competition and corporate performance are people right to think that competition improves corporate performance my investigations indicate first that there are some theoretical reasons for believing this hypothesis to be correct but they are not overwhelming furthermore the existing empirical evidence on this question is weak however the results reported here based on an analysis of around 670 u k companies do provide some support for this view most important i present evidence that competition as measured by increased numbers of competitors or by lower levels of rents is associated with a significantly higher rate of total factor productivity growth

productivity in public services abstract this paper discusses issues arising in the measurement of productivity in public services compared to measuring productivity in the private sector difficulties arise because the output of public services is often unpriced and because some public services are consumed collectively a key problem is measuring the full range of outputs and quality improvements delivered by public sector organizations that are valued by society without comprehensive measures of output productivity statistics may be misleading i outline methods used in the measurement of both private and public sector productivity and discuss the measurement of public sector productivity in practice finally i discuss studies that examine factors underlying productivity differences and productivity growth in public and private sector organizations public sector reforms and the use of pilot schemes in public sector organizations present opportunities for research to identify causal effects on productivity

citizens preferences and the portfolio of public goods evidence from nigeria summary developing countries have undertaken decentralization reforms to increase the efficiency of public goods provisioning by tailoring the goods to the preferences of smaller groups the reforms aim to ensure that the resulting supply of public goods matches local demands we analyze if local politicians tasked with supplying public goods in a developing country respond to citizens preferences we ask two questions first faced with demands for increased spending on a particular type of public good will politicians increase the overall spending on public goods or keep it constant while reallocating resources between different public goods second if politicians reallocate resources rather than increase overall spending which public good will receive additional funds at the expense of another good we examine these questions using sub national spending and preference data in nigerian districts our empirical strategy accounts for interdependency between spending areas as increased spending in one area can be offset by decreasing expenditures elsewhere we find that local politicians reallocate resources across education health infrastructure and agricultural support to match the preference profile of citizens across these goods but do not increase overall spending for public goods

incentives for managers and inequality among workers evidence from a firm level experiment we present evidence from a firm level experiment in which we engineered an exogenous change in managerial compensation from fixed wages to performance pay based on the average productivity of lower tier workers theory suggests that managerial incentives affect both the mean and dispersion of workers productivity through two channels first managers respond to incentives by targeting their efforts towards more able workers implying that both the mean and the dispersion increase second managers select out the least able workers implying that the mean increases but the dispersion may decrease in our field experiment we find that the introduction of managerial performance pay raises both the mean and dispersion of worker productivity analysis of individual level productivity data shows that managers target their effort towards high ability workers and the least able workers are less likely to be selected into employment these results highlight the interplay between the provision of managerial incentives and earnings inequality among lower tier workers

competition among hospitals we examine competition in the hospital industry in particular the effect of ownership type for profit not for profit government we estimate a structural model of demand and pricing in the hospital industry in california then use the estimates to simulate the effect of a merger california hospitals in 1995 face an average price elasticity of demand of 4 85 not for profit hospitals face less elastic demand and act as if they have lower marginal costs their prices are lower than those of for profits but markups are higher we simulate the effects of the 1997 merger of two hospital chains in san luis obispo county where the merger creates a near monopoly prices rise by up to 53 and the predicted price increase would not be substantially smaller were the chains not for profit

does competition among public schools benefit students and taxpayers tiebout choice among districts is the most powerful market force in american public education naive estimates of its effects are biased by endogenous district formation i derive instruments from the natural boundaries in a metropolitan area my results suggest that metropolitan areas with greater tiebout choice have more productive public schools and less private schooling little of the effect of tiebout choice works through its effect on household sorting this finding may be explained by another finding students are equally segregated by school in metropolitan areas with greater and lesser degrees of tiebout choice among districts

the productivity of the banking sector integrating financial and production approaches to measuring financial service output measurement of output for services in general and for financial services in particular is a challenge in the context of the national accounts there is a significant component of financial services output for which payment is made implicitly through the spread between the asset interest earned and liability interest paid by financial institutions although it is reasonably clear that the total value of output of financial institutions includes the net interest income on financial asset and liability products such as loans and deposits for banks plus explicit service charges there are unsettled issues concerning the correct allocation of the net interest component across business intermediate consumers versus households government and the rest of the world final consumers recent revisions in national accounting rules for banking together with the developments since the late 1970s in the microeconomic theory of financial firms and of household consumption of financial asset services diewert 1974 barnett 1978 donovan 1978 hancock 1985 represent important developments in our understanding of the economics of and measurement possibilities for the banking sector central to and an important contribultion of this last line of literature has been the characterization of the prices of individual service products in terms of the barnett 1978 donovan 1978 user cost of money these user cost prices are simple functions of items such as interest rates that can be measured in financial market transactions the principal practical economic measurement issues these developments have illuminated are twofold

the performance and competitive effects of school autonomy this paper studies a recent british reform that allowed public high schools to opt out of local authority control and become autonomous schools funded directly by the central government schools seeking autonomy had only to propose and win a majority vote among current parents almost one in three high schools voted on autonomy between 1988 and 1997 and using a version of the regression discontinuity design i find large achievement gains at schools in which the vote barely won compared to schools in which it barely lost despite other reforms that ensured that the british education system was by international standards highly competitive a comparison of schools in the geographic neighborhoods of narrow vote winners and narrow vote losers suggests that these gains did not spill over

choice competition and pupil achievement choice and competition in education have recently found growing support from both policy makers and academics yet evidence on the actual benefits of market orientated reforms is at best mixed moreover although the economic rationale for choice and competition is clear in existing work there is rarely an attempt to distinguish between the two concepts in this paper we study whether pupils in primary schools in england with a wider range of school choices achieve better academic outcomes than those whose choice is more limited and whether primary schools facing more competition perform better than those in a more monopolistic situation in simple least squares regression models we find little evidence of a link between choice and achievement but uncover a small positive association between competition and school performance yet this could be related to endogenous school location or pupil sorting in fact an instrumental variable strategy based on discontinuities generated by admissions district boundaries suggests that the performance gains from greater school competition are limited only when we restrict our attention to voluntary aided schools which have more freedom in managing their governance and admission practices do we find some evidence of a positive causal link between competition and pupil achievement jel i20 h70 r5

the provision of incentives in firms i ncentives are the essence of economics despite many wide ranging claims about their supposed importance there has been little empirical assessment of incentive provision for workers the purpose of this paper is to critically overview existing work on the provision of incentives since the interests of workers and their employers are not always aligned a large theoretical literature has emphasized how firms design compensation contracts to induce employees to operate in the firm s interest this literature has reached into many areas of compensation and has pointed to a multitude of different mechanisms that can be used to induce workers to act in the interests of their employers these include piece rates options discretionary bonuses promotions profit sharing efficiency wages deferred compensation and so on my objective here is to evaluate this literature in the light of a growing empirical literature on compensation where possible i will address the literature from two perspectives first an underlying assumption of this literature is that individuals respond to contracts that reward performance accordingly i consider whether agents behave in this way and whether these responses are always in the firm s interest second i address whether firms write contracts with these responses in mind in other words do contracts look like the predictions of the theory incentives are provided to workers

does competition between hospitals improve the quality of care hospital death rates and the nhs internal market payer driven competition has been widely advocated as a means of increasing efficiency in health care markets the 1990s reforms to the uk health service followed this path we examine whether competition led to better outcomes for patients as measured by death rates after treatment following heart attacks using data that until 1999 was not publicly available in any form on hospital level death rates we find that the relationship between competition and quality of care appears to be negative greater competition is associated with higher death rates controlling for patient mix and other observed characteristics of the hospital and the catchment area for its patients however the estimated impact of competition is small jel classification i1 l8 h4

valuing school quality better transport and lower crime evidence from house prices housing prices within urban areas exhibit highly localized variation that cannot be explained solely by differences in the physical attributes of dwellings we consider the role of local amenities and disamenities in generating price variation within urban areas focusing on three highly policy relevant urban issues transport accessibility school quality and crime our survey of the recent empirical literature highlights what is known and what is not known on these issues and considers the relevance and reliability of this evidence for policy design and evaluation although there are serious empirical challenges we argue that research on housing values based on careful research designs can offer credible estimates of the social value of place specific attributes and amenities

performance pay and teachers effort productivity and grading ethics this paper presents evidence about the effect of individual monetary incentives on english and math teachers in israel teachers were rewarded with cash bonuses for improving their students performance in high school matriculation exams the main identification strategy is based on measurement error in the assignment to treatment variable that produced a randomized treatment sample the incentives led to significant improvements in test taking rates conditional pass rates and mean test scores improvements were mediated through changes in teaching methods enhanced after school teaching and increased responsiveness to students needs no evidence was found of manipulation of test scores by teachers

does competition among public schools benefit students and taxpayers comment school choice policies promise to align the incentives of school administrators with the demands of parents and may therefore lead to more efficient educational production milton friedman 1962 geoffrey brennan and james buchanan 1980 john chubb and terry m moe 1990 absent a large scale school voucher program in the united states however this prediction has been difficult to test several authors e g melvin v borland and roy m howsen 1992 clive r belfield and henry m levin 2002 have suggested studying the effects of tiebout choice the use of the residential location decision to select among local monopoly education providers the idea here is that fragmented governance induces competition among school districts analogous to that which would occur among schools with nonresidential choice in an influential paper caroline m hoxby 2000 points out that current governance structures are potentially endogenous to school productivity and proposes that variation in topography which may have influenced optimal jurisdiction size before modern transportation technologies provides a source of exogenous variation she estimates instrumental variables regressions of individual test scores and school spending on a metropolitan level tiebout choice index defined as one minus a herfindahl concentration index with districts enrollments as their market shares using as excluded instruments the number of larger and smaller streams in the area she reports substantial positive effects of district fragmentation on student test scores and negative effects on spending this comment presents a reanalysis of hoxby s test score results which form the core of her empirical analysis these results turn out to be quite sensitive to plausible alterations to hoxby s specification in particular the large significant effect of choice on achievement obtains

is hospital competition socially wasteful we study the consequences of hospital competition for medicare beneficiaries heart attack care from 1985 to 1994 we examine how relatively exogenous determinants of hospital choice such as travel distances influence the competitiveness of hospital markets and how hospital competition interacts with the influence of managed care organizations to affect the key determinants of social welfare expenditures on treatment and patient health outcomes in the 1980s the welfare effects of competition were ambiguous but in the 1990s competition unambiguously improves social welfare increasing hmo enrollment over the sample period partially explains the dramatic change in the impact of hospital competition

competition and incentives with motivated agents a unifying theme in the literature on organizations such as public bureaucracies and private nonprofits is the importance of mission as opposed to profit as an organizational goal such mission oriented organizations are frequently staffed by motivated agents who subscribe to the mission this paper studies incentives in such contexts and emphasizes the role of matching the mission preferences of principals and agents in increasing organizational efficiency matching economizes on the need for high powered incentives it can also however entrench bureaucratic conservatism and resistance to innovations the framework developed in this paper is applied to school competition incentives in the public sector and in private nonprofits and the interdependence of incentives and productivity between the private for profit sector and the mission oriented sector through occupational choice jel d23 d73 h41 l31 the late twentieth century witnessed a historic high in the march of market capitalism with unbridled optimism in the role of the profit motive in promoting welfare in the production of private goods moreover this generated a broad consensus on the optimal organization of private good production through privately owned competitive firms when it comes to the provision of collective goods no such consensus has emerged debates about the relative merits of public and private provision still dominate this paper suggests a contracting approach to the provision of collective goods it focuses on two key issues how to structure incentives and the role of competition between providers at its heart is the idea that organizations that provide collective goods cohere around a mission 2 thus production of collective goods can be viewed as mission oriented

the use and usefulness of performance measures in the public sector the paper focuses on the empirical evidence on the use and usefulness of performance measures in the public sector it begins with consideration of the features of the public sector which make the use of performance measures complex the issues of multiple principals and multiple tasks it discusses the form that performance measures may take the use made of these measures and the responses that individuals may make to them empirical examples from the fields of education and health with a focus on the usa and uk are examined there is clear evidence of responses to such measures some of these responses improve efficiency but others do not and fall into the category of gaming generally there has been little assessment of whether performance measures bring about improvements in service the paper ends with consideration of how such measures should be used and what measures are useful to collect

does an unstable keynesian unemployment equilibrium in a non walrasian dynamic macroeconomic model imply chaos simonovits 1982 introduced a non walrasian dynamic macromodel which is based on the disequilibrium model with inventory dynamics due to honkapohja and ito 1980 this model describes transactions on two markets one market for labor and one market for goods and contains five parameters obviously there is an equilibrium which is the so called keynesian unemployment equilibrium point for suitable choices of the parameters this equilibrium point is locally stable and according to simonovits 1982 the keynesian unemployment equilibrium point is also globally stable i e the trajectories of all initial values converge to the equilibrium point for many parameter values the equilibrium point is unstable this is in fact the case when the product of the two eigenvalues at the equilibrium point is greater than 1 simonovits 1982 conjecture says if the keynesian unemployment equilibrium point is unstable then there is chaos first we recall some definitions of chaos we restrict our attention to systems whose trajectories are bounded a first definition is the following a system is chaotic if there exist infinitely many periodic points with different period and if there is an uncountable set of aperiodic points this kind of chaos is nowadays called li yorke chaos see li and yorke 1975 and diamond 1976 before turning to a second definition we need the notion of sensitive dependence on initial values a system may be said to have sensitive dependence on initial values if we can find with probability p where 0 p 1 a point x such that for every open neighborhood u of x there is a point y in u such that the trajectories of x and y will not be close

frontier estimation how useful a tool for health economics the journal is pleased to publish in this issue three papers that apply frontier estimation techniques to hospitals and nursing homes together with an exchange over the usefulness of those techniques in the health care context the papers represent the current state of the art with respect to applications of frontier estimation in health care because of the growing popularity of the technique no doubt in part from its availability in standard software packages it seems useful to take this opportunity to appraise its usefulness one might begin by asking usefulness for what assuming one could define a frontier with certainty how would one use such knowledge a straightforward application in health care appears to be to reimbursement because both data envelopment analysis dea and stochastic frontier estimation specify the least cost mix of inputs for a given output both methods can in principle be used to determine whether a given firm hospital or nursing home is efficient and if the answer to that question is no the magnitude of any inefficiency it is not a large step from that information to the notion that a regulator should reduce the firm s budget by the amount of the measured inefficiency indeed vitaliano and toren mention the boren amendment s requirement that the medicaid program reimburse hospitals and nursing homes at the cost incurred by an efficiently operated

the decline of schooling productivity in oecd countries based on baumol s cost disease model we develop two alternative measures of the change in the productivity of schooling both productivity measures are based on changes in the relative price of schooling we find that in most oecd countries the price of schooling has increased faster in 1970 94 than would be compatible with constant schooling productivity in addition we show that the average performance of pupils has remained constant at best in most oecd countries our results imply a larger decline in the productivity of schooling in many oecd countries than in the united states

productivity change in health care research on productivity change in health care has surged in recent years this interest reflects both policy interest in the value of health care and improving data capabilities and methods for productivity research because of the central importance of quality change in health care this research has directly or indirectly considered not only changes in the costs of producing health services e g the cost of a hospital day but also changes in the benefits of health services for patient health some studies have compared overall changes in population health to changes in aggregate medical expenditures for example recent studies by kevin murphy and robert topel 1999 and william nordhaus 1999 suggest that the value to current and future generations of americans of improvements in life expectancy in recent decades has exceeded 2 trillion per year accounting for the improvements in ageadjusted functional health that also appear to have occurred in recent decades e g kenneth manton et al 1997 makes the improvement in health even greater cutler and elizabeth richardson 1999 estimate that even if only 25 percent of the overall improvement in health is attributable to medical care then health care productivity has risen yet translating this into health care productivity calculations leaves many issues unresolved it is not immediately clear how to determine the share of health improvements that result from medical care further even if overall productivity improvements have been high it is possible that many changes in health care productivity have been less valuable identifying areas of high and low past and potential future productivity improvements would be helpful for guiding policymakers for all of these reasons much of the recent research on health care productivity has focused on explicit analysis of costs and outcomes for certain common serious health problems where other factors can be controlled for and relevant inputs and health outcomes can be measured in this paper we review the state of the art of the evidence on health care productivity we first summarize a set of recent productivity studies of common conditions that account for a substantial fraction of overall medical spending these studies also illustrate the range of methods that have been used in disease level productivity studies in general the studies show rather substantial productivity gains in care we then present new evidence on productivity of treatment for breast cancer a disease that at least in its most common forms in adults many experts believe has seen little improvement in benefits of care over time considering cancer allows us to focus on a condition where there is no presumption that medical care has been worthwhile and where there are a host of complex issues related to case finding the timing of diagnoses and chronic care we find that the treatment of cancer has had at best small productivity improvements outcomes have improved more on a per case basis than when considering the population as a whole

efficiency of educational production an analysis of new york school districts theoretical consideration of technical efficiency has existed since tjalling c koopmans 1951 which defined technical efficiency for production possibilities for which it is impossible to increase any output without simultaneously increasing any input the nonparametric approach to efficiency estimation is based not on this definition but rather on michael j farrell s 1957 index even after farrell efficiency is achieved there may exist additional slack in individual inputs implying that farrell efficiency doesn t measure inefficiency to solve this problem this paper suggests incorporating programming results into a second stage multivariate regression analysis for illustrative purposes this technique is applied to analyze new york state school districts copyright 1996 by mit press