firms profits, as well as the efficiency.     

Business Strategy, Human Capital, and Managerial Incentives

We posit that the value of a manager's human capital depends on the firm's business strategy. The resulting interaction between business strategy and managerial incentives affects the organization of business activities. We illustrate the impact of this interaction on firm boundaries in a dynamic agency model. There may be disadvantages in merging two firms even when such a merger allows the internalization of externalities between the two firms. Merging, by making unprofitable certain decisions, increases the cost of inducing managerial effort. This incentive cost is a natural consequence of the manager's business-strategy-specific human capital.     

How to Regulate Heterogeneous Hospitals?

In many areas of health care financing, there is controversy over the sources of cost variability and about the respective roles of inefficiency versus legitimate heterogeneity. This paper proposes a payment system that creates incentives to increase hospital efficiency when hospitals are heterogeneous, without reducing the quality of care. We consider an extension of Shleifer's yardstick competition model and apply an econometric approach to identify and evaluate observable and unobservable sources of cost heterogeneity. Moral hazard can be seen as the result of two components: long‐term moral hazard (hospital management can be permanently inefficient) and transitory moral hazard. The latter is linked to the manager's transitory cost‐reducing effort. For instance, he or she can be more or less rigorous each year when bargaining prices for supplies delivered to the hospital by outside firms. The use of a three‐dimensional nested database makes it possible to identify transitory moral hazard and to estimate its effect on hospital cost variability. Econometric estimates are performed on a sample of 7,314 stays for acute myocardial infarction observed in 36 French public hospitals over the period 1994–1997. We obtain two alternative payment systems. The first takes all unobservable hospital heterogeneity into account, provided that it is time invariant, whereas the second ignores unobservable heterogeneity. Simulations show that substantial budget savings—at least 20%—can be expected from the implementation of such payment rules. The first method of payment has the great advantage of reimbursing high‐quality care. It leads to substantial potential savings because it provides incentives to reduce costs linked to transitory moral hazard, whose influence on cost variability is far from negligible. This payment rule could be extended to other areas of health care financing, such as Adjusted Average Per Capita Cost to calculate Medicare Managed Care reimbursements in the United States.     

Governance practices and agency cost in emerging market: Evidence from India

In this study, we examine whether governance practices brings down agency cost. We find that board size, board attendance, and CEO duality are important governance characteristics that influence the agency cost. We also bring out systematic differences in governance practices of the business group affiliated firms and stand‐alone firms. Larger board and proportion of independent director helps in reducing the agency cost for group affiliated firms supporting monitoring hypothesis. On the other hand, the governance structure of stand‐alone firms supports commitment hypothesis where we observe that board busyness and CEO duality help in reducing the agency cost.     

Estimating the shirking model with variable effort

We show in a theoretical efficiency wage model where firms differ in monitoring intensity that the impact of monitoring intensity on wages is ambiguous, a result that mirrors evidence from the empirical literature. We argue that to correctly specify the impact of monitoring on wages, the interaction between monitoring and effort needs to be modelled. Results using a worker, firm panel from Ghana which contains reasonable effort and monitoring proxies show that the return to effort is higher in poorly monitored sectors as the theory suggests.     

Competition with Aftermarket Power When Consumers Are Heterogeneous

We study a model of competitive foremarkets and partly monopolized aftermarkets. We show that high aftermarket power prompts firms to engage in inefficiently aggressive below‐cost pricing in the foremarket. This inefficiency is driven by the presence of consumers with valuations below marginal cost. While for intermediate aftermarket power their presence leads to a competition‐softening effect, for high aftermarket power firms attract increasing numbers of unprofitable consumers by aggressively pricing below cost. For high aftermarket power, firms' equilibrium profits can therefore be decreasing in aftermarket power but are always higher than for low aftermarket power. If firms engage in price discrimination by bundling the foremarket and aftermarket goods or by reducing their aftermarket power, they avoid selling to unprofitable consumers but also reduce the competition‐softening effect. This decreases firms' equilibrium profits but increases consumer and social welfare.     

Persistent and transient cost efficiency—an application to the Swiss hydropower sector

Electricity prices on the European market have decreased significantly over the past few years, resulting in a deterioration of Swiss hydropower firms’ competitiveness and profitability. One option to improve the sector’s competitiveness is to increase cost efficiency. The goal of this study is to quantify the level of persistent and transient cost efficiency of individual firms by applying the generalized true random effects (GTRE) model introduced by Colombi et al. (Journal of Productivity Analysis 42(2): 123–136, 2014) and Filippini and Greene (Journal of Productivity Analysis 45(2): 187–196, 2016). Applying this newly developed GTRE model to a total cost function, the level of cost efficiency of 65 Swiss hydropower firms is analyzed for the period between 2000 and 2013. A true random effects specification is estimated as a benchmark for the transient level of cost efficiency. The results show the presence of both transient as well as persistent cost inefficiencies. The GTREM predicts the aggregate level of cost inefficiency to amount to 21.8% (8.0% transient, 13.8% persistent) on average between 2000 and 2013. These two components differ in interpretation and implication. From an individual firm’s perspective, the two types of cost inefficiencies might require a firm’s management to respond with different improvement strategies. The existing level of persistent inefficiency could prevent the hydropower firms from adjusting their production processes to new market environments. From a regulatory point of view, the results of this study could be used in the scope and determination of the amount of financial support given to struggling firms.     

Can incomplete information lead to better social outcomes?

We consider a supply chain where manufacturers can be differentiated along two dimensions—product quality and cost of social responsibility effort. There are two types of manufacturers: high and low. Under complete information, high-type manufacturers exert a greater level of social responsibility effort in comparison with the low-type manufacturers. We then show that under incomplete information, high-type manufacturers have an incentive to exert an even greater level of social responsibility effort. Surprisingly, the extent of effort put in by high-type firms cannot be lower and, in some cases, can be strictly higher under incomplete information.     

Competition for Managers and Product Market Efficiency

We investigate whether competition between two firms to hire managers with different abilities might affect efficiency in the product market, when a manager's effort is his/her private information. We conclude that competition for managers might lead to an improvement in efficiency in the market of the firm that attracts the most efficient manager. Competition for managers might even eliminate the productive efficiency loss due to the asymmetry of information in the firm-manager relationship.     

Shareholder Activism, "Voluntary" Restructuring, and Internal Labor Markets

We model an internal labor market in which employee behavior and compensation are affected by the firm's financial position and the threat of hostile takeover or other exercise of shareholder "voice." We show how good past performance can result in excessively generous promotion and pay decisions. While the threat of shareholder activism will remove this "slack," activists optimally face a positive cost barrier, which in turn varies across firms. The cost barrier is higher when cooperation or "helping" between employees is more important, and is lower when employees receive efficiency wages due to an inability to "pay" for their jobs. Since the importance of helping is associated with pay compression and "flat" pay ladders, such firms should also exhibit a greater degree of management entrenchment.     

The relationship between information technology capability,inventory efficiency,and shareholder wealth: A firm-level empirical analysis

Inventories represent an important strategic resource for firms, with implications for shareholder wealth. As such, firms expend considerable effort in managing their inventories efficiently. Among other factors, information technology (IT) capability can play an important role in enabling inventory efficiency and financial performance. However, insight into the chain-of-effects linking IT capability, inventory efficiency, and stock market returns and risk remains limited. In this paper, we provide a conceptual model outlining the relationships between these constructs. Next, we evaluate the model using secondary information on firms from multiple industries across the 10-year time period of 2000–2009. Our analysis confirms that firms’ IT capability plays a significant role in enhancing their inventory efficiency, which, in turn, is observed to increase stock market returns. Our results also reveal that firms’ IT capability directly reduces their stock market risk and enhances their stock market returns. Taken together, these findings, along with the conceptual model that we advance, have important research and managerial implications.     

Should Firms Employ Personalized Pricing?

This paper theoretically considers a duopoly model in which all firms do not always employ personalized pricing. Our model incorporates the fact that firms engage in marginal cost‐reducing activities after they decide whether to employ personalized pricing. When the ex ante cost difference between the firms is large, the less‐efficient firm does not employ personalized pricing even when the fixed cost to do so is zero. This is because employing personalized pricing induces the rival firm to engage more in reducing its costs, which is more likely to harm the less‐efficient firm.     

Bank efficiency and access to credit: International evidence

This paper examines the impact of bank efficiency on access to credit. We test the hypothesis that higher bank efficiency, meaning a better ability of banks to operate at lower costs, favors access to credit for firms. To this end, we perform a cross-country analysis with firm-level data on access to credit and bank-level data to compute bank efficiency, using a sample of about 54,000 firms from 76 countries. We find that greater bank efficiency improves access to credit for firms. The beneficial impact of bank efficiency to alleviate credit constraints takes place through the demand channel by reducing borrower discouragement to apply for a loan. Whereas the positive impact of bank efficiency on credit access is observed for firms of all sizes, the effect tends to be more pronounced in countries with a better economic and institutional framework. Our results therefore support policies favouring bank efficiency to enhance access to credit.     

Licensing vs. Litigation: The Effect of the Legal System on Incentives to Innovate

With uncertain scope of patent protection and imperfect enforcement, the effective strength of patent protection is determined by the legal system. We analyze how the legal system affects the incentives of firms to innovate, taking into account possibilities of strategic licensing and litigation to deter imitation. The legal system that guarantees the patentee's monopoly power maximizes the R&D intensities. However, the legal system that induces licensing provides incentives to exert R&D effort while preserving ex post efficiency. We also compare R&D, patent licensing, and litigation behavior under American and English rules of legal cost allocation.     

Maximizing public value for subsidized non-profit firms: a mathematical economic model

In many public service industries, firms are assumed to maximize certain public goals and are not allowed to make any profits. These public service firms are financed by fixed and variable subsidies and fees-for-services paid by users. Standard economic models, such as the profit maximization and cost minimization model, are not suitable for describing the production structure and the economic behavior of these firms. Productivity and efficiency measures derived from these models therefore are not accurate. This paper derives a model that fits this type of firm and its economic context. It derives the exact mathematical relationships between public value, services delivered, (money) revenues, costs, service prices, resource prices and subsidies. In an empirical setting the model can be used as a reference to calculate productivity and efficiency scores. The usability of the model is demonstrated by an application to Social Labor Services in the Netherlands.     

Managerial incentives for process innovation

Cost‐reducing investments by firms are often not publicly observable. This lack of observability would preclude a strategic use of process innovation. However, we show that an observable and verifiable contract that provides direct monetary incentives for cost reductions — an innovation incentive contract — can act as a strategic commitment device. Our model predicts that manager‐led firms are more innovative than owner‐led firms and that these contracts become less prevalent as product market competition intensifies. Both predictions are consistent with recent empirical evidence. Copyright © 2008 John Wiley & Sons, Ltd.     

Infrastructure provision and international market share rivalry

The paper examines a model of strategic infrastructure investment. Two oligopolistic firms compete on home and foreign product markets for market shares. The national governments support the firms in the market rivalry by providing cost reducing public infrastructure services that are financed out of taxing an input used in the production process. It is shown, that infrastructure policy can be used as an instrument for strategic trade policy. However, governments are facing the problem of balancing the burden of taxation and the benefits of infrastructures. The theoretical model also raises some critical issues with respect to the policy relevance of recent empirical infrastructure research.