the consumption response to predictable changes in discretionary income evidence from the repayment of vehicle loans abstract although the life cycle permanent income hypothesis is the primary framework for understanding household consumption and savings decisions only a few studies have used clearly identifiable income changes to test the basic predictions of the model the estimates produced using this empirical strategy have yet to lead to a consensus of beliefs since the results have both favored and rejected the model this paper contributes to this literature by examining the consumption reaction to predictable increases in discretionary income following the final payment of a vehicle loan using data from the consumer expenditure survey the results show that a 10 increase in discretionary income due to a loan repayment leads to a 2 to 3 increase in nondurable consumption additional analysis suggests that these findings may be explained by the presence of borrowing constraints

credible commitment and success with public enterprise reform abstract this paper studies why some efforts at public enterprise reform fail and why others succeed economic reforms are intended to increase efficiency and thus help sustain long term growth yet many governments have had difficulty sustaining the reforms they initiated and have reintroduced rigid controls over markets and enterprises this is because either in the process of implementation the government discovers that the costs of carrying the reform further are greater than the expected efficiency gains or the public is skeptical that the new policies can be sustained and does not take the actions necessary for the gains to be realized this paper develops a new institutionalist framework and employs various measures of policy commitment and net gain from continued reform to analyze these issues the paper suggests ways in which the potential success or failure of a reform can be assessed with implications for the steps that reformers might take to increase the chances of success

why haven t developing countries privatized deeper and faster abstract despite a decade of privatization in the developing world the vast majority of state owned enterprise soe assets continue to be in government hands bureaucrats in business world bank 1995 correctly identifies politics as one reason for the slow pace of privatization but it underestimates the role of institutional and economic constraints success stories of privitization are rare in low income countries and the long term promise of privatization in sectors posing regulatory complications remains to be established countries in crisis may reform soes quickly and deeply despite these uncertainties but others may opt for gradual reform which need not be altogether bad if speedy privatization results in poorly conceived schemes the cure can be worse than the illness finally bureaucrats are likely to stay in business for years to come and therefore it is important to improve their effectiveness in the roles they are unlikely to shed in the future a market friendly approach to soe reform need not be government un friendly

using subjective income expectations to test for excess sensitivity of consumption to predicted income growth abstract we test for precautionary saving and excess sensitivity of consumption to predicted income growth using a 1989 1993 panel survey of italian households that has measures of subjective income and inflation expectations these expectations provide a powerful instrument for predicting income growth the empirical specification controls for predictable changes in labor supply and allows a fairly general specification for the stochastic structure of the forecast error we find that consumption growth is positively correlated with the expected variance of income and uncorrelated with predicted income growth overall the results support the precautionary saving model

consumer response to the timing of income evidence from a change in tax withholding in 1992 the income tax withholding tables were adjusted so that withholding was reduced a typical worker received an extra 28 80 in take home pay per month in march through december 1992 to be offset by a lower tax refund in 1993 the change in withholding amounted to 0 5 percent of gdp president bush who proposed this change in his state of the union address intended that it provide a temporary stimulus to demand but the policy change involved only the timing of income so under the life cycle permanent income model it would be predicted to have a negligible effect on consumption and aggregate demand this paper reports consumers responses to the change in withholding the results are based on a survey taken shortly after it went into effect forty three percent of consumers report spending the extra take home pay substantially more than the zero percent predicted by the standard models but substantially less than the one hundred percent upon which the policy was predicated the decision to save the income is not explained by expected income growth therefore while behavior of many households is not fully consistent with the life cycle permanent income model liquidity constraints do not appear to account for this behavior this abstract was borrowed from another version of this item

what can we learn from the grand policy experiment lessons from so2 allowance trading stable url http links jstor org sici sici 0895 3309 28199822 2912 3a3 3c69 3awcwlft 3e2 0 co 3b2 tthe journal of economic perspectives is currently published by american economic association your use of the jstor archive indicates your acceptance of jstor s terms and conditions of use available athttp www jstor org about terms html jstor s terms and conditions of use provides in part that unless you have obtainedprior permission you may not download an entire issue of a journal or multiple copies of articles and you may use content inthe jstor archive only for your personal non commercial use please contact the publisher regarding any further use of this work publisher contact information may be obtained athttp www jstor org journals aea html each copy of any part of a jstor transmission must contain the same copyright notice that appears on the screen or printedpage of such transmission the jstor archive is a trusted digital repository providing for long term preservation and access to leading academicjournals and scholarly literature from around the world the archive is supported by libraries scholarly societies publishers and foundations it is an initiative of jstor a not for profit organization with a mission to help the scholarly community takeadvantage of advances in technology for more information regarding jstor please contact support jstor org http www jstor orgtue jun 26 16 25 17 2007

toward a theory of regulation for developing countries following jean jacques laffont s lead the efficient operation and expansion of infrastructures in developing countries is crucial for growth and poverty reduction however recent reforms aimed at improving the performance of these sectors have had limited success evidence suggests that in many instances this was because the traditional regulatory theory relied on by policymakers was not suitable for the institutional context in developing countries this article surveys more recent theoretical work focusing on problems with regulation in these countries at the heart of the survey is the work of jean jacques laffont who in the last decade of his life set about developing a theoretical framework for regulation in developing countries we consider the implications of his work which focused on the key institutional limitations faced in developing countries we then discuss where experience suggests that there are important omissions from this modeling bringing in extensions and alternative approaches pursued by other authors we conclude by summarizing the key ways in which regulatory policy will be different when institutions are weak overall we find that an understanding of the institutional context and its implications are crucial when designing a regulatory framework for developing countries

the response of expenditures to anticipated income changes panel data estimates standard models of intertemporal allocation predict that the time path of expenditures should be independent of the time path of income recently two papers parker 1999 and souleles 1999 have suggested that u s households have a high marginal propensity to spend within year anticipated income changes we use an expenditure survey panel from spain to re examine this issue we exploit two important features of the spanish data first we have quarterly panel data that follows households for more than four quarters second we use the fact that workers are exogenously sorted into one of two payment schemes some receive the same amount each month of the year and others receive an extra payment in june and december the extra payment is large and predictable we examine the detailed pattern of expenditures over the year to see whether they differ between the two groups we fail to find even weak differences we complement this with a conventional euler equation analysis of excess sensitivity our predicting equation for quarterly earnings growth is much better than usual and is likely to give a powerful test of the hypothesis that predictable changes in income do not lead to changes in expenditure patterns the results of this analysis confirm the graphical analysis we find no evidence of excess sensitivity we conclude that households in normal times do smooth consumption over the year we suggest a reconciliation of our results with those of parker and souleles

resistance to reform status quo bias in the presence of individual specific uncertainty comment why do governments so often fail to adopt policies which economists consider to be efficiency enhancing our answer to this question relies on uncertainty regarding the distribution of gains and losses from reform we show that there is a bias towards the status quo and hence against efficiency enhancing reforms whenever some of the individual gainers and losers from reform cannot be identified beforehand there are reforms which once adopted will receive adequate political support but would have failed to carry the day ex ante the argument does not rely on risk aversion irrationality or hysteresis due to sunk costs jel d72 f13 why do governments so often fail to adopt policies that economists consider to be efficiency enhancing this is one of the fundamental questions of political economy the answer usually relies on what may be

institutions and government controls abstract this paper develops a model of government policy toward industrial control and regulation that sheds light on the determinants of differential country experiences in terms of organizational arrangement and enterprise performance in contrast to the model developed by shleifer and vishny shleifer a vishny r w 1994 politicians and firms quarterly journal of economics 109 995 1025 shleifer a vishny r w 1998 the grabbing hand government pathologies and their cures harvard univ press cambridge ma which suggests that government controls over firms come about when politicians can use public funds to buyoff the managers and solicit their cooperation in politically motivated redistribution of rents the present shows that it may be the ability to use the government s regulatory powers at discretion that encourages politicians to impose controls on firms and redistribute their rents the model implies that the politicians appetite for intervention tends to be greater when the cost of collecting and using public funds is higher which is the opposite of what the shleifer vishny model predicts the present model helps explain the puzzling observation that countries with poor institutions are more likely to impose extensive controls on production and maintain large and inefficient public sectors the model also sheds light on a variety of other stylized facts and puzzles and offers new hypotheses to be tested

administrative costs and instrument choice for stochastic non point source pollutants this paper extends the empiricalanalysis of non point source pollution to thecase where the pollutant is stochastic andalternative regulatory instruments havedifferent administrative costs it also appliesa method of stochastic programming whereemissions are log normally distributed forthe kennet catchment in south west england werank a range of policies in terms of abatementcosts alone and total costs abatement andadministrative costs on the basis ofabatement costs alone a uniform emission taxis the cost minimising policy but on the basisof total cost a nitrogen input tax is theleast cost policy furthermore the policyranking based on total costs changes as thereliability standard increases

the reaction of household consumption to predictable changes in social security taxes the key implication of rational expectations and the basic life cycle permanent income hypothesis that predictable changes in income have no effect on the growth rate of consumption expenditures is examined this implication is important for understanding the effectiveness and optimal timing of fiscal policy the causes and propagation of business cycles and the effects of income fluctuations on the growth rate of the economy using household level consumption data from the consumer expenditure survey whether expenditures on nondurable goods increase contemporaneously with predictable changes in social security tax withholding is tested it is found that households do change their consumption expenditures in response to the predictable fluctuations in income induced by the social security tax system

why are stabilizations delayed when a stabilization has significant distributional implications e g tax increases to eliminate a large budget deficit socioeconomic groups may attempt to shift the burden of stabilization onto other groups the process leading to stabilization becomes a war of attrition each group attempting to wait the others out and stabilization occurring only when one group concedes and bears a disproportionate share of the burden the authors solve for the expected time of stabilization in a model of rational delay and relate it to several political and economic variables they motivate this approach and its results by comparison to historical and current episodes copyright 1991 by american economic association

do consumers react to anticipated income changes evidence from the alaska permanent fund a central implication of the life cycle permanentincome hypothesis lc pih is that consumers should not respond to predictable changes in their income to test this hypothesis a number of recent papers have exploited natural experiments to identify anticipated income changes in particular recent work by parker 1999 uses the change in after tax income due to the cap on earnings subject to the social security tax and a related paper by souleles 1999 examines the response of consumption to income tax refunds surprisingly parker and souleles find that even when income is expected to change within the year expenditure is excessively sensitive to the timing of the income change while their results can be interpreted as evidence that our canonical model of consumption is inadequate an alternative explanation is that the anticipated income changes they exploit are small and irregular and that households will not bother to change their consumption paths when the computational costs involved are large relative to the utility gains in support of this interpretation browning and collado 2001 find that the seasonal consumption patterns of spanish households that work in sectors that provide regular bonus payments do not differ from those of households that do not receive bonus payments this paper adds to this evidence by exploiting a natural experiment provided by annual payments from the state of alaska s permanent fund to every resident in the state of alaska that should yield an unusually powerful test of the lc pih these payments are large and clearly anticipated by alaskan residents using the variation in the size of the payments over time and in the amount received by families of different sizes to identify the response of consumption to payments from the permanent fund i find no evidence that the consumption of alaskan households reacts to these payments in addition i find no evidence that the seasonal pattern of consumption in alaska differs from that in the other 49 states or that households in alaska are subject to fewer liquidity constraints engage in less buffer stock saving or spend a smaller fraction of their income on semidurable goods than households in the rest of the united states however although households in alaska do not overreact to payments from the permanent fund i find that the consumption of the very same households is excessively sensitive to their income tax refunds this evidence suggest that households will take anticipated income changes into account in their consumption decisions when the income changes are large regular and easy to predict but will not do so when they are small and irregular the paper proceeds as follows the next section of the paper presents details on the department of economics princeton university princeton nj 08544 and national bureau of economic research e mail chsieh princeton edu i am very grateful to the bureau of labor statistics bls for providing access to the data from the consumer expenditure survey and to its staff particularly steven henderson walter vandeheide and wolf weber for their generous assistance during my visits to the bls i also thank nanci jones for providing data and patiently answering questions on the operation of the alaska permanent fund anne case angus deaton jonathan parker and two referees provided useful comments the views expressed in this paper are personal and should not be attributed to the bls 1 i refer to the certainty equivalent version of the lc pih or one in which the expected variance of consumption is constant as is well known without these assumptions the lc pih only implies smoothing of marginal utility not necessarily of consumption 2 see christina h paxson 1992 john shea 1995 jonathan a parker 1999 nicholas s souleles 1999 martin browning and m dolores collado 2001 also see ronald a bodkin 1959 for an early example of the use of a natural experiment to test for excess sensitivity for comprehensive reviews of the large literature on empirical tests of the lc pih see angus deaton 1992 browning and annamaria lusardi 1996 and browning and thomas f crossley 2001 3 in 1998 for example the permanent fund paid 1 541 to every resident of the state of alaska

do homeowners increase consumption after the last mortgage payment an alternative test of the permanent income hypothesis the maturity date of a mortgage loan marks the end of monthly mortgage payments for homeowners in the period after the last payment homeowners experience an increase in their disposable income our study interprets this event as an anticipated increase in income and tests whether households smooth consumption over the transition period as predicted by the rational expectation life cycle permanent income hypothesis we find households do not alter nondurable goods consumption in the period following the last mortgage payment instead they increase both financial savings and savings in durable goods such as house furnishings and entertainment equipment in the year of the last mortgage payment

regulation of administered prices an empirical analysis of the microeconomics of price movement in finland 1972 77 curiously enough the concept of administered prices launched by gardiner means in his 1934 report to the u s secretary of agriculture still shows up in discussions on price policy and control today almost fifty years since it was coined and three decades after the discussion2 in which it should have been buried even more astonishing is the fact that its spin off administered inflation a term introduced by the kefauver committee in 1957 3 is still a part of economic language in some instances in the basic formulation that of means in 1935 administered prices are not assumed to be explicitly linked with market power but simply prices set by administrative action and held constant for a period of time means 12 p 78 although the hypothesis in this form was based on no economic reasoning of acceptable clarity it might still be accepted for the simple truism it is clearly some prices will change more seldom than others since for one thing costs of price changes will vary as is intuitively clear and as shown by sheshinski and weiss 17 pp 294 95 the optimal strategy of a firm in an inflationary environment will consist of longer intervals between successive price changes the higher the cost of such a change is under some very special assumptions risk aversion may also serve as an explanation to a decrease in the number of price changes relative to the number of changes in cost as indicated by the results of schramm and sherman 1 5 4 the administered inflation hypothesis as forwarded by means in his 1957 testimony before the kefauver committee means 12 pp 101 29 and by

union contracts and the life cycle permanent income hypothesis this paper isolates households in the psid whose heads can be matched to particular long term union contracts with high confidence the author uses use published information on these contracts to construct a household specific measure of expected wage growth he finds that predictable wage movements are significantly correlated with consumption changes contrary to neoclassical consumption theory the author finds that consumption responds more strongly to predictable income declines than to predictable income increases this asymmetry is inconsistent with liquidity constraints and myopia but is qualitatively consistent with models in which preferences exhibit loss aversion copyright 1995 by american economic association

a positive theory of fiscal deficits and government debt this paper considers an economy in which policymakers with different preferences alternate in office as a result of elections government debt is used strategically by each policymaker to influence the choices of his successors if different policymakers disagree about the desired composition of government spending between two public goods the economy exhibits a deficits bias that is debt accumulation is higher than it would be with a social planner the equilibrium level of debt is larger the larger is the degree of polarization between alternating governments and the less likely it is that the current government will be re elected

behavior of the firm under regulatory constraint a recent article by akira takayama discusses an earlier paper by harvey averch and leland l johnson on fair rate of return regulation of public utilities although takayama p 255 agrees with averch and johnson s general conclusions that a firm will tend to increase its investment with the introduction of an active constraint on its rate of return he criticizes the a j argument as being confusing ambiguous and in error takayama then attempts a clarification and presents a new formulation which leads to the a j result quoted above this comment will discuss several of takayama s criticisms in addition to showing that the so called a j effect cannot be derived from the basic assumptions made by both averch and johnson and takayama 1 we will show that the very assumptions used to prove the a j effect by defining the region of x require an assumption that the a j effect exists in the first place

why and when do governments initiate public enterprise reform initiating public enterprise reform is a complex decision influenced by economic factors as well as the ideological biases and personalities of political leaders nevertheless the use of a contracting framework yields important generalizations about what drives the decision this article argues that the decision depends fundamentally on the potential efficiency gains from the reform and its associated transactions costs costs arise because of asymmetries in information and opportunism problems that usually plague contract negotiations the article identifies observable variables that may affect either the potential gains or the transactions costs uses them to construct a simple probit decision making model and tests the model using data from fifteen developing countries over a twenty year period

economic crisis and policy choice the politics of adjustment in the third world the acute economic pressures of the 1980s have forced virtually all of latin america and africa and some countries in asia into painful austerity programs and difficult economic reforms scholars have intensively analyzed the economics of this situation but they have given much less attention to the political forces involved in this volume a number of eminent contributors analyze the politics of adjustment in thirteen countries and nineteen governments drawing comparisons not only across the full set of cases but also within clusters selected to clarify specific issues why do some governments respond promptly to signs of economic trouble while others muddle indecisively for years why do some confine their response to temporary macroeconomic measures while others adopt broader even sweeping programs of reform what leads some countries to experiment with heterodox approaches while most however reluctantly pursue orthodox courses why confronted with intense political protest have some governments persisted while others have altered or abandoned course the answers to these questions are political not economic and they are examined here by thomas m callaghy stephan haggard miles kahler robert r kauman joan m nelson and barbara stallings

government markets and the theory of the nth best abstract there is increasing interest in having the us government create markets in property rights to allocate various resources such as landing rights and environmental quality the purpose of this paper is to provide some general guidelines for the more efficient organization of such markets the analysis examines the problem of devising efficient government markets when there are multiple inputs to the production process subject to different taxes and regulations it develops some simple rules of thumb for the design of markets and examines how they can be applied to problems involving regulated utilities

understanding economic policy reform one of the eventual consequences of the global debt crisis was a wave of market oriented economic reforms this paper discusses the state of our knowledge on the political economy of this process why were inefficient and often unsustainable policies maintained for so long why are so many governments reforming now after decades of adherence to policies of an opposite kind have the reformers internalized the correct lessons from the east asian experience finally are there any helpful rules for reformers to follow in guiding their policies through complicated political terrain

efficiency based rank assessment for electric power industry a combined use of data envelopment analysis dea and dea discriminant analysis da abstract this study discusses a combined use of dea data environment analysis and dea da discriminant analysis to determine the efficiency based rank of energy firms this type of performance evaluation is important because we often have a difficulty in accessing a large sample on energy firms to derive reliable empirical results the proposed approach is useful in dealing with such a limited number of energy firms often found in previous dea studies on energy industries in the world the proposed approach uses dea to classify energy firms into efficient and inefficient groups based upon their efficiency scores then it utilizes dea da to assess their efficiency scores and ranks in this stage we can find an adjusted efficiency score for each energy firm the proposed approach provides us with the following analytical capabilities all of which cannot be found in a conventional use of dea in assessing energy firms first the proposed dea approach can avoid zero in all multipliers on efficient energy firms by incorporating scsc strong complementary slackness condition so that it can handle an occurrence of multiple reference sets and multiple projections the dea result classifies all energy firms into efficient and inefficient groups second dea da applied to the two groups evaluates all energy firms by an industry wide evaluation not depending upon a limited number of efficient energy firms in a reference set as found in a conventional use of dea the analytical capability can reduce the number of efficient energy firms third the proposed approach can provide their efficiency based ranking scores finally we can conduct a rank sum test based upon their ranking scores to obtain a statistical inference as an application this study uses the proposed approach to examine the performance of japanese electric power industry we find two economic implications one of the two implications is that no major change has occurred in the operational performance of japanese electric power industry because of japanese sluggish economy from 2005 to 2009 the other implication indicates that there are strategic differences in the operation of japanese electric power firms after the liberalization

capital vintage time trends and technical change in the electric power industry beginning with tinbergen in 1942 economists have employed a time trend in cost or production functions to represent the rate at which new technology is introduced into the production unit in sufficiently flexible models of the production process the time trend may be used to obtain estimates of the rate as well as direction of technical change the use of the time trend is generally defended on pragmatic grounds as no theoretical justification exists for assuming that new technology is introduced at a steady rate that is independent of a firm s investment in r d education capital of a more recent vintage etc in recent years alternatives to the traditional time trend have been sought to represent the rate at which new technology is introduced research in this area has been concentrated in the telecommunications industry where the stock of r d or the percentage of calls completed by direct dialing or modern switching facilities have been employed as technological indices by nadiri and schankerman 32 denny et al 14 and christensen et al 7 the latter two studies indicate that explicit technological indices provide a better representation of the pace of innovation than the time trend this conclusion must remain tentative however as it is not possible to determine what is the true direction of technical change in these studies this shortcoming is overcome in a recent study by kopp and smith 24 who compare the performance of time trends and explicit technological indices in a study using pseudo data generated by process analysis models their results unambiguously support the use of technologically explicit indicators of technical change and indicate that the use of a time trend may not provide a consistent estimate of the direction of technical change this study does not however shed any light on the ability of a time trend to accurately reflect the rate of technical change the purpose of this study is to investigate the effects of alternative technological indices on the estimated rate and direction of technical change in the electric power industry the performance of a time trend is compared with that of a vintage index computed as the average age of a firm s steam generating capacity this latter index is consistent with the notion that new technology is embodied in newly constructed capital an assumption sup

cost efficiency of electric grid utilities in china a comparison of estimates from sfa mle sfa bayes and stoned cnls with the purpose of estimating the range of cost efficiency levels of the power grid sector in china we assembled a data set including 23 provincial power grid companies spanning from 2005 to 2009 and conducted an empirical study based on the sfa mle sfa bayes and stoned cnls methodologies empirical results show that the average values of efficiency from different models vary from 0 85 to 0 92 depending especially on the assumptions underlying inefficiency content further results demonstrate that there is exogenous technical progress during the sample period and per capita gdp of the province is negatively related to the costs of the electric grid company located in the corresponding province we hope this empirical study will contribute to the debate on an efficiency based regulation scheme which was introduced to the chinese electric grid sector on a pilot base in 2014

a theory of privatization or why bureaucrats are still in business abstract privatization is a dynamic phenomenon and changes in ownership arrangements require explanations based upon changes in background variables without movements in these variables bureaucrats are likely to stay in business even if reform would increase efficiency it is argued that changes in one such variable the cost of government finance have played a particularly significant role in trigerring privatizations and related reforms the increasing cost of government finance resulting from higher levels of general public expenditure and taxation also explains the policy sequence observed in many countries in which comprehensive ownership reform is preceded by a period of increased financial stringency for state owned enterprises soes

central bank independence revisited the case for central bank independence cbi while not a new one has been strengthened by a growing body of empirical evidence by recent developments in economic theory and by the temper of the times the case is a strong one 1 which is becoming part of the washington orthodoxy the purposes of this paper are both to make more precise the type of cbi that is likely to enhance economic performance and to point to some remaining open issues and anomalies i start with the two theoretical approaches to cbi

market power and transferable property rights the appeal of using markets as a means of allocating scarce resources stems in large part from the assumption that a market will approximate the competitive ideal when competition is not a foregone conclusion the question naturally arises as to how a firm might manipulate the market to its own advantage this paper analyzes the issue of market power in the context of markets for transferable property rights first a model is developed that explains how a single firm with market power might exercise its influence this is followed by an examination of the model in the context of a particular policy problem the control of particulate sulfates in the los angeles region

credibility and reputation building in the developmental state a model with east asian applications abstract we use a game theoretic model to analyze the role of credibility reputation and investment coordination in a developmental state our model focuses on why a soft state serving narrow social groups so often obtains in less developed countries and under what conditions a hard or developmental state can emerge the model highlights the dilemma that although state and private sector alike may want economic growth both must simultaneously invest to achieve it but the equilibrium outcome analogous to the prisoner s dilemma is investment by neither even when initial conditions are favorable and a state is potentially developmental with the genuine capability to elicit private sector investment this may not materialize and an equilibrium of low or no investment will prevail to avoid this deadlock and foster growth the successful developmental state must demonstrate commitment by promoting its developmental credentials through a process of reputation building a consequent incentive to act tough together with seeming advantages of authoritarianism in implementing the developmental state may help to explain why it is often associated with an authoritarian political system

regulated equity returns a puzzle abstract based on a database of u s electric utility rate cases spanning nearly four decades the returns on equity authorized by regulators have exhibited a large and growing premium over the riskless rate of return this growing premium does not appear to be explained by traditional asset pricing models often in direct contrast to regulators stated intent we suggest possible alternative explanations drawn from finance public policy public choice and the behavioral economics literature however absent some normative justification for this premium it would appear that regulators are authorizing excessive returns on equity to utility investors and that these excess returns translate into tangible profits for utility firms

privatization and the private sector abstract from the perspective of someone who has observed the private and public sectors in emerging economies for many years it is interesting to recall that in the past it was the world bank that supported the development of state owned utilities and industrial enterprises in developing countries especially latin america it is also in latin america that the world bank became a convert to and promoter of privatization a key lesson of privatization in emerging markets is the importance of competition not only in the sale process but in the subsequent operation of privatized enterprises protective devices such as core shareholders and areas off limits to foreign investors are counterproductive privatization has spawned a new generation of entrepreneurs and been especially beneficial to the development of domestic capital markets

the political economy of inaction abstract this paper develops a simple model of political inaction in a two party democracy i e it shows the conditions under which both parties will prefer to live with an unsatisfactory and inefficient status quo rather than to raise an issue the risk of raising the issue to either party is the fear of ending up with the other party s policy for example by losing the electron regarded as even worse than the status quo the model shows that the problem is likely to be particularly serious the more evenly matched is political competition the more risk averse the parties the less voters trust the parties the more divided is public opinion and the more important the issue the model is illustrated with a number of examples of real world inaction e g on fiscal deficits abortion the transition to socialism and the fall of the weimar republic in general the analysis also suggests that over a range more representation of political viewpoints implies a smaller likelihood of political action so that democracy implies a tradeoff between representation and the capacity for political action

pricing efficiency under rate of return regulation some empirical evidence for the electric utility industry the authors test quasi optimal pricing rules for rate of return regulation for a sample of electric utilities they estimate the regulated cost function and demand equations by class of customer for the sample to yield the cost and demand parameters required to assess the utility rate structures the results indicate that the price structure of electricity by class of customer is not quasi optimal and that welfare improvement might be possible under alternative prices searching for the price structure which satisfies the criteria they find that commercial users rates have been too high relative to residential and to a lesser extent industrial rates they note that commercial uses tend to be less organized and more poorly represented in the rate making process 16 references 8 tables

the response of household consumption to income tax refunds a central implication of the life cycle or permanent income theory is that consumption should not respond to predictable fluctuations in income tests of this implication have yielded mixed results especially on micro data angus deaton 1992 martin browning and annamaria lusardi 1996 in large part this might be due to the difficulties of isolating the predictable component of income at the micro level most tests proceed by instrumenting for income but since the available instruments are typically poor such tests might be prejudiced against finding significant excess sensitivity of consumption to income john shea 1995 also it is not clear how closely the resulting econometric predictions of income coincide with agents actual expectations of income to avoid these difficulties this paper examines the response of household consumption to a particular type of income that is both predictable and transitory income tax refunds since a refund depends on events in the previous calendar year it is predictable income as regards consumption in the year of its receipt consequently under the life cycle theory consumption should not increase on receipt of a refund 2 in addition to testing the canonical model of consumption this paper provides estimates interpretable as the marginal propensity to consume mpc out of refunds since federal tax refunds now amount to over 80 billion per year averaging well over 1 000 per refund these estimates are of interest in themselves more generally they bear on the impact of even preannounced and temporary changes in fiscal policy the paper begins by surveying related studies in section i section ii describes the data the consumer expenditure survey cex which of the leading u s micro data sets has the most comprehensive coverage of expenditure the empirical specification is set out in section hi section iv reports the results and section v concludes

inflation and the demand for money in developing countries abstract the sensitivity of money holdings to yield is an important issue for financial sector reform for low income developing countries this sensitivity has been judged mainly on the basis of demand studies which use inflation as the opportunity cost of holding money but researchers have generally neglected the fact that because changes in prices may appear in dynamic demand for money equations even if the demand for money is not yield sensitive it is not normally possible to make valid inferences about the inflation sensitivity of equilibrium demand for money the severity of the problem is illustrated by reference to ghana and china

regulatory restructuring and incumbent price dynamics the case of u s local telephone markets prior to the telecommunications act of 1996 many u s states restructured their regulatory framework by replacing rate of return regulation with competition in both the local exchange service and local long distance markets and adopting price regulation price caps and price freezes using a panel data set of incumbent firm prices for three services i investigate whether price regulation and differences in entry conditions affect incumbent operators rate structures i find that competition has prompted a significant amount of rate rebalancing by reducing the amount of cross subsidization present in local telephone markets in addition the added flexibility of price cap regulation speeds the rate rebalance effects of competition

does consumption respond to predicted increases in cash hand availability evidence from the italian severance pay abstract we examine whether italian household consumption exhibits excess sensitivity to severance pay a sizable lump sum that workers receive at job termination we find no evidence of excess sensitivity of non durable expenditure to this anticipated cash in hand change

time inconsistency of protectionist programs protectionist trade policies have long been advocated as second best instruments to achieve certain national objectives in situations where there is a market imperfection in essence protection provides time and resources for firms to undertake cost reducing investments recently there has been an emergence of new arguments to justify the implementation of a national industrial policy to encourage investment and to ensure the competitiveness of targeted industries also at the theoretical level a new argument known as strategic trade policy has emerged according to this argument protectionism gives domestic firms strategic advantage against foreign firms to capture a greater share of export markets where rents are not competed away actually the performance of protectionist programs has been grim industries have not adapted and protection has had to be renewed again and again arguments justifying protection have avoided this issue by implicitly assuming that authorities can credibly precommit to eliminate protection this is a very strong assumption in fact government actions are not exogenous but they are rather the result of an optimization process or they are best responses to political pressures as stressed in the public choice literature 2 therefore if authorities capitulate to protectionist pressures in the present they are unlikely to resist them in the future in the event that the targeted firm would not have adapted the inability of authorities to precommit to the unconditional elimination of protection generates a trade off for the firm if during the program the firm does not invest sufficiently in cost

equate and conflate political commitment to hunger and undernutrition reduction in five high burden countries summary as political commitment is an essential ingredient for elevating food and nutrition security onto policy agendas commitment metrics have proliferated many conflate government commitment to fight hunger with combating undernutrition we test the hypothesis that commitment to hunger reduction is empirically different from commitment to reducing undernutrition through expert surveys in five high burden countries bangladesh malawi nepal tanzania and zambia our findings confirm the hypothesis we conclude that sensitive commitment metrics are needed to guide government and donor policies and programmatic action without historically inadequate prioritization of non food aspects of malnutrition may persist to imperil achieving global nutrition targets

college tuition and household savings and consumption abstract despite the high cost of college there has been little study of the adequacy of household savings and other resources available to fund college to gauge their adequacy this paper examines households standard of living as they pay for college using the consumer expenditure survey the main finding is that households appear to do a relatively good job smoothing their consumption into the academic year despite large expenses this is consistent with the life cycle theory of saving and consumption there is some evidence of a delayed decline in consumption and of a decline for households with children first beginning college but the magnitudes of these declines are rather small

optimal departures from marginal cost pricing focuses on departures from marginal cost pricing optimal allocation or resources level of tax revenue that will be collected by the government theorems developed for resource allocation ebsco

precautionary saving in the small and in the large the theory of precautionary saving is shown to be isomorphic to the arrow pratt theory of risk aversion making possible the application of a large body of knowledge about risk aversion to precautionary saving and more generally to the theory of optimal choice under risk in particular a measure of the strength of the precautionary saving motive analogous to the arrow pratt measure of risk aversion is used to establish a number of new propositions about precautionary saving and to give a new interpretation of the dreze modigliani substitution effect copyright 1990 by the econometric society

is there a retirement savings puzzle in this paper we ask whether households are saving enough for their retirement we use data on income expenditure and expenditure components to analyse patterns of behaviour at and around the time of retirement for successive date of birth cohorts we compare periods of unemployment to periods of retirement and separate expenditures into categories reflecting work related expenditures basic necessities and other goods we find that income typically falls by more at unemployment than retirement but the reverse is true for expenditure we observe falls in expenditure at retirement for all expenditure categories using a stochastic life cycle model including mortality rates we assess the anticipated impact of retirement on consumption against that of unemployment the inter relationship between goods and leisure explains a large part of the persistent fall in expenditure at retirement we argue that the only way in which the life cycle hypothesis could be reconciled with the remaining unanticipated dip in consumption would be with the systematic arrival of unexpected adverse information at the time of retirement