Showing papers on "Inefficiency published in 1978"

Economies of scale and organizational efficiency in banking: a profit-function approach

Abstract: SINCE DAVID ALHADEFF's SEMINAL STUDY in 1954, numerous studies of bank size, organization, and efficiency have been published (see Guttentag and Herman [7] and Benston [2] for surveys and Longbrake and Haslem [19] for a more recent and sophisticated investigation). Most of these studies have confined the scope of inquiry to questions of operational or "technical" efficiency and have consequently utilized the theory and estimation of the cost function as an analytical framework. Commenting on a substantial portion of this literature in 1967, Guttentag and Herman observed that "we do not know much more about operational efficiency than we did before 1954." Nor has much progress been made in recent years (see Mullineaux [21]).' Indeed, public officials charged with the regulation of entry, merger, and organizational restructuring within the banking industry continue to be dismayed by the nonuniformity and inconclusiveness of evidence relating to bank operating efficiency. Regulators must be concerned with more than operating efficiency, however. Since they are charged with provision for the "convenience and needs of the community," they must also consider allocative, or "price" efficiency. Price inefficiency means that scarce resources are not being directed to their most highlyvalued uses. Allocative inefficiencies can of course result from noncompetitive market conditions, but they may also occur in a competitive environment. In the latter case, price inefficiencies simply reflect a failure to maximize profits. For example, information costs may prevent some firms from successfully equalizing marginal revenue product to the relevant input prices. Thus, bank regulators need to know whether bank markets are competitive, and, if so, whether some kinds of bank organizations are more price efficient ("better" profit maximizers) than others. Again, however, research to date has proved inconclusive. Indeed, since it is frequently alleged that there may be a "trade-off" between technical and price efficiency (e.g., that larger firms can achieve unit cost reductions but are also likely to produce more allocative inefficiency), it seems imperative to attempt to measure differences in both kinds of efficiency across different types of banking organizations. Furthermore, since the existing regulatory environment may have an impact on "observed" measures of efficiency, it should somehow be taken into account in the testing procedure.

An Economic Theory of the Evolution of Common Law

Abstract: IN a comprehensive analysis of common law doctrines, Richard Posner1 argues that the precedents established in the law of property, law of contracts, and the law of torts reflect the standard of economic efficiency. This is a surprising finding in view of the vagaries of individual cases and the disparate motives of the judges involved. It is more surprising still when one considers that judicial decisions were couched in the language of morality, fairness, and justice without explicit reference to anything resembling the modern conception of economic efficiency. Two explanations have been offered to account for this phenomenon. The first, relating to judicial motivation, argues either that common law judges tended to prefer efficiency or, at least, that there was no other plausible motivation which could produce an inefficiency bias.2 The chief limitation of this argument is that, while it may be true, it is largely a conjecture about facts that are somewhat difficult to verify. The second explanation looks upon the evolution of common law as a process of natural selection in which efficient rules survive because they will be less prone to challenge by repeated litigation. The argument, made by Rubin3 and amplified by Priest,4 is that the more inefficient a legal rule, the greater the social cost it imposes and, thus, the greater the probability that it will be challenged through litigation since the benefits of litigation versus

Images of the ‘floating voter’: or, the ‘political business cycle’ revisited*

Abstract: This paper interprets the British government's failure to achieve better control of the business cycle, not in terms of technical inefficiency, but as a politically rational pursuit of a class of ‘floating voters' perceived by it to change their economic priorities according to the variable which is currently ‘in crisis’. It then investigates whether this perception is accurate, and finds broadly in the affirmative in spite of a growing salience of inflation over time, on the strength of Gallup poll data from 1953–75. The finding of previous studies that government popularity declines cyclically between elections is interpreted in terms of its greater discretion in matters of economic (and other) policy variables in the mid-term, and the hypothesis is put forward that a more economically informed electorate might ipso facto have less unstable preferences.

Methods and apparatus for compensating for charge transfer inefficiency in imaging and other variable length charge transfer devices

Abstract: Methods and apparatus for compensating for charge transfer inefficiency in imaging and other variable length charge transfer devices are disclosed. In accordance with the method a recursive filter is used to compensate for the transfer inefficiency of the device with the coefficients of the recursive filter being dependent upon the pixel position and the inefficiency per transfer, or more particularly upon the inefficiency per transfer and the number of transfers required to transfer from the pixel position to the output of the charge transfer device. In addition, a variable gain control is used to restore the amplitude of the output signal dependent upon the pixel position and inefficiency per transfer. Substantial compensation is achieved utilizing recursive filter coefficients linearly increasing with the number of transfers required, with an automatic gain control amplifier also linearly increasing in gain proportional to the number of transfers required to restore signal amplitude. Test results and apparatus for practicing the invention are also disclosed, as are other compensation techniques.

The Efficiency Implications of Earnings Retentions

Abstract: Implicit here is the argument that the owners of the corporation and hence the economy as a whole gain from allowing management to reinvest past profits on their behalf. This must be, true if it is assumed that managers always act in the interest of the owners. If, however, managers act in their own interest, their retention and reinvestment of past profits can be a source of inefficiency. Mueller (1969) has observed that, although the investment opportunities of the stockholders may be better than those which management can internalize,

Investors' Time Horizon and the Inefficiency of Capital Markets

Abstract: I. Introduction, 187.—II. The monopoly problem 189.—III. Monopolistic value maximization, 195.—IV. Some remarks on financial uncertainty, 202.—V. Conclusion, 204.

Optimality and the institutional structure of bureaucracy

Abstract: Whenever the economic efficiency of institutional structures is examined, the allocation of resources through the competitive market is used as a benchmark to judge efficiency. Because of the desirable characteristics of the competitive outcome, there is a natural tendency to ascribe these same characteristics to the competitive process. This tendency may be in part, anyway what has prompted William Niskanen (1971), after analyzing some causes of bureaucratic inefficiency, to recommend that bureaucracies be restructured to more closely resemble 'competitive markets. However, when resources are allocated through a bureaucracy, the analog to a competitive market outcome is not necessarily most efficiently produced by an analog to the competitive market process. This point was suggested by Earl Thompson. After remarking on Niskanen's suggestion to increase the competitiveness of bureaus, Thompson (1973, p. 95) said, "What an economist can profitably contribute to improving governmental efficiency are incentive systems which will induce more efficient behavior from our bureaucrats without requiring markets or elections." Although Niskanen's model of bureaucracy has had a large impact on the analysis of bureaucracy, there have been few (if any) suggestions for improvement of incentives along the lines suggested by Thompson. This paper will work within the framework developed by Niskanen to suggest a simple institutional change which would cause the Niskaken-type bureau to produce at the analog to the competitive market outcome.

Parametric costing and institutionalized inefficiency.

Abstract: The parametric costing methodology, developed by the RAND Corporation as a means for improving the capability for estimating project costs, is essentially a sophisticated form of historical costing in which the cost experience of past systems becomes a baseline for estimating the cost of future systems. This paper argues that such a procedure, interacting with the special characteristics of the environment in which it operates, tends to institutionalize the inefficiencies of previous production operations, reducing the critically important pressures for increased efficiency that are a central concern of the industrial engineering function. A simple model illustrating the tendency of parametric costing type techniques to exacerbate cost growth is presented. An alternative approach, more in line with traditional industrial engineering is suggested—one that is likely to not only improve cost estimates but enhance rather than degrade productive efficiency.

Efficient information processing in output markets: tests and implications

Abstract: If goods markets efficiently process information, much of received macro doctrine seems of little relevance. Neither unemployment nor the money stock should be leading indicators of inflation. Countercyclical monetary policy will have little effect on inflation. Restrictive monetary policy can have severe effects on real variables if the public is unconvinced the authorities are committed to reducing inflation. When proper account is taken of mean shifts in the stochastic process generating CPI inflation rates, there is little remaining autocorrelation indicative of inefficiency, and filter rule experiments similarly support the hypothesis of goods market efficiency.

Leader Behavior and Subordinate Attitudes As Predictors of Leader Effectiveness and Agency Inefficiency In Public Welfare Agencies.

Abstract: Employee attitude and leader behavior data were collected and aggregated in public welfare agencies. Approximately six months later independent measures of agency inefficiency and leader effectiven...

Industry inefficiency under regulatory surveillance

Abstract: INTEREST in the effects of regulation on the efficiency of the firm has enjoyed a renaissance since the publication of Averch and Johnson's [2] analysis of this problem in I962. However, Averch and Johnson's constrained profitmaximization paradigm diverts attention from more general means by which regulation may unfavorably affect the efficiency performance of firms. In particular, the presence of regulation may allow firms wittingly or unwittingly to tolerate substantial x-inefficiency in their operations.1 Since Peacock and Rowley [13] have shown that the raison d'etre of regulation is threatened if such inefficiency offsets the allocative gains attributable to regulation, assessing the extent of x-inefficiency in regulated industries is of major policy importance. It has long been argued that inefficient behavior is not viable in competitive markets. Market forces constrain firms in competitive markets to act efficiently as a necessary condition for survival.2 Even in non-competitive markets other forces exist to pressure managements to act efficiently-potential entry of new firms, the threat of stockholder revolts, the possibility of cor

Product Diversity and Welfare: Some Further Results

Abstract: The main purpose of this paper is to examine recent work in monopolistic competition theory concerned with the influence of fixed costs (no convexities) on Chamberlin’s (1951) welfare ‘ideal’ which distinguishes a trade-off between allocative efficiency and product diversity. Inefficiency is shown to be no longer just a matter of non-marginal-cost pricing. The actual number of commodities and the product mix are important considerations for welfare analysis of product differentiation.

Allocation of funds to public transport investment and operating support

Abstract: This paper reviews the present levels of operating support to, and public investment in, public transport systems in Western Europe. All internal bus, tram and rail services are included, and estimates made for total support in Britain, Sweden, West Germany, the Netherlands and France. To make comparison meaningful, these are shown in relation to GDP and traffic carried. Support levels in Britain are below average, but by no means the lowest as sometimes assumed. Reasons for providing support are considered, including existence of financial burdens arising historically, assistance to particular groups of users, problems in price discrimination and inability of other modes' charges to reflect costs. The extent to which support payments may merely subsidise inefficiency is outlined. A distinction is drawn between “productive” efficiency, i.e. the resources used to provide a specified level of service and fare, and “allocative” efficiency, i.e. the extent to which resources are allocated so as to maximise traffic, etc. The extent for reducing support yet retaining the present general level of service and fare is considered.

Supplementary health insurance and cost-consciousness strategy.

Abstract: To counter the exceptionally high inefficiency and cost inflation in the U.S. health sector, some health economists advocate a consumer costconsciousness strategy to be implemented by patient cost-sharing under income-related major-risk (catastrophic) national health insurance (MR-NHI). These economists generally recognize that their strategy would fail if most households obtain complete supplementary private health insurance (SI), thereby eliminating patient cost-sharing. Nevertheless, the optimal treatment of SI under MR-NHI has begun to receive attention only recently. This paper develops a criterion for the optimal treatment of SI under MR-NHI, and uses it to derive the optimal treatment under an MR-NHI proposal that may be enacted. Virtually all observers agree that the U.S. health sector is plagued by exceptionally high inefficiency and cost inflation [1]. In response, several health economists have advocated a consumer cost-consciousness strategy, to be implemented by income-related major-risk (catastrophic) national health insurance (MR-NHI) [4, 10, 17]. These economists generally recognize that the treatment of supplementary private health insurance (SI), if MR-NHI is enacted, may well determine whether the strategy is successful. Although the treatment of SI has begun to receive attention [8, 13], further analysis is warranted. The purpose of this paper is to provide such analysis, and suggest an optimal treatment for SI under MR-NHI. Consumer Cost-Consciousness Strategy Advocates of the consumer cost-consciousness strategy believe that although a minority of households are inadequately insured against large medical expenses, the majority are over-insured for typical expenses. This widespread first dollar coverage makes most hospital care virtually free to the patient.' Free care encourages physicians to seek the most expenLaurence S. Seidman is Assistant Professor of Economics, University of Pennsylvania. The research for this paper was supported by the Leonard Davis Institute of Health Economics, University of Pennsylvania. ' Nearly 95 percent of all hospital revenues for patient care come from "third parties" -either private insurers, or the government [1]. Most private policies feature basic hospital insurance, with little or no patient cost-sharing for the average hospital stay. Many plans, however, have an upper limit on covered expenses, so that the patients with an exceptionally long stay often will exhaust their basic hospital coverage-just when

On the distributional implications of collective provision of public goods

Abstract: Our analysis of the welfare implications of a comparison between independent adjustment and the Lindahl solution to the public goods problem suggests that especially for small or medium sized groups the inefficiency of independent adjustment may not be sufficient cause for collective action if that action cannot be combined with redistribution. From a normative position the question of proceeding with such redistribution is hardly obvious. Unless the status quo has some legitimacy, economists are often willing to support efficient but nonsuperior moves. For example, we do not require that a monopolist move to a Pareto superior position after antitrust proceedings. Rather we commonly identify his gains as ill-gotten. While it is important that those who may suffer from the move to a Lindahl-type solution are also likely to be poor, it is hardly obvious that the appropriate extent of redistribution is that dictated by the peculiarities of the independent adjustment equilibrium.

Predistortion technique for the measurement of transfer inefficiency of charge-transfer devices

Abstract: A simple technique for the measurement of transfer inefficiency of charge-transfer devices is proposed. It requires equalization of the magnitude of two consecutive pulses at the output by introducing a known distortion in the square-wave input. The amount of distortion introduced gives a measure of inefficiency.

Open-market operations in a model of regulated, insured intermediaries

Abstract: In “The Inefficiency of Interest-Bearing National Debt,” (JPE, April 1979) we argued that private sector transaction costs are needed in order to explain interest on government debt. It follows that if the government’s transaction costs do not depend on its portfolio, then, barring special circumstances, an open-market purchase is deflationary and welfare improving. In this paper we show that this result can survive a potentially relevant special circumstance: reserve requirements which limit the size of insured intermediaries.

The Aroman food crisis: a fable with a lesson for national health insurance.

Abstract: An analogy is always imperfect. Nevertheless, at times it is an effective way to communicate an insight. This paper uses an analogy to examine the consequences of attempting to achieve health sector efficiency through regulation, instead of consumer cost-sharing. It is suggested that as long as hospital care continues to be virtually "free" to patients at the time of use, such regulation may well do more harm than good. Moreover, a national health insurance plan that would make all medical care "free" to patients, and would pay for all health care through taxes (the proposed Health Security Act), would not only generate significant inefficiency; but, in contrast to the intentions of its supporters, would prove harmful to the poor and the elderly, by shifting scarce Federal tax dollars away from the programs that assist them in order to pay the medical bills of middle and upper income households. It is therefore urged that we enact income-related catastrophic national health insurance, that would place a ceiling, which varies with household income, on the financial burden a household must bear; but at the same time, would require most families to pay part of their own medical cost out-of-pocket, so that consumer cost-consciousness can help promote health sector efficiency.