Economic Reform and Macroeconomic Policy in New Zealand

In 1984 the Labour government in New Zealand began a wide-ranging process of reform with the objective of achieving a sustainable improvement in economic performance. The breadth and rapidity with which deregulation, tax reform, and privatisation were implemented has attracted widespread interest. The expected improvement in macroeconomic performance, however, has not yet been realised.
This article describes some background to the policy shift, and focuses on macroeconomic aspects of the reforms. It argues that while many improvements in microeconomic resource allocation have been made, the interaction between monetary, fiscal and wages policies has contributed substantially to the present high cost of structural change in New Zealand.     

On optimal control of income generating activities, and the value of flexible production design

The paper provides a closed form solution for the value of a firm which costlessly can change its mode of operation between two activities. The technology is such that production is zero from the inactive production line. In addition we assume that the production potential on any production line is idle when not operated, else the production follows a geometric Brownian motion. Although this framework is rather general, it is motivated by the problem to produce a natural resource located in two separate wells/ores, using a single (flexible) production unit. For what seems to be reasonable parameter values, the flexible unit is seen to achieve a surprisingly large value relative to the value achievable by a comprehensive unit, producing both alternatives simultaneously. In addition it is interesting to note that switching might occur even if the active production line gives the highest immediate income.     

The Antecedents of Middle Managers' Strategic Contribution: The Case of a Professional Bureaucracy

abstract    Our study contributes towards a burgeoning literature that argues organizational performance is heavily influenced by what happens in the middle of the organization, rather than at the top. Examining the UK National Health Service, our study develops the work of Floyd and Wooldridge (1992 , 1994 , 1997 , 2000 ). It utilizes role theory to conceptualize changing experiences of middle managers in organizations as a role transition. Associated with this are problems of role conflict and role ambiguity ( Biddle, 1979 , 1986 ; Biddle and Thomas, 1966 ; Kahn et al., 1964 , 1966 ). Our study illustrates that there are limiting factors to a more strategic role for middle managers associated with the professional bureaucracy context. However, role conflict and ambiguity can be mediated by a socialization process, which values incoming identity and personal characteristics ( Van Maanen and Schein, 1979 ).     

Incentive Regulation of Prices When Costs are Sunk

We present a model featuring irreversible investment, economies of scale, uncertain future demand and capital prices, and a regulator who sets the firm’s output price according to the cost structure of a hypothetical replacement firm. We show that a replacement firm has a fundamental cost advantage over the regulated firm: it can better exploit the economies of scale because it has not had to confront the historical uncertainties faced by the regulated firm. We show that setting prices so low that a replacement firm is just willing to participate is insufficient to allow the regulated firm to expect to break even whenever it has to invest. Thus, unless the regulator is willing to incur costly monitoring to ensure the firm invests, revenue must be allowed in excess of that required for a replacement firm to participate. This contrasts with much of the existing literature, which argues that the market value of a regulated firm should equal the cost of replacing its existing assets. We also obtain a closed-form solution for the regulated firm’s output price when this price is set at discrete intervals. In contrast to rate of return regulation, we find that resetting the regulated price more frequently can increase the risk faced by the firm’s owners, and that this is reflected in a higher output price and a higher weighted-average cost of capital.     

Fiscal Consolidation and Decentralisation: A Tale of Two Tiers*

This paper contributes to the established literature on fiscal consolidations by investigating the distinct behaviour of central and sub‐central tiers of government during general government consolidation attempts. In the light of different degrees of decentralisation across OECD countries, and the different responsibilities devolved to sub‐central tiers, we believe that this approach offers an illuminating insight into the analysis of fiscal consolidations and their success. We show that the involvement of the sub‐central tiers of government is crucial to achieving cuts in expenditure, particularly in relation to the overall size of the government wage bill. In addition, central governments appear to exert a strong influence on the expenditure of sub‐central tiers through their grant allocations, and control of these allocations appears to have a considerable impact upon the overall success of consolidation attempts. Finally, we demonstrate that there is a skewness in cuts towards sub‐central capital expenditure both when central governments cut grant allocations and when sub‐central governments engage in lone consolidation attempts.