Public choice versus constitutional economics: A methodological interpretation of the Buchanan research program

Through conceptual redirections, the Buchanan research program attempts to react to the fact that economic policy advice is often ignored. In terms of positive analyses, the research perspective is focused on institutions, i.e., the rules of economic as well as political games. In terms of normative analyses, the democratic criterion of unanimous consent is substituted for the normative efficiency criterion employed by welfare economics. The underlying idea is to direct positive analyses toward developing informative explanations on which normative analyses can build in order to provide intellectual orientation and thereby to contribute to democratic self-enlightenment. However, large parts of the existing public choice literature can be regarded as empirically oriented welfare-economic analyses of the political sector. Consequently, they run the danger of duplicating the failure of economic policy advice. This is why, during the 80s James Buchanan has changed the name of his research program from public choice to constitutional economics.     

Toward a combined merchant-regulatory mechanism for electricity transmission expansion

Electricity transmission pricing and transmission grid expansion have received increasing attention in recent years. There are two disparate approaches to transmission investment: one employs the theory based on long-run financial rights (LTFTR) to transmission (merchant approach), while the other is based on the incentive-regulation hypothesis (regulatory approach). In this paper we consider the elements that could combine the merchant and regulatory approaches in a setting with price-taking electricity generators and loads. The monopoly transmission firm (Transco) is regulated through benchmark or price regulation to provide long-term investment incentives. The two-part tariff approach used can be analyzed analytically only for well-behaved cost and demand functions. We explore a series of simplified transmission grids to argue that in a variety of circumstances those functions could have reasonable economic properties. The results suggest directions for further research to explore the properties of the cost functions and implications for design of practical incentive mechanisms and the integration with merchant investment in organized markets with LTFTRs.     

The need for a new approach to regulating fixed networks

The increasing danger of excess capacity in the regulated fixed networks calls into question the established long-standing pricing standards for wholesale services based on forward-looking long-run incremental costs (FL-LRAIC). Within the EU “Regulatory Framework for Electronic Communications and Services”, the FL-LRAIC standard has worked quite well in expanding markets, although even there price-squeeze problems have appeared. In contracting markets the price-squeeze issue, however, becomes paramount and lower prices both at the wholesale and retail levels would be efficient. Because both expansion and contraction could be relevant in the future, this paper suggests an optional approach based on the wholesale price formula p=min{FL-LRAIC, Retail-Minus} with an optional replacement of per-minute charges by capacity-based access charges (CBC). This will generally protect alternative competitors against price-squeeze while at the same time allowing the fixed-network incumbent full downward price flexibility. It also protects alternative competitors and end users against excessively high prices.     

Social responsibility and the future of multinationals: Guidance without rules

While voluntary behavior and social responsibility have so far played a peripheral role in multinational corporations’ global strategies, the author argues that the non-market social responsibility dimension will have to be incorporated systematically in management’s forward planning as a growing factor if the multinationals want to secure their future.     

III. Weltwirtschaft und Wirtschaft einzlner Länder und Gebiete

Ohne Zusammenfassung     

Rezensionen

Ohne Zusammenfassung     

How much of the diversification discount can be explained by poor corporate governance?

We investigate whether the diversification discount occurs partly as an artifact of poor corporate governance. In panel data models, we find that the discount narrows by 16% to 21% when we add governance variables as regression controls. We also estimate Heckman selection models that account for the endogeneity of diversification and dynamic panel generalized method of moments models that account for the endogeneity of both diversification and governance. We find that the diversification discount persists even with these controls for endogeneity. However, in selection models the discount disappears entirely when we introduce governance variables in the second stage, and in dynamic panel GMM models the discount narrows by 37% when we include governance variables.