HMOs don't have to fail

One of the bright spots in the sometimes black picture that is painted of our national health care system is HMOs. Health maintenance organizations provide health services to an enrolled group of patients for a fixed, prepaid fee. This arrangement induces HMOs to try to keep patients healthy for a competitive rate. Because of its special nature, however, an HMO cannot be managed like a fee-for-service hospital or group practice. And because few managers fully understand them, more and more HMOs are failing. The authors of this article say, however, that some failures can be avoided. Good management techniques can help HMO managers-whether they are community-spirited citizens or seasoned executives-overcome many of the problems that plague HMO plans: out-of-control utilization rates, growth that can occur overnight, conflict between the values of HMOs and of the physicians that staff them, and competitors in the health field.     

CAPITAL STRUCTURE,SHAREHOLDER RIGHTS,AND CORPORATE GOVERNANCE

We show how capital structure is influenced by the strength of shareholder rights. Our empirical evidence shows an inverse relation between leverage and shareholder rights, suggesting that firms adopt higher debt ratios where shareholder rights are more restricted. This is consistent with agency theory, which predicts that leverage helps alleviate agency problems. This negative relation, however, is not found in regulated firms (i.e., utilities). We contend that this is because regulation already helps alleviate agency conflicts and, hence, mitigates the role of leverage in controlling agency costs.     

Genetic adverse selection: Evidence from long-term care insurance and Huntington disease

Individual, personalized genetic information is increasingly available, leading to the possibility of greater adverse selection over time, particularly in individual-payer insurance markets. We use data on individuals at risk for Huntington disease (HD), a degenerative neurological disorder with significant effects on morbidity, to estimate adverse selection in long-term care insurance. We find strong evidence of adverse selection: individuals who carry the HD genetic mutation are up to 5 times as likely as the general population to own long-term care insurance. This finding is supported both by comparing individuals at risk for HD to those in the general population and by comparing across tested individuals in the HD-risk population with and without the HD mutation.     

Spatial economic analysis of early detection and rapid response strategies for an invasive species

Economic impacts from invasive species, conveyed as expected damages to assets from invasion and expected costs of successful prevention and/or removal, may vary significantly across spatially differentiated landscapes. We develop a spatial–dynamic model for optimal early detection and rapid response (EDRR) policies, commonly exploited in the management of potential invaders around the world, and apply it to the case of the Brown treesnake (Boiga irregularis) in Oahu, Hawaii. EDRR consists of search activities beyond the ports of entry, where search (and potentially removal) efforts are targeted toward areas where credible evidence suggests the presence of an invader. EDRR costs are a spatially dependent variable related to the ease or difficulty of searching an area, while damages are assumed to be a population-dependent variable. A myopic strategy in which search only occurs when and where current expected net returns are positive is attractive to managers, and, we find, significantly lowers present value losses (by $270 m over 30 years). We find further that in the tradeoff between search costs and damages avoided, early and aggressive measures that search some high priority areas beyond points of entry even when current costs of search exceed current damages can save the island more ($295 m over 30 years). Extensive or non-targeted search is not advised however.     

Renewable resource management with stock externalities: Coastal aquifers and submarine groundwater discharge

We model coastal groundwater management and its effects on submarine groundwater discharge, nearshore marine water quality, and marine biota. Incorporating the stock externality effects on nearshore resources increases the optimal sustainable steady-state levels of both the aquifer head and the stock of a keystone native algae species. Numerical simulations are illustrated using data from the Kuki’o region on the Island of Hawaii. Two different approaches for incorporating the nearshore resource are examined. Including algae's market value in the objective function results in only slightly lower rates of groundwater extraction. When a minimum constraint is placed on the stock of the keystone species, however, greater conservation may be indicated. The constraint also results in non-monotonic paths of water extraction, head level, and marginal opportunity cost of water in the optimal solution.     

Governance and Performance Implications of Diversification Strategies: Evidence from Large U.S. Firms

Recent research focuses on explaining the diversification discount. However, there is little direct evidence regarding the relation among ownership structure, corporate governance, and corporate diversification. The results in this paper suggest that agency issues do not account for firms adopting a particular diversification strategy. Also, the performance consequences of the shift in the diversification strategy and the subsequent changes in institutional and block ownership structures are not related to agency issues. In fact, investors seem not to avoid diversified firms per se. We suggest that observed board and ownership differences between diversified and focused firms are due to their being at different stages of corporate evolution.     

A resource‐based view of manufacturing strategy and the relationship to manufacturing performance

This paper examines manufacturing strategy from the perspective of the resource‐based view of the firm. It explores the role of resources and capabilities in manufacturing plants that cannot be easily duplicated, and for which ready substitutes are not available. Such resources and capabilities are formed by employees' internal learning based on cross‐training and suggestion systems, external learning from customers and suppliers, and proprietary processes and equipment developed by the firm. Based on data from 164 manufacturing plants, the paper empirically demonstrates that competitive advantage in manufacturing (as measured by superior plant performance) results from proprietary processes and equipment which, in turn, is driven by external and internal learning. The implication is that resources such as standard equipment and employees with generic skills obtainable in factor markets are not as effective in achieving high levels of plant performance, since they are freely available to competitors. The paper also demonstrates the important role of internal and external learning in developing resources that are imperfectly imitable and difficult to duplicate. Copyright © 2002 John Wiley & Sons, Ltd.