nep-pbe New Economics Papers
on Public Economics
Issue of 2008‒04‒15
fourteen papers chosen by
Oliver Budzinski
Philipps-University of Marburg

  1. Love for Variety and Non Market Allocation Mechanisms in Public Provision of Goods By Fabio FIORILLO
  2. Will Privatization Reduce Costs? By Lindqvist, Erik
  3. Choosing hybrid organizations for local servicesdelivery: An empirical analysis of partial privatization By Xavier Fageda; Germa Bel
  4. Framing and Free Riding: Emotional Responses and Punishment in Social Dilemma Games By Robin P. Cubitt; Michalis Drouvelis; Simon Gächter
  5. Tax Policy for Venture Capital Backed Entrepreneurship By Christian Keuschnigg
  6. Intergenerational public and private sector redistribution in Sweden 2003 By Forsell, Charlotte; Hallberg, Daniel; Lindh, Thomas; Öberg, Gustav
  7. Optimization in non-standard problems. An application to the provision of public inputs By A. Jesus Sanchez Fuentes; Diego Martinez Lopez
  8. Is there an election cycle in public employment? Separating time effects from election year effects By Dahlberg, Matz; Mörk, Eva
  9. How to Reform the EU Budget? A Multidisciplinary Approach By Filipa Figueira
  10. Formal Institutions and Subjective Well-Being: Revisiting the Cross-Country Evidence. By Bjørnskov, Christian; Dreher, Axel; Fischer, Justina AV
  11. Keynesian hospitals? Public employment and political pressure By Andrew E. Clark; Carine Milcent
  12. Governance Indicators: Where Are We, Where Should We Be Going? By Kaufmann, Daniel; Kraay, Aart
  13. Outsourcing and Optimal Nonlinear Taxation: A Note By Aronsson, Thomas; Koskela, Erkki
  14. Relational goods, sociability, and happiness. By Becchetti Leonardo; Pelloni Alessandra; Rossetti Fiammetta

  1. By: Fabio FIORILLO ([n.a.])
    Abstract: In this note we modify a Dixit-Stiglitz's classical framework to consider the love;for variety argument in public provision of goods and services. Since in the supply of public goods and services the allocation cannot be driven by market, we analyse;which is the optimal allocation mechanism.
    Keywords: Dixit-Stiglitz's framework, non market allocation, public provision
    JEL: D4 H4
    Date: 2008–03
  2. By: Lindqvist, Erik (Research Institute of Industrial Economics (IFN))
    Abstract: I develop a model of public sector contracting based on the multitask framework by Holmström and Milgrom (1991). In this model, an agent can put effort into increasing the quality of a service or reducing costs. Being residual claimants, private owners have stronger incentives to cut costs than public employees. However, if quality cannot be perfectly measured, providing a private firm with incentives to improve quality forces the owner of the firm to bear risk. As a result, private firms will always be cheaper for low levels of quality but might be more expensive for high levels of quality. Extending the model to allow for differences in task attractiveness, I find that public firms shun unattractive tasks, whereas private firms undertake them if incentives are strong enough.
    Keywords: Privatization; Public Sector Contracting; Incomplete Contracts; Contracting Out
    JEL: H11 H40 L32 L33
    Date: 2008–03–17
  3. By: Xavier Fageda (Faculty of Economics, University of Barcelona); Germa Bel (Faculty of Economics, University of Barcelona)
    Abstract: The empirical literature about factors explaining local government delivery choices has traditionally focused the attention on the public or private production dilemma. However, hybrid organizational forms such as mixed public-private firms are increasingly used in several European countries. This paper makes use of survey data from Spanish municipalities to examine motivations of local governments for engaging in hybrid organizational forms. Data refer to two very relevant local services: water distribution and solid waste collection. The empirical analysis indicates that the use of mixed firms emerge as a type of pragmatically based ‘third way’ between pure public and pure private production. Indeed, local governments make use of mixed firms when cost considerations (scale economies, transaction costs and so on), financial constraints and private interests exert contradictory pressures. On the contrary, political and ideological factors do not play any significant role on the local government decision of engaging or not in joint ventures with private partners.
    Keywords: Partial privatization, local governments
    JEL: L33 R51 H72
    Date: 2008–04
  4. By: Robin P. Cubitt (University of Nottingham); Michalis Drouvelis (University of Nottingham); Simon Gächter (University of Nottingham)
    Abstract: In this paper, we report an experimental investigation of the effect of framing on social preferences, as revealed in a one-shot linear public goods game. We use two indicators to measure social preferences: self-reported emotional responses; and, as a behavioural indicator of disapproval, punishment. Our findings are that, for a given pattern of contributions, neither punishment nor emotion depends on the Give versus Take framing that we manipulate. To this extent, they suggest that the social preferences we observe are robust to framing effects.
    Keywords: framing effects, punishment, emotions, public goods experiments
    JEL: C92 D01 H41
    Date: 2008–03
  5. By: Christian Keuschnigg
    Abstract: Venture capital has become an important source of financing young entrepreneurial firms. Venture capital backed firms are often perceived as more innovative and as creating more value than others. Perhaps for this reason, policy makers are keen to create a good institutional framework to facilitate the development of an active venture capital industry. We explore the role of tax policy in determining the incentives of individuals to start up new firms and of venture capitalists to finance and advise them. In particular, we examine how business taxation at the company and investor level together with start-up capital subsidies affect the volume and quality of venture capital backed entrepreneurship.
    Keywords: Entrepreneurship, venture capital, taxes, subsidies
    JEL: D82 G24 H24 H25
    Date: 2008–03
  6. By: Forsell, Charlotte (Institute for Futures Studies); Hallberg, Daniel (Institute for Futures Studies); Lindh, Thomas (Institute for Futures Studies); Öberg, Gustav (Institute for Futures Studies)
    Abstract: We describe intergenerational redistribution in Sweden the year 2003. The high Swedish tax ratio of around 50-60 percent of GDP per capita is partly explained by every individual getting a lot back in terms of transfers and part in government consumption. Another reason is that most transfers are taxed, which results in double counting some tax payments. Here we attempt to correct the age profile of net tax payment for these effects and compare these to the gross profiles. On a per capita basis we find, using this netting, that the mean age of tax payers drops from 55 to 48 and that the taxes paid falls by 23.2 percent. We also look at age profiles of private and public consumption, and net private consumption, i.e., the difference between private disposable income and private consumption. We find that private net redistribution flows mainly from middle and old age to young ages, while net public transfers flow to both young and old.
    Keywords: Intergenerational; redistribution
    JEL: H23 J10
    Date: 2008–03
  7. By: A. Jesus Sanchez Fuentes (Department of Economics, Universidad Pablo de Olavide); Diego Martinez Lopez (Department of Economics, Universidad Pablo de Olavide)
    Abstract: This paper describes a new method for solving non-standard constrained optimization problems for which standard methodologies do not work properly. Our method (the Rational Iterative Multisection -RIM- algorithm) consists of different stages that can be interpreted as different requirements of precision by obtaining the optimal solution. We have performed an application of RIM method to the case of public inputs provision. We prove that the RIM approach and comparable standard methodologies achieve the same results with regular optimization problems while the RIM algorithm takes advantage over them when facing non-standard optimization problems.
    Keywords: direct search, constrained optimization, multisection, optimal taxation, public input.
    JEL: C6 H21 H3 H41 H43
    Date: 2008–03
  8. By: Dahlberg, Matz (Department of Economics); Mörk, Eva (Department of Economics)
    Abstract: Do governments increase public employment in election years? This paper investigates this question by using data from Sweden and Finland, two coun¬tries that are similar in many respects but in which local elections are held at different points in time. We can thereby separate an election effect from other time effects. Our results indicate that there is a statistically significant election year effect in local public employment, a production factor that is highly visi¬ble in the welfare services provided by the local governments in the Scandina¬vian countries. The effect also seems to be economically significant; the municipalities employ 0.6 more full-time employees per 1,000 capita in election years than in other years (which correspond to an increase by approximately 1 percent).
    Keywords: Election cycle; Public employment; Exogenous elections
    JEL: D72 H72 P16
    Date: 2008–03–28
  9. By: Filipa Figueira
    Abstract: The European Commission is currently drafting a proposal for a review of the EU budget, which could lead to its most significant reform to date. This paper proposes a method for restructuring the EU budget, based on a multidisciplinary approach. The insights of public sector economics, fiscal federalism, political science and the literature on the concept of "subsidiarity" are combined to assess which policies should be funded by the EU budget, and by how much. The resulting four complementary analyses are brought together into an eight-step chart, which is used to analyze in detail one area of policymaking - education policies - to assess whether it should be funded by the EU budget. Extending the analysis to the budget as a whole, the paper finds that the EU budget should be shared into five areas, each corresponding to an EU objective: economic growth, sustainable development, convergence of the EU economies, external security and internal security.
    Keywords: EU budget, European Union, fiscal federalism, subsidiarity, EU competences
    JEL: H50 H60 H77
    Date: 2008–03
  10. By: Bjørnskov, Christian (Dept. of Economics, Aarhus School of Business, University of Aarhus); Dreher, Axel (ETH Zurich, KOF Swiss Economic Institute); Fischer, Justina AV (Dept. of Economics, Stockholm School of Economics)
    Abstract: A long tradition in economics explores the association between the quality of formal institutions and economic performance. The literature on the relationship between such institutions and happiness is, however, rather limited. In this paper, we revisit the findings from recent cross-country studies on the institutions-happiness association. Our findings suggest that the conclusions reached by previous studies are fairly sensitive to the specific measure of ‘happiness’ used. In addition, the results indicate that the welfare effects of policies may differ across phases of a country’s economic development. This bears important policy implications which we discuss in the concluding section of the paper.
    Keywords: Happiness; Well-Being; institutions; policy implications; democracy; rule of law; government efficiency
    JEL: H10 H40 I31
    Date: 2008–04–02
  11. By: Andrew E. Clark; Carine Milcent
    Abstract: This paper uses an unusual administrative dataset covering the universe of French hospitals to consider hospital employment: this is consistently higher in public hospitals than in Not-For-Profit or private hospitals, even controlling for many measures of hospital output (such as the type of operations and care provided, and the bed capacity rate). Public-hospital employment is positively correlated with the local unemployment rate, whereas no relationship is found in non-Public hospitals. This is consistent with public hospitals providing employment in depressed areas. We appeal to the Political Science literature and calculate local political allegiance, using expert evaluations on various parties political positions and local election results. The relationship between public hospital employment and local unemployment is stronger the more left-wing the local municipality. This latter result holds especially when electoral races are tight, consistent with a concern for re-election.
    Date: 2008
  12. By: Kaufmann, Daniel; Kraay, Aart
    Abstract: Progress in measuring governance is assessed using a simple framework that distinguishes between indicators that measure formal rules and indicators that measure the practical application or outcomes of these rules. The analysis calls attention to the strengths and weaknesses of both types of indicators as well as the complementarities between them. It distinguishes between the views of experts and the results of surveys and assesses the merits of aggregate as opposed to individual governance indicators. Some simple principles are identified to guide the use and refinement of existing governance indicators and the development of future indicators. These include transparently disclosing diversity of indicators and exploiting complementarities among them, submitting all indicators to rigorous public and academic scrutiny, and being realistic in expectations of future indicators.
    JEL: H1 O17
    Date: 2008–01
  13. By: Aronsson, Thomas (Department of Economics, Umeå University); Koskela, Erkki (Department of Economics)
    Abstract: This paper addresses outsourcing in the two-type optimal income tax model. If the government is able to control outsourcing via a direct tax instrument, outsourcing will not affect the marginal income tax structure. In the absence of a direct tax instrument, and under the plausible assumption that higher outsourcing increases the wage differential, the government will implement a lower marginal income tax rate for the low-ability type and a higher marginal income tax rate for the high-ability type than it would otherwise have done.
    Keywords: outsourcing; optimal nonlinear taxation
    JEL: H21 H25 J31 J62
    Date: 2008–04–03
  14. By: Becchetti Leonardo; Pelloni Alessandra; Rossetti Fiammetta
    Abstract: The role of sociability and relational goods has generally been neglected in the formulation of standard economics textbook preferences. Our findings show that relational goods have significant and positive effects on self declared life satisfaction, net of the impact of other concurring factors. We also document that such effects persist when the equally significant inverse causality nexus is taken into account. This implies that a more intense relational life enhances life satisfaction and, at the same time, happier people have a more lively social life. Finally, we show that gender, age and education matter by showing that the effects of sociability on happiness are stronger for women, older and less educated individuals.
    JEL: H41 Z13
    Date: 2008–04

This nep-pbe issue is ©2008 by Oliver Budzinski. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.