Cost Savings From Generation and Distribution with an Application to Italian Electric Utilities*

In the last decade, the European Commission promoted a new regulatory framework aiming at a gradual liberalization of the energy markets. The introduction of competition among generators implies the need to separate generation from transmission and distribution activities. However, if savings can be reached by operating at different stages, vertical separation would increase the costs of providing power. This paper tests for the presence of economies from vertical integration on a sample of Italian local electric utilities and finds evidence of both multi-stage economies of scale and vertical economies. Even if the hypothesis of global subadditivity is not supported, our evidence suggests that a complete divestiture policy would entail efficiency losses. *For helpful comments and discussions, we thank two anonymous referees, Graziano Abrate, Bruno Bosco, Diego Piacentino, and participants at the 31st Annual Conference of the European Association for Research in Industrial Economics (EARIE), Berlin, Germany, 2–5 September, 2004, the 60th Congress of the International Institute of Public Finance (IIPF), Milan, Italy, 23–26 August, 2004, and seminars held at the Bocconi University, University of Lecce, University of Naples, University of Pavia, and University of Turin, where earlier versions of this paper were presented. The financial support of MIUR (COFIN 2002) and HERMES Research Center is gratefully acknowledged. The usual disclaimer applies. **HERMES, Center for Research on Regulated Services, Fondazione Collegio Carlo Alberto, Via Real Collegio 30, 10024 Moncalieri (TO), Italy, http://www.hermesricerche.it.     

Discretionary Government Consumption, Private Domestic Demand, and Crisis Episodes

This paper analyzes the dynamic impact of discretionary government consumption purchases on private demand. Using a panel of 132 countries from 1960 to 2008, we find that while discretionary changes in government consumption lead to crowding-in effects in the short run, crowding-out effects take over in the medium run. In addition, we also find that both short-term crowding-in and medium-term crowding out effects are amplified once we control for periods of crisis.     

Quantifying the Impact of Scientific Research on Agriculture

With the growing importance of science and innovation for farming, the scope for summary monetary estimates of the impact of agricultural research on productivity suggests internal rates of return of between 7 and 15 per cent, and time lags in maximum impact of around nine years. However, the extent to which the transmission process can be regarded as a ‘black box’ for econometric purposes is considered increasingly inappropriate, since the intermediate steps between research and the impacts of resulting technology adoption are increasingly complex and involve growing numbers of actors, actions and a wider set of policy objectives. Significant difficulties are encountered in quantifying research impacts, including gaps in data for dependent and explanatory variables. New features of the agricultural sector also need to be accounted for, which relate to the role of knowledge engineering, globalisation and the establishment of new impact pathways which are affecting the speed of transmission of innovations. Public support for agricultural research funding is generally justified but returns are not sufficiently high, thus requiring careful reflection on priorities for research investment. Combined use of qualitative and quantitative evaluation approaches can be complementary and more effective than relying on either alone.     

Country size and business cycle volatility: Scale really matters

In a recent study Andrew Rose found that country size does not matter for several economic outcomes [Rose, A.K., 2006. Size really doesn't matter: In search of a national scale effect. J. Japanese Int. Economies 4, 482–507]. However, he did not consider the effect that country size may have on business-cycle volatility. To investigate the empirical relationship between business cycle volatility and country size, we use a panel data set that includes 167 countries from 1960 to 2000. The results suggest very strongly that the relationship between country size and business cycle volatility is negative and statistically significant. This implies that smaller countries are subject to more volatile business cycles than larger countries. This holds both in a simple bivariate model and when we include Rose's control variables and openness. Moreover, the results are robust to different sample periods and several detrending methods. It follows that country size really matters, at least in terms of cyclical fluctuations. J. Japanese Int. Economies 21 (4) (2007) 424–434.     

Export Premia and Subcontracting Discount: Passive Strategies and Performance in Domestic and Foreign Markets

This paper contributes to the literature on firms’ productivity and exporting decisions by analysing the role played by organisational choice aspects. Rather than setting up a vertically integrated structure, manufacturers may act as subcontractors in both domestic and foreign markets, and produce to satisfy the requirements of other firms. The predictions that the most productive firms self‐select into exporting, whereas the least productive ones work as subcontractors serving the domestic market only, are tested on a sample of Italian firms observed during the 1998–2003 period. The results of our estimates highlight a ranking of firms consistent with a priori expectations, and provide a clear indication that passive exporters (i.e. those using subcontracting in foreign markets) display lower total factor productivity (TFP) values when compared with direct exporters. Moreover, only the latter category exhibits higher pre‐entry productivity levels and growth rates as well as higher post‐entry TFP growth rates. Such findings are consistent with both the self‐selection hypothesis and the learning‐by‐exporting explanation.     

Diversification, the Resource View and Productivity: Evidence from Italian Manufacturing Firms

The present paper presents a test ofthe resource view of diversification which focuses onthe relationship between the directions ofdiversification strategies and a measure of totalfactor productivity. The results are supportive of theresource theory in that firms which pursue verticalintegration strategies and/or operate in a set ofactivities which share similar research anddevelopment and advertising intensities reach higherproductivity levels. After having checked for the directions of diversification, the degree ofdiversification is not significantly related toproductivity. This suggests that the simple inclusionof variables controlling for the extent ofdiversification might not be sufficient in order tostudy the effects resulting from diversification strategies.     

China Spillovers: New Evidence from Time-Varying Estimates

The recent “rebalancing” of China’s economy has raised concerns that the country’s growth slowdown may have large global implications. This note looks at this issue by analyzing the effects of China’s growth shocks on the output of other countries and how these effects have changed over time. Estimates indicate that the magnitude of China’s spillovers has steadily increased during the last two decades, but remains yet limited. Spillovers are larger in neighboring (Asian) countries and in emerging markets and developing economies. Trade linkages remain main transmission channels. In addition, a negative shock in China has (marginal) positive effects for net commodity importers while negative for net commodity exporters.     

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.     

Endogenous technological progress in a multi-sector growth model

This paper presents an endogenous growth model driven by human capital, where human capital can be allocated across three sectors: the production of the final consumption good, the educational sector and the production of technological capital (in the form of knowledge or ideas). In our model, which also includes public expenditure and population growth, labor augmenting technical progress is endogenous and this enriches the transitional dynamics of the economy. With respect to ideas-based growth models, we assume knowledge is produced according to a neoclassical technology, combining ideas and human capital. Such an assumption is motivated by empirical works showing the existence of significant decreasing returns in the creation of ideas at the aggregate level (as Kortum, 1993; and Pessoa, 2005) and of the weak relationship between some inputs of the knowledge production process (as the number of researchers) and the total factor productivity growth rate (as Jones, 2002). Under some general conditions, this economy exhibits the existence of a steady state equilibrium and an unstable multidimensional manifold. Numerical examples are provided to show the existence of stable arms.