Optimal pricing and investment for resources with alternative uses and capacity limits

Airport runways, radio spectrum, and hospital beds are resources with capacity limits used to provide multiple services with specific capacity requirements in separate markets, which contribute to recover capacity investment costs. A welfare-maximizing and (possibly) budget-constrained firm, whose operating costs significantly increase as total capacity use presses against capacity, chooses prices and capacity. When the equilibrium capacity is reached, second-best Ramsey prices must be adjusted, and mark-ups on marginal costs may be higher for services with higher demand elasticities, if they intensively use capacity. Moreover, for a given output vector, the firm invests more than in first best. Instead, the equilibrium capacity may be first best when there is excess capacity to reduce operating costs and thus improve welfare. Our model can be used as a benchmark to evaluate the efficiency of market mechanisms for resource allocation and pricing, or when market mechanisms are not adopted.

     

Restructuring hospital industry to control public health care expenditure: The role of input substitutability

In this paper we investigate the economic rationality of the bed downsizing process, characterising the hospital industry worldwide in the last decades, as a measure to control public health care expenditure. Considering a sample of Italian hospitals, we provide fresh evidence on the factor substitutability in the production of hospital services. Differently from other studies, based on North-American data and limited to pre-determined cost function models, we estimate a general specification (the Generalised Composite), and test it against traditional nested models (e.g. the Translog). For all the specifications we derive Allen, Morishima and Shadow elasticities of substitution between input pairs, obtaining a fairly consistent picture across all models and elasticity concepts. In particular, our results highlight a very limited degree of substitutability between factors in the production of hospital services, especially between beds and medical staff. These findings suggest that a restructuring policy of the hospital industry, which is confined to reducing the number of beds without involving workforce management, could not be a viable strategy for controlling public health care expenditure.     

Electric Utility Restructuring,Regulation of Distribution Utilities,and the Fallacy of "Avoided Cost" Rules

We show that commonly used "avoided cost" rules, which evaluate investment alternatives by comparing their costs to forecasts of future expected cost, are fundamentally flawed for choosing local area investments in distribution capacity. Use of avoided cost rules: 1) confuses cost-effectiveness tests with benefit-cost tests; 2) makes inappropriate marginal comparisons and violates necessary optimality conditions because of the "lumpy" nature of many distribution system investments; 3) fails to incorporate the effects of uncertainty properly; 4) necessarily leads to excess deferral or traditional distribution capacity investments with distributed generation and DSM investments; and 5) does not lead to lowest expected cost investment plans. We conclude by outlining a more appropriate approach to evaluating distribution investments based on evaluations of actual cash flows associated with investment alternatives under uncertainty.     

Electrification,the Smoot-Hawley Tariff Act and the Decline in Investment Expenditure in 1931–1932: Testing the Excess-Capacity Hypothesis

Beaudreau (1996) argued that the decline in investment expenditure in the early 1930s was the result of two factors, namely the electrification of U.S. manufacturing in the 1910s and 1920s which had resulted in significant excess capacity, and secondly, to the failure of the Smoot-Hawley Tariff Bill in October 1929 to be passed by the Senate, resulting in (i) the Stock Market Crash in October 1929 and (ii) the ensuing precipitous decline in investment expenditure which touched off the Great Depression. In short, the manufacturing sector in the late 1920s found itself with excess capacity, prompting Senator Reed Smoot and the Republican Party to propose another upward revision of the tariff schedule. The failure to deliver on this promise led to the Crash and the ensuing decline in investment expenditure, the cumulative effect of which led to the Great Depression. This paper tests this hypothesis using two-digit industry investment data. As electrification varied considerably across industries it would stand to reason that sectors that electrified the most would have witnessed the largest decreases in investment expenditure (plant and equipment), owing to the presence of excess capacity. The results confirm this hypothesis, leading us to conclude that electrification-based excess capacity may have been an important cause of the downturn in 1930 and 1931.     

A test for strategic excess capacity

It is shown how, using data at the firm level, it may be possible to test for the existence of excess capacity as a strategic weapon to protect market share against competitors and potential entrants. If excess capacity has been found, it is also possible to test the extent of the threat, for example whether sufficient excess capacity is held to drive the firm's own profits to zero if all were employed. Yearly data for a brewery have been used as an example of the tests.     

The effectiveness of community-based hospital planning: some recent evidence

The effectiveness of centralized or community-based local planning of hospital resources is still a subject for debate in most countries. The general problem of overcapitilization on beds and equipment has been reviewed in a number of theoretical (Granfield, 1975; Dahlberg 1976) and empirical studies (Cullis et al., 1980; Feldstein, 1967). Hospital planners frequently argue that the resulting direct benefits exceed the costs. The purpose of this paper is to estimate the impact of community-based hospital planning on controlling growth in the supply of beds and plant assets in the United States.     

When it comes to planning hospitals, the VA marches to its own beat.

If you want to build a hospital, you have to convince state and local health planners that the facility is needed and won't add to any oversupply of hospital beds in the area. You have to, that is, unless you're the Veterans Administration. The VA is exempt from the federal health planning law, even on a voluntary basis, and that's caused some problems recently. In Baltimore, for example, the VA intends to erect a 400-bed hospital even though local planners say the area already has more beds than patients to fill them. And in Minneapolis and Portland, Ore., there are similar conflicts between health planners and the VA.     

企业融资规模、银行所有制 歧视与产能利用率

本文在对中国工业行业产能利用率进行测度的基础上，将企业融资规模和银行所有制歧视引入产能过剩的分析框架，进一步完善了产能过剩的形成机理。研究表明：产能利用率与企业融资规模密切相关，银行所有制歧视通过企业融资规模对产能利用率产生间接影响。剔除技术效率影响后，行业整体融资规模与产能利用率显著负相关，并存在明显的混合效应。从所有制来看，国有企业和外资企业融资规模与产能利用率显著负相关；民营企业融资规模发挥着相对积极作用。2008年后企业融资规模的扩大更易引起产能过剩的发生。银行所有制歧视对产能利用率的冲击效应更加强烈。     

Excess capacity as a policing device

A great deal of recent work has been devoted to the question of whether an incumbent firm can successfully deter entry by investing in excess capacity. This paper demonstrates that a dominant firm may invest in excess capacity even when it is certain that this will not deter entry. Rather, the excess capacity is held by the dominant firm in order to ensure that its competitors will exercise appropriate restraint in their own output decisions. An example is provided that illustrates that the rate of return on the capital invested in excess capacity may be very high.     

从过度投资到产能过剩:理论与经验证据

过度投资与产能过剩是长期困扰中国经济发展的严峻问题,然而现有研究往往笼统地将二者视为一体。实际中,过度投资与产能过剩分别指向企业投资生产过程中的不同决策阶段,前者与需先行做出的长期投资决策有关,而后者则是后发的即期生产决策的结果。通过引入一个包含投资和生产两阶段的动态实物期权模型,尝试性地刻画从过度投资到产能过剩的形成机制,以及经济与政策这两种异质不确定性对这一形成机制的影响,进一步基于2003-2018年中国企业的微观数据进行了实证检验。理论与实证结果表明:(1)尽管产能过剩总是源自前期投资的过度扩张,但并不是所有的过度投资最终都会导致产能过剩;(2)不确定性是导致过度投资与产能过剩的重要因素,但过度投资更多地源于政策不确定性,而产能过剩则主要源于经济不确定性;(3)不确定性对产能过剩的影响要强于对过度投资的影响。因此,对过度投资的治理应以政策不确定性为主,保持政策调节的稳定性和连续性;对产能过剩的治理则应以经济不确定性为主,维护市场运行体系的稳定性。     

How does the Price Regulation Policy Impact on Patient–Nurse Ratios and the Length of Hospital Stays in Japanese Hospitals?

This study examines how the 2000 and 2006 revisions of the fee‐for‐service system have affected patient–nurse ratios and the average length of hospital stays in Japan. The empirical results show that hospitals are quite responsive to changes in price policy. The fee revisions have certainly achieved the policy objectives of reducing patient–nurse ratios and the length of hospital stays. As a result, hospitals have responded by greatly increasing the number of expensive beds for acute care. However, this was not exactly predicted by the Japanese government, which has aimed to reallocate health‐care resources, such as beds, to subacute or long‐term care.     

Multi-product costs and standby capacity derived from queuing theory: the case of Belgian hospitals

Empirical hospital cost function studies can be divided into two categories: studies estimating traditional multi-product cost functions and studies including demand uncertainty (assuming that hospitals provide standby capacity to cope with uncertain demand and stressing that the relationship between the uncertain demand, excess capacity and costs should be investigated). Most studies include (the inverse of) the occupancy rate in a relatively basic cost function. The first contribution of this paper is to incorporate an indicator of reserve capacity into a genuine multi-product cost function. The second contribution is to propose an alternative indicator to proxy the reserve margin. The often used occupancy rate has an important shortcoming: the same occupancy rate can hide different turnaway probabilities and waiting times, obscuring the true degree of reservation quality. Since turnaway probabilities and waiting times are typical queuing theory indicators, an indicator for average waiting time (derived from queuing theory) is incorporated into a proper multi-product cost function to capture the degree of standby capacity into a proper multi-product cost function. The study uses 1997 data on Belgian general care hospitals to estimate a multi-product cost function and calculate cost elasticities, marginal costs and the degree of economies of scale. The results further show that providing standby capacity has a significant impact on total costs.     

转型时期中国地区产能过剩测度* ——基于协整法和随机前沿生产函数法的比较分析

本文运用协整法和随机前沿生产函数法对2001-2011年我国30个省（市）的制造业产能利用率进行测度及比较分析。本文研究发现：（1）两种方法得出的产能利用率基本一致;（2）产能利用率变化呈现明显的经济周期特征;（3）东部地区的产能利用率整体低于中西部地区;（4）我国地区层面的产能过剩风险可能正向全局蔓延。本文进一步将30个省（市）划分为确定性过剩、可能性过剩以及潜藏过剩风险三种类型。     

Entry preemption through capacity expansion in the U.S. titanium industry

This study investigates the impact of expected excess capacity on the probability of firm entry into a single-product oligopoly, specifically, the U.S. titanium industry. Predicted values for excess capacity as well as its components, production, and capacity are generated. By disentangling the components of excess capacity and estimating them independently, it is possible to separate incumbents' discretionary actions regarding capacity expansion, which may preempt entry, from the effects of underlying cycles in demand, which subsequently affect production. These predicted values are utilized in logit models which indicate that expected levels of capacity expansion did appear to decrease the probability of firm entry, while expected levels of production and excess capacity had no effect on the probability of entry into the U.S. titanium industry.     

要素价格扭曲与工业产能过剩的关系——基于1991—2010年的样本数据

从要素市场中的3大投入要素———资本、劳动力和能源入手,测算1991—2010年中国工业产能过剩程度和三要素价格扭曲程度,并通过构建VAR模型、脉冲响应分析和方差分解,考察了各要素价格扭曲程度与产能过剩之间的长期均衡关系和短期冲击影响。实证结果表明:产能过剩与各要素价格扭曲之间存在长期稳定均衡关系和误差修正机制,其中劳动力和能源的价格扭曲对产能过剩具有正向影响,资本价格扭曲具有负向影响;能源价格扭曲对产能过剩偏离均衡的调整力度最大;资本和能源的价格扭曲对产能过剩的短期冲击影响较大,而劳动力更多作用于远期;劳动力价格扭曲对产能过剩变化的解释力度最大,资本价格扭曲的解释力度相对最小。     

Efficiency and the quality of management and care: evidence from Japanese public hospitals

We study how the quality of hospital management and medical care both affect efficiency in Japanese local public hospitals. The efficiency is estimated by a stochastic frontier analysis (SFA) and is regressed against the quality scores in hospital accreditation by the Japan Council for Quality Health Care (JCQHC). We find that rule-based hospital management relates to high efficiency, while the suitable management of beds and supplies relates to low efficiency.     

Regulating Prices to Equal Forward-Looking Costs: Cost-Based Prices or Price-Based Costs?

This article defines "forward-looking cost," identifies conditions under which forward-looking costs can be calculated, and explains the relationship among forward-looking costs, depreciation and utilization. It derives a framework to account for the risk of asset death, changes in the cost of new capital, demand growth and uncertainty, and competition risk. The potential for competition, asset life uncertainty, and the installation of excess capacity in anticipation of demand growth raise forward-looking cost. The potential for technological change that enhances the future value of an asset lowers forward-looking cost.     

Entry and Exit Decisions with Switching Regime Excess Capacity

This paper examines how expected excess capacity fosters impediments to entry and incentives to exit. To examine this phenomenon, we apply the switching regime methods of Goldfeld and Quandt to a logit model using data from the U.S. aluminum industry over the period 1954 through 2010. The results show that both entry and exit decisions are statistically significantly affected by excess capacity. However, the correlation of entry and exit with capacity is more significant than with production. The evidence implies that excess capacity in the aluminum industry rises to be a substantial threat to entry only when the company produces ahead of demand growth. Excess capacity is also an impetus to exit during the later stage after primary aluminum production reverts to a declining trend.     

Hospital Care inflation in the United States: prices adjustments in a disequilibrium econometric framework

Uncontrollable medical care expenditure inflation in excess of general price inflation in the United States has prompted the writing of this paper. It is argued that such a frustrating phenomenon is due to the existence of disequilibrium in the hospital market. This phenomenon can be verified only by modelling the market by disequilibrium methods. In this paper, a model of price adjustment in non-clearing market is presented and tested by using autoregressive techniques. It is found that excess demand for hospital care has been the source of disequilibrium for a large part of the period of the study, 1965–1984. It is observed then the key factor causing excess demand is low out-of-pocket expenditure for hospital care by patients due to third-party payments. Had the co-insurance rate been adjusted upward or co-payment patient rate not fallen, excess demand would have been eliminated. This study also finds that the response of providers and regulators to cost inflation through price control policy seems to be ineffective in bringing the market to a state of equilibrium.