PROFIT AND EXPENDITURE FUNCTIONS IN BASIC PUBLIC FINANCE: AN EXPOSITORY NOTE

This paper demonstrates how profit and expenditure functions may be used to prove fundamental results about deadweight losses suffered by consumers, producers, and resource owners. Losses arising from excise taxes and subsidies are examined and, in the case of a tax, the individual level analysis is extended to the market level in a partial equilibrium setting. In addition, profit and expenditure functions are applied to quantity constraints, two-part tariffs, all-or-nothing choices, and reservation prices. Although no new results are derived, the paper provides motivation for the study of indirect objective functions and duality.     

COMPETITION AND COOPERATION IN A PUBLIC GOODS GAME: A FIELD EXPERIMENT

We explore the effects of competitive and cooperative motivations on contributions in a field experiment. A total of 10,000 potential political donors received solicitations referencing past contribution behavior of members of the competing party (competition treatment), the same party (cooperative treatment), or no past contribution information (control). We first theoretically analyze the effect of these treatments on the contribution behavior of agents with different social preferences in a modified intergroup public good (IPG) game. Then, we report the empirical results: Contribution rates in the competitive, cooperative, and control treatments were 1.45%, 1.08%, and 0.78%, respectively. With the exception of one large contribution, the distribution of contributions in the competitive treatment first order stochastically dominates that of the cooperative treatment. Qualitatively, it appears that the cooperative treatment induced more contributions around the common monetary reference point, while the competitive treatment led to more contributions at twice this amount. These results suggest that eliciting competitive rather than cooperative motivations can lead to higher contributions in IPG settings. (JEL D72, H41, C93)     

COSTLY EXTERNAL FINANCE AND INVESTMENT EFFICIENCY IN A MARKET EQUILIBRIUM MODEL

The corporate finance literature suggests that a financially constrained firm invests less than an identical unconstrained firm. This does not imply that financial frictions cause firms to invest less than in a frictionless economy. When firms compete for investment funds, an increase in financial frictions can lead individual firms to increase their investment levels. A greater than the frictionless level of investment is likely in low-productivity firms, in cash-rich firms, and in firms with cheap external capital. Government programs that make capital cheaper for small firms may lead to lower levels of investment for all firms and decrease efficiency (JEL O16, E22, E44, G20)     

UNDERPRICING IN PUBLIC LOTTERIES: A CRITIQUE OF USER-PAY AND ALL-PAY TARIFFS

A body of literature spanning from medical ethics to public economics has amassed regarding the rationing of underpriced public resources. This study investigates the effects of price on entry, individual and aggregate expected consumer surplus, and tax revenues in user-pay and all-pay (AP) lotteries. Comparative statics indicate that expected surplus may increase (decrease) as price increases (decreases) if entry is sufficiently responsive though entry in AP lotteries is inelastic at all prices. Further, the lotteries are shown to be outcome equivalent under revenue equivalency. Selected results are evaluated numerically with simulations performed across a broad class of distributions describing individual private values. ( JEL D45, D61, H42)     

THREAT AND PUNISHMENT IN PUBLIC GOOD EXPERIMENTS

Experimental studies of social dilemmas have shown that while the existence of a sanctioning institution improves cooperation within groups, it also has a detrimental impact on group earnings in the short run. Could the introduction of pre‐play threats to punish have enough of a beneficial impact on cooperation, while not incurring the cost associated with actual punishment, so that they increase overall welfare? We report an experiment in which players can issue non‐binding threats to punish others based on their contribution levels to a public good. After observing others' actual contributions, they choose their actual punishment level. We find that threats increase the level of contributions significantly. Efficiency is improved, but only in the latter periods. However, the possibility of sanctioning differences between threatened and actual punishment leads to lower threats, cooperation, and welfare, restoring them to levels equal to or below the levels attained in the absence of threats. (JEL C92, H41, D63)     

THE OPTIMAL PUBLIC EXPENDITURE FINANCING POLICY: DOES THE LEVEL OF ECONOMIC DEVELOPMENT MATTER?

This paper explores how the optimal mode of public finance depends on the level of economic development. The theoretical analysis suggests that in the presence of capital market imperfection and liquidity shocks, the detrimental effect of inflation on growth is stronger (weaker) at lower (higher) levels of economic development. Consequently, income taxation (seigniorage) is a relatively less distortionary way of financing public expenditure for low-income (high-income) countries. We provide empirical support for our model's predictions using a panel of 21 Organization for Economic Cooperation and Development countries and 40 developing countries observed over the period 1972–1999. ( JEL E44, E6, H6, O42)     

SUBSIDY AND TUITION POLICIES IN PUBLIC HIGHER EDUCATION

Although public appropriations to higher education and tuition rates are set under alternative arrangements, the optimal allocation is readily achievable. The decentralized linear-subsidy case produces an externality that reduces joint welfare below the centralized (first-best) case, but when vertical constraints are added or bilateral bargaining occurs, tuition maximizes joint surplus. Specifications differ in the subsidy's assigned role, which varies from affecting tuition directly to being indeterminate under Nash bargaining. When marginal cost of education is nondecreasing, the ratio of nonresident to resident tuition declines with increases in the demand for education and with decreases in the state budget. (JEL D4, I2 )     

SOCIAL DENSITY AND PUBLIC RITUAL IN NON-INDUSTRIAL COMMUNITIES

An implication of Durkheimian theory—that different types of rites and the elaborateness of public rituals are determined by social density—is empirically tested, using data available for 183 non-industrial communities derived from Murdock's Standard Cross-Cultural Sample. Support for the hypothesis is sustained even when alternative predicting variables are added. Contrary to social evolutionist theory, an increase in the division of labor does not appear to suppress ritual activity. This reaffirms the interest of some contemporary sociologists in ferreting out the forms and functions of ritual in modern societies.     

A CLEAR AND PRESENT MINORITY: HETEROGENEITY IN THE SOURCE OF ENDOWMENTS AND THE PROVISION OF PUBLIC GOODS

We conduct public goods experiments in which participant groups are heterogeneous in regards to the source of their endowments. We find that this dimension of heterogeneity significantly reduces contributions to the public good, yielding strong support for the Nash prediction of minimal contributions. These minimal contributions arise in environments in which there exists a clear minority in terms of source of endowments. We discuss these results in light of current research on the influence of heterogeneous populations on public goods provision and redistributive policies. (JEL C9, D63, H4, J15)     

MINIMUM LEVELS AND FRAMING IN PUBLIC GOOD PROVISION

Using a laboratory experiment in the field, we examine how the framing of a social dilemma, give to or take from a public good, interacts with a policy intervention that enforces a minimum contribution level to the public good. We find significantly higher cooperation in the give frame than in the take frame in our standard public goods experiment. When a minimum contribution level is introduced, contributions are crowded out in the give frame but crowded in in the take frame. Our results show the importance of choosing the frame when making policy recommendations. (JEL C91, H41)     

MULTIPLE OUTPUTS AND COMMUNITY CHOICE IN PUBLIC EDUCATION

Numerous studies suggest that family or community effects dominate the production process in public education, and that marginal products of public school inputs are virtually zero. This paper argues that such findings result from ignoring the variety of school outputs, and the possibility for community choice among them. Systematic differences in school output preferences, by socioeconomic status and race, are used to explain differences in school outputs, usually taken to indicate differences in production possibilities. Estimates of multiple output production and cost functions allowing for choice do show reductions in background effects on production possibilities, though some effects remain.     

THE ROLE OF HOSPITAL COMPETITION ON TREATMENT EXPENDITURE AND OUTCOME: EVIDENCE FROM STROKE AND CARDIAC TREATMENT IN TAIWAN

This article examines whether market competition affects treatment expenditure and health outcomes of stroke and cardiac treatment in Taiwan. Our measure of treatment expenditure is the hospital expenditure paid at the index admission (short term) and the sum of inpatient and outpatient expenditures paid in the subsequent year (long term). Our measure of health outcome is the probability of death in 1 and 12 months after the hospital's discharge. Our measure of competition follows the method developed by Kessler and McClellan that calculates the Herfindal index based on the predicted patient flows using exogenous variables (e.g., traveling distance to hospitals). Using data of patients hospitalized for new stroke and cardiac treatment between 1997 and 2001 in Taiwan, we find that an increase of market competition results in an insignificant impact on a patient's mortality. In terms of treatment expenditure, our results indicate that hospitals facing more competition incur higher expenditures, either the short‐ or long‐term expenditure. Finally, we find evidence showing that an increase of treatment expenditure at admission is due to a raise of length of stay and treatment intensity per day as well as the usage of expensive equipment. (JEL I11, L13, L41)     

USE, ESTEEM, AND PROFIT IN VOLUNTARY PROVISION: TOLL ROADS IN CALIFORNIA, 1850—1902

Early Californians took stock in toll roads for a variety of reasons: use of the road, esteem of fellows, and profits from stock. Whatever the motivation, in operation all toll road companies felt the profit motive. This paper presents a historical survey of voluntary organizations taking the stock-corporation form. These cases demonstrate how various motivations and incentives intermingled and supported one another in the days before the corporation was legally bifurcated into either "for-profit" or "not-for-profit" enterprise.     

INFORMATIZATION AND PUBLIC ADMINISTRATION: A POLITICAL SCIENCE PERSPECTIVE

In recent years, both academic and policy making circles in the UK have shown a growing interest in the potential uses of information and communication technologies (ICTs) in the delivery of government services. Much of the academic literature has been centred around the concept of 'informatization', and it has been suggested that the new technologies are transforming public services. Key theorists in the field of Public Administration have argued that informatization is one of a number of major trends likely to shape public services in the twenty-first century. However, the dominant theoretical approaches within public administration- those rooted in political sciencesuggest that inertia and stability are the norm in the public sector; clearly there is something of a contradiction between these two broad approaches. This paper outlines three political science perspectives that might be used in analysing informatization: the policy networks approach, rational choice and the new institutionalism. Evidence is then drawn from the social security, health care and social care sectors of the British public sector and related to the political science frameworks in order to examine their utility. Not only do these frameworks rightly highlight the incremental nature of change, but they also help to explain important variations in ICT use across the three policy sectors. It is concluded that combining the study of informatization and political science offers a fruitful avenue for future research.     

THE COMPOSITION OF GOVERNMENT EXPENDITURE: ECONOMIC CONDITIONS AND PREFERENCES

This paper examines the question of why the composition of government expenditure differs among democratic countries and to what extent it may be explained by differences in economic conditions or preferences. A simple overlapping generations model, which allows for a range of relevant factors, is constructed to examine the division of expenditure on public goods and a transfer payment under majority voting. The model yields a closed‐form solution for the majority choice of the expenditure ratio. An empirical examination suggests that income inequalities play a minor role while different preferences for public goods reflecting cultural differences across countries may play an important role in accounting for the substantial variations in expenditure patterns. (JEL D72, H41, H53, H11)     

ISSUE INVOLVEMENT AND RESPONSE EFFECTS IN PUBLIC OPINION SURVEYS

This research tests the widespread assumption that responseeffects due to variations in question form, wording, or contextwill be greatest among respondents who are least involved withan issue. A meta-analysis of results from 15 split-ballot experimentsconducted over a five-year period indicates that the responseeffects of using counterarguments or middle alternatives insurvey questions are significantly larger, as would be expected,among respondents who are less involved with a given issue thanamong those who are highly involved with it. But the effectsof question order and response order appear to be largely unrelatedto how involved a respondent is with a particular issue. Issueinvolvement, then, appears to specify some response effects,but not others.     

OPTIMAL INVENTORIES: THE SQUARE ROOT RULE AND PROFIT MAXIMIZATION

Inventory models are usually based on the existence of transaction costs and explain inventories from efficiency considerations alone. The simplest model involves a "square root rule" where inventory varies with the square root of its determinants. Accounting for profit maximizing behavior relaxes those rigid results and alters their interpretation. The analysis integrates inventory demand theory with the neoclassical theory of the firm and industry.