Use and abuse of regulated prices in electricity markets: “How to regulate regulated prices?”

We consider the regulation of the tariffs charged by a public utility in the electricity sector. Consumers differ in terms of their privately known demands. When regulating a firm's tariffs, the government is concerned by the redistribution across consumer classes. A conflict between redistribution and screening induces pricing distortions when the firm is a monopoly. Introducing competition with an unregulated fringe improves efficiency but jeopardizes redistribution. In response to this problem, the government may now want to manipulate information about the incumbent's cost to restrict entry and better promote its own redistributive objective. To prevent such obstacle to entry, the government's discretion in fixing the incumbent's regulated tariffs should be restricted by imposing floors or caps on those tariffs and/or by controlling the market share left to the competitive fringe. We highlight the determinants of such limits on discretion and unveil to what extent they depend on the government's redistributive concerns.     

The Definition and Diffusion of Expert Systems: An Empirical Survey of Belgian External Audit Firms

This paper reports empirical results on the definition and diffusion of expert systems (ESs). The findings are based on a questionnaire that was sent to Belgian external audit firms in June 1993. Audit firms were chosen as the questionnaire's target group because another part of the survey was aimed at gathering information concerning the audit of ESs. The definition section deals with the importance of several ES characteristics as seen by the sample of practitioners. Results are compared with opinions from theoretical literature and reveal significant differences. The section on diffusion of ESs is intended to provide an indication of the extent of development and usage of ESs in todays business life. On the basis of the sample of audit firms that reported on their auditees' situations, diffusion rates are rather low. Each of these sections is introduced by a short literature review. As both sections are largely based on the results of a survey, relevant details are included in the first section.     

How to Regulate Heterogeneous Hospitals?

In many areas of health care financing, there is controversy over the sources of cost variability and about the respective roles of inefficiency versus legitimate heterogeneity. This paper proposes a payment system that creates incentives to increase hospital efficiency when hospitals are heterogeneous, without reducing the quality of care. We consider an extension of Shleifer's yardstick competition model and apply an econometric approach to identify and evaluate observable and unobservable sources of cost heterogeneity. Moral hazard can be seen as the result of two components: long‐term moral hazard (hospital management can be permanently inefficient) and transitory moral hazard. The latter is linked to the manager's transitory cost‐reducing effort. For instance, he or she can be more or less rigorous each year when bargaining prices for supplies delivered to the hospital by outside firms. The use of a three‐dimensional nested database makes it possible to identify transitory moral hazard and to estimate its effect on hospital cost variability. Econometric estimates are performed on a sample of 7,314 stays for acute myocardial infarction observed in 36 French public hospitals over the period 1994–1997. We obtain two alternative payment systems. The first takes all unobservable hospital heterogeneity into account, provided that it is time invariant, whereas the second ignores unobservable heterogeneity. Simulations show that substantial budget savings—at least 20%—can be expected from the implementation of such payment rules. The first method of payment has the great advantage of reimbursing high‐quality care. It leads to substantial potential savings because it provides incentives to reduce costs linked to transitory moral hazard, whose influence on cost variability is far from negligible. This payment rule could be extended to other areas of health care financing, such as Adjusted Average Per Capita Cost to calculate Medicare Managed Care reimbursements in the United States.     

Aggregate instability under balanced-budget consumption taxes: A re-examination

We re-examine the destabilizing role of balanced-budget fiscal policy rules based on consumption taxation. Using a one-sector model with infinitely-lived households, we consider a specification of preferences derived from Jaimovich (2008) [14] and Jaimovich and Rebelo (2009) [15] which is flexible enough to encompass varying degrees of income effect. When the income effect is not too large, we show that there exists a Laffer curve, which explains the multiplicity of steady states, and that non-linear consumption taxation may destabilize the economy, promoting expectation-driven fluctuations, if the elasticity of intertemporal substitution in consumption is sufficiently larger than one and the tax rate is counter-cyclical with respect to consumption. Numerical illustrations also show that consumption taxation may be a source of instability for most OECD countries for a wide range of structural parameters? configurations. We finally prove the robustness of our conclusions if we consider a discrete-time setup.     

The periurban city: why to live between the suburbs and the countryside

The last 30 years have witnessed the emergence of a new pattern of urban development in France, called the periurban belt. It is defined as a belt outside the city occupied both by households and farmers. We develop a residential model in which households commuting to an employment center may choose to live with farmers in this mixed belt because they value the rural amenities created by farming activities. Both types of agents compete on the land market and the equilibrium conditions allow us to obtain an analytical solution and to provide some insights about the robustness of the periurban form against decreases in commuting costs. Finally, the model is calibrated on French data.     

Travelling ‘green’: is tourists' happiness at stake?

Several western governments have implemented environmental policies which increase the cost of air travel. Such policies aim to reduce the impact of air travel on climate change, but at the same time they restrict tourists in their travels. This study examines the extent to which the average tourist's happiness is affected by ‘involuntary green travel’, defined as reduced CO₂ emission travel imposed by government regulations. This issue was addressed in a study among 588 Dutch citizens who completed a self-report questionnaire containing questions about their happiness. The strongest determinant of tourists' happiness is freedom in choosing a destination. Any policy measure that interferes with tourists' freedom in destination choice will negatively affect tourists' happiness. Six percent of their happiness is at stake and potentially 17% of all holiday trips are affected. The number of tourists involved is possibly much smaller. The best options for governments are to impose taxes on long-haul destinations, which affect only a small share of all tourists, and air routes which can also be travelled by a variety of alternative modes of transport and thus less limiting to destination choice within this market segment.     

FDI and the relevance of spatial linkages: do third-country effects matter for Dutch FDI?

The aim of this paper is to test for the relevance of spatial linkages for Dutch (outbound) foreign direct investment (FDI). We estimate a spatial lag model for Dutch FDI to 18 host countries. After controlling for fixed effects, we find for our sample period 1984–2004 that third-country effects matter. Apart from our benchmark spatial lag model, we also estimate various alternative models by looking at European host FDI countries only, by dividing FDI into industry and services FDI, and by estimating a spatial error model.

The purpose and effectiveness of technology transfer to small businesses by government-sponsored innovation centres

The Dutch government instituted regional innovation centres (ICs) for the stimulationof technology transfer to small business. In the context of an evaluation of these ICs, technology transfer is analysed on the basis of the adoption process according to Rogers. Attention is given to problems of bounded rationality, in particular tacit knowledge that arise especially among small business. Rogers criteria for adpoption are extended and supplemented with criteria for product innovation. The purpose of ICs is reconstructed as the guidance of firms in the adoption process, on the basis of the criteria. The analysis develops into a market segmentation of firms as a basis for a marketing plan for ICs. The segmentation corresponds with the taxonomy of firms in the context of diffusion that was developed by Pavitt on the basis of an innovation data base. Effectiveness of ICs is defined as the setting of proper priorities with respect to market segmentation, and a guidance of firms in the adoption process which enters and leaves the adoption process neither too late nor too early with approaches adopted to the market segments.