MAKING FRIENDS TO INFLUENCE OTHERS: ENTRY AND CONTRIBUTION DECISIONS THAT AFFECT SOCIAL CAPITAL IN AN ASSOCIATION

We examine factors affecting entry and contribution to an association that provides different goods using social capital formed by heterogeneous firms that lobby in a political economy environment. We identify how associations attract the most productive firms or the least productive firms in an industry and explain how such associations differ in their intensive and extensive marginal contributions to social capital. We find that the level of regulatory stringency, association products including capital goods for members or lobbying to influence regulation, and government influenceability affect membership and contribution decisions. These results vary with firm productivity. Often, an increase in government influenceability increases social capital in associations composed of highly productive firms because they prefer to influence policy while less productive firms prefer more association‐produced production inputs. (JEL D71, D73)     

AN EMPIRICAL INVESTIGATION OF ASYMMETRIC BEHAVIOR IN CORPORATE DIVIDEND POLICY

Employing three alternative measures of ability to pay, we find support for the Lintner hypothesis that firms pursue a long-run target payout ratio and also that current earnings better explain long-run dividends than cash flows or stock prices. The evidence further indicates that corporations adjust dividends with a ratchet effect, raising them more readily than they lower them. More specifically, when dividends are below target levels, firms move toward equilibrium by increasing them, but when dividends are above target levels, firms approach equilibrium by restricting dividend increases as earnings rise.     

Firm Ownership and Rent Sharing

In this paper we analyse—theoretically and empirically—how the degree of private versus public ownership of firms affects the degree of rent sharing between firms and their workers. Using a particularly rich linked employer-employee dataset from Portugal, covering a large number of corporate ownership changes across a wide spectrum of economic sectors over more than 20 years, we find that rent sharing is significantly higher in firms with a larger share of private ownership. Estimates from our most preferred empirical specification suggest that an increase in the private ownership share of 10 percentage points increases (on average) the rent-sharing elasticity by 0.0002. Based on a theoretical analysis that incorporates union-firm wage bargaining and efficiency wage effects within the same modelling framework, this result cannot be explained by private firms being more profit oriented than public ones. However, the result is consistent with a scenario whereby privatisation leads to less job security for workers, implying stronger efficiency wage effects.     

RATE BASE METHODS AND REALIZED RATES OF RETURN

Considerable regulatory energy and academic research has been devoted to examining the question of what constitutes the "correct" basis of valuation of the rate base for utility firms. This study compares utility earnings using data which adjust for differences among state jurisdictions concerning what is allowed in the rate base. The results show that there is no statistical difference in earnings of firms regulated by original cost, fair value, and reproduction cost jurisdictions. The results also show that regulation cannot generally explain the variance in earnings between states and rapid inflation does not seem to affect the results.     

FROM HONEYMOON TO DIVORCE: INSTITUTION QUALITY AND FOREIGN INVESTORS' OWNERSHIP CONSOLIDATION IN CHINA

In China, joint ventures (JVs) between foreign investors and Chinese local firms were the most popular form of foreign affiliates before 2001. Over time, with policy space to operate as foreign wholly owned (WOs), many foreign investors in JVs chose to consolidate ownership and turned JVs into their WOs. Here, we examine how institution quality affects foreign investors' JV‐to‐WO ownership consolidation odds. For each province‐year, we construct an institution quality index from the business and judicial quality indicators, and further compute a relative quality index to highlight provincial variations. Using more than 43,000 JVs operating in China's 30 provinces over 1998–2007, we find that increases in institution quality decrease the odds of foreign investors to divorce their Chinese local partners. The odds for foreign investors in JVs to consolidate ownerships are significantly higher if they operate in provinces with relatively weaker institution quality. The odds of foreign investors' JV‐to‐WO decision vary with JVs' local firms being state‐owned enterprises (SOEs) and non‐SOEs, with foreign investors' origins from Hong Kong, Macao, and Taiwan (HMT) and other regions (Foreign), and with foreign investors' initial equity positions. Our results are not driven by foreign direct investment policy shocks, and are robust to alternative measures of institution quality. (JEL F23, L23)     

"Then Let's Have a Dialogue": Interdependence and Negotiation in a Cohesive Regulatory System

Public and private organizations deal closely with each otheron regulatory issues. Newer forms of regulation rely on sharedenforcement and supervisory responsibilities, regulatory negotiation,and other methods that try to get beyond remote public commandswhile maintaining effective public involvement. This articleexamines how regulators and firms deal with each other, theinterdependence that forms between them in the course of theirwork, and the benefits and liabilities of the strong ties thatmay develop out of this interdependence. We use the securitiesindustry as a context for discussion but indicate that the pointsapply more generally. We pay special attention to the potentialbenefits and risks of cohesive regulatory networks. Regulardealings among regulators and firms outside of regular rulemakingor enforcement proceedings enhance cooperation, reduce informationdisparities, strengthen regulatory cultures, and arguably lowerthe threshold of external pressure required to effect changeswithin firms. The conditions enhancing these benefits, however,also will restrict the flow of information, perspectives, andcriticism from outsiders, potentially leading to erosion ofperformance standards and eventually serious problems. We describethe circumstances under which these tensions are more likelyto be managed without damage from these problems and the broaderimplications for research and teaching in public managementand policy.     

Motives of corporate political donations: industry regulation,subjective judgement and the origins of pragmatic and ideological corporations

What motivates corporate political action? Are corporations motivated by their own narrow economic self‐interest; are they committed to pursuing larger class interests; or are corporations instruments for status groups to pursue their own agendas? Sociologists have been divided over this question for much of the last century. This paper introduces a novel case – that of Australia – and an extensive dataset of over 1,500 corporations and 7,500 directors. The paper attempts to understand the motives of corporate political action by examining patterns of corporate political donations. Using statistical modelling, supported by qualitative evidence, the paper argues that, in the Australian case, corporate political action is largely motivated by the narrow economic self‐interest of individual corporations. Firms’ interests are, consistent with regulatory environment theory, defined by the nature of government regulation in their industry: those in highly regulated industries (such as banking) and those dependent on government support (such as defence) tend to adopt a strategy of hedging their political support, and make bipartisan donations (to both major parties). In contrast, firms facing hostile regulation (such as timber or mining), and those without strong dependence on state support (such as small companies) tend to adopt a strategy of conservative partisanship, and make conservative‐only donations. This paper argues that regulatory environment theory needs to be modified to incorporate greater emphasis on the subjective political judgements of corporations facing hostile regulation: a corporation's adoption of conservative partisanship or hedging is not just a product of the objective regulation they face, but also whether corporate leaders judge such regulation as politically inevitable or something that can be resisted. Such a judgement is highly subjective, introducing a dynamic and unpredictable dimension to corporate political action.     

INDEPENDENT AGENCIES,POLITICAL INTERFERENCE,AND FIRM INVESTMENT: EVIDENCE FROM THE EUROPEAN UNION

Investment in network infrastructure is crucial for economic growth. This article studies the impact of the presence of independent regulatory agencies (IRAs) on the investment of European regulated firms. We account for measurement error in formal independence of IRAs by exploiting cross‐country heterogeneity in the quality of political institutions. Results show that regulatory independence increases firms' investment rate by around 1.2%–3.3%. The positive effect survives when we control for social capital accumulation, investor protection, and market liberalization. However, the effect of IRAs is not immune to politics, as we find that political interference in regulatory functions persists in the European Union and is detrimental to firm investment. (JEL D78, L50, D92, H1)     

CONGLOMERATES AND REGULATION

Conglomerates operating integrated productions in different regulated and unregulated sectors may benefit of scope economies. However, the precise size of these synergies is often unknown to both rival firms and regulators. We show that the conglomerate's private information on scope economies may negatively affect both the regulated and the unregulated sectors depending on the precise nature of competition (strategic substitutes or complements). We also unveil a novel effect of regulation that involves an informational externality to the conglomerate's rivals. Notwithstanding these complications, and independently of the nature of competition, we show that in our model it is desirable, as for welfare, to let the firm run integrated productions, unless diseconomies of scope may realize. (JEL L51, L43, L52)     

Critical analysis of contractual regulation mechanisms: An organizational approach

Starting from the contract as a coordination mechanism, this article questions the effectiveness of contractual regulatory mechanisms, i.e. the ability of regulation to attain its goal, not only in efficiency terms through the analysis of the production function, but also in organizational terms. Theories of agency and transaction costs are well-suited to investigation of coordination problems in regulation. The relationship between the regulator and the regulated firm has to be regarded as a principal-agent relationship included in a more general framework taking into consideration the differentiated effects of internal incentives schemes and of the labor, goods and capital markets as additional external incentive mechanisms to correct the behaviour of the regulated firm. Improvement of regulation rests on the regulated firm's capacity to minimize transaction costs associated with the whole coordination problem. The distinction between regulated private enterprise and public enterprise allows one to identify the property rights costs.     

REGULATION VIA THREATS: POLITICS, MEDIA COVERAGE, AND OIL PRICING DECISIONS

Using the oil crisis of the late 1970s as a case study, we examine,the intertwined influences of public opinion and media attentionon the credibility of regulatory threats. We focus on threefactors: the intensity of public demands for regulatory intervention,the extent to which there are other competing demands on legislativeattention, and the availability of scapegoats external to theindustry. We use television news coverage of various topicsto measure these three factors. We hypothesize that firms threatenedwith potential regulation restrained price increases, with thelargest and most publicly visible firms exercising the greatestrestraint. We find that large, visible oil firms restrainedprice increases for the most important decontrolled prodicts(diesel fuel oil) when media coverage of the oil industry wasextensive. These firms exercised less restraint when the governmentwas busy with other issues or when political instability inthe Middle East offered an external rationale for oil priceincreases.     

Understanding Policy Instruments for Steering Nonprofit Organizations in China: Only Carrots and Sticks?

Government–nonprofit relations in China have transformed over the past three decades. Building on policy instrument theory, this article explores which policy instruments have been used to steer nonprofits at the central level and how the use of policy instruments has changed over time. This article is based on a content analysis of 300 central-level policy documents for nonprofits using NVivo. The results show that 22 kinds of policy instruments have been used to steer nonprofits. A steep upward trend is evident in the use of four categories of policy instruments for nonprofits: authority, incentive, information, and organization. Policy instruments for nonprofits have advanced in diversity, emphasizing indirect control. The central government continues to show a significant predisposition toward regulatory instruments, which have evolved from ex ante regulation to process and ex post regulation. This article contributes to the public management literature by identifying which policy instruments governments use to shape government–nonprofit relations.

     

The case of the ‘partnership approach’ to public regulation

This paper suggests that public regulation of the private sector involves a psychological-economic externality which is largely overlooked by economists. By affecting a particular belief, termed locus of control. current regulatory practices in the United States are likely to reduce the ability of decision makers to notice profitable opportunities for their firms and therefore involve an additional social cost. Specific research approaches are suggested for testing this hypothesis.     

HAS ELECTRICITY REGULATION RESULTED IN HIGHER PRICES? AN ECONOMETRIC EVALUATION UTILIZING A CALIBRATED REGULATORY INPUT VARIABLE

The universalization of regulation has made it impossible to measure its effectiveness using traditional techniques. Researchers have used dummy variables, however, the spread of regulation has gradually eliminated the control group of unregulated firms needed for this technique. This explains why Stigler and Friedland (1962) concluded their study with 1937 data. The calibrated regulatory variable technique introduced here, on the other hand, can measure the effectiveness of regulation even when it is a universal condition. We find that electricity regulation raised prices during the period 1947–1966. A politically-motivated, naive policy designed to cross-subsidize residential users may have contributed to this failure.     

HORIZONTAL MERGERS IN THE PRESENCE OF CAPACITY CONSTRAINTS

We examine a merger between two competitors in a Bertrand‐Edgeworth model. We find that the effects of merger depend on the tightness of capacity constraints. The combination of two firms has no price effect if and only if the capacity constraints of all firms are binding both before and after the merger. However, a merger may turn a binding capacity constraint into a slack one, which results in higher prices. In an industry where excess capacity drives the premerger prices of all firms to the marginal cost, a merger may cause prices to rise even though aggregate capacity remains constant. (JEL L13, L40)     

The possible role of the non-profit sector in Hungary

A common feature of most non-profit theories is their concentration on the service-providing role of non-profit organisations, and the neglect of their redistributional role. At the cost of some simplification, there are two possible public policy responses to social inequalities: (1) the welfare state model with welfare redistribution under government control; and (2) the non-profit-based model — a large network of private organisations heavily supported by the government and complemented by government delivery of services. After 40 years of state socialism, Hungary now faces some important questions. What will be the role of the new voluntary sector? What are the possibilities of following the Western European route — a version of the welfare state model — or the American way — a non-profit-based model bolstered by ‘third-party government’? The present Hungarian situation is ambiguous; we can find arguments for and against both. It is also argued that a mixed solution, some cooperation between the public and private sectors, is needed. The Western European, American and Hungarian experiences indicate that only a strong for-profit sector and a developed, harmonious government/non-profit partnership can ensure healthy social and economic development. The present Hungarian situation is far too complex and difficult to promise a fast and conflict-free establishment of this partnership. But both public institutions and government are acting in a way that may result in the development of a government-supported non-profit sector. There may be an opportunity for developing a ‘Hungarian welfare state model’.     

WHAT DO BRITISH HISTORICAL DATA TELL US ABOUT GOVERNMENT SPENDING MULTIPLIERS?

British data from the early 1700s through World War I reflect the results of numerous high‐quality natural experiments of government spending. Britain frequently participated in wars, increasing military spending massively. Wartime distortions were relatively limited because the government generally adopted tax smoothing policy and rarely implemented interventions. Government spending multiplier estimates are low or negative and significantly below unity. This paper finds no evidence that the multiplier was higher in the slack state than in the normal state. (JEL E32, E62)     

Characterizing private investments and implications for poverty reduction and natural resource management in Laos

We examine the patterns and characteristics of private investment in Laos, and how these evolve in relation to the Lao government's investment incentive policies in particular, and the wider State policies in general. Our goals are to: (1) systematically describe and analyze the patterns and characteristics of private investment in the country, and (2) analyze investment outcomes in terms of economic growth, poverty reduction and livelihoods. We argue that while private investments in the resource sector have contributed to economic growth, they have also negatively impacted local resources and communities. From a policy perspective, we highlight the need to examine the actual significance of policy incentives provided by the Lao government, especially with regard to its ability to direct investment decisions, in terms of both geography and sector.     

PRICE ADJUSTMENT POLICIES AND FIRM SIZE

A number of U.S. State Departments of Transportation have adopted a price adjustment policy designed to limit cost fluctuations of oil‐based inputs in government procurement. Similar policies are common in defense contracting, and have been used to offset financial losses of health insurance companies in Medicare and the Affordable Care Act. We show that while all bidders submit lower bids after the policy is introduced, the extent of bid reduction diminishes with firm size. Small new firms are able to compete more frequently, promoting auction competition and efficiency. (JEL H4, H57, D44)