Showing papers by "Stockholm School of Economics published in 1994"

Initial public offerings: International insights

Abstract: This paper discusses evidence on the short-run and long-run performance of companies going public in many countries. Differences in average initial returns are analyzed in terms of binding regulations, contractual mechanisms, and the characteristics of the firms going public. The evidence suggests that the move in recent years by most East Asian countries to reduce regulatory interference in the setting of offering prices should result in less short-run underpricing in the 1990s than in the 1980s. Evidence is presented that companies successfully time their offerings for periods when valuations are high, with investors receiving low returns in the long-run. Implications for investors, issuers, and regulators are discussed.

What price depression? The cost of depression and the cost-effectiveness of pharmacological treatment.

Abstract: The purpose of this study was twofold: to measure the overall direct costs of depression for 1990 in the UK, and to develop a model to illustrate issues in the evaluation of the relative cost-effectiveness of the pharmacological treatment of depression. We compared a tricyclic antidepressant, imipramine, with paroxetine, a newer antidepressant. For assessing the cost of illness, we used a top-down approach. We calculated direct but not indirect costs. Cost-effectiveness was evaluated by developing a simulation model based on the theory of clinical decision analysis to compare the costs and outcome of each treatment. From this we estimated the expected cost per patient and the cost per successfully treated patient. The total cost to the nation of depressive illness was estimated to be 222 pounds million. The expected costs per patient were found to be similar for paroxetine and imipramine (430 pounds v. 424 pounds). The costs per successfully treated patient were found to be lower for paroxetine (824 pounds) than for imipramine (1024 pounds). The results were stable when a sensitivity analysis was applied to the variables employed in the model. The most sensitive variable was the cost of treatment failure. Our model thus reveals that medication that appears expensive in terms of cost per day may not be so when patient compliance and the total costs of treatment are taken into account.

The Markets-As-Networks Tradition in Sweden

Abstract: Philip Kotler, in a speech to the trustees of the Marketing Science Institute, said that the paradigmatic orientation of marketing moves from transactions to relationships to networks [Kotler 1991]. From this perspective, it is worth considering a network approach to marketing developed by Swedish marketing researchers during the last decade. This approach was first presented in two books published in Swedish in 1982 [Hagg and Johanson 1982;Hammarkvist, Hakansson, and Mattsson 1982]. Both groups of authors included members from Uppsala University and the Stockholm School of Economics. A decade later, Swedish researchers are basing a substantial and growing number of studies in marketing and related subjects on the network approach. One can even talk about the evolution of a research tradition, directly and indirectly linked to international research developments, but still based largely in Sweden. This tradition in marketing predates much of the recent surge in network thinking among management and social science researchers.

A note on QALYs, time tradeoff, and discounting.

Abstract: The theoretical model of QALYs is based on risk neutrality with respect to life years or constant proportional risk posture with respect to life years. It is shown that discounting of QALYs is inco...

Natural Resources, “Vent-for-Surplus”, and the Staples Theory

Abstract: This chapter integrates the frontier into a model of staples production (where staples are defined as raw materials in high demand in the international market). Agricultural goods are produced with the aid of land and labor. The land has to be developed with the aid of capital before it can be put to use. Manufactures are produced with the aid of labor and capital (the manufactured good itself). Trade is opened when the price of agricultural goods increases. The frontier is then extended and agricultural production increases at the expense of manufactures. The staples model, however, also deals with factor movements, which in turn open the possibility of industrialization and in the end for a general expansion of the economy (both sectors).

Total Effectiveness in a Just‐in‐Time System

Abstract: Discusses the effects of the implementation of Just‐in‐Time (JIT) in the relationships between suppliers and manufacturing companies within Swedish industry. Explores whether such relationships will be beneficial for all parties and create higher total economic effectiveness in the supply relation or if the often more powerful buyer only transfers its stock holding problems to the smaller and weaker part in the buyer‐supplier relation. Two buyer‐supplier relations in the automobile industry are studied, one more from the buyer′s point of view and the other from the supplier′s side. Proves that there are very clear possibilities to get higher total effectiveness in such relations and that mutual benefits are really obtainable. Shows the increased importance of reduced arrival variancy but also that JIT does not necessarily mean an increased traffic intensity. Introduces an important finding by identifying the time interval between the Sequence Locking Instant and the point when the component is needed in P...

Pricing and reimbursement of pharmaceuticals in Sweden.

Abstract: Significant changes in the Swedish reimbursement system for drugs were introduced on January 1,1993. A reference price system was introduced and price control became the responsibility of the National Social Insurance Board (NSIB). If a drug is to be reimbursed when prescribed, the price must be approved by the NSIB. The prices for drugs included in the reference price system do not have to be approved by the NSIB, as the reimbursement level is fixed at 10% above the price of the cheapest generic.

The impact of age on the cost-effectiveness of hypertension treatment: an analysis of randomized drug trials.

Abstract: The aim of this study was to investigate whether any consistent pattern exists with respect to the cost-effectiveness of hypertension treatment and age, based on the results of ran domized drug trials. Data about age, entry diastolic blood pressure, and relative risks of coronary heart disease (CHD) and stroke from 19 randomized trials were used to derive point estimates of the cost-effectiveness of each trial. The relationship between age and cost per life-year gained was then estimated by regression analysis, controlling for entry diastolic blood pressure. The regression analysis shows a statistically significant average decrease in the cost per life-year gained of about SEK 15,000 per year of older age for both men and women ($1 = SEK 6). Sensitivity analysis showed that the improvement in cost- effectiveness with age was stable towards various assumptions, but that the magnitude of the improvement varied greatly with the discount rate. Based on the results of randomized drug trials, it is concluded th...

Cost-benefit of treating hypertension.

Abstract: Aim To review earlier studies on the costs and benefits of treating hypertension and present new estimates of cost-effectiveness in relation to age, sex and level of blood pressure. Methods The cost-effectiveness of different classes of drugs was examined, according to different assumptions about risk reduction. Cost-effectiveness was measured as cost per life-year gained and is based on the observed reductions in risk due to intervention. An extensive sensitivity analysis was performed. Swedish cost data were used for the estimates, and assumptions about clinical effects were based on a recent review of the literature. Conclusions An economic evaluation of antihypertensive treatment indicates that it is cost-effective to treat patients with a diastolic blood pressure of > or = 90 mmHg, except patients under 45 years of age. The presence of other risk factors increases the cost-effectiveness.

The limits and possibilities in designing the environmentally sustainable firm

Abstract: In the mid-1980s national and international pressures re-emerged on organisations to take responsibility for the environmental externalities created by industrial activities. With the Brundtland Report (1987) strong support for the principle of sustainable development in the protection of the natural environment emerged. This instigated organisations to engage in the development of environmental policies, incorporation of environmental strategies in product development, assessment of environmental impact of products and production activities, and increased green advertising. In spite of promising industrial environmental activities, a recent Swedish study (Arnfalk and Thidell, 1992) shows that the dominant force for environmental efforts remains legislation - or threats thereof - rather than integration of environmental criteria in designing and developing product- and production systems. To understand the limited response to environmental challenges we explored the sources of inertia in relation to environmental change activities in industrial networks (i) theoretically through a review of inter-organisational literature on industrial networks and change, and institutional approaches to organisation; and (ii) empirically through some insights from three case studies of the mobilisation and coordination activities in industrial networks involved in substituting the use of Chlorofluorocarbons, CFCs, in refrigerators, and in the production processes of flexible foam and circuit boards. The theoretical review suggests that organisations are embedded in dependency relationships with other organisations that will restrict the material resources and social relations any given actor has to its relevant environment and, hence, influence possible actions and outcomes of environmental change. Product, production, and administrative systems are highly coordinated and adapted to each other which places considerable limitations on the willingness and ability of network actors and systems, to change. The empirical studies show interdependencies and inertia in the technological as well as the relational systems. Evidence of the internalising of environmental problems into individual or network behaviour was not found. Instead, when forced to change, actors cooperated to find solutions within established relationships that did not alter existing products and production systems. On the firm and network levels of observation the pattern of response that emerged during the change processes was the diffusion of solutions, not by strategic design, but through overlapping and interlocked network relations, i.e., through processes of institutionalisation. Our study suggests that the re-orientation processes towards environmental sustainability in a firm can best be understood in the context of structures and processes on the network rather than on the organisational level.

Psychology + Economics = Economic Psychology?

Abstract: In the early nineteenth century, economics was the study of pleasure and pain and psychology the study of the philosophical problems of mind and body relationships. When psychological research started dealing with pleasure and pain, physiological aspects dominated. Economists focused on societal problems and thought that all humans acted and reacted in the same, rational way whereas psychologists more and more stressed individual differences and laws referring to individual behavior. Economic psychology while being today mostly an extension of psychology to the study of economic behavior, can learn from economics and incorporate more of economic thinking and economic variables into the research. It would then become more truly interdisciplinary.

Growth in a Dual Economy

Abstract: Growth and structural transformation of the manufacturing sector in developing countries are generally considered to be the result of the expansion of the `modern' (large-scale) sector relative to the `traditional' (small-scale) sector. Examining the sources of labour productivity growth in Mexican manufacturing, however, does not provide support for this conclusion. Although we find that labour productivity levels vary almost in direct relation to establishment size, labour productivity growth shows no systematic variation by size class. In fact, small establishments have had the same rate of labour productivity growth as larger ones, partly because of the `excise-effect' (the exiting of low-productivity, small plants). Moreover, most of the variation in labour productivity across plant class sizes is found to be due to differences in capital intensity. The variation in TFP levels across size classes tends to be small. Thus, our results remove some justification of the policy measures that favour large firms in developing countries.

Transaction cost, institutions, and evolution

Abstract: We suggest an operational definition of transaction cost as the expected value of strategy information in games played by individuals randomly matched from a large population. We relate the concept of a transaction cost minimum to those of Nash equilibrium, efficiency, and evolutionary stability, and apply it in a simple model of the Coasean firm. In particular, we identify circumstances in which evolutionary dynamics will minimize transaction cost, which allows various informal hypotheses about the relation between institutional evolution and transaction cost to be addressed in a precise sense.

Cost-Effectiveness of Omeprazole and Ranitidine in the Treatment of Duodenal Ulcer

Abstract: Previous studies have shown that, compared with ranitidine, omeprazole is a cost-effective treatment for acid-related disease. However, since more evidence is continually emerging and since prices vary, both across countries and with the passage of time, re-evaluation is necessary. Furthermore, it is important to critically review various methodological aspects. Using the Markov chain approach, this paper analyses the relative cost-effectiveness of omeprazole and ranitidine in the intermittent treatment of duodenal ulcer in Great Britain. The importance for the result of inclusion and exclusion of relapses and the length of the time-period studied are also investigated. While both factors are important, the effect of including relapses in the analysis is more important than the effect of extending the time-period. It is found that the treatment alternative with omeprazole is relatively more cost-effective when relapses are excluded compared with when relapses are included. We conclude that, while the time-period studied should always be extended as much as data allow, the inclusion of relapses seems to be of more crucial importance and is therefore strongly recommended.

Welfare measurement and the health environment

Abstract: An important issue in environmental economics is to augment the conventional net national product measure so as to cover changes in stocks of natural resources. In this paper, we show how to treat health (capital) effects in welfare measures caused by, for example, pollution. We also show the effects the risk of “doomsday” caused by pollution has on these measures. A Ramsey growth model enlarged with health capital and death risks is used to derive an augmented welfare measure. A way of solving the particular technical problem one faces when the death risk depends on a state variable (health capital) is also presented. This measure is contrasted with the conventional net national product measure. We also briefly discuss the welfare properties of a market economy when individuals invest in health capital but face a strictly positive death risk.

Endogenous Policy Formation and the Principle of Optimal Obfuscation: Theory and Some Evidence from Haiti and Jamaica

Abstract: Our paper addresses issues of redistribution within a political economy framework. Focusing initially on the experiences of Haiti and Jamaica, we argue that the rulers of these countries redistribute resources basically in order to improve their chances of staying in power. The methods used to redistribute income are discussed in some detail; in particular, we extend the Magee, Brock and Young hypothesis of “optimal obfuscation” by postulating that rulers attempt to prevent opponents to disclose the actual costs of policies by increasing the costs of such exposure. Further, we generalize our findings into two models of endogenous policy formation—one for a democracy and one for a dictatorship. The equilibrium is specified and the influence of a number of shift parameters is investigated.

Information systems with partially unknown purposes

Abstract: In “traditional” information systems design theory it is usually assumed that the information system to be designed has, at least in principle, a well-defined purpose, that is, a purpose from which it is possible to derive, among other things, the information needs to be satisfied by the information system. However, there is a category of information systems of growing practical significance, where the purposes are partially unknown. Some examples of types of information systems which typically belong to this category are decision support systems, executive information systems, statistical information systems, scientific information systems, and metainformation systems. When an information system belonging to this category is going to be designed, it is usually impossible to specify its usage with great precision. The business decisions, research problems, or whatever kind of activity it is that the information system is going to support may not yet even have been thought of; they may lie a long time ahead, and by then many things may have changed within the area of interest and its environment, as well as in the focus of interest of the information system users. This paper discusses some of the methodological challenges posed by information systems with partially unknown purposes.

Economic evaluation of new medical technology.

Abstract: Safety and efficacy are not the only parameters of interest for choice of medical technology--costs play an increasingly important role. There is a growing interest in 'value for money', which can be assessed by economic evaluation comparing the costs and consequences of alternative courses of action. A number of different economic evaluation methods may be used: cost-minimization (looking only at costs with no consideration of consequences); cost-effectiveness (in which a unidimensional clinical outcome is assessed, for example, life-years gained); cost-utility (measuring multidimensional outcomes, for example quantity and quality of life); and cost-benefit (where outcome is considered in monetary terms). A Swedish cost-of-illness study showed that the direct health care costs increased and the indirect cost (in terms of production loss) associated with treatment of peptic ulcer fell following the introduction of H2-receptor antagonists. In a study of reflux oesophagitis, omeprazole was shown to be more cost-effective than ranitidine. With omeprazole, the costs were lower and the effectiveness better than with the H2-receptor antagonist.