an analysis of interfirm cooperation theory and evidence from electric power pools this paper develops and tests a model for analyzing the extent to which an individual utility participates in a power pool it incorporates the benefits and costs of pool membership in a profit maximization model of an individual utility the study finds that coordination reflects the benefits and costs the degree to which other utilities are committed to the pool and the utility s behavior toward other utilities the results show that large firms are reluctant to pool with small firms and the us pools tend to be loosely coordinated policy implications are that regulatory commissions can be instrumental in coordination efforts and that interstate cooperation among regulatory authorities is needed to encourage pooling and obtain regional solutions to regional problems it is also important to reduce the transactional costs of pooling wherever possible 37 references 3 figures 1 table

wage shocks and consumption variability in mexico during the 1990s this paper presents evidence on the relationship between shocks to relative male wages and changes in household consumption in mexico during the 1990s decade which is a period characterized by high volatility apart from performing analysis of this type for mexico for the first time the paper has mainly two contributions the first is the use of alternative data sources to construct instrumental variables for wages the second is to examine differences across four consumption categories nondurable goods durable goods education and health our results for nondurable goods consumption reject the hypothesis that mexican households are able to ensure idiosyncratic risk for the comparisons across consumption categories the conclusion is that households in mexico tend to react to temporary shocks by contracting the consumption of goods that represents longer run investment in human capital which makes them more vulnerable in the future

measuring returns to scale in dea models when the firm is regulated in the standard framework of data envelopment analysis dea models the returns to scale are fully characterized using the multiplier on the convexity constraint of inefficient decision making units dmu using the projection of the input output vector on the frontier in this note we investigate how the returns to scale measurements in dea models are affected by the presence of regulatory constraints these additional constraints change the role played by the convexity constraint in order to avoid biased estimation of the returns to scale we show that the interaction between the regulatory and the convexity constraints has to be taken into account

international taxation and the direction and volume of cross border m as we show that the parent subsidiary structure of multinational firms created by cross border mergers and acquisitions is affected by the prospect of international double taxation specifically the likelihood of parent firm location in a country following a cross border takeover is reduced by high international double taxation of foreign source income at the same time countries with high international double taxation attract smaller numbers of parent firms a unilateral elimination of worldwide taxation by the united states is simulated to increase the proportion of parent firms locating in the united states following cross border mergers and acquisitions from 53 to 58

the impact of regulation on technical change input based regulation restricts a firm s input choices to a subset of those that characterize the production technology the averch johnson hereafter a j 1962 hypothesis states that rate of return regulation affects a firm s input demands for producing its selected output level given that firms can select the level of innovations in inputs through research and development rate regulation can also impact a firm s selection of innovations among inputs regulation s influence on the choice of innovations also impacts the rate at which technical change occurs in an industry the a j hypothesis has been examined extensively in the literature the impact of regulation on technical change has received less attention in the literature and is the focus of this paper the subject matter is of some importance in that regulation via the a j hypothesis leads to higher production costs regulation s impact on a firm s selection of innovations can magnify or dampen the rate at which technical change occurs a magnification dampening of the rate of technical change leads to lower higher production costs in addition to regulation s impact on input demands regulation s impact on the rate of technical change can lead to small or large changes in prices for consumers regulators can use the information on regulation and technical change to evaluate the effectiveness of policies aimed at enhancing technical change by how much do the policies affect production costs and how much would consumer prices change due to the policies regulators can also use the information to predict the impact deregulation would have on consumer prices both regulators and consumers can attempt to determine the amount by which consumer prices would change under deregulation smith 1974 and okuguchi 1975 examined the impact of regulation on a firm s choice of innovations they showed theoretically that regulation can alter a firm s choice of innovations

risk sharing by households within and across regions and industries abstract cochrane 1991 journal of political economy 99 957 976 and mace 1991 journal of political economy 99 928 956 test if risk sharing across households is complete in the sense that household consumption moves one for one with aggregate consumption in their studies the source of income risk is idiosyncratic and agents can share risk across the entire economy using a sample of households from the panel study on income dynamics psid we explore whether households share the risk associated with their industries and regions across households in other regions and industries we find that a large fraction of risk faced by households is not shared across regions and industries

effects of regulation and capital market imperfections on the dynamic behavior of a firm the well known result in the theory of a regulated firm known as the averch johnson effect is that a profit maximizing firm subject to rate of return regulation uses an inefficiently high capital labor ratio to produce its chosen level of output numerous contributions in the literature have been instrumental in clarifying the implications and generalizing the model 1 these contributions however have been mostly couched within a static framework few attempts have been made to investigate the effect of rate of return regulation on the dynamic behavior of the firm in particular its investment plans 2 neoclassical models of investment often assume that the rate of investment under

income dynamics and life cycle inequality mechanisms and controversies this study focuses on the transmission of inequality over the working life a model of constrained intertemporal choice is used to provide structure to the distributional dynamics of wages earnings income and consumption the mechanisms used to insure labour market shocks are examined in a partial insurance setting where the manner and scope for insurance depends on the access to credit the information available to consumers and the durability of income shocks drawing on recent research family labour supply the credit market and the tax system are all shown to play a key role these mechanisms vary in importance across different points of the life cycle and the business cycle 2014 the author s the economic journal published by john wiley sons ltd on behalf of royal economic society

has the averch johnson effect been theoretically justified abstract in this paper we show that the averch johnson effect of overcapitalization by a regulated monopoly does not obtain when the firm operates in the decreasing cost range of output we develop a dynamic adjustment cost model of the firm and apply a recent result by brock and dechert for non concave hamiltonians to solve for the optimal investment policy for the firm with a phase diagram analysis we are able to make sharp comparisons between the regulated and unregulated cases in particular we show that investment by a regulated firm is lower than that of an unregulated firm even when the rate of return constraint is not binding

tax reform and automatic stabilization an income tax provides implicit insurance by dampening the variability of disposable income and consumption using an empirical framework derived from the consumption insurance literature and data from the panel study of income dynamics we examine the effect of federal income tax reforms of the 1980 s on automatic stabilization of consumption overall erta and tra86 reduced consumption stability by about 50 percent recently increased eitc generosity restored or enhanced consumption insurance the welfare cost of moving to the post tra86 system is sizable for relatively risk averse households facing large income risk but is much more modest for the typical household jel h21

capacity utilization and new source bias evidence from the us electric power industry abstract while prior research has shown that new source bias has increased construction costs and delayed the building of new electric power plants this research explores the empirical question of whether increased operating costs caused by new source bias are larger than the cost savings of newer technology if new sources do have higher operating costs an incentive exists to utilize order plants more intensively statistical evidence of these differing utilization rates is found

source versus residence based taxation with international mergers and acquisitions this paper analyses tax competition and tax coordination in a model where capital flows occur in the form of mergers and acquisitions rather than greenfield investment in this framework we show that differences in residence based taxes do not necessarily distort international ownership patterns moreover tax competition yields globally efficient levels of source based corporate income taxes if residence based taxes on capital income are absent in contrast in the presence of residence based taxes on dividends source based corporate income taxes are inefficiently high the widespread view that tax coordination is less urgent if residence based taxes are available may therefore be misguided

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

optimizing inventory s contribution to profitability in a regulated utility the averch johnson effect the averch johnson effect is a well known economic phenomenon through which regulated utility companies prefer a capital resource input combination that differs from an efficient level through dynamic network data envelopment analysis ndea this paper first investigates the existence of this effect on a dynamic input that is inventory the analysis was performed for a group of public electric utilities from 2005 to 2014 the result implies that these firms procure a significant extra amount in inventory materials and supplies beyond their efficient levels in order to explore the connection of this effect to profit motives we construct an analytical model of the inventory policy controlling the extra buying of material and supplies that will be inventoried and added to the firm s rate base the model is based on maximizing the net present value of total profits in the deterministic case two results are observed i the firm could achieve a finite optimum by adding a finite amount of inventory above the normal base level which assumes no impact of inventory on the rate hearing and ii the firm could theoretically achieve infinite optimum under the unconstrained model the primary contribution of this paper is the special case of extending typical inventory replenishment models to including the impact on prices and in turn profits in a regulated supply chain

unemployment insurance and precautionary saving abstract models of precautionary saving imply that households will hold more assets when faced with greater income uncertainty however previous empirical studies of income uncertainty have produced somewhat mixed support for the precautionary saving hypothesis in this paper we note that differences in the state contingent income stream available to workers through the unemployment insurance ui program provides an excellent source of variation for testing the presence of a precautionary savings motive simulations of a stochastic life cycle model suggest that a ui system similar to the type currently in place in the u s can lead to a significant reduction in the assets accumulated by a median worker moreover there is considerable variation in the ui benefit schedules for workers living in different states in the u s which provides an exogenous source of variation for empirically testing the precautionary saving hypothesis we carry out this test using data on expected ui benefit replacement rates and financial assets held by households in the survey of income and program participation our empirical results are consistent with the predictions of the model and suggest that reducing the ui benefit replacement rate by 50 percent would increase gross financial asset holdings by 14 percent or 241 for the average worker we also find empirical evidence that this crowd out effect of ui on household saving is stronger for those facing higher unemployment risk and weaker for older workers both of which are implications from our precautionary saving model

idiosyncratic risk and the equity premium evidence from the consumer expenditure survey abstract this paper investigates whether uninsured idiosyncratic risk accounts for the equity premium following mankiw j financial econ 17 1986 211 the paper develops an equilibrium factor model in which risk premia depend on the covariance between an asset s return and certain moments of the cross sectional distribution for consumption growth cross sectional consumption factors are constructed using data from the consumer expenditure survey but they do not appear to be promising candidates for explaining the equity premium the cross sectional factors are weakly correlated with stock returns and generate equity premia of 2 percent or less for preference specifications with low degrees of risk aversion

taxing foreign profits with international mergers and acquisitions a large part of border crossing investment takes the form of international mergers and acquisitions in this article we ask how optimal repatriation tax systems look like in a world where investment involves a change of ownership instead of a reallocation of real capital we find that the standard results of international taxation do not carry over to the case of international mergers and acquisitions the deduction system is no longer optimal from a national perspective and the foreign tax credit system fails to ensure global optimality the tax exemption system is optimal if ownership advantage is a public good within the multinational firm however the cross border cash flow tax system dominates the exemption system in terms of optimality properties

does the labor income process contain a unit root evidence from individual specific time series employing econometric methods for univariate time series this paper investigates the empirical validity of assuming a unit root in indiv iduals labor income processes using a swedish register based longitudinal dataset which a llows us to follow a cohort of workers from 1968 to 2005 we are able to obtain distributi ons of median unbiased estimates of localto unity parameters the results indicate that earn ings for the representative worker are governed by a process where shocks to earnings have fairly high persistence but are both economically and statistically significantly differ ent from having permanent effects that is the largest autoregressive root is less than unity these results add to the studies that question the heavy use of unit root processes for earnings i n calibrations of life cycle models

x inefficiency and interfirm rivalry evidence from the electric utility industry competition from the natural gas industry is shown to increase the efficiency of the work force of electric power utilities this conclusion is qualified to the extent that duopoly rivalry does not represent perfect competition in a free market as natural gas reserves decline however the impetus to improve efficiency will diminish but this will be offset by technological advances in both power generation and power transmission if regulators develop policies to encourage competitive interplay utility performance is more likely to improve 38 references 3 tables dck

capital income and profit taxation with foreign ownership of firms abstract this paper establishes optimal rules for capital income and profits taxation in the open economy with or without foreign ownership of domestic firms we show that if there are constraints on the feasibility of profits taxation both saving and investment taxes generally enter the optimal tax package if instead profits can be fully taxed then source based investment taxes vanish if domestic firms are in part owned by foreigners then source based investment taxes can be used to shift income away from these to domestic citizens and they may even be used to finance lump sum transfers to domestic residents

why do countries combine the exemption system for the taxation of foreign profits with domestic double taxation relief many european countries exempt foreign profits from domestic corporate taxation at the shareholder level however all corporate profits are taxed and double taxation relief is granted only for domestic corporate taxes this paper attempts to rationalize this tax policy in the presence of double taxation agreements which exempt foreign profits from domestic corporate taxation countries may use shareholder taxes to tax these profits the disadvantage of shareholder taxes is that they create incentives to sell domestic firms to foreigners but double taxation relief for domestic profits may preserve domestic ownership our results imply that national dividend tax policies may be a factor contributing to the empirically observed home bias in investment

the impact of u s tax reform on foreign direct investment in the united states abstract this study empirically examines how taxes shape foreign direct investment and finds that increased taxes spur inward foreign investment this finding conforms with theories that recognize that foreign investor response is critically shaped by the tax provisions faced by the foreign investor in his home country and by the effects of tax reform on pre tax asset returns we demonstrate that average tax rates may better proxy tax effects than do effective tax rates our findings are more robust than previous results since we utilize the entire 1980s tax history consider a fuller set of industry distinctions and estimate the tax responsiveness in the context of exchange rate fluctuations

optimal investment policy of the regulated firm abstract the main purpose of this paper is to investigate the optimal investment behaviour of a regulated firm and to show that the averch johnson effect of overcapitalization does not necessarily occur in a dynamic model under the assumption of concave revenue function there may be three cases of undercapitalization overcapitalization and neutralization as the result whether the averch johnson effect appears or not is crucially dependent on the regulated rate of return and the firm s planning horizon

aggregate implications of heterogeneous households in a sticky price model this paper analyzes the role of heterogeneous households in propagating shocks over the business cycle by generalizing a basic sticky price model to allow for imperfect risk sharing between households that dier in labor incomes i show that imperfectly insured household consumption distorts household incentive to supply labor hours through an idiosyncratic income eect which in turn generates strategic complementarities in price setting and thus ampli es business cycle uctuations this mechanism diminishes the role of nominal rigidities and makes sticky price models more consistent with microeco

relative wage movements and the distribution of consumption we analyze how relative wage movements among birth cohorts and education groups affected the distribution of household consumption and economic welfare our empirical work draws on the best available cross sectional data sets to construct synthetic panel data on u s consumption labor supply and wages during the 1980s we find that low frequency movements in the cohort education structure of pretax hourly wages among men drove large changes in the distribution of household consumption the results constitute a spectacular failure of between group consumption insurance a failure not explained by existing theories of informationally constrained optimal consumption behavior a welfare analysis indicates that the cost of between group consumption variability is larger than the cost of aggregate consumption variability by two orders of magnitude

dynamic behavior of the firm with adjustment costs under regulatory constraint abstract this paper investigates the optimal investment behavior of the regulated profit maximizing firm in a dynamic context the modern adjustment cost approach to investment is incorporated into the theory of a regulated firm which has typically been discussed in a static framework this paper thus generalizes the well known averch johnson thesis which is proved in the static context the paper investigates both the finite and infinite horizon cases

estimating the effects of earnings uncertainty on families saving and insurance decisions this paper investigates whether families save partially to self insure against uncertain future earnings and estimates the extent to which pooled insurance substitutes for saving as a precaution against earnings risk an econometric model is estimated using unique household survey data from the nineteenth century to examine families joint saving and insurance decisions the historical microdata are of interest because they predate widespread social insurance programs which may stunt self insurance through private saving among contemporary families the econometric results imply that two independent measures of idiosyncratic earnings risk matter for families saving decisions additionally families whose primary wage earners belong to labor unions significantly save less frequently than others all else being equal but this tendency is not apparent among members of private benevolent societies

effects of regulation on utility financing theory and evidence standing of these cross sectional variations might be afforded by the detailed examination of specific industry characteristics and their relationship to firms financing patterns the present study offers a methodology for approaching this issue the first step is to assemble joint theories of industry and financial structure in order to identify the ways in which changing industry conditions might be associated with changes in financing evidence on such simultaneous changes can then be examined in an attempt to identify the most plausible joint theory the methodology is used to investigate the effects of state commission regulation on the financing of electric utilities this is a natural candidate for study since regulation is such a salient feature of the industry in addition the regulatory system imparts some interesting special features to the very nature of utility capital structures inherent in all capital structures for example are opportunities for shifting wealth between bondholders and shareholders but under regulation these wealth shifting opportunities are expanded to encompass consumers as well finally the study of regulation has resulted in several relatively well specified theories of why regulation is imposed and what its observable effects should be in section i the different theories of capital structure and regulation are discussed and their joint implications are derived the capital structure theories include the perfect capital market theory the debt capacity theory and the financing hierarchy theory the regulatory theories include the public interest or market failure theory the political economy theory and the imperfect monitoring theory in section ii financing data from the early days of state commission utility regulation are used to try to distinguish

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

how do mergers create value a comparison of taxes market power and efficiency improvements as explanations for synergies there is little evidence in the literature on the relative importance of the underlying sources of merger gains prior literature suggests that synergies could arise due to taxes market power or efficiency improvements based on value line forecasts we estimate the average synergy gains in a broad sample of 264 large mergers to be 10 03 of the combined equity value of the merging firms the detailed data in value line projections allow for the decomposition of these gains into underlying operating and financial synergies we estimate that tax savings contribute only 1 64 in additional value while operating synergies account for the remaining 8 38 operating synergies are higher in focused mergers while tax savings constitute a large fraction of the gains in diversifying mergers the operating synergies are generated primarily by cutbacks in investment expenditures rather than by increased operating profits overall the evidence suggests that mergers generate gains by improving resource allocation rather than by reducing tax payments or increasing the market power of the combined firm

heterogeneity and tests of risk sharing how well do people share risk standard risk sharing regressions assume that any variation in households risk preferences is uncorrelated with variation in the cyclicality of income i combine administrative and survey data to show that this assumption is questionable risk tolerant workers hold jobs in which earnings carry more aggregate risk the correlation makes risk sharing regressions in the previous literature too pessimistic i derive techniques that eliminate the bias apply them to u s data and find that the effect of idiosyncratic income shocks on consumption is practically small and statistically difficult to distinguish from zero

multiple output child health production functions the impact of time varying and time invariant inputs author affiliation mark d agee department of economics pennsylvania state university altoona pa 16601 usa mda4 psu edu corresponding authorscott e atkinson department of economics university of georgia athens ga 30602 usa atknsn uga eduthomas d crocker department of economics and finance university of wyoming laramie wy 82071 usa tcrocker uwyo edu acknowledgment comments and suggestions from two anonymous referees are gratefully acknowledged the u s environmental protection agency financially supported this research effort through grant number r82871601 however the research has not been subjected to the agency s required peer and policy review and therefore does not necessarily reflect the views of the agency 1 introductionin this paper we attempt to broaden and to redirect the standard theoretical and empirical approach in economics to the household production of human health especially child health the last decade has witnessed increased concern with the impact of public policies and private investments on child health perhaps motivated by an increased concern for equity and an enhanced recognition that human capital formation in children contributes significantly to society s future well being children live in households with parents or adults who combine their skills with good as well as bad inputs that produce good as well as bad child health outcomes physical behavioral and cognitive a good input could be the time spent reading to a child while a bad input could be parental smoking near a child a good outcome could be higher reading skills while a bad outcome could be a child s ill health three features distinguish our modeling approach to the household production of child outcomes first we argue that multiple good and bad inputs can affect multiple measures of good and bad outcomes for children ignoring this by estimating single equation relationships produces omitted variable bias and fails to model the tradeoffs among inputs and outcomes to examine jointness among several good and bad outcomes as well as inputs and allow for heterogeneity among households in the productivity of observed child inputs we specify and estimate an output based directional distance function chambers chung and fare 1998 for a balanced panel of households with coresident children this function allows us to estimate the maximum expansion of goods and the contraction of bads subject to a given level of observed inputs for a household using the underlying joint technology second we argue that households will produce child health with varying degrees of effectiveness the best practice household is defined as that household that cannot make further increases in all good dimensions of child health and reductions in all bad dimensions by some additive amount using a given level of observed inputs this household practices its child care on the production frontier households within this frontier make less efficient use of personal and marketed child care inputs thus we estimate the technical efficiency for household units in producing multiple outputs from multiple inputs finally although we have panel data and compute a fixed effects estimator we recover the effects of time invariant variables such as sex race and parent attributes on goods and bads in a second stage regression we adjust their estimated standard errors and correct for the bias caused by weak instruments in the first stage using a jackknife technique the next section presents background for our hypotheses of i jointness in the household production of child health outcomes and ii the presence of technical inefficiency among households in the production process in section 3 we discuss properties of the directional distance function and the calculation of partial effects results are presented in section 4 and conclusions follow in section 5

risk sharing between and within families this paper uses the panel study of income dynamics to test whether risk sharing is complete between or within american families the tests accommodate a wide variety in the configuration and availability of family data the test results reject inter as well as intra family full risk sharing even assuming that leisure is endogenous or that leisure and consumption are nonseparable

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

residence and source based capital taxation in open economies with infinitely lived consumers abstract in this paper we investigate tax competition in a neoclassical growth model where each country may use both residence and source based capital taxes we show that both types of capital taxes are zero at any interior steady state just as in a closed economy for symmetric countries and even for countries that differ only with respect to size and productivity we prove analytically and verify numerically that the open economy policies coincide exactly with the closed economy policies in all time periods for countries that are asymmetric in other dimensions we find that source based taxes are used to manipulate the intertemporal terms of trade in the short run either way the fiscal externalities of source based taxes vanish once residence based taxes are allowed

the influence of the economic approaches to regulation on banking regulations a short history of banking regulations this article highlights the theoretical foundations of the regulations at work in the banking sector and examines their responsibility in the onset of the 2007 2008 financial crisis drawing a parallel between the main changes in banking regulations since the 1960s and the evolutions in the economic analyses of regulation over the same period it shows that the shift from the public interest theory of regulation that prevailed until the late 1960s towards the private interest theory of regulation accounts for the substitution of micro prudential regulations for macro prudential ones and explains a paradigmatic change in the conception of the regulatory instruments of the banking authorities it also shows that although the outcome of several factors the 2007 2008 crisis was also a consequence of the fact that the economic analysis of banking regulations supported micro prudential regulations that fail to take the global features and impact of banking activities into account and have proved unable to recommend effective solutions in a context of crisis

on testing for full insurance using consumer expenditure survey data in a recent issue of this journal mace 1991 presented empirical evidence in support of the hypothesis that u s households engage in full risk sharing the data used were taken from the u s consumer expenditure survey cex for the years 1980 84 full insurance implies that household level consumption should be perfectly correlated with aggregate consumption but uncorrelated with householdlevel changes in income mace s surprising result was that at least for one functional specification household level income changes whether measured directly by changes in reported income or proxied by employment change dummies seemed to have no statistically significant effect on consumption this comment demonstrates that this result was due to measurement error in key variables

regulation and investment use newly assembled data on regulation in several sectors of many oecd countries to provide evidence that regulatory reform of product markets is associated with an increase in investment a component of reform that plays a very important role is entry liberalization but privatization also has a substantial effect on investment sensitivity analysis suggests that our results are robust jel e22 l5

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

asymmetric tax competition abstract the paper analyzes nash equilibrium when two jurisdictions set tax rates on a tax base which is mobile between them population differences imply tax differences the smaller jurisdiction levies a lower tax rate in equilibrium and its residents are better off than those in the larger jurisdiction the nash equilibrium is inefficient if the two jurisdictions merged the resulting allocation would be efficient however if differences in population are great enough residents of the small jurisdiction would be made worse off by such a merger

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

service quality in the electricity industry the role of privatization and managerial behavior abstract this paper analyzes the relationship between privatization and service quality in the electricity industry and tests the hypothesis that managerial behavior is a significant intervening factor the sample includes 31 italian distributors over the period 1998 2004 their quality performance is represented by continuity of supply an aspect of quality that is both contractible and regulated results of the empirical analysis suggest that the transfer of shareholdings to private investors does not lead to quality degradation the results also suggest that managerial dominance translates into a reduction in supply quality this effect is likely to be particularly strong for public sector utilities

behavior of the firm under regulatory constraint a recent article in this review by averch and johnson 3 on the fair rate of return regulation in public utilities industries or more generally regulated industries attracted the attention of many economists in essence averch johnson argues that the introduction of an active constraint of a fair rate of return type would induce the firm to invest more than the original profit maximizing value of capital and this would create an inefficient allocation of inputs in addition to frequent citations in verbal arguments it has invited some thieoretical extensions by economists such as wvestfield 8 and klevorick 5 all of the writers seem to accept the basic theoretical foundations set by averch and johnson for example klevorick 5 recently proposed that the fair rate of return should be inversely related to the size of the capital of a firm the intuitive basis for this is apparent for it in effect creates a penalty as the amount of capital used by the firm increases however it seems to me that averchjohnson s original arguments are sketchy and contain somewhat ambiguous logic at several important points although their conclusion for which they tried to find empirical support that a firm will tend to increase its investment with the introduction of an active constraint seems to be correct it does not follow from their arguments in particular there seems to be a serious error which arises from confusing movements along a curve and shifts of a curve in section ii we clarify those ambiguities and if necessary correct the mistakes in the third section of this paper we shall provide a new formulation of the problem we shall find that the new formulation will give the same answer as averchjohnson namely that a firm will tend to invest more with the iiltroductioin of an active constraint it should be noted however that while the conclusion happens to be the same this was not the necessity for we needed a completely new formulation to obtain the old conclusion

testing for full insurance using exogenous information we strongly reject the full insurance hypothesis using testing variables that are not decision variables for the households under investigation we find that households are not insured against changes in the unemployment rate associated with the household head s occupational category using this exogenous information we also investigate the appropriateness of exogeneity assumptions on idiosyncratic variables that have been used as testing variables in the full insurance literature it is shown that several exogeneity assumptions made in the existing literature are potentially problematic

measuring consumption smoothing in cex data this paper proposes and implements a new method of measuring the degree of consumption smoothing using data from the consumer expenditure survey the structure of this survey is such that estimators previously used in the literature are inconsistent simply because income is measured annually and consumption is measured quarterly we impose an ar 1 structure on the income process to obtain a proxy for quarterly income through a projection on annual income by construction this proxy gives rise to a measurement error which is orthogonal to the proxy itself as opposed to the unobserved regressor leading to a consistent estimator we contrast our estimates with the output of two estimators used in the literature we show that while the flrst ols estimator tends to overstate the degree of risk sharing the second iv estimator grossly understates it

do countries compete over corporate tax rates this paper tests whether oecd countries compete with each other over corporate taxes in order to attract investment we develop two models with firm mobility countries compete only over the statutory tax rate or the effective average tax rate while with capital mobility countries compete only over the effective marginal tax rate we estimate the parameters of reaction functions using data from 21 countries between 1983 99 we find evidence that countries compete over all three measures but particularly over the statutory tax rate and the effective average tax rate this is consistent with a belief amongst governments that location choices by multinational firms are discrete we also find evidence of concave reaction functions consistent with the model outlined in the paper

factor price changes technical efficiency and revenue requirements regulation a regulatory framework is considered in which output price adjustments can be initiated only by a change in the price of a non capital input e g fuel at some time in the future which is uncertain at that time there is a processing period and then an adjustment of the output price so that the revenues of the firm meet an allowed rate of return s the regulated firm choosing a putty clay technology is shown to overcapitalize for large values of s and to undercapitalize for sufficiently small values of s a decrease in the length of the processing period is found to accentuate the extent of either the undercapitalization or overcapitalization resulting from the specified rate of return

a microeconometric comparison of household behavior between countries this article reviews the methodological issues associated with estimating and testing competitive markets with panel data and applies it to an important new arena international economics we investigate differences in housing consumption and male labor supply across households in germany and the united states with data from the german socio economic panel and the panel study of income dynamics observations are treated as equilibrium outcomes generated by a set of competitive markets that accommodate varying degrees of integration after controlling for differences in the sample populations and aggregate shocks we find that the estimated structural parameters are surprisingly similar across these two countries

time of use pricing for load management programs in taiwan power company load management programs have been actively performed by the utilities to reduce peak demand and improve system load factor in recent years the time of use tou tariff based on the peak load pricing theory has been one of the most effective load management strategies proper tou rate structure can actually reflect the generation cost of electricity supplying and give a guideline for customers to modify the power consumption pattern so that the system load factor can be improved the inverse electricity pricing rule can be applied as the basis of tou pricing in this paper the price elasticities of industrial customers of taipower system are solved by the statistical regression model with 2620 data samples

regulator heterogeneity and endogenous efforts to close the information asymmetry gap abstract the now standard principal agent model of regulator firm interactions typically assumes the presence of a single regulator and an exogenously determined information asymmetry between the principal and the agent in this paper we draw upon a unique data set of regulatory inspections conducted by the u s food and drug administration fda to explore the consistency of these assumptions with the actual practice of regulators we find that the canonical assumptions of the agency paradigm are strained by if not altogether inconsistent with the key practical realities of regulation by the fda our analysis uncovers several dimensions along which regulators actively and endogenously seek to close the information asymmetry gap we also find considerable regulator heterogeneity which in turn depends in part upon the specific training and experience of individual regulators

efficient regulation with little information reality in the limit we present a regulatory scheme that converges to ramsey pricing and productive efficiency even if regulators have little information about technology or demand the model has firms selecting prices subject to the regulator s requirement that the firm earn a fair return on capital at today s capital stock and output levels regulators then review later performance and are more likely to request new rate hearings as the firm s return deviates more from the fair return as long as regulators do not review negative returns too fast relative to positive returns these conditions are sufficient for convergence to ramsey prices and productive efficiency public utility regulators generally set prices not rates of return per se these prices however often are meant to achieve approximately some target rate of return but when projecting how prices will affect rates of return regulators are often at the mercy of the firms for economic projections about the effects of various price vectors e g across customer classes upon profits so if realized rates of return deviate from targets regulators may call new rate hearings and they may expedite these hearings if the deviations are large 2 by formalizing these real world observations some rather surprising efficiency results appear suppose that regulators have no knowledge of demands and technologies but can observe past realizations of prices and quantities if the review probabilities are as noted above and satisfy an asymmetry condition then this regulatory process may converge not only to productive efficiency overcoming averch johnson over capitalization effects but to ramsey prices these conclusions are derived from unifying and extending work by bawa and sibley 1980 and vogelsang and finsinger 1979

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

the multiproduct firm quality choice and regulation a monopolist facing a market of heterogeneous consumers will distort the quality a rray this paper explores three regulatory remedies minimum quality s tandards mqs maximum price regulation mpr and rate of return re gulation rorr that can counteract this distortion mqs and mpr rais e the quality offered to consumers with a low willingness to pay for quality while mqs have no effect on the quality offered to consumers with a high willingness to pay mpr decreases the quality offered to this group if production of high low quality goods is capital i ntensive rorr increases decreases the quality offered to both grou ps copyright 1988 by blackwell publishing ltd

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

regulatory and life cycle influences on managerial incentives an important controversy persists in economics concerning the appropriateness of profit maximization as opposed to various competing nontraditional theories of the firm 13 of particular interest has been the comparative relevance of the sales maximization hypothesis suggested by baumol 4 and others a typical methodology employed to empirically analyze the profit versus sales maximization issue has been to question whether the financial rewards of top executives are more strongly influenced by corporate profit or sales performance it is implicitly assumed that the firm has a well defined set of organizational goals and that the structure of executive compensation is designed to provide executives with a consistent set of incentives therefore should profit performance constitute a significant determinant of executive compensation support for the profit maximization hypothesis would be gained on the other hand if executive compensation is closely related to firm sales then the nontraditional sales maximization hypothesis would be supported in an early empirical analysis of the issue mcguire chiu and elbing 14 found that sales and compensation were more highly correlated than were profits and compensation and therefore that the baumol hypothesis seemed most relevant lewellen and huntsman 12 pointed out however that mcguire et al had neglected to consider the deferred and contingent stock options etc elements of executive compensation and in so doing had perhaps biased their analysis against the profit maximization hypothesis by correctly considering the impact of corporate performance on the total compensation of top corporate executives lewellen and huntsman found strong support for the profit maximization hypothesis and no support for sales maximization in fact so convincing were the lewellen and huntsman results that they seemed to resolve the managerial motivation issue in favor of the traditional profit maximization model more recent empirical analyses however have tended to suggest that the issue is far from resolved baker 3 boyes and schlagenhauf 5 and ciscel and carroll 6 have all

intertemporal choice and consumption mobility the theory of intertemporal consumption choice makes sharp predictions about the evolution of the entire distribution of household consumption not just about its conditional mean in the paper we study the empirical transition matrix of consumption using a panel drawn from the bank of italy survey of household income and wealth we estimate the parameters that minimize the distance between the empirical and the theoretical transition matrix of the consumption distribution the transition matrix generated by our estimates matches remarkably well the empirical matrix both in the aggregate and in samples stratified by education our estimates strongly reject the consumption insurance model and suggest that households smooth income shocks to a lesser extent than implied by the permanent income hypothesis jel d52 d91 i30

the labour market and economic risk friend or foe this paper examines the twofold role of the labour market in household economic risk management as a source of household consumption risk and as an instrument for insuring consumption against contingencies it outlines a framework for analysing this twofold role of the labour market and uses data from the british household panel survey 1991 1996 to explore this empirically it identifies the relative importance of the labour market and other factors in producing changes in the financial situation of individuals it also implements full insurance tests of whether unemployment and other external shocks to the household are correlated with consumption growth it concludes that labour market factors are a dominant source of change in individuals financial situation with a predominantly positive effect on the financial situation of the better off and a predominantly negative impact on the financial situation of the less well off it also finds that households are unable to fully insure their consumpti

the efficient allocation of consumption under moral hazard and hidden access to the credit market in this paper we describe the properties of the optimal allocation of consumption in a world with moral hazard and hidden borrowing and lending we discuss how and under what conditions the efficient allocation can be distinguished from that of the permanent income self insurance model we also compare our allocation with the complete markets full information case and with the standard moral hazard model with monitorable and fully contractible asset holdings jel d82 e21 jel d82 e21 jel d82 e21 jel d82 e21

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

precautionary saving and consumption fluctuations this paper uses the consumption euler equation to derive a decomposition of consumption growth into four sources these four sources are new information and three sources of predictable consumption growth intertemporal substitution changes in the preferences for consumption and incomplete markets for consumption insurance using household level data we implement this decomposition for the average growth rate of consumption expenditures on nondurable goods in the united states from 1982 to 1997 the economic importance of precautionary saving rivals that of the real interest rate but the relative importance of each source of movement in the volatility of consumption is not precisely measured

do stockholders share risk more effectively than nonstockholders abstract this paper analyzes the extent of risk sharing among stockholders and nonstockholders to evaluate the empirical importance of market incompleteness it is essential to determine whether idiosyncratic shocks are important for the wealthy who have access to better insurance opportunities but also face different risks than the average household we study a model where each period households decide whether to participate in the stock market by paying a fixed cost due to this endogenous entry decision the testable implications of perfect risk sharing take the form of a sample selection model which we estimate using a semiparametric gmm estimator proposed by kyriazidou 2001 using data from psid we strongly reject perfect risk sharing among stockholders but perhaps surprisingly do not find evidence against it among nonstockholders this result appears to be robust to several extensions this finding suggests further focus on risk factors that primarily affect the wealthy such as entrepreneu

product complementarities capabilities and governance a dynamic transaction cost perspective the organization and governance of the transactions that comprise a bundling arrangement depend on the distribution of capabilities among firms and the amount of time during which the window of opportunity for earning rents is expected to remain open firms engaged in inter firm collaboration must undertake support transactions related to billing marketing customer support and product repair these support transactions differ from the core transactions that have traditionally been perceived as sufficient to provide a product bundle since support transactions create costs of their own the market may turn out to be an expensive means of governing collaborative arrangements undertaken for bundling purposes the telecommunications service sector provides an illustration copyright 1997 by oxford university press

why is capital so immobile internationally possible explanations and implications for capital income taxation the evidence on international capital immobility is extensive including the lack of international portfolio diversification real interest differentials across countries and the high correlation between domestic savings and investment the authors develop a model with asymmetric information between countries that helps rationalize all the above observations and then examine the implications of this model for optimal domestic tax policy without asymmetric information past work showed that small open economies should not impose corporate income taxes with asymmetric information the optimal policy instead involves government subsidies to capital imports some omitted factors that argue against subsidizing capital imports are explored briefly copyright 1996 by american economic association

the effect of individual retirement accounts on household consumption and national saving a major debate exists on whether expanding tax favoured savings accounts such as individual retirement accounts iras will increase national savings much of the empirical debate has centred on whether ira contributions before the tax reform act of 1986 represented new savings or merely reshuffled assets we find no evidence that households financed their ira contributions from reductions in consumption at least initially we find evidence that households financed their ira contributions from existing savings or from saving that would have been done anyway our results indicate that at most 9 of ira contributions represented net additions to national saving

an examination of the effect of ownership on the relative efficiency of public and private water utilities the behavior of privately and publicly owned water utilities is examined by estimating a generalized variable cost function containing the regular characteristics of the neoclassical cost function without requiring that cost minimization subject to market prices be imposed as a maintained hypothesis assuming that unobserved shadow prices reflect the regulatory environment of the water industry tests for cost minimization are obtained by deriving shadow prices as functions of market prices the empirical results provide evidence that public water utilities are more efficient than private utilities on average but are more widely dispersed between best and worst practice

a note on allowed and realized rates of return of the us electric utility industry most empirical investigations of electric utility behavior use the realized rate of return as a proxy for the allowed rate of return we examine the validity of this assumption and investigate the relationship of the allowed and realized rates to the cost of capital between 1973 and 1982 we use two measures of the cost of capital one based on returns to book equity the other derived from a market price of equity while realized and allowed rates were generally higher than the book measure throughout the period both of the rates of return were less than the market price of capital after 1979 we also find firms did not earn their allowed rate of return after 1974 therefore the use of the realized rate as a proxy for the allowed rate in empirical models will lead to biased parameter estimates to help correct this bias we give data for allowed rates

the taxation of foreign profits a unified view this paper synthesizes and extends the literature on the taxation of foreign source income in a framework that covers both greenfield and acquisition investment and a general constraint linking investment at home and abroad for the multinational by introducing a cost of adjustment for the mobile factor unless the cost of adjustment is zero the domestic tax on foreign source income should always be set to ensure the optimal allocation of the mobile factor between domestic and foreign assets and should follow the classical rules in the literature national optimality requires the deduction rule and global optimality requires the credit rule only in the zero cost case does exemption become optimal allowances can be set so as to ensure that domestic and foreign asset purchases are undistorted by the tax system this requires a cash flow tax on domestic investment in the greenfield case and a cross border cash flow tax on foreign investment in both cases these basic results extend to various extensions of the model notably i when a profit shifting motive is present and ii to some extent when a corporate income tax is in place the introduction of tax administration costs into the model can explain the empirical trend towards the use of the exemption regime