Policy modes,firms and the natural environment

This paper examines how different environmental policy types differentially impact firms and why firms vary in their responses to such policies. Based on the mechanisms embedded in policy instruments to create incentives for firms to comply, the characteristics of benefits/costs that policies impose on firms and the institutional context in which policy instruments were created and are sustained, the paper identifies five policy categories. These are category I (command and control), category II (market based), category III (mandatory information disclosures), category IV (business–government partnerships) and category V (private voluntary codes). Different policy types often bestow asymmetrical benefits/costs on firms. Some benefits/costs may constitute ‘private/club goods’ while others may constitute ‘public goods’. Drawing insights from public policy literature, the paper argues that firms can be expected to favor policies whose benefits have the characteristics of private/club goods but the costs of public goods. Thus, understanding the nature of benefits/costs (private/club versus public) and the magnitude of their excludability is critical in explaining the variations in firms' responses. To understand how managers perceive the nature of benefits/costs (monetary as well as non‐monetary), the paper draws on theories and perspectives in the business and public policy field. In doing so, the paper examines the ‘demand’ and the ‘supply’ sides as well as the market and non‐market environments of a given policy. Thus, the paper makes a case for a multi‐theoretic approach to understand variations in managerial assessments of benefits/costs, and consequently variations in their responses to various policy types. Copyright © 2004 John Wiley & Sons, Ltd and ERP Environment.     

Does the market provide sufficient employment protection?

We ask whether there is an efficiency rationale for public intervention in the form of an employment protection policy. Unlike most of the literature supporting current employment protection legislation we allow employers and workers to include severance payments in their private contracts. We focus attention on a model where firms learn over time about the value of the match. If future wage bargaining cannot be prevented, and even though severance payments may be part of the equilibrium contract, separations are too frequent (private employment protection is insufficient). Mandatory severance payments are not a remedy for this inefficiency. Instead, a Pigouvian tax/subsidy scheme will correct the inefficiency by enhancing employment protection.     

HMO Participation in Medicare+Choice

In recent years, many health maintenance organizations (HMOs) have exited Medicare+Choice (M+C), the program that provides a managed‐care option to Medicare. This paper answers the following questions: How does the equilibrium number of HMOs participating in county M+C markets vary with the capitation payment they are offered? How large a payment is required at the margin to ensure that various percentages of county markets have a M+C HMO, or to ensure that various percentages of Medicare beneficiaries have the choice of a M+C plan in their county of residence? The strategy for identifying the effect of government payment on HMO participation relies on a natural experiment; in 1997, Congress divorced M+C payments to HMOs from changes in underlying costs. The results in this paper suggest that the Centers for Medicare & Medicaid Services (CMS) has consistently underestimated the payment necessary to support HMOs in rural, sparsely populated areas. We also find that it would require a large incremental payment to support HMOs in M+C for the final 10% of counties or final 10% of Medicare beneficiaries.     

An Income Tax Increase to Fund Higher Education: A CGE Analysis for Chile

An increase in income taxes to fund education was one of the demands made by the social movements that emerged in Chile in 2011. Currently, the Chilean Congress is enacting a tax reform to raise money for higher education. This study aims to show the dynamic effects on the general equilibrium of the Chilean economy under two alternative approaches: a subsidy to lower the price of higher education (public and private), and greater spending on public higher education to reduce household payments for education. The social accounting matrix (SAM) used to calibrate the computable general equilibrium (CGE) model has 38 economic sectors, including the production structure of private education and public education. The study mainly concludes that a subsidy policy has significant advantages over increasing higher public education spending, regarding its effects on variables such as GDP, investment, and household incomes, while both policies have a similar effect on poverty and income distribution.     

Sources of inefficiency in representative democracy: Evidence on public investments across nations

Besley and Coate (1997 and 1998) exposit a formal model of dynamic fiscal policy that highlights the problem associated with the temporal mismatch between the incidence of benefits and costs. Their analysis focuses in part on the conditions that may result in inefficient public investment decisions in a representative democracy. This paper employs cross-national data to investigate implications of the Besley-Coate model. The findings indicate that several political institutions significantly affect public investments, including term lengths, staggered term expiration dates, and the separation of power between the executive and legislative branches. The findings also suggest that fiscal arrangements for redistributive payments may increase public investments. Received: March 2000 / Accepted: May 2000     

Public intervention in UK small firm credit markets: Value-for-money or waste of scarce resources?

Loan guarantee schemes are used in many countries to provide financial support to small firms by guaranteeing loans from commercial banks, but questions remain about whether public intervention in private credit markets to support entrepreneurial firms is justified. This paper examines whether the UK Small Firms Loan Guarantee Scheme (SFLG) provides value-for-money to the UK tax payer, presenting a regression based performance approach which then feeds into a formal cost–benefit analysis. Specifically, we consider whether firm performance post-investment is such that it justifies the governments’ presence in the lending market and the costs associated with it. Our findings suggest that entrepreneurial firms that are able to access new finance through SFLG achieve superior performance in the form of improved sales, job creation and exports and that this justifies public intervention in private credit markets.     

Analysis of different public policies through simulation to increase total social utility in a healthcare system

Public and private hospitals are seen to co-exist in several countries and they have different levels of service, waiting times and prices. Public hospitals, in general, are cheaper, but more crowded and offer lower quality service than private ones while private ones are underutilized because of the higher payments required for their services. These differences among hospitals affect patients’ choices in hospital selection and result in different levels of satisfaction in the community. Appropriate subsidy mechanisms can be developed to balance the capacity utilization of both sectors and to improve overall access to healthcare. The objective of this study is to develop an estimate of the magnitude of this improvement and differential effectiveness of various policies in achieving this improvement. For this purpose, we develop a simulation model that includes all the emergency departments of main public and private hospitals in a certain region of Turkey. We analyze the effects of different public policies on patients’ preferences regarding hospital choices and the results of these choices on social utility and public healthcare spending. Different capacity decisions, contracting and subsidy mechanisms are proposed and the optimal system parameters are determined under these mechanisms over this simulation model. After the validation and verification of the simulation model, several scenarios are designed and executed to increase social utility, decrease government expenses, improve patient satisfaction level and decrease waiting times. We compare the proposed scenarios based on multiple objective functions and present numerical results for different scenarios in this system.     

Persistent deficits and the market value of government debt

This paper investigates whether postwar Canadian public financial policy satisfies a borrowing constraint. Direct tests of the present-value relation suggested by this constraint shed light on the sustainability of current policy. We examine monthly data on Canadian federal government finances using tests for cointegration. The finding is that the joint behaviour of real debt and real surpluses is inconsistent with intertemporal budget balance for the government. One interpretation of this finding is that the government is systematically paying real returns to bondholders by issuing further debt. Alternatively, bondholders may expect the government to finance future interest payments from a source other than primary surpluses, e.g. the sale of physical assets.     

The Social Costs of Innovation Policy

Innovation policy is designed to produce social benefits by solving a market failure problem associated with private investment in new knowledge. Yet the social costs of these policy interventions are routinely ignored. We use the Djankov et al. (2003) institutional possibility frontier model to analyse the trade‐offs between the social costs of disorder and those of dictatorship that particular innovation policies impose. We show how different innovation policies impose different types of social costs. We conclude that the case for public support for innovation policies is often both distorted and overstated because of failure to account for social costs.     

Total Reward and pensions in the UK in the public and private sectors

Recent controversy has surrounded the relative value of public and private sector remuneration. We propose a comprehensive measure of Total Reward (TR) which includes not just pay, but pensions and other ‘benefits in kind’, evaluate it as the present value of the sum of all these payments over the lifetime and compare it for the highly educated in the UK public and private sectors. Our results suggest that TR is broadly equalised over the lifecycle for highly educated men while highly educated women have a clear TR advantage in the public sector by the end of their career. We suggest that the current controversy over public–private sector pension differentials and the perennial issues of public/private sector pay gaps requires a lifetime perspective and that the concept of TR is appropriate.     

The effect of ownership on sustainable development and environmental policy in urban waste management: An explicatory empirical analysis of Italian municipal corporations

This paper investigates the effect of ownership on sustainable development and environmental policy in Italian municipally owned corporations (MOCs) dealing with urban waste management, trying to understand if multiple ownership can generate better performance compared to single ownership and if the presence of private partners could be crucial in this. The research question is answered by analyzing 41 MOCs of the largest Italian cities operating in urban waste management. In this specific sector, public administrations have tried to improve their offer in terms of sustainable development, environmental policy, and efficiency. The paper covers the Italian case study, where urban waste production per capita is higher than the European average figure. The waste cycle management service is operated in Italy at local level through totally publicly owned companies (monoadministration or multiadministration), mixed (public–private) companies, or via a full externalization achieved by means of public tenders. Through a multinomial ordered probit panel, we show that MOCs with multiple owners perform better than those having a single owner and perform much better with the presence of a private partner, confirming those academic findings according to which collaborative arrangements can increase efficiency, do better than public sector bureaucracy, and lower the costs of service provision. The results of this paper can be used by academics, practitioners, and policy makers alike. To the best of our knowledge, this is the only study that applies this perspective to the analysis of the current international waste management scenario with relation to MOCs having multiple ownerships.     

The Creation,Maintenance and Governance of Public Goods and Free Goods

The theory of public goods is largely irrelevant to their management and governance. It is highly normative but is unused in the policy area. It remains centred on highly idealized and dichotomized characteristics (non-rivalrousness and non-excludability) of public goods despite important theoretical progress in the last twenty years. It is suggested that public goods are as much social as technological constructions, but there is no explanation of how such goods come into existence. It is argued that they are often subject to evolution that changes the balance of their characteristics between being public or private goods. Present theory bears little relationship to the governmental budgetary processes assumed necessary to finance such goods, yet all management and maintenance costs, often high enough to deter such funding, are ignored. While there is recognition that the intensive use of a public good often imposes costs directly upon users, there is no corresponding recognition either that inappropriate and intensive usage can erode public goods as assets or that such usage is difficult to control. Free goods are described and mooted as specific and important types of public goods. Illustrative examples of public and free goods, mainly from Australia and the Pacific, are cited.     

TRADE LIBERALIZATION, PUBLIC ABATEMENT, AND WELFARE

This paper discusses public abatement financed by pollution tax revenue or tariff revenue and investigates the welfare consequences of a tariff. The main result of this paper is that under certain conditions a tariff reduction results in an improvement in welfare through an increase in public abatement and a decrease in pollution. This result may guide policy for countries that wish to harmonize trade liberalization and the environmental protection demonstrated by both the private and the public sectors.     

Can the Public's Desire for Future Benefits Be Deduced form Their Private Decisions?

Abstract . How should benefits and costs occurring at different times be evaluated to decide whether to undertake tax financed public projects? What interest rate should be used? If public decisions were based on people's willingness to pay for future private income, they still could not be based on market interest rates. The benefits of public projects (except in the cases of private land values or affected fixed private capital investments) are not marketable. However, among other things, market interest rates do represent the opportunity costs of public investments. Still, many citizens are concerned about the welfare of future generations; they may have a lower time preference rate. Human capital investments are directly analogous to public investment to produce non marketable public goods. Both are illiquid; both yield returns higher than market rates. This indicates the private rates of time preference for most citizens are high.     

The dynamic investment and exit decisions of venture capitals

This study develops a continuous time model to examine a complete two-stage decision process for venture capitals (VCs), including investment in the private market at Stage 1 and exit through IPO in the public market at Stage 2. Optimal timings, investment terms, and exit decisions are investigated using the real options game theory under two cases: the same required returns in the public and private markets and a higher required return in the private market than in the public market. Our results indicate that the same required returns in the public and private markets generate an optimal investment decision at Stage 1 without relation to the exit decision in Stage 2. However, when the required return in the private market is higher than that in the public market, the exit decision will influence the investment decision. The size of the initial capital, ownership structure, growth rate and risk of industry, required returns in public and private capital markets, extent of lock-up period price pressure, and transaction costs of financing are important factors influencing the equilibrium results.     

公用事业民营化项目中的管制结构与风险

为了防止投资于公用事业的民营企业赚取超额利润，维护广大消费者的利益，政府应当对经营公用事业的公司进行管制。管制结构一般有价格帽，价格帽加成本传递、收入帽、收益率管制等。文中分析了各种管制下的民营公司承担的风险，并做了实证分析。     

Exchange rate and foreign price effects on UK inflation

The issue of incomplete pass-through from exchange rate changes to domestic inflation has received considerable attention. Most models try to account for this by using a variety of assumptions about the costs of changing prices. These suggest complete pass-through, but only after the possible elapse of a considerable delay. In contrast, in this article Graeme Chamberlin and Brian Henry provide evidence that exchange rate effects on inflation may be non-linear and, more specifically, subject to thresholds. Their tentative results suggest this may be important in describing price-setting behaviour in the UK.     

An empirical investigation of going private decisions of U.S. firms

According to many managers, the Sarbanes-Oxley Act of 2002 caused the costs of being public to increase. Subsequently, following the Act, many firms went private rather than incur the costs. We investigate the differences in the financial characteristics of firms that went private between 1998 and 2003 and a control sample of firms which went public and did not go private Our results indicate that there are differences in the two groups, as well as differences in firms that went private prior to and following Sarbanes-Oxley. Taken together, our results are indicative of going private to avoid the higher costs of being public post Sarbanes-Oxley.     

Hospital performance standards and medical pricing: The impact of information disclosure in cardiac care

A policy concern is that the initiation of Hospital Compare (HC) reporting in Medicare provided leverage to insurers in price negotiations for lowering private sector prices without regard to hospital performance. Using the sequential Nash bargaining framework we provide economic intuition to the contrary: while average hospital prices decline under quality disclosures, hospitals with above‐average quality are able to exert a stronger bargaining position, consequently capturing prices above the market rate. To explore this issue empirically we estimate variants of difference‐in‐difference models, examining the effects of the three main scores (heart attack, heart failure, and combined mortalities) on transaction prices of related hospital procedures. States which had similar mandated reporting systems in place before the initiation of HC form the control group. Analyzing claims data of privately insured patients, we find that HC exerted downward pressure on prices. However, hospitals rated “above‐average” captured higher prices, thereby offsetting the overall policy effect fully or partially. Leads and lags analysis lends further support for our difference‐in‐difference approach. We find that highly ranked hospitals received a quality premium of 8–14%, comparable to price effects found in other health care markets. We conclude that HC was effective at constraining prices without penalizing high performers.     

Economics,economists, and public policy☆

This article examines the role of economics and economists in shaping public policy by, first, examining the employment of economists in government, academe, and the private sector. In the United States, only a minority of Ph.D. economists (about 12 percent) are employed in government, and several important departments of the federal government employ few economists. The article goes on to illustrate the pitfalls that economists face in assisting and advising with public policy by examining the adoption of statistical profiling in Unemployment Insurance. The article concludes that, if the economics profession and economic research are to be effective in shaping public policy, then academic economists must become more directly involved with policy makers in government and decision makers in business.