Benchmarking and Firm Heterogeneity in Electricity Distribution: A Latent Class Analysis of Germany

In January 2009 Germany introduced incentive regulation for the electricity distribution sector based on results obtained from econometric and nonparametric benchmarking analysis. One main problem for the regulator in assigning the relative efficiency scores are unobserved firm-specific factors such as network and technological differences. Comparing the efficiency of different firms usually assumes that they operate under the same production technology, thus unobserved factors might be inappropriately understood as inefficiency. To avoid this type of misspecification in regulatory practice estimation is carried out in two stages: in a first stage observations are classified into two categories according to the size of the network operators. Then separate analyses are conducted for each sub-group. This paper shows how to disentangle the heterogeneity from inefficiency in one step, using a latent class model for stochastic frontiers. As the classification is not based on a priori sample separation criteria it delivers more robust, statistical significant and testable results. Against this backround we analyze the level of technical efficiency of a sample of 200 regional and local German electricity distribution companies for a balanced panel data set (2001-2005). Testing the hypothesis if larger distributors operate under a different technology than smaller ones we assess if a single step latent class model provides new insights to the use of benchmarking approaches within the incentive regulation schemes.Stochastic frontiers, latent class model, electricity distribution, incentive regulation

Growth, Income and Regulation: a Non-Linear Approach

This paper analyzes the effect on GDP growth of income (GDP per capita) and economic regulation. A simple theoretical framework presents two opposing views. We analyze the empirical relation using a non-linear dynamic panel data model with fixed effects. The result shows that the effect of regulation on growth depends on income. For low-income countries, there is little effect of changing regulation. For highly regulated middle-income countries, deregulation can increase growth. For high-income countries, deregulation leads to higher growth. Holding regulation constant, there is catch-up growth with a maximum at an intermediate income level.catch-up growth; economic freedom; fixed effects; GMM; specification tests

The selection of an appropriate count data model for modelling health insurance and health care demand: Case of Indonesia

This is an open access article distributed under the Creative Commons Attribution License (http://creativecommons.org/licenses/by/3.0/) which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.We apply several estimators to Indonesian household data to estimate the relationship between health insurance and the number of outpatient visits to public and private providers. Once endogeneity of insurance is taken into account, there is a 63 percent increase in the average number of public visits by the beneficiaries of mandatory insurance for civil servants. Individuals' decisions to make first contact with private providers is affected by private insurance membership. However, insurance status does not make any difference for the number of future outpatient visits

Risk Perceptions and Risk Management Strategies in French Oyster Farming

The article analyses risk perception in shellfish farming as well as farmers' willingness to rely on coverage mechanisms. Factor and econometric analyses (logit and ordered multinomial logit models) have shown that a number of socio-economic factors specific to farmers and their businesses contribute to defining their degree of risk perception and reliance on management tools. Beyond the conventional self-protective mechanisms, the study will focus on farmers' willingness to rely on risk-transfer mechanisms that the market has so far failed to provide.Shellfish farmers, risk perception, logit and ordered multinomial logit models, factor analyses, coverage instruments

Testing Optimal Punishment Mechanisms under Price Regulation: the Case of the Retail Market for Gasoline

We analyse the effects of a price floor on price wars (or deep price cuts) in the retail market for gasoline. Bertrand supergame oligopoly models predict that price wars should last longer in the presence of price floors. In 1996, the introduction of a price floor in the Quebec retail market for gasoline serves as a natural experiment with which to test this prediction. We use a Markov Switching Model with two latent states to simultaneously identify the periods of price-collusion/price-war and estimate the parameters characterizing each state. Results support the prediction that price floors reduce the intensity of price wars but increase their expected duration.price regulation, oligopoly supergame, Markov switching model, gasoline

Innovation on Demand: Can Public Procurement Drive Market Success of Innovations

Public procurement has been at the centre of recent discussions on innovation policy on both European and national levels (e.g., Aho-Report, Barcelona Strategy). It has a large potential to stimulate innovation since it accounts for 16% of combined EU-15 GDP. We embed public procurement for innovation into the broader framework of public policies to stimulate innovation: regulations, R&D subsidies and knowledge infrastructure (i.e. basic research at universities). We synthesize the characteristics of all four instruments based on existing literature and quantitatively compare their effects on innovation success. Our empirical investigation rests upon a survey of more than 1,100 innovative firms in Germany. Our survey puts us in the position to trace all sources of valuable innovation impulses, namely public customers, law and regulations, universities and public funding for R&D. We relate these sources back to innovation success. We find that (non-defense related) public procurement and knowledge spillovers from universities propel innovation success equally. In a second step, we explore whether these effects vary across firms (e.g. size, location, industry). The benefits of university knowledge apply uniformly to all firms. However, public procurement is especially effective for smaller firms in regions under economic stress as well as in distributive and technological services. Based on these findings targeted policy recommendations can be developed. --Innovation policy,public procurement,comparison of instruments,innovation success

How revealing is revealed preference?

This lecture address the following two key criticisms of the empirical application of revealed preference theory: When the RP conditions do not reject, they do not provide precise predictions; and when they do reject, they do not help characterize the nature of irrationality or the degree/direction of changing tastes. Recent developments in the application of RP theory are shown to have rendered these criticisms unfounded. A powerful test of rationality is available that also provides a natural characterization of changing tastes. Tight bounds on demand responses and on the welfare costs of relative price and tax changes are also available and are shown to work well in practice

Inefficiency and productivity growth in banking: a comparison of stochastic econometric and thick frontier methods

A comparison of alternative methods for estimating inefficiency and productivity growth in banking, showing that inefficiencies are sufficiently large to dominate scale economies and that measured technological progress has been small, or even negative, as a result of institutional events that occurred during 1977-88.Banks and banking - Costs ; Production (Economic theory)

Consistent tests of conditional moment restrictions

We propose two classes of consistent tests in parametric econometric models defined through multiple conditional moment restrictions. The first type of tests relies on nonparametric estimation, while the second relies on a functional of a marked empirical process. For both tests, a simulation procedure for obtaining critical values is shown to be asymptotically valid. Finite sample performances of the tests are investigated by means of several Monte-Carlo experiments.Publicad

Another Look at the Identification of Dynamic Discrete Decision Processes: With an Application to Retirement Behavior

This paper deals with the estimation of the behavioral and welfare effects of counterfactual policy interventions in dynamic structural models where all the primitive functions are nonparametrically specified (i.e., preferences, technology, transition rules, and distribution of unobserved variables). It proves the nonparametric identification of agents' decision rules, before and after the policy intervention, and of the change in agents' welfare. Based on these results we propose a nonparametric procedure to estimate the behavioral and welfare effects of a general class of counterfactual policy interventions. The nonparametric estimator can be used to construct a test of the validity of a particular parametric specification. We apply this method to evaluate hypothetical reforms in the rules of a public pension system using a model of retirement behavior and a sample of workers in Sweden.Dynamic discrete decision processes; Nonparametric identification; Counterfactual policy interventions; Retirement behavior.