Regulatory design and technical efficiency: public transport in France

The provision of local public transport in France involves private and public firms and the use of incentive contracts to regulate them. We study the effect of these institutional features on the sector’s efficiency using a long panel data of firms, with a two-stage estimation procedure. First, we use nonparametric data envelopment analysis techniques to estimate input usage efficiency, following a conditional approach that controls for differences in the environments in which the firms operate. Second, we estimate semiparametric censored regressions, using fixed effects to control for unobserved sources of heterogeneity. Our results point to a differential effect of private and mixed public-private companies. In particular, having the performance of public operators as the benchmark, efficiency is relatively higher for private firms, but lower when the service is delegated to a mixed public-private firm. In the latter case, the effects diverge by contract type: when the contract is of the cost reimbursement type, performance is lower than the public firm benchmark, while for other contract types, there are no statistically significant differences.     

Endogenous Choice of Strategic Contracts in a Mixed Duopoly with Bargaining Over Managerial Delegation Contracts

We revisit the endogenous choice problem of strategic contracts for the public firm and the private firm in a managerial mixed duopoly with differentiated goods. We consider the situation wherein the managerial delegation contracts are determined by maximising social welfare within the public firm, which is equal to the objective function of its owner, and through bargaining over the content of managerial delegation contracts between the owner and manager within the private firm. We show that, in equilibrium, when the manager of the private firm has high bargaining power relative to that of the owner, the public firm chooses a price contract, while the private firm chooses a quantity contract. However, there is no equilibrium market structure under the pure strategic contract class when the manager has sufficiently low bargaining power relative to that of the owner.     

Payment choice in international trade: Theory and evidence from cross‐country firm‐level data

When trading across borders, firms choose between different payment contracts. Theoretically, this should allow firms to trade‐off differences in financing costs and enforcement across countries. This paper provides evidence for this hypothesis employing firm‐level data from a large number of developing countries. As predicted, international transactions are more likely paid after delivery when financing costs in the source country are high and when contract enforcement is low. We extend the theory and also show empirically that the more complex an industry is, the more important is contract enforcement and the less important are financing costs for the contract choice.     

Ownership and Cost‐Sharing Contracts

We discuss the relative merits of public and private ownership in an incomplete contract framework developed by Hart, Shleifer and Vishney (HSV). We add two new elements to their model. First, the government may offer cost‐sharing contracts when procuring the good. Second, the owner of a private firm may divert resources that increase their own profit/utility but increase total costs. The cost sharing contract allows the government to reduce the private firm's incentives to dump quality in order to save on costs. However, this also leads to resource diversion, which increases total costs. We derive the preferred mode of ownership when the government optimally chooses the power of the cost sharing scheme. We find that the presence of quality‐reducing cost reductions only favours government ownership if the scope for resource diversion is substantial. A discussion of when resource diversion is likely to be important is also provided.     

AUCTIONS,EX POST COMPETITION AND PRICES: THE EFFICIENCY OF PUBLIC‐PRIVATE PARTNERSHIPS*

ABSTRACT ** : Using an original database concerning 1102 French local public authorities in 2001, we explore the relationships between prices charged by private operators in water contracts and ex post competition. We show that prices charged in contracts in which operators are in a monopoly situation throughout the duration of the contract, are not affected by a ‘competition effect’ between private operators. However, a competition effect between private operators and public management appears to be crucial in explaining prices combined with a ‘termination effect’, reflecting the fact that the contract is close to being renewed, and hence re‐auctioned.     

STRATEGIC BUDGET CONSTRAINTS IN A UNIONIZED MIXED OLIGOPOLY

This paper considers the budget‐constraint problem where the government decides whether or not to impose a budget constraint on the public firm, assuming the public firm is less efficient than private firms. We find that imposing budget constraints on the public firm is the preferred choice because of the welfare‐improving effect. Our model suggests that the wage levels of the public firm can be lower or higher than those of private firms depending upon the degree of inefficiency. These results differ from Ishida and Matsushima's findings that in a unionized mixed duopoly, tight budget constraints can enhance social welfare when the public firm is as efficient as private firms.     

LONG‐TERM AND SHORT‐TERM EQUITY MARKET PRICE INTERACTIONS BETWEEN AUSTRALIA AND THE CHINESE STATES*

This study investigates the extent and manner of long‐term and short‐term price interaction between the equity market of Australia and those of China, Hong Kong, Singapore and Taiwan taking into account the effect of the Asian financial crisis. It uses cointegration and generalised forecast variance and impulse response analyses. The study finds no long‐term price relationship between the equity markets of Australia and the Chinese states. The short‐term evidence indicates that Australia was only significantly interdependent with Hong Kong during the pre‐Asian crisis period and with Hong Kong and Singapore during the post‐crisis period. Australia and these markets react to a shock from each other immediately during the first day and complete this reaction by day two. These findings are useful for investors and policy makers, especially in light of the economic importance of these nations and China's recent admittance to the World Trade Organisation.     

Exclusion via Non‐Exclusive Contracts

We establish that non‐linear vertical contracts can allow an incumbent to exclude an upstream rival in a setting that does not rely on the exclusivity of the incumbent's contracts with downstream firms or any limits on distribution channels available to the incumbent or rival. The optimal contract we describe is a three‐part quantity discounting contract that involves the payment of an allowance to a downstream distributor and a marginal wholesale price below the incumbent's marginal cost for sufficiently large quantities. The optimal contract is robust to allowing parties to renegotiate contracts in case of entry.     

Industry equilibrium with random exit or default

An industry consisting of a large number of small price taking firms subject to idiosyncratic productivity shocks is considered. At the moment of entry, a firm takes on debt. We show that in a competitive equilibrium, some firms exit and pay out their debt while others choose to default. The outcome depends on the realization of firm‐specific shocks. The paper demonstrates that if the firms self‐select between exit with debt repayment and default, then the default region is disconnected from the exit region. The methodological contribution of the paper is the analytical characterization of the long‐run equilibrium for two scenarios of the initial distribution of productivity shocks. We consider two public policy mechanisms—contract enforcement and creditor protection. Our policy recommendation is that regulators need to reduce the contract enforcement if they want to decrease the long‐run default rate.     

Unemployment Benefits, Contract Length and Nominal Wage Flexibility

In a bargaining model, we show that a decrease in the unemployment benefit level increases not only equilibrium employment, but also nominal wage flexibility, and thus reduces employment variations in the case of nominal shocks. Long‐term wage contracts lead to higher expected real wages and hence higher expected unemployment than short‐term contracts. Therefore, a decrease in the benefit level reduces the expected utility gross of contract costs of a union member more with long‐term than with short‐term contracts, thereby creating an incentive for shorter contracts. Incentives for employers are shown to change in the same direction.     

Leadership and Privatisation in a Mixed Multi‐product Oligopoly: An Endogenous Timing Model

This paper examines both leadership choice and welfare consequences of privatisation in an endogenous timing mixed multi‐product oligopoly. It shows that a multi‐product firm undermines the welfare‐maximising efforts of a public firm by cross‐subsidising. The paper demonstrates that a unique subgame perfect Nash equilibrium emerges in a multi‐product market, in contrast to the multiple equilibria of a single‐product market. This unique equilibrium indicates that profit‐maximising private firms retain leadership while a welfare‐maximising public firm acts as a follower. Even on the off‐equilibrium path where the public firm acts as a leader, it rarely generates maximum social welfare. However, privatising the public firm usually harms social welfare and results in a different timing structure in equilibrium.     

THE EFFICIENCY OF THE STATE‐OWNED FIRM AND SOCIAL WELFARE: A NOTE

We consider a mixed market where a state‐owned firm competes with private firms. If the number of firms is exogenous, then a deterioration of the efficiency of the state‐owned firm might improve social welfare. This situation occurs when the state‐owned firm is inefficient and private firms are efficient. However, if the number of firms is endogenous, then a deterioration of the efficiency of the state‐owned firm must reduce social welfare.     

Means‐Tested Long‐Term Care and Family Transfers

One of the pervasive problems with means‐tested public long‐term care programs is their inability to prevent individuals who could afford private long‐term services from taking advantage of public care. They often manage to elude the means‐test net through ‘strategic impoverishment’. We show in a simple model how this problem comes about, how it affects welfare and how it can be mitigated.     

DYNAMIC CONTRACTS WITH WORKER MOBILITY VIA DIRECTED ON‐THE‐JOB SEARCH

This article proposes a model with dynamic incentive contracts and on‐the‐job search in a frictional labor market. The optimal long‐term contract exhibits an increasing wage–tenure profile. With increasing wages, worker effort also increases with tenure. These two features imply that the probabilities of both voluntary and involuntary job separation decrease with both job tenure and the duration of employment. Given these results, workers experience differing labor market transitions—between employment, unemployment, and across different employers—and the equilibrium generates endogenous heterogeneity among ex ante homogeneous workers.     

出口退税政策对出口贸易的持续影响效应研究——来自异质性企业出口生存率的证据

出口退税作为一项贸易调控政策,在一国政府应对国际贸易的大幅波动中发挥着重要作用.文章以企业出口关系持续性作为研究切入点,结合高度细化的出口退税率数据,运用生存分析模型对出口退税政策的实施效果进行系统评估.研究表明:(1)总体而言,出口退税率的变动在短期和长期均对企业出口关系的稳定性产生了显著影响.(2)在短期内,出口退税政策的调整对企业出口持续性的影响不因其所在区域和行业特征的差异而存在显著不同,但在所有制属性层面,民营企业受到的影响程度最大.(3)在长期内,来自东部地区、民营以及低技术行业的企业不仅受政策变动的作用时效更长,而且受政策调整的影响效果也更明显;而来自西部地区、三资以及高技术行业的企业则对出口退税政策调整的反应敏感程度最低.因此,出口退税政策的实施需要结合出口信贷等政策加以综合运用,以保证经济的平稳运行.     

Does technology licensing matter for privatization?

In mixed oligopolies, technology licensing from a cost‐efficient firm to a cost‐inefficient firm has been widely observed. This paper examines the relationship between privatization and licensing (by public or private firms) with the consideration of either a domestic or a foreign private firm. We find that (a) in the case of a domestic private firm, public licensing facilitates privatization, but private licensing hinders privatization; (b) in the case of a foreign private firm, both public and private licensing facilitate privatization. Our results yield important policy implications on privatization.     

PRICE AND QUANTITY COMPETITION WITH ASYMMETRIC COSTS IN A MIXED DUOPOLY: A TECHNICAL NOTE

We consider a mixed duopoly in which private and public firms can choose to strategically set prices or quantities when the public firm is less efficient than the private firm. Thus, even with cost asymmetry, we obtain exactly the same result (i.e., Bertrand competition) of Matsumura and Ogawa (2012) if Singh and Vives’ (1984) assumption of positive primary outputs holds. However, compared to endogenous determination of the type of contract without cost asymmetry, our main finding is that in the wider range of cost asymmetry, different type(s) of equilibrium related to or not related to the limit‐pricing strategy of the private firm can be sustained. Thus, when considering an implication on privatization, we may overestimate the welfare gain of privatization because Cournot competition takes place after privatization even though cost asymmetry exists between firms. While the result of Matsumura and Ogawa (2012) holds true if the goods are complements, we find the novel results in the case of substitutes.     

HOW TO DESIGN INFRASTRUCTURE CONTRACTS IN A WARMING WORLD: A CRITICAL APPRAISAL OF PUBLIC–PRIVATE PARTNERSHIPS*

We analyze how long‐term uncertainty, for example, regarding future climate conditions, affects the design of concession contracts and organizational forms in a principal–agent context, with dynamic moral hazard, limited liability, and irreversibility constraints. The prospect of future, uncertain productivity shocks on the returns on the firm's effort creates an option value of delaying efforts, a course that exacerbates agency costs. Contracts and organizational forms are drafted to control this cost of delegated flexibility. The possibility for the agent to delay investment in response to uncertainty and irreversibility also elicits preference for unbundling different stages of the project through short‐term contracts. Our analysis is relevant to infrastructure sectors that are sensitive to changing weather conditions and sheds a pessimistic light on the relevance of public–private partnerships in this context.     

Contracts and asymmetric information in the theory of the firm

This paper extends the Coase notation of firms as intermediaries between consumers and input owners to incorporate asymmetric information. We show that in some cases it is optimal for consumers to pay a fixed price for a product and to ignore how the firm operates and the profit that it makes. If firms have private information that consumers cannot cheaply obtain, however, we demonstrate that the optimal contract may require constraints on firms internal operations and profits. Our work provides conditions under which cost-plus contracts are optimal, and demonstrates when nonprofit firms are the preferred organization structure.     

SHORT‐RUN AND LONG‐RUN IMPLICATIONS OF ENVIRONMENTAL REGULATION ON FINANCIAL PERFORMANCE

Opposing theoretical arguments exist regarding the effect of environmental regulation on financial performance. Some studies argue that environmental regulation constrains firms' abilities to exploit revenue‐enhancing or cost‐reducing opportunities. Other studies, representing the Porter hypothesis, argue that environmental regulation motivates firms to innovate, which ultimately improves financial performance. Although much of the debate focuses on long‐run effects, there are also important short‐run effects. This study provides empirical evidence regarding the short‐run and long‐run effects of Clean Water Act regulation on financial performance. To generate this evidence, we examine the effect of permitted wastewater discharge limits, on the return on sales, using panel data on publicly owned firms in the chemical manufacturing industries. We find that Clean Water Act regulation improves financial performance in both the short run and the long run with a stronger effect in the long run. These results suggest that some net benefits may be realized during a short‐run transition to comply with a tighter permitted discharge limit, with additional benefits accruing to the firm in the long run because the firm has more time to innovate. (JEL K23, L25, L51, L65, Q52)