The effects of poor financial information systems on the long term sustainability of local public services. Empirical evidence from the Catalan Municipalities

In this paper we describe the existence of financial illusion in public accountingand we comment on its effects for the future sustainability of local publicservices. We relate these features to the lack of incentives amongst publicmanagers for improving the financial reporting and thus management of publicassets. Financial illusion pays off for politicians and managers since it allowsfor larger public expenditure increases and managerial slack, these beingarguments in their utility functions. This preference is strengthen by the shorttime perspective of politically appointed public managers. Both factors runagainst public accountability. This hypothesis is tested for Spain by using anunique sample. We take data from around forty Catalan local authorities withpopulation above 20,000 for the financial years 1993-98. We build this databasis from the Catalan Auditing Office Reports in a way that it can be linkedto some other local social and economic variables in order to test ourassumptions. The results confirm that there is a statistical relationship between the financialillusion index (FI as constructed in the paper) and higher current expenditure.This reflects on important overruns and increases of the delay in payingsuppliers, as well as on a higher difficulties to face capital finance. Mechanismsfor FI creation have to do among other factors, with delays in paying suppliers(and thereafter higher future financial costs per unit of service), no adequateprovision for bad debts and lack of appropriate capital funding either forreposition or for new equipments. For this, it is crucial to monitor the way inwhich capital transfers are accounted in local public sheet balances. As a result,for most of the Municipalities we analyse, the funds for guaranteeing continuityand sustainability of public services provision are today at risk.Given managerial incentives at present in public institutions, we conclude thatpublic regulation recently enforced for assuring better information systems inlocal public management may not be enough to change the current state of affairs.

Beyond Smith's rule: An optimal dynamic index, rule for single machine stochastic scheduling with convex holding costs

Most research on single machine scheduling has assumedthe linearity of job holding costs, which is arguablynot appropriate in some applications. This motivates ourstudy of a model for scheduling $n$ classes of stochasticjobs on a single machine, with the objective of minimizingthe total expected holding cost (discounted or undiscounted). We allow general holding cost rates that are separable,nondecreasing and convex on the number of jobs in eachclass. We formulate the problem as a linear program overa certain greedoid polytope, and establish that it issolved optimally by a dynamic (priority) index rule,whichextends the classical Smith's rule (1956) for the linearcase. Unlike Smith's indices, defined for each class, ournew indices are defined for each extended class, consistingof a class and a number of jobs in that class, and yieldan optimal dynamic index rule: work at each time on a jobwhose current extended class has larger index. We furthershow that the indices possess a decomposition property,as they are computed separately for each class, andinterpret them in economic terms as marginal expected cost rate reductions per unit of expected processing time.We establish the results by deploying a methodology recentlyintroduced by us [J. Niño-Mora (1999). "Restless bandits,partial conservation laws, and indexability. "Forthcomingin Advances in Applied Probability Vol. 33 No. 1, 2001],based on the satisfaction by performance measures of partialconservation laws (PCL) (which extend the generalizedconservation laws of Bertsimas and Niño-Mora (1996)):PCL provide a polyhedral framework for establishing theoptimality of index policies with special structure inscheduling problems under admissible objectives, which weapply to the model of concern.

Further evidence on the statistical properties of real GNP

The well-known lack of power of unit root tests has often been attributed to the shortlength of macroeconomic variables and also to DGP s that depart from the I(1)-I(0)alternatives. This paper shows that by using long spans of annual real GNP and GNPper capita (133 years) high power can be achieved, leading to the rejection of both theunit root and the trend-stationary hypothesis. This suggests that possibly neither modelprovides a good characterization of these data. Next, more flexible representations areconsidered, namely, processes containing structural breaks (SB) and fractional ordersof integration (FI). Economic justification for the presence of these features in GNP isprovided. It is shown that the latter models (FI and SB) are in general preferred to theARIMA (I(1) or I(0)) ones. As a novelty in this literature, new techniques are appliedto discriminate between FI and SB models. It turns out that the FI specification ispreferred, implying that GNP and GNP per capita are non-stationary, highly persistentbut mean-reverting series. Finally, it is shown that the results are robust when breaksin the deterministic component are allowed for in the FI model. Some macroeconomicimplications of these findings are also discussed.

A house price index defined in the potential outcomes framework

Current methods for constructing house price indices are based on comparisons of sale prices of residential properties sold two or more times and on regression of the sale prices on the attributes of the properties and of their locations. The two methods have well recognised deficiencies, selection bias and model assumptions, respectively. We introduce a new method based on propensity score matching. The average house prices for two periods are compared by selecting pairs of properties, one sold in each period, that are as similar on a set of available attributes (covariates) as is feasible to arrange. The uncertainty associated with such matching is addressed by multiple imputation, framing the problem as involving missing values. The method is applied to aregister of transactions ofresidential properties in New Zealand and compared with the established alternatives.