Showing papers on "Inefficiency published in 1980"

The Relative Efficiency of Public and Private Firms in a Competitive Environment: The Case of Canadian Railroads

Abstract: The efficiency of public and private firms is usually compared in industries which have heavy regulation and limited competition. In this paper we present a case study in which the effects of property rights can be isolated from the effects of regulation on noncompetitive markets. We compare the postwar productivity performance of the Canadian National and Canadian Pacific Railroads. Contrary to the predictions of the property rights literature, we find no evidence of inferior performance by the government-owned railroad. We conclude that any tendency toward inefficiency resulting from public ownership has been overcome by the benefits of competition.

A Test of Relative and Absolute Price Efficiency in Regulated Utilities

Abstract: A model for testing all types of relative price inefficiency expands the Averch-Johnson effect and makes it possible to test for absolute price efficiency, which exists if the value of the marginal product for each factor is equated to factor price and implies both cost minimization and production of the optimal quantity of output. Duality theory is used to derive the empirical model using 1973 data for electric utilities. The results indicate that relative and absolute price efficiency were generally not achieved by electric utilities in that year. 36 references, 1 table.

An Analysis of Fully Distributed Cost Pricing in Regulated Industries

Abstract: This paper examines the economic consequences of allocating common costs by (1) gross revenues, (2) directly attributable costs, and (3) relative output levels (such as ton-miles) to determine fully distributed cost prices for regulated firms. The analysis characterizes FDC tariffs, examining the nature of the economic inefficiency associated with the rules, and explains how opportunities for entry by unregulated firms might change if Ramsey optimal pricing were used instead of FDC pricing.

Spanning the State Space with Options

Abstract: In the Arrow-Debreu approach to uncertainty it has been recognized that an inadequate number of markets in contingent claims would be a source of inefficiency. Several researchers have studied the allocative inefficiencies resulting from incomplete markets, i.e., when the number of independent securities is less than the number of states and therefore the state-space cannot be “spanned†by those securities. In a situation where the number of primitive assets is inadequate to span the state-space, the new spanning opportunities opened up by derived assets written on the primitives is an interesting question.

Technical efficiency and economic performance: some evidence from ghana

Abstract: RECENT studies of the magnitude of inefficiency generated by distorted foreign trade structures have focused attention on the role of inappropriate choice of technique in reducing the social profitability of investments in LDC's. Steel (1972) examining the performance of thirty-nine industrial firms in Ghana, finds a significant relationship between low social profitability, inappropriate factor proportions, and excess capacity engendered by the structure of protection. Similar conclusions emerge from the work of Bela Balassa and Associates, (1971) and from project analyses of existing investments in developing countries. These findings have produced substantial debate on the scope for factor substitution and the determination of the choice of technique in LDC manufacturing.' Concurrently, a literature has developed suggesting that poor economic performance may arise largely from low levels of technical efficiency. Pack (1974) observed significant variations in technical or "X-efficiency" among firms in six industries across several countries, and in a more detailed study of the manufacturing sector in Kenya (1976) concluded that managerial training and competence exercise a major influence on economic performance. Leibenstein (1966) has argued that the social costs of "Xinefficiency" may substantially outweigh those arising from misallocation of resources, and Bergsman (1974) has attempted to quantify the costs of protection arising from tariff induced reductions in X-efficiency. This paper seeks to clarify the relationship between technical (or managerial) efficiency, the choice of technique, and economic performance. The first section draws upon the concepts of technical and price efficiency developed by Farrell (1957) to establish the relationship between technical efficiency, choice of technique, and a commonly used measure of economic performance, the "Domestic Resource Cost" (DRC) criterion. Section 2 summarizes the results of DRC estimates of economic efficiency for firms in three Ghanaian industries. In Section 3 estimates of the industry production function are employed to measure the extent of technical inefficiency and inappropriate choice of technique. Section 4 utilizes the computed indices of technical, price, and economic efficiency to assess the significance of the choice of technique, and technical inefficiency as components of measured

A theory of codetermination

Abstract: This paper has developed a framework of theory within which codetermination, collective bargaining, individual bargaining, and workers' management may be compared. This has required a rather long digression on the theory of labor contracts in general when effort is endogenous but is wholly specified by the contract (section II) and when effort is multidimensional and labor contracts are incomplete (section III). When labor contracts are incomplete, suboptimization behavior results, and this in turn implies inefficiency. The inefficiency is displayed in a maximization problem by a structure which formally resembles the Lipsey-Lancaster “second-best” solution. Codetermination permits improved efficiency by creating a context of joint management decision in which some of the “free” variables may be jointly determined, with the result that some “second-best” constraints are relaxed. Thus the theory allows a possibility that power-sharing can in itself shift the effort-productivity frontier outward. This is an empirical question, of course, but one which is excluded from consideration by theories in the neoclassical and Illyrian tradition which are based on homogenous labor and complete labor contracts. Thus, the theory set forth here should supplant the less general neoclassical and Illyrian hypotheses unless and until evidence is offered which supports those hypotheses.

The Efficiency of Direct Democracy

Abstract: The paper investigates the Pareto efficiency of direct democracy and searches for the frequency with which the losing minority in referendum voting could compensate the majority and still be better off. A model is defined that permits the measuring of the intensity of preferences in a population, based on voting and abstention behavior. Using the model, an analysis of over 100 Swiss referenda reveals only a few instances in which the outcome of direct voting is inefficient. It seems that the political system evolves methods of trade-off that permit efficient outcomes in most cases. Criticism of direct democracy should therefore not rely on the primarily hypothetical objection of inefficiency.

Open-Market Operations in a Model of Regulated, Insured Intermediaries

Abstract: In "The Inefficiency of Interest-bearing National Debt" (J.P.E. [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 circumstances: reserve requirements which limit the size of insured intermediaries.

Essays in the economics of uncertainty

Abstract: These three elegant essays develop principles central to the understanding of the diverse ways in which imperfect information affects the distribution of resources, incentives, and the evaluation of economic policy. The first concerns the special role that information plays in the allocation process when it is possible to improve accuracy through private investment. The common practice of hiring experts whose information is presumably much better than their clients' is analyzed. Issues of cooperative behavior when potential group members possess diverse pieces of information are addressed. Emphasis is placed on the adaptation of the core concept from game theory to the resource allocation model with differential information.The second essay deals with the extent to which agents can influence the random events they face. This is known as moral hazard, and in its presence there is a potential inefficiency in the economic system. Two special models are studied: the role of moral hazard in a monetary economy, and the role of an outside adjudicatory agency that has the power to enforce fines and compensation.The final essay discusses the problem of certainty equivalence in economic policy. Conditions under which a full stochastic optimization can be calculated by solving a related, much simpler certainty equivalence problem are developed. The reduction in the complexity of calculation involved is very great compared with the potential loss of efficiency."

Fundamental Corporate Changes, Minority Shareholders, and Business Purposes

Abstract: In an effort to promote business flexibility and efficiency, corporation law has moved from a rule of unanimous shareholder consent to simple majority rule for fundamental changes A strong utilitarian theme runs through much of the discussion of this change—that some individual hardship might be necessary in order to promote group welfare But the creation of power in the majority to effect such changes also created the power to squeeze out the minority through self-dealing While the business-purpose test has been developed to preserve the goal of group wealth maximization, in practice it bears little relationship to this goal The test provides no means for measuring the costs and benefits of a fundamental change, and attempts to judge what are proper or improper business purposes intrude on the domain of business judgment The assumption that all decisions reached by a disinterested majority maximize aggregate welfare is based on a logical fallacy, so that not even arm's-length transactions approved by a majority are free from risks of inefficiency Further development of judicial restraints on majority rule promises little in the way of efficiency, and a re-examination of alternative rules of group decision making is required

The Failure of U.S. Technical Assistance in Public Administration: The Iranian Case

Abstract: One of the causes of the Iranian revolution of 1978–1979 was that the Iranian government had serious administrative deficiencies. Amir Taheri, a well-known Iranian journalist, wrote in the mid-1978 that public disturbances were “due to an accumulation of discontent with tight control, over-centralization, lack of sufficient open debate and a general feeling that corruption and inefficiency together with arrogance have struck the bureaucracy.”1 These administrative problems were not new. An important scholarly examination of the Iranian political system in the early1970s concluded that the “problems of governance in Iran are profound. Inefficiency is their hallmark….”2

The costs of urbanization

Abstract: The fiscal, financial, efficiency, and equity aspects of urbanization in developing countries are examined. Industrialization, population growth, and increases in per capita income tend to impose a rapidly growing fiscal burden. However, there is little reason to expect that slowing down the urbanization process will reduce this burden unless it is accompanied by reduced rates of industrialization, reduced population, or reduced income growth. However, the claim that rapid urbanization is the primary cause of international indebtedness of developing countries is not supported by a direct, statistically significant relationship between urbanization rates and debt ratios in today's developing world. Costs alone do not determine the optimum degree of urbanization; benefits also must be accounted for. Moreover, many of the apparent symptoms of urban inefficiency, such as congestion and pollution, are due to inappropriate policies within the city rather than the results of inefficient city size. The appropriate policy responses to such inefficiencies is the removal of policy biases within cities. 31 references.

Inefficiency and reelection

Abstract: SUMMARY This paper considers one aspect of the potential conflict between efficiency and politics. It analyzes the conditions under which a reelection-seeking politician will find it in his interest to make efficient choices. The paper first presents a very unrealistic model in which there is no conflict between efficiency and the objectives of the government's chief executive. Under the more realistic assumptions developed in the rest of the paper, the politician can no longer be expected to be efficient. Even with no interjurisdictional spillovers and a single budget category, inefficiency arises from the basic political incentives generated by democratic institutions. There are two fundamental sources of inefficiency. First, the service may not be a pure public good so that particular individuals or firms may be favored more than others. The incumbent can then use state resources to maximize his probability of reelection at the expense of efficient tax and spending choices. Second, voters may have poor information about what the government is doing. The incumbent may then choose especially obvious ways of spending money or skew public decisions to favor campaign contributors.

Corporate autonomy and X-inefficiency

Abstract: Post Keynesian theory poses the prospect of an investment function independent of the savings level. We can extend this to consider an individual firm able, in some degree, to operate in isolation from general market or macroeconomic constraints. The precondition for such autonomy seems to be the combination of large size with a significant degree of diversification. But if increases in size and diversity further the cause of corporate autonomy, they also may be shown to increase the probability that a firm will outstrip the rationalizing capabilities of modem management science. Should it do so, any increases in size and diversity will be accompanied by successively more serious administrative diseconomies of scale. These, viewed as instances of X-inefficiency, erode the firm's rate of return and impose a penalty on the general economic system. Moreover, because the autonomous firm is shielded against the market pressures normally thought to accompany inefficiency, this penalty may continue to be exacted until a structural change is introduced into our basic economic configuration.

Economies of size and operating efficiency of livestock markets: a frontier function approach

Abstract: A cost curve for livestock auction markets was estimated using a frontier function estimator. This estimator has the advantages of consistency and asymptotic efficiency (for certain disturbance specifications). The one-sided residuals satisfy theoretical requirements for cost curves and all ow estimates of operational efficiency. Results indicate little size savings above 50,000 LMU, (12 percent of markets in 1976). Estimated operational inefficiencies ranged from 0 to 45 percent. Total technical efficiency (size diseconomies plus operational inefficiencies) are high for some markets and some size groups. Little consolidation is predicted for the industry because the estimated cost of technical inefficiency is small compared to distance related costs (e.g., transport and shrink).

Pump Systems: What Price Inefficiency?

Abstract: There is little doubt that the electric motor is the most practical pump-drive system available. Its widespread use is sufficient testimony to this fact. But the increasing cost of electrical power casts a new light on the budgetary impact of pump-drive systems. Electrical pump-drive systems can no longer be purchased, installed, and forgotten. They have a growing impact on operating expenses. A close look at pump system design may lead to increased pump-drive efficiency and some surprising cost savings.

C.c.d. integration techniques for clutter reduction in radar systems

Abstract: Substantial signal-to-clutter improvements are theoretically achievable using ccds to integrate a large number of returns In practice, however, the performance of simple ccd implementations is severely limited by charge transfer inefficiency, particularly if large range and high resolution are required The paper describes several ways in which the effects of transfer inefficiency can be overcome or avoided

Cost Benefit Analysis of Labor Allocation and Training Schemes

Abstract: Discrepancies in local labor markets occur as unsatisfactory matching of skill within the same region as well as redundant supply and unsatiated demand among regions. Some of this discrepancy could -- in principle -- be removed by letting supply in one region meet demand in another. A reallocation policy of this kind poses a few questions of prominent concern: 1. Can economic disvalue arising from imperfection of labor markets at a regional level be mathematically assessed? 2. Is it possible to define a regional measure of inefficiency on both sides -- demand and supply -- of the labor market? 3. How should vacancies be distributed over skill and space to alleviate inefficiency? These questions are investigated in this paper and a short-run solution is obtained via the primal-dual linear programming formulation of the problem.

Characterization of charge-transfer devices with position-dependent small-signal transfer inefficiency

Abstract: Models for the small-signal response of a CTD with position-dependent transfer inefficiency are developed. The small-signal inefficiency E. can become position-dependent, for example, when sizeable amount of thermally generated charge is added to the transferred charge packets at each stage. Expressions for the frequency response and for the step response are derived in terms of single-transfer inefficiencies. In order to describe the overall performance of a CTD by means of an unique parameter, an effective transfer inefficiency is defined which only depends upon the input bias charge and generation conditions. Based upon the small-signal response models an experimental characterization and performance prediction technique is presented. Bucket-brigade delay lines with different design parameters are used as experimental test vehicles. It is shown that for optimum performance the devices must be operated at some optimum input bias charge level.

Obsessions: source of inefficiency in the workplace.

Abstract: Obsessions are persistent, intrusive, unwanted ideas that are unproductive and anxiety-arousing. Although the magnitude of their importance in the workplace has not been established by acceptable scientific research criteria, they are in all probability a major source of inefficiency in jobs involving a high percentage of intellectual effort. The current body of knowledge of clinical psychiatry and behavioral psychology can provide rudimentary insights and hypotheses. The need is emphasized for further research to elucidate more precisely the extent of the problem.

Inefficiency in Irish agriculture.

Abstract: Precis: The purpose of this paper is to compare the relative efficiency of two similar groups of farms in Irish agriculture Using a restricted profit function to measure economic efficiency and both of its components, price efficiency and technical efficiency, it was found that differences in the behaviour of farm groups do exist and that both failed to maximise profits The implications for achieving in­ creases in the growth rate of agricultural output are noted

Reluctance to Adjust and Economic Nationalism

Abstract: It does not require great insight to recognise that we live in a constantly changing world. Demographic developments, technological innovations and a variety of other factors constantly create pressure for changes in patterns of production and trade. Moreover, the fact that the timing and intensity of these developments vary among countries is itself an independent source of pressure for change. An obvious corollary is that an economy’s prosperity is crucially dependent on its capacity to adjust its pattern of production and trade in response to these pressures for change. Smooth and continuous adjustment allows a country to use its labour, capital and land efficiently and stimulates economic growth. Lack of adjustment, in contrast, breeds cumulative inefficiency and reduces the country’s material well-being.