Determinants of total efficiency in water utilities in Mexico

By using panel data analysis across 368 water utilities in Mexico over the period 2010–2014, we find that small firms are more efficient than medium and large providers and that increasing production is associated with less efficiency. Billing, income collection and profitability are relevant factors to improve efficiency. Medium and large firms require to measure consumption by service with meters in order to increase efficiency, while small firms do not require it.     

Preference purification and the inner rational agent: a critique of the conventional wisdom of behavioural welfare economics

Neoclassical economics assumes that individuals have stable and context-independent preferences, and uses preference satisfaction as a normative criterion. By calling this assumption into question, behavioural findings cause fundamental problems for normative economics. A common response to these problems is to treat deviations from conventional rational choice theory as mistakes, and to try to reconstruct the preferences that individuals would have acted on, had they reasoned correctly. We argue that this preference purification approach implicitly uses a dualistic model of the human being, in which an inner rational agent is trapped in an outer psychological shell. This model is psychologically and philosophically problematic.     

Growth is (really) good for the (really) rich

This paper analyses the relationship between mean income and the income of the rich. Our methodology closely follows that of Dollar and Kraay (Journal of Economic Growth, 2002, 7, 195), but instead of looking at the bottom of the distribution, we focus on the top. We use panel data from the World Top Incomes database, which collects top income data from several countries using tax returns as the raw source. We define the “rich” as earners in the top 10%, 1%, 0.1% and 0.01% of the income distribution. Using data since 1980, we find that economic growth is good for the rich in the sense that the mean income of the top decile of the distribution grows in the same proportion as that of the whole population. However, we also find that the income of earners in the top percentile of the distribution and above grows faster than average income: therefore, economic growth is really good for the really rich. We also find that during economic downturns the average income of top earners responds proportionally less to changes in mean income than during economic expansions. Our results are consistent with the increase in inequality that has been recently observed at the top part of the distribution in many countries, and they are robust to different specifications, country samples and time observations.     

Foreign direct investment in Mexico Determinants and its effect on income inequality

By conducting panel data analysis across 32 federal entities in Mexico over the period 1994-2006, this paper studies the determinants of foreign direct investment (FDI) and its effect on income inequality within and between regions. We observe that the level of development and the size of the market have a direct relationship with FDI and therefore, they tend to increase the inequality gap between regions, but there is no evidence suggesting that it creates inequality within them.     

Reopening the convergence debate: A new look at cross-country growth empirics

There are two sources of inconsistency in existing cross-country empirical work on growth: correlated individual effects and endogenous explanatory variables. We estimate a variety of cross-country growth regressions using a generalized method of moments estimator that eliminates both problems. In one application, we find that per capita incomes converge to their steady-state levels at a rate of approximately 10 percent per year. This result stands in sharp contrast to the current consensus, which places the convergence rate at 2 percent. We discuss the theoretical implications of this finding. In another application, we perform a test of the Solow model. Again, contrary to prior reults, we reject both the standard and the augmented version of the model.     

ADOPTING A VALUE-ADDED TAX IN A DEVELOPING COUNTRY*

There are many decisions points to consider once a government has decided to put in place a value added tax. Some of these decisions pre-determine other decisions. In particular, most countries have chosen this VAT to be most suitable: consumption type of VAT designed along the destination principle, and collected by the credit method. Other features tend to be more variable depending on the countries concerned. Most countries would want to adopt the comprehensive VAT, down to the retail level, but practical considerations would necessitate the introduction only of the pre-retail VAT. The VAT may have a narrower coverage of sectors because of the limitations related to special conditions of small establishments, especially in developing countries and because of the stage of economic activity covered. When these are taken into account, through the technique of exemption, the VAT would tend to be applicable to the more formal sector of the economy that is composed of larger establishments. The simplest VAT would be conceived with a single rate, but intermediate rates may be introduced to accommodate the need to meet social considerations on the burden of the tax. Finally, although this paper dealt with the issues about the introduction of a VAT, the same issues would loom large in any improvements designed to broaden the coverage of an existing VAT. It is likely that the most basic choices will have to be committed at the point of introduction. In that respect, there is some irreversibility in the choice of the type of VAT, the principle upon which it is based, and the method of collecting it. Room for improvement will take place essentially in the coverage of the tax. For instance, this can be in terms of the following: movement towards the comprehensive VAT, in the case of a decision in favor of a pre-retail level VAT; increase in the coverage of sectors where before the horizontal coverage is narrow; and changes in the level of the tax rate.     

Regulation of international roaming in the European Union—Lessons learned

This paper analyzes the evolution of prices and competition in intra-EU international roaming markets. It addresses three main research questions: (i) to what extent have market forces by themselves brought competition to retail roaming markets? (ii) Has the evolution of market dynamics in wholesale roaming improved competition? (iii) Is wholesale regulation sufficient to lead to a reduction in retail roaming prices? Data show that there has been little price-based competition both at wholesale and retail levels, despite prices being well above costs and the significant margins allowed by regulation. Available data from the period preceding the entry into force of the first EU roaming regulation also point to the same conclusion. Lack of competitive pressure in retail roaming markets and inelastic demand give little incentives for retail roaming service providers to lower prices. Wholesale international roaming markets have complex competition dynamics. They are characterized by the reciprocity of wholesale roaming agreements and traffic internalization inside transnational groups. These circumstances limit price competition at the wholesale level. The traditional regulatory approach applied to electronic communication markets has been primarily focused on wholesale regulation. However, empirical evidence shows that even if wholesale charges are reduced, retail roaming markets continue to operate at very high retail margins (for example, more than 200% retail mark-up over wholesale charges for data roaming services and incoming calls). This proves that in international roaming markets wholesale charge reductions are not necessarily passed on to retail prices. It can thus be inferred that wholesale price regulation alone is in most cases not sufficient to ensure that benefits are passed through to end users.     

Profitable growth: Avoiding the ‘growth fetish’ in emerging markets

Growth management is a challenging but critical corporate strategy facing the fast economic growth in emerging markets. An overemphasis on growth would lead to the growth fetish, where growth is unqualified and seen as an end in itself. By examining the performance of 105,260 firms in key sectors of Brazil, Russia, India, and China (BRIC) from 2002 to 2011, this study presents quantitative evidence that supports a profit-oriented strategy as a more effective path to sustained profitable growth in emerging markets. To further support this argument, this study also provides qualitative evidence of a group of 70 sustained high-performing firms that are superior to their peers (the top 500 private companies in each of the BRIC countries) in terms of profit, growth, market share, and efficiency over a 10-year period. The study shows that sustained profitable growth requires qualified sales growth (i.e., organic growth), competence-based and competence-enhancing growth, and continuous product diversification.