Regulation and the cost of childcare

Female labour market choices depend on the availability, affordability and quality of childcare. In this article, we evaluate different regulatory measures and their effect on both the quality and the cost of childcare. First, we analyse data on regulations and costs to estimate the effect of regulatory measures on the cost of childcare. Next, we summarize the existing literature on the effect of regulation on childcare quality. We find that regulation intended to improve quality often focuses on easily observable measures of the care environment that do not necessarily affect the quality of care but that do increase the cost. Thus, we find that the regulatory environment could be improved by eliminating costly measures that do not affect quality of care.     

Consumer confusion,obfuscation and price regulation

This paper studies firms’ obfuscation choices in a duopoly setting where two firms differ in their marginal costs of production. We show that the high‐cost firm chooses maximum obfuscation while the low‐cost firm chooses minimal (maximal) obfuscation if the cost advantage is large (small). We argue that in this setting there is a new role for price regulation as it leads to more transparent pricing. Moreover, a price cap benefits social welfare as it shifts production to the more efficient low‐cost firm.     

On the Efficiency of Decentralized Exchange with Resale Possibilities

This paper studies decentralized exchange by bilateral matching and bargaining when resale is possible. Decentralized exchange involves the risk that goods and services may be allocated inefficiently; if low-valuation buyers consume while high-valuation buyers do not, then social welfare is reduced. If resale is possible and transaction costs are negligible, we would nevertheless expect an efficient allocation to result from decentralized exchange. This paper suggests that this depends on the nature of the commodity; while the allocation of a durable good will be efficient, the allocation of a "consumable" good need not.     

Cost credibility and the stated preference analysis of public goods

Two recent stated preference studies include questions that explore participants’ beliefs regarding the cost amount stated in the valuation question in relation to the cost to them if the project were implemented. Results from these studies suggest that a significant proportion of people do not believe these stated cost amounts. This paper explores the implications of participants answering valuation questions that are not consistent with their beliefs regarding stated costs. As an example, the paper develops a response model for dichotomous choice stated preference questions. Participants gather project information through the stated preference experiment, form a prior distribution of costs, update the distribution of costs based on a survey's stated cost and then respond to the dichotomous choice stated preference question. The model suggests that participants will not generally respond truthfully in the sense that they may say no to a stated cost that is less than their willingness to pay for a project or yes to a stated cost that is more than their willingness to pay. While the model findings suggest potentially serious problems with stated preference estimation, the observed patterns of disbelief from the empirical studies result in downwardly biased estimates of mean willingness to pay.     

Asymmetric Regulation of Identical Polluters in Oligopoly Models

Studies of optimal second-best environmental regulation of identical polluting agents have invariably ignored potentially welfare-improving asymmetric regulation by imposing equal regulatory treatment of identical firms at the outset. Yet, cost asymmetry between oligopoly firms may well give rise to private as well as social gains. A trade-off is demonstrated for the regulator, between private costs savings and additional social costs when asymmetric treatment is allowed. Asymmetry is indeed optimal for a range of plausible parameter values. Further, it is demonstrated that for a broad class of abatement cost functions, there is scope for increasing welfare while keeping both total output and total emission constant. Some motivating policy issues are discussed in light of the results, including international harmonization and global carbon dioxide reduction.     

Coal gasification: An economic evaluation

Political interest in developing the capability to produce gaseous fuel from coal in the United States has been cyclical in nature, depending primarily upon the security of the international market for oil and public attitudes toward nuclear power. Interest in coal gasification technology by private investors, however, depends primarily on the economic and technological considerations analyzed in this paper. A cost forecasting model is developed with the capability to take into account future economic and technological uncertainties associated with producing high BTU gas (a substitute for natural gas) from coal. The cost forecasting model incorporates probabilistic information on key economic and technological parameters subject to future uncertainty and simulates, by Monte Carlo methods, the costs which private investors would incur over the life of a commercial size coal gasification plant. The results suggest it is highly unlikely that the coal gasification process could produce high BTU gas more cheaply than the price at which natural gas is likely to be available.The cost forecasting model is also modified to compare the cost per kilowatt–hour of generated electricity when fueling a 1,000 Mw power plant with oil versus high BTU gas from coal. Again, based upon the costs to private investors, the simulation results indicate a very low probability that high BTU gas from coal would prove the least costly fuel for generating electricity.The implied economic infeasibility for private investment in coal gasification does not necessarily provide a basis for public policy to abandon the technology. Public policy recommendations must consider social costs as well as private costs. Possibly the greatest social cost associated with abandoning coal gasification is the risk of a significant energy supply interruption. A diversified national energy policy including coal gasification may in fact be less costly if relevant social costs are included in the calculations. Results from the cost forecasting model indicate the size and type of public subsidies that may be necessary to support a diversified energy industry which would include coal gasification.     

Firm/interruptible gas pricing patterns in a regulated environment

Conclusion This study provides empirical tests for the effects of rate base regulation, curtailment priorities, fuel clauses, and elected commissioners on firm/interruptible gas pricing patterns. These regulations do alter observed pricing patterns with curtailment priorities, fuel clauses, and elected commissioners all producing net social gains. Rate of return regulation imposes social costs resulting in a net decrease in social welfare. Ignoring the political influences upon regulators, regulation generally encourages consumption at the peak relative to the off-peak. Nonetheless, overall social welfare is improved if all four types of regulatory characteristics are present, since most rates are reduced from their monopoly levels.     

Using Market Prices to Regulate the Costs of a Utility‘s Inputs

This paper analyzes the problem of determining allowable cost of a utilitys inputs when the price of these inputs may be highly volatile and when hedging and long-term contracting are the norm in the supply of these inputs. In such an environment, benchmarks based upon the observable market price of an input are natural regulatory mechanisms to consider. This paper studies such incentive-based regulation. The first section uses contingent claims analysis to investigate a representative contract currently in place. The analysis indicates that this regulation may impose an important monitoring role on the regulator in order to prevent the utility from taking extremely risky positions in fuel markets. Further investigation of benchmark-based regulation is undertaken in a principal-agent framework in which the utility has the dual role of choosing a fuel portfolio and undertaking expenditures to reduce fuel costs. In this setting, it is shown that benchmark-based compensation is, at best, ineffective. Within the same setting, contracts based upon cost sharing are studied and found to be superior at obtaining a tradeoff between risks and cost reduction.     

An economic evaluation of the Baldrige National Quality Program

All federal programs are accountable for their use of public funds. This paper presents conservative estimates of the net social benefits associated with the Baldrige National Quality Award Program, established within the National Institute of Standards and Technology in 1987. On the basis of survey data from members of the American Society for Quality, we estimate cost savings benefits to members, extrapolate those benefits to the economy as a whole, and compare the benefits to the social costs associated with the Program. Our estimation method implies that the ratio of economy-wide benefits to social costs probably exceeds 207:1, supporting the hypothesis that the public investments in quality-standards infrastructure are worthwhile.     

The Relationship between the Environmental and Financial Performance of Public Utilities

A growing body of research has centered on theissue of the relationship between financial andenvironmental performance. The lack ofconsensus in this literature can be attributedto several factors. The cost of complying withenvironmental regulation can be significant anddetrimental to shareholder wealth maximization.Conversely, a firm that can effectively controlpollution might also be able to effectivelycontrol other costs of production and henceearn a higher rate of return. We utilize datafrom the Investor Responsibility ResearchCenter as well as a proprietary database toinvestigate the relationship betweenenvironmental performance and financialperformance in electric utilities. Utilities,as producers and distributors of energy,produce substantial amounts of pollution.However, since public utilities are regulated,studying the financial and environmentalperformance of utilities affords us theopportunity to see what role regulation playsin enhancing or diminishing the relationshipbetween financial and environmentalperformance.Our results differ from earlier studies in thatwe find do not find a positive relationshipbetween holding period returns and anindustry-adjusted measure of environmentalperformance nor do we find that regulatoryclimate appears to explain returns. While theredoes not appear to be a clearly definedrelationship between regulatory climate and acompliance based measure of environmentalperformance, there is evidence of a negativerelationship between financial return and amore pro-active measure of environmentalperformance. We offer several possibleinterpretations of these results and extensionsfor future research.     

The Impact of Price Regulation on the Cost of Capital

This paper investigates how price regulation under moral hazard can affect a regulated firm's cost of capital. We consider stylized versions of the two most typical regulatory frameworks that have been applied in the most recent decades by regulators: Price Cap and Cost of Service. We show that there is a trade‐off between lower operational costs and a higher cost of capital under Price Cap regulation and higher operational costs and a lower cost of capital under Cost of Service regulation. As a result, when the extent of moral hazard is not significant, Price Cap regulation generates lower welfare than does Cost of Service regulation.     

Campaign Finance Levels as Coordinating Signals in Three-way, Experimental Elections

If (often costly) election campaigns are simply advertising, they do not increase social welfare directly. Given this, should we limit campaign expenditures? We propose that costly campaigns can inform voters about the strength of candidates. This may increase welfare indirectly by helping voters avoid coordination failures. In laboratory elections, we study campaign finance levels as coordinating signals and compare them with our earlier work on polls. Both coordinate majority voters effectively, allowing them to stop Condorcet losers from winning. Finance levels were rational in that the total benefits of coordination exceeded the costs. Further, benefits of typical incremental contributions exceeded costs ex-post, while the next typical increment's benefits would not have.     

Market power,private information,and the optimal scale of pollution permit markets with application to North Carolina's Neuse River

We extend the analysis of optimal scale in pollution permit markets by allowing for both market power and private information. We characterize the total costs (abatement costs and damages) under market power and private information and compare them to total costs under competition. It is possible for both market power and private information to lead to lower total costs than competition, but generally the differences between the three market structures will be small. We also conduct an optimal scale analysis of nitrogen pollution from waste water treatment plants (WWTP) into North Carolina's Neuse River System. An economic model of damages and abatement costs is integrated with a hydro-ecological model of nitrogen flow through the Neuse. We determine the optimal number of trading zones and allocate the WWTP into these zones. Under the most likely regulatory scenario, we find cost savings of 1.55 million dollars per year under the optimal market design relative to the typical 303(d) regulation in which the WWTP are not allowed to trade.     

Entrepreneurship,search costs,and ecological rationality in an agent-based economy

Since Coase’s paper on the firm, transaction costs have occupied much attention as a field of economic inquiry. Yet, with few exceptions, neoclassical theory has failed to integrate transaction costs into its core. The dominant mode of theorizing depends upon Brouwer fixed points which cannot integrate transaction costs in more than a superficial manner. Agent-based modeling presents an opportunity for researchers to investigate the nature of transaction costs and integrate them into the core of economic theory. To the extent that transaction costs reduce economic efficiency, they provide opportunities for entrepreneurs to earn a profit by reducing these costs. We employ an extension of Epstein and Axtell’s (1996) Sugarscape to demonstrate this point one type of transaction costs: search costs. When agents do not face the cost of finding a trading partner, the system quickly reaches a steady state with tightly constrained prices regardless of agent production strategies. When search costs are present, entrepreneurs may use competing strategies for production and exchange that allow them to earn higher revenues than they would earn otherwise. These cost reducing innovations tend to promote concatenate coordination (Klein 2012). The agent’s production strategies represent technology in the form of mental models (Denzau and North 1994) that shape agent action with regard to the agent’s environment. The success of these are dependent on their ability to overcome search costs. The average profit, market rate of return, earned by each of these mental structures tends to equalize as a result of competition.     

The performance and objectives of public and private utilities operating in the United States

This paper compares the production efficiency of public and private utilities to determine if a significant cost differential results from different behavioral objectives under the alternative modes of ownership. The procedure is to estimate the cost and input demand functions simultaneously while accounting for differences in input prices and technology across firms. The parameter estimates are then employed to compare the efficiency and objectives of public and private firms. The results suggest that public firms minimize cost and have 24–33% lower per unit costs than their privately owned counterpart. This cost differential appears to result from rate-of-return regulation of the privately owned firms.     

Relative price efficiency,technical change,and scale economies for large commercial banks

One of the more important and frequently researched topics in banking is the production process. Previous studies of bank production, however, have employed a methodology which is not appropriate for regulated firms. We generate cost estimates for large commercial banks utilizing a generalized cost model which subsumes the commonly used model as a special case. Our findings suggest that the traditional methodology is inappropriate for the sample banks and generates biased estimates of cost parameters, scale effects, and the influence of technological change. The new methodology allows us to measure directly the effect of regulation on bank costs. The effect found is small, but significant.     

Gender and the social costs of claiming value: An experimental approach

This paper employs economic experiments to explore the social costs of claiming value in distributive negotiations. I use a reverse dictator game, a “Taking” game, to measure value claiming behavior and an Investment game to measure the social costs of claiming value in terms of trust offered by third parties to Takers. I observe social costs to claiming value and find that male Trustors impose higher social costs than female Trustors. Women reduce how much value they claim in the presence of social costs, but men do not. Takers anticipate this response and claim less when observed by a man.     

Regulation through a revenue contest

This paper proposes a mechanism for the regulation of duopolies a revenue contests among the firms. Under the mechanism, the firm with the lower revenue is to pay a penalty to the firm with the higher revenue proportional to the difference between their revenues. In a homogenous good Cournot duopoly with convex cost and demand functions, the mechanism implements the optimal outcome when the firms have symmetric costs. When one firm is more efficient, the mechanism leads to increased social surplus under a large set of parameters. We also consider extensions that involve cost uncertainty, repeated games and differentiated goods.     

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.     

Competition vs. collaboration in the generation and adoption of a sequence of new technologies: a game theory approach

The study provides a game theoretic exploration of firms’ decisions on whether to compete or collaborate in the generation and adoption of a sequence of new technologies. Different from models proposed by previous studies, which concentrates on process innovation and a two-strategy set (innovation or do nothing), the present game theory model emphasises product innovation and a three-strategy set (innovation, collaboration, or do nothing). The study makes three contributions. The proposed game theory model extends current understanding of the impacts of collaboration possibilities and collaboration cost in a dynamic game theory. Further, the model clarifies the impact of transaction costs on the outcome. Finally, the study finds that the relationship between collaboration costs is not univariate, but depends on the market type and various market characteristics, such as technology gap, technology level, the product substitution index, transaction costs, and the discount rate of price sensitiveness.