Non-maximizing output behavior for firms with a cost-constrained technology

In many public service industries, firms are constrained by a cost (budget) and characterized by non-maximizing output behavior, due to bureaucratic behavior, for instance. This paper proposes a model based on the assumption that firms with a cost constraint do not maximize service levels due to resource preferences. It derives the exact relationships between services delivered, (shadow) input prices, cost constraints, and optimal input quantities. From these relationships, allocative efficiencies, technical efficiencies, output ray elasticities, and marginal cost can easily be derived.      

Governance and effects of public R&D subsidies: Evidence from China

This study examines the effects of public research and development (R&D) subsidies and the governance of such subsidies on firm productivity based on the analysis of a firm-level panel dataset between 1998 and 2007 in China. It is found that public R&D subsidies tend to support more productive firms and the productivity of these government-backed firms is improved further after they get the government support. Less attention is paid to the observable or measurable performance measurements in ex-ante project selection, and the ex-post effects are stronger when the governance of the public R&D subsidies becomes more decentralized due to an exogenous policy change. In other words, better decentralization of governance is associated with more pronounced effects of R&D subsidies. Identification concerns are addressed with various approaches to confirm the treatment effect of public R&D subsidies and the governance of such subsidies.     

THE THEORY OF STATE-OWNED ENTERPRISES IN MARKET ECONOMIES

Abstract. Four topics are covered: the circumstances under which state-owned enterprises (SOEs) are more effective than private firms; the different approaches to modelling public and private firms; the performance of SOEs; and strategies including privatization to limit their more damaging effects. It is argued that ideological or development motives are important in their genesis, but that if efficiency and innovation are key considerations the normative case for their existence is more doubtful. Various types of SOE model are identified, deriving from the variety of circumstances in which they operate, and the theoretical perspective of the modeller. These include the property rights school, the public choice tradition, neoclassical, behavioural and budget maximizing approaches. All models assume the existence of monitoring problems, created by informational asymmetry. The consequences can include high non-pecuniary benefits for managers, a concentration on monitored activities, and lower innovation levels and efficiency than private firms. Curiously this is not necessarily reflected in higher prices or costs. Possible remedial strategies include a change of ownership, a change of objectives, the introduction of incentive-compatible payment schemes, improved performance indicators and privatization.     

Price and quantity competition among heterogeneous suppliers with two-part pricing: applications to clubs, local public goods, networks, and growth controls

Models of club goods, local public goods, and growth controls appear to have theoretical structures distinct from usual oligopoly models. This article shows, however, that they are special cases of a generalized oligopoly model that incorporates the possibility of two-part pricing and externalities between consumers (either congestion or network externalities). Our generalized two-part pricing model not only serves as a synthesis of a wide range of models but also allows us to obtain several new results on equilibrium prices. Another advantage of our model is that it can be interpreted as a reduced form of more complicated models that have spatial structures. This facilitates extension to the case where firms are heterogeneous and the number of firms is arbitrary.     

Evolution in a General Equilibrium framework

In this paper, we consider a general equilibrium model in which the economies are characterized by the distribution of firms on a set of branches of production; we will show that based on the decisions of the managers of the firms, it is possible to build a dynamic system whose solutions reproduce the possible trajectories of the economy. Once the initial state of an economy is known, that is, the initial distribution of firms, we will have a unique solution for this dynamic system, which will coincide with the evolution of the economy, that is, the evolution of prices and equilibrium allocations.The investment decisions of the administrators of the companies will change the distribution over the set of existing productive branches, which in turn will produce changes in the wealth of consumers who are also shareholders of the companies and then as a consequence, their demand will change, and therefore the equilibrium allocations and prices will too.In most cases, these decisions lead to an improvement in the efficiency of the productive side of the economy and an increase in the welfare of the economy as a whole, but, as we will show, under some particular circumstances, even when it comes to rational decisions from the point of view of administrators, this can lead to undesirable repercussions on the welfare of consumers. Besides, in a neighborhood of a critical economy, even when these decisions may involve small changes in the distribution of companies, they can cause abrupt and unexpected changes in the behavior of the economy, or in other words, they can cause an economic crisis. These are characterized by large changes in the prices, in the demand, and in the supply of goods. In contrast, in a sufficiently small neighborhood of a regular economy, small changes in the distribution of firms produced by the investment decisions of managers do not lead to large changes in the subsequent behavior of the economy. We will exemplify these statements with several numerical examples.     

SPATIAL PRICE EQUILIBRIUM AND THE TRANSPORT SECTOR: A TRADE‐CONSISTENT SCGE MODEL

In spatial computable general equilibrium models, interregional trade ought to play an important role in determining the spatial price equilibrium. Although the Armington assumption is commonly employed to describe cross‐hauling, many of the existing models do not explicitly consider the behavior of transport firms. This paper presents a framework that is compatible with the Armington assumption and explicitly considers transport activities. In the model, the trade coefficient takes the form of a potential function, and the equilibrium market price becomes similar to the price index in the context of new economic geography. The features of the model are investigated by using the minimal setting, which comprises two nontransport sectors and three regions. Because transport costs are given exogenously, the commodity prices are determined relative to them. The model can be described as a system of homogeneous equations, where an output in one region can arbitrarily be determined similarly as a price in the Walrasian equilibrium.     

A multiregional planning and forecasting model with special regard to the public sector

Despite the magnitude of the public sector and its rapid growth most multiregional economic models are lacking public sector content. The present paper aims at incorporating some of the roles of the public sector in the regional development. It is done within the framework of a multiregional optimization model for the allocation of private and public investment, production, employment (and population) over economic sectors and regions. By choosing appropriate objective functions, the model may be used for either planning or forecasting purposes. In the model the focus is on the public sector as a service and provision body and as a provider of public infrastructure. Its role as an agent for transfer payments is not stressed. The capacities of the model are illustrated by means of an example concerning Swedish regional development 1977–1983.     

Costs of short-term credit for small and large firms

Changes in costs of credit for small and large firms respond differently to economic conditions and the markets are segmented. Costs for small firms are less responsive to changing economic conditions. Small firms borrow via credit card loans and from banks. Dynamic models prove the costs of funds are negative functions of quantities borrowed and positive functions of the Fed funds rate. During recessions, the decline in funds’ prices to large firms is greater than the reductions to small firms. Large firms benefit to a greater extent than small firms when prices of credit are changing.     

International mergers and acquisitions: A jump diffusion model application

This paper empirically investigates international mergers and acquisitions (M&As) of foreign targets and bidders by analyzing the stock price behavior of the firms involved. The jump diffusion model is employed to study the effects of the M&A announcements on stock prices. The results indicate that acquisition announcements are perceived as a surprise by the market, but prices seem to adjust rather rapidly, supporting the semi-strong form of the market efficiency hypothesis. In addition, a comparison of the pure diffusion and jump diffusion models indicates that the jump diffusion model is statistically superior to the traditional event study methodology (pure diffusion model). (JEL G34)     

Operational performance of U.S. public rail transit and implications for public policy

In today's tough economic environment, governments at all levels face significant budget shortfalls and public rail transit systems must compete with other public services for government subsidies. It is critical that public rail transit systems be concerned with their operational performance and efficient use of resources. In this paper, we develop a methodology that measures a rail transit system's performance relative to that of other rail transit systems, compares its performance to an appropriate efficient benchmark system, and identifies the sources of its inefficiency. We analyze the relationship between public subsidies and operational performance of public rail systems and show an inverse relationship between subsidization and efficiency.     

A theory of interregional tax competition

A general equilibrium model is constructed to study tax competition, where local governments compete for capital by holding down property tax rates and public expenditure levels. An exact definition of tax competition is provided, and both the existence and nonexistence of tax competition are shown to be theoretically possible. It is argued, however, that tax competition must occur under empirically reasonable conditions. Inefficiency in public production is also explicitly modeled. The amount of capital used to produce a given level of public service output is shown to be greater than that which is required to minimize costs evaluated at the prices facing private firms.     

政府补助影响因素的行业和企业特征

本文利用2006年至2008年上市公司中政府补助的数据,经验性地验证了政府补助范围、金额和种类的变化状况;政府补助与否的行业特征以及补助强度大小的行业特征;接受补助公司与没有接受补助公司在企业特征方面的差异。结果发现：科研创新补助和荣誉相关补助的公司从2006年到2008年增加了一倍以上,但与生产相关的补助金额却最多,上升幅度也最快。分行业接受补助公司的数量比例与按照补助强度划分的行业结果完全不同,社会服务业、电力、煤气及水的生产和供应业、房地产业是补助强度最大的三个行业。企业特征中,盈利能力、成长性、偿债能力、人工效率等对企业能否接受补助没有显著影响,而分别以资产总额、主营业务收入、员工人数来衡量的规模则是企业能否接受补助的显著因素。该文的结论对我国今后的政府补助具有一定的政策意义。     

The effects of public support schemes on small and medium enterprises

In this paper we will investigate the effects of direct grants and tax incentives on recipient small and medium enterprises (SMEs). Direct grants and tax incentives are two different public instruments used to correct market failure and facilitate innovation through lowering the cost of R&D. Although large and small firms innovate in different ways, so far limited empirical evidence has been reported with respect to the effectiveness of public R&D instruments for SMEs. Our data suggests that direct subsidies used alone or with tax incentives strengthen the R&D orientation of the SME as well as some aspects of innovation output and absorptive capacity. Although the effects of policy measures are significant when comparison is made to firms that did not use any of the two instruments, not much difference is found when users of direct grants are compared to those who used both the grants and the tax incentives. This result indicates the existence of limitations in the use of tax incentives by SMEs, and thus suggests that subsidies may be the primary instrument in SMEs.     

The Lowry Model Revisited: Incorporating a Multizonal Input-Output Model into an Urban Land Use Allocation Model

This paper formulates a new generation of Lowry-style models that combine a multizonal input-output model and an urban land use allocation model. Three different types of models are proposed: 1) an unconstrained model, 2) a primal of a linear programming approach that includes land supply constraints, and 3) a modified dual of the linear programming approach that allocates land based on additional conditions of economic efficiency. The modified dual formulation improves upon the limitations of Lowry models and their derivatives. First, the proposed model has sound theoretical underpinnings that incorporate the production theory of input-output models and the behavioral theory of optimization models. Second, the proposed model allocates land on the basis of economic efficiency by imposing a procedure that equalizes shadow prices. And third, the proposed model is an optimization model that fully accounts for the spatial and sectoral relationships of multiplier effects determining land use demand.     

Farrell efficiency under value and quantity data

In 1957, Farrell introduced a nonparametric method to estimate technical efficiency. His original illustration, however, utilized value-based, rather than quantity-based data (p. 279). This common practice raises the question of how value-based DEA models coincide with quantity-based models. It is well known that the two models coincide when firms face identical prices. In practice, however, prices vary across firms and the two models yield materially different results. We decompose the resulting difference into its technology and firm-related components and then use Farrell’s original data set to show that the expected difference is systematic and one-sided.      

Assessing the technical efficiency of public procurements in the bus transportation sector in the Czech Republic

This article examines public procurements in the regional bus transportation sector. The data were collected exclusively for this research from regional offices in the Czech Republic. This study does not propose to estimate the cost function for bus operators, as do most efficiency studies. Rather, it’ focuses on identifying the factors that influence the final price offered by participants in the tender. Knowing these factors will help to properly set the tender conditions, which can further help to improve how well the bus operator functions, and to reduce public subsidies. The study also aims to estimate the technical efficiency rate by using Data Envelopment Analysis (DEA) and find the implications of efficiency scoring for tender conditions. This statistic also enables contract owners to compare the cost differences between individual bus service providers and examine companies that operate at the efficiency frontier.     

Shadow Price Approach to Total Factor Productivity Measurement: With an Application to Finnish Grass-Silage Production

This paper explores an intermediate route between the Fisher and the Malmquist productivity indexes so as to minimize data requirements and assumptions about economic behavior of production units and their production technology. Assuming quantity data of inputs and outputs and the behavioral hypothesis of allocative efficiency, we calculate the exact value of the Fisher ideal productivity index using implicit shadow prices revealed by the choice of input–output mix. The approach is operationalized by means of a nonparametric data envelopment analysis (DEA) model. Empirical application to Finnish grass silage farms suggests that the Malmquist and the Fisher productivity indices yield similar results when averaged over firms, but there can be major differences in the results of the two approaches at the level of individual firms.     

Options and earnings announcements: an empirical study for the European Options Exchange

In this paper we give an introduction in option pricing theory and explicitly specify the Black-Scholes model. Although market participants use this and similar models to price options, they violate one of the fundamental assumptions of the model. They do not set a constant value for the volatility of the underlying asset over time, but change the volatility even during a day. By means of event study methodology we investigate the volatility of the underlying asset and the volatility implicit in option prices around earnings announcements by firms. We find that the volatility in option prices increases before the announcement date and drops sharply afterwards. The volatility of the underlying stocks is higher only at the announcement dates and we do not observe a higher volatility around these dates. Hence, the constant volatility of the underlying asset, which is one of the assumptions in the Black-Scholes model, does not hold. However, the market seems to correctly anticipate the change in volatility, by correcting option prices.     

The social profitability of business incubators: a measurement proposal

Abstract

Public business incubators are services placed at the disposal of original, generally newly-created projects, to which physical accompaniment, supervision and location are offered at prices below market value. They have as their aim to help set in motion and consolidate these firms during the stages in which they are weaker. The ultimate goal consists in favouring the generation of innovative firms, inducers of high-quality jobs, which can diversify the local business fabric, thus becoming a key tool in local development. The present paper provides a methodology to study the economic – but above all social – impact of business incubators, based on the examination of 40 from the 42 incubators existing in the Valencian Community (a Spanish autonomous region with five million inhabitants). Data analysis allows us to state that, although business incubators are not economically profitable since they need financial aids and public investment to start operating, they do have social profitability, insofar as the activity developed by entrepreneurs permits to provide public administrations – via taxes – with returns exceeding what was invested in these incubators. It has been determined that 2.8 euros (which can be applied to a variety of social areas) are collected via taxes for each euro spent to start them up.