Incentive Regulation and Competition in Public Utility Markets: A 20-Year Perspective

Over the last 20 years, incentives in general and price caps in particular have breathed new life into public utility regulation. Price caps successfully combine incentives for cost reduction with incentives for more efficient pricing. These properties also facilitate opening public utility sectors to competition. Relatively tight price caps likely imply the right amount of competition, when the underlying natural market structure is unknown. While price caps make a regulated incumbent competitively more aggressive, this aggression is likely to improve on the unregulated outcome. Potentially anticompetitive behavior by the incumbent has led to regulation of essential inputs on the basis of benchmarked costs. Benchmarked costs should evolve into price caps for essential inputs and eventually lead to partial deregulation of end-user prices.     

Effort rewarding incentive mechanisms for public enterprise managers

Management incentive schemes leading to welfare optimal pricing and efficient production of public enterprises have so far been mainly concerned with the information advantages that public enterprise managers hold over their supervising government or central planning agency. Managers under these schemes are induced to improve their firm's performance in adjustment processes which in the limit lead to optimal firm decisions. Such managers are supposed to be income maximizers disregarding any personal effort which could influence their performance and utility. In this paper I show that two incentive schemes recently proposed by Tam (1981) and Finsinger and Vogelsang (1982) can also help to induce managers to provide an optimal level of effort. Here effort is assumed to reduce managers' utility and the firm's costs. The result depends crucially on myopic managerial utility maximization. Once managers maximize the discounted value of future utility levels they will deviate from the optimal behavior. Under Tam's scheme, this can hold independent of the optimal effort level. Under the Finsinger-Vogelsang performance index managers will always show suboptimal effort levels in a steady state equilibrium, because the index only rewards welfare improvements.Effort, however, has to be rewarded even with no improvement in behavior. An improved performance index, which provides cumulative rewards is shown to be strategy proof and lead to a welfare optimum. This reward structure basically treats managers as if they were private entrepreneurs. It looks extremely generous in that it gives managers the fruits of all costs reductions due to increases in effort. Suggestions are made to mitigate this income distributional impact.     

Karl Marx — heute noch aktuell?

On the occasion of his 200th birthday, Karl Marx is very popular again. He seems to be quoted in newspapers more often than even Keynes and great liberal economists. The authors agree that he should be taken seriously as a classic author. There are some fundamental pillars of his thinking: He fought for individual freedom and was a pioneer of systemic thinking. Marx was a self-taught economist and a powerfully eloquent demagogue. But all attempts to modernise his economic theory ultimately fail because of their mistakes and contradictions. He analysed an economy whose labour market was characterised by unrestricted competition. His prediction of a final collapse of the capitalist system failed due to far-reaching institutional changes, especially in the labour market. Today Karl Marx must be seen rather as an extremely interesting figure in the intellectual history of the 19th century. His ideas are only of limited use for the analysis of the economic present. Bertram Schefold judges him less stringently, arguing he is topical not only as a historical figure, but also as a theoretical economist and originator of still valuable analytical ideas. Jürgen Kromphardt points out that apart from his dialectical approach, the distribution of income between classes and its consequences are a research area where Marx’s explanations and failures are actually still worthy of consideration.     

Alliance or Acquisition? A Mechanisms‐Based,Policy‐Capturing Analysis

Research summary : While alliance researchers view prior partner‐specific alliance experience as influencing firms' subsequent alliance or acquisition decisions, empirical evidence on the alliance versus acquisition decision is surprisingly mixed. We offer a reconciliation by proposing and testing an analytical framework that recognizes prior partner‐specific experiences as heterogeneous along three fundamental dimensions: partner‐specific trust, routines, and value certainty. This allows us to use a policy‐capturing methodology to rigorously operationalize and test our mechanism‐level predictions. We find that all three mechanisms can increase the likelihood of a subsequent alliance or acquisition, and in terms of the comparative choice between alliances versus acquisitions, partner‐specific trust pulls towards alliances, and value certainty pulls towards acquisitions. We conclude with a discussion of the theoretical and empirical implications of our approach and method . Managerial summary : This study focuses on an important corporate decision: When a firm has had an alliance with another firm, how would that experience affect the likelihood of a future alliance or acquisition with that same firm? We first suggest that it will depend on three factors: the level of trust that existed in that prior alliance, the extent to which specific work routines were developed, and the degree to which the firm was able to confidently assess the value of the partner firm's resources. We then find that trust is a particularly strong predictor of future alliances, while confidence regarding value more strongly predicts future acquisitions. In this way, we demonstrate more precisely how past corporate choices can affect (consciously or unconsciously) future ones . © 2017 The Authors. Strategic Management Journal Published by John Wiley & Sons Ltd.     

Is there a wage premium for volunteer OSS engagement? – signalling,learning and noise

Volunteer-based open-source production has become a significant new model for the organization of software development. Economics often pictures this phenomenon as a case of signalling: individuals engage in the volunteer programming of open-source software (OSS) as a labour-market signal resulting in a wage premium. Yet, this explanation could so far not be empirically tested. This article fills this gap by estimating an upper-bound composite wage premium of voluntary OSS contributions and by separating the potential signalling effect of OSS engagement from other effects. Although some 70% of OSS contributors believe that OSS involvement benefits their careers, we find no actual labour-market premium for OSS engagement. The presence of other motives, such as fun of play or altruism, renders OSS contributions too noisy to function as a signal.     

Prozessorientierte Planung und Kalkulation (kern-)produktbegleitender Dienstleistungen

Zusammenfassung  Die Bedeutung von Dienstleistungen nimmt volks- und betriebswirtschaftlich immer weiter zu. Die zunehmende Nachfrage führt jedoch in vielen F?llen dazu, dass die Dienstleistungen wenig systematisch und unreflektiert auf Nachfrage durch Kunden angeboten werden. Eine systematische Planung, Entwicklung und Kalkulation finden – im deutlichen Gegensatz zum physischen Produkt – nicht statt. Allerdings wird ein solches Vorgehen auch durch verschiedene Spezifika der Dienstleistungen erschwert. Der vorliegende Beitrag konzentriert sich auf (kern-)produktbegleitende Dienstleistungen und zeigt zun?chst wesentliche theoretische Grundlagen einer prozessorientierten Planung und Kalkulation auf. Basis stellt dabei eine Weiterentwicklung der Prozesskostenrechnung – das Time-Driven Activity-Based Costing – dar, das für produktbegleitende Dienstleistungen angepasst wird. Die Umsetzbarkeit und der praktische Nutzen der entwickelten prozessorientierten Planung und Kalkulation werden abschlie?end in einem Beispiel aus der Unternehmenspraxis dargestellt.      

Caught in organized ambivalence: institutional complexity and its implications in the German hospital sector

Worldwide, public service-providing organizations confront regulatory hybridization. While their societal mission persists, they are expected to become more business-like. Drawing on theory concerned with institutional complexity and ambivalence in organizations, this article illuminates the case of German acute care hospitals. We depict the emergence of market orientation in this industry, its structural impact and major sensemaking patterns at the site level. In our multiple case study, we find ‘organized ambivalence’ shaping the institutional context and affecting the undertakings’ internal life. Thus, regulatory hybridization tends to create certain traps – which challenges ideas according to which it helps improve public management.