A Comment on: Lower Bound Restrictions on Intensities in Data Envelopment Analysis by Bouhnik et al.

Journal of Productivity Analysis -     

Imperfect tax competition for profits, asymmetric equilibrium and beneficial tax havens

We present a model of tax competition for real investment and profits and show that the presence of tax havens in some cases increases the tax revenue of countries. In the first part of the paper, we argue that tax competition for profits is likely to be imperfect in the sense that the jurisdiction with the lowest tax rate does not necessarily attract all shifted profits. Under this assumption, tax competition between a large number of identical countries may lead to either a symmetric equilibrium with no profit shifting or an asymmetric equilibrium where firms shift profits from high-tax to low-tax countries. In the second part of the paper, we introduce tax havens. Starting from a symmetric equilibrium, tax havens unambiguously reduce the tax revenue of countries due to a ‘leakage effect’ — tax havens attract tax base from countries — and a ’competition effect’ — the optimal response to the increased tax sensitivity of tax bases involves a reduction of tax rates. Starting from an asymmetric equilibrium, however, tax havens also raise the tax revenue of countries through a ’crowding effect’ — tax havens make it less attractive to compete for profits and thus induce low-tax countries to become high-tax countries. We demonstrate that the latter effect may dominate the former effects so that countries, on balance, benefit from the presence of tax havens.     

Separation in Cointegrated Systems and Persistent-Transitory Decompositions

The notion of separation in cointegrated systems helps identifying possible sub-system structures that may reduce the complexity of larger systems by yielding a more parsimonious representation of the times series. In this paper we demonstrate that although the subsystem cointegration analysis in such systems can be conducted in case of both completely and partially separated systems, the dual approach, i.e. calculation of the common stochastic trends, may turn out to yield properties of the trends that differ depending upon the type of separation under consideration. In particular, we demonstrate how persistent-transitory (P-T) decompositions and long- and short-memory factorizations of a multivariate time series will interact across systems when considering the presence (or absence) of different types of separation. Generalizations to non-linear error correction models are briefly discussed.     

Ownership and Productive Efficiency: Evidence from Estonia

Privatization in Estonia has produced varied ownership configurations. This enables hypotheses on the productivity effects of different ownership forms to be tested. Findings are based on fixed-effects production function models and are estimated using a large, random sample of firms. Depending on the particular specification (and relative to state ownership), (i) private ownership is 13–22% more efficient; and (ii) all types of private ownership are more productive, though managerial ownership has the biggest effects (21–32%) and ownership by domestic outsiders has the smallest impact (0–15%). The joint hypothesis that privatization coefficients are equal is rejected. Findings are robust with respect to choice of technology and the use of instrumental variable estimates. These results provide only partial support for the standard theory of privatization, but stronger support for theorists who argue that some forms of insider ownership may constitute preferable forms of corporate governance in some circumstances.     

On Learning to Cooperate

This paper shows that experimentation can have the effect of inducing outcomes that are “far” from Nash in a learning model similar to that studied by D. Fudenberg and D. K. Levine (1993, Econometrica61, 547-573). The game under consideration is a version of a finitely repeated prisoner's dilemma, and the average length of players' lifetimes is arbitrarily large, but fixed. If the number of stages in the prisoner's dilemma is sufficiently large, then experimentation induces cooperation within the society on an arbitrarily large scale, even though the beliefs of almost all players are eventually within an arbitrary η>0 of being correct at all of the information sets in the game. Journal of Economic Literature Classification Numbers: C72.     

Information Structure and the Tragedy of the Commons in Resource Extraction

Synopsis This paper considers the well-known Levhari-Mirman discrete-time model of resource extraction, and investigates the effects of the information structure of the dynamic game – open-loop, Markovian or history-dependent – on the equilibrium consumption path and the overall utility of the agents. Due to the special structure of the model, the open-loop regime yields a Pareto-optimal outcome. The Markovian regime leads to the most pronounced version of the tragedy of the commons. History-dependent behavior yields an outcome set that is intermediate between the other two cases, and that may include the Pareto-optimal outcome in some cases. The level of efficiency of equilibrium behaviour is thus U-shaped as a function of the level of information the agents’ extraction strategies are based on. The analysis suggests that in environments characterized by a dynamic (and no market) externality, forcing agents to commit to open-loop behavior would constitute welfare-improving regulation.     

Labour market implications of EU product market integration

European labour markets are in a state of flux due to the changing market situation induced by international integration. This process affects wage formation through more fierce product market competition and increased mobility of jobs. This development is by some observers taken to enforce labour market flexibility, while for others it signals an erosion of social standards and in turn possibly the welfare society. Since labour is not very mobile in Europe, the effects of international integration on labour markets are mostly indirect via product market integration. We review the channels through which product market integration affects labour markets and perform an empirical analysis of the convergence and interdependencies in wage formation among EU countries. We find that integration is changing labour market structures and inducing wage convergences as well as stronger wage interdependencies, but it is a gradual process. Moreover, the present study does not support the view that international integration will lead to a 'race to the bottom' and rapidly erode domestic labour markets standards, nor that it will relieve politicians of the need to consider labour market reforms to improve labour market performance.     

Choice of Ownership Structure and Firm Performance: Evidence from Estonia

This article uses panel data for a representative sample of Estonian enterprises to analyse diverse issues related to the determinants of ownership structures and ownership changes after privatisation. A key focus is to determine whether ownership changes are related to economic efficiency. While employee-owned firms are found to be much more prone than other firms to switch ownership categories, often ‘employee-owned’ firms remain ‘insider-owned’ as ownership passes from current employees to managers and former employees. Logit analysis of the determinants of ownership structures and ownership changes provides mixed support for several hypotheses. As predicted: (i) wealth and resource constraints play a crucial role in the determination of ownership, with foreigners buying firms with the highest equity levels and insiders buying firms with the lowest equity valuations; (ii) risk aversion explains subsequent ownership changes, especially away from employee ownership; (iii) allocation of ownership depends on the pre-privatisation origin and location of the firm, and these factors also influence subsequent ownership changes. Our findings provide mixed support for the hypothesis that ownership changes are related to economic efficiency.     

Worse than others but better than before: Integrating social and temporal comparison perspectives to explain executive turnover via pay standing and pay growth

Organizations often pay greater salaries to higher‐ranking executives compared to lower‐ranking executives. While this method can be useful for retaining those at the organization's apex, it may also incline executives at the bottom of the pay pyramid to see themselves at a disadvantage and thus exit the firm. Naturally, organizations often want to retain some of their lower‐paid, but highly valuable executives; the question, then, is how organizations can reduce the turnover of lower‐ranking executives. By integrating social with temporal comparison theory, we argue that, when executives earn relatively less than their peers, more pay growth (i.e., individual pay increases over time) leads to less turnover. The results of our analysis, which covered almost 20 years of objective data on a large sample of U.S. top executives, provide support for our theory.