Tracking cost savings from competitive tendering in the short and long run

A major initiative of the Thatcher and Major Conservative administrations was that public sector ancillary and professional services provided by incumbent direct service organisations [DSOs] be put out to tender. Analyses of this initiative, in the UK and elsewhere, found costs were often reduced in the short run. However, few if any studies went beyond the first round of tendering. We analyze data collected over successive rounds of tendering for cleaning and catering services of Scottish hospitals in order to assess the long term consequences of this initiative. The experience of the two services was very different. Cost savings for cleaning services tended to increase with each additional round of tendering and became increasingly stable. In accordance with previous results in the literature, DSOs produced smaller cost reductions than private contractors: probably an inevitable consequence of the tendering process at the time. Cost savings from DSOs tended to disappear during the first round of tendering, but they appear to have been more permanent in successive rounds. Cost savings for catering, on the other hand, tended to be much smaller, and these were not sustained.

Political Risk, Economic Integration, and the Foreign Direct Investment Decision

In this paper we analyse the impact of policy uncertainty on foreign direct investment strategies. We also consider the impact of economic integration upon FDI decisions. The paper follows the real options approach, which allows investigating the value to a firm of waiting to invest and/or disinvest, when payoffs are stochastic due to political uncertainty and investments are partially reversible. Across the board we find that political uncertainty can be very detrimental to FDI decisions while economic integration leads to an increasing benefit of investing abroad.

Public Governance, Health and Foreign Direct Investment in Sub-Saharan Africa

In this paper we diverge from the existing empirical literature on FDI determinants in two ways. First, we decompose the sources of the foreign direct investment (FDI) gap between Sub-Saharan Africa (SSA) and other developing regions. Once market size has been accounted for, we nd that SSA's FDI de cit is mostly explained by insufficient provision of public goods: low human capital accumulation, especially health, in SSA explains 100-140% of the inter-regional FDI gaps. Second, we estimate the indirect effect of infectious diseases on FDI through their direct impact on health. We find that a 1% point rise in HIV prevalence in the adult population is associated with a decrease in net FDI inflows of 3.5%, while a country in which 100% of the population is at risk of contracting deadly malaria receives about 16% less FDI than a similar country located in a malaria-free region.

Do Institutions Matter for Foreign Direct Investment?

In this paper the role of institutions in determining foreign direct investment (FDI) is investigated using a large panel of 107 countries during 1981 and 2005. We find that institutions are a robust predictor of FDI and that the most significant institutional aspects are linked to propriety rights, the rule of law and expropriation risk. Using a novel data set, we also study the impact of institutions on FDI at the sectoral level. We find that institutions do not have a significant impact on FDI in the primary sector but that institutional quality matters for FDI in manufacturing and particularly in services. We also provide policy implications for institutional reform.

Outsourcing versus FDI in oligopoly equilibrium

We consider the make-or-buy decision of oligopolistic firms in an industry in which final good production requires specialised inputs. Factor price considerations dictate that firms acquire the intermediate abroad, by either producing it in a wholly owned subsidiary or outsourcing it to a supplier who must make a relationship specific investment. Firms’ internationalisation mode depends on cost and strategic considerations. Crucially, asymmetric equilibria emerge, with firms choosing different modes of internationalisation, even when they are ex-ante identical. With ex-ante asymmetries, lower cost producers have a stronger incentive to vertically integrate (FDI), while higher cost firms are more likely to outsource.

Democratization as a cost-saving device

We propose a theoretical analysis of democratization processes in which an elite extends the franchise to the poor when threatened with a revolution. The poor could govern without changing the political system by maintaining a continuous revolutionary threat on the elite. Revolutionary threats, however, are costly to the poor and democracy is a superior sys- tem in which political agreement is reached through costless voting. This provides a rationale for democratic transitions that has not been discussed in the literature.

Climbing to the top? Foreign Direct Investment and Property Rights.

This paper operates at the interface of the literature on the impact of foreign direct investment (FDI) on host countries, and the literature on the determinants of institutional quality. We argue that FDI contributes to economic development by improving institutional quality in the host country and we attempt to test this proposition using a large panel data set of 70 developing countries during the period 1981 and 2005, and we show that FDI inflows have a positive and highly significant impact on property rights. The result appears to be very robust and is and not affected by model specification, different control variables, or a particular estimation technique. As far as we are aware this is the first paper to empirically test the FDI – property rights linkage.

Short-Run Strategies For Attracting Foreign Direct Investment

This paper empirically investigates the effectiveness and feasibility of two FDI policies, fiscal incentives and deregulation, aimed at improving the attractiveness of a country in the short run. Using disaggregated data on sales by US MNEs’ foreign affiliates in 43 developed and developing countries over the 1982-1994 period, results show that the provision of fiscal incentives or the deregulation of the labour market would exert a positive impact on total FDI. Given the drawbacks frequently associated with the use of incentive packages, economy-wide policies which ease firing procedures and reduce severance payments would certainly be the best policy option. This paper also highlights the different aggregation and omitted variable biases that have affected results of previous studies and provides some support to recent theoretical models of FDI by showing that third country effects and spatial interdependence influence respectively the location of export-platform FDI and vertical FDI.

Short-Run Strategies For Attracting Foreign Direct Investment

This paper empirically investigates the effectiveness and feasibility of two FDI policies, fiscal incentives and deregulation, aimed at improving the attractiveness of a country in the short run. Using disaggregated data on sales by US MNEs’ foreign affiliates in 43 developed and developing countries over the 1982-1994 period, results show that the provision of fiscal incentives or the deregulation of the labour market would exert a positive impact on total FDI. Given the drawbacks frequently associated with the use of incentive packages, economy-wide policies which ease firing procedures and reduce severance payments would certainly be the best policy option. This paper also highlights the different aggregation and omitted variable biases that have affected results of previous studies and provides some support to recent theoretical models of FDI by showing that third country effects and spatial interdependence influence respectively the location of export-platform FDI and vertical FDI.

Optimal contracting with private information on cost expectation and variability

We study the screening problem that arises in a framework where, initially, the agent is privately informed about both the expected production cost and the cost variability and, at a later stage, he learns privately the cost realization. The speci c set of relevant incentive constraints, and so the characteristics of the optimal mechanism, depend nely upon the curvature of the principal s marginal surplus function as well as the relative importance of the two initial information problems. Pooling of production levels is optimally induced with respect to the cost variability when the principal's knowledge imperfection about the latter is sufficiently less important than that about the expected cost.

A Futuristic Least-cost Optimisation Model of CO2 Transportation and Storage in the UK/UK Continental Shelf

NORTH SEA STUDY OCCASIONAL PAPER No. 112

On the cost of rent-seeking by government bureaucrats in a Real-Business-Cycle framework

This paper studies the wasteful e ffect of bureaucracy on the economy by addressing the link between rent-seeking behavior of government bureaucrats and the public sector wage bill, which is taken to represent the rent component. In particular, public o fficials are modeled as individuals competing for a larger share of those public funds. The rent-seeking extraction technology in the government administration is modeled as in Murphy et al. (1991) and incorporated in an otherwise standard Real-Business-Cycle (RBC) framework with public sector. The model is calibrated to German data for the period 1970-2007. The main fi ndings are: (i) Due to the existence of a signi ficant public sector wage premium and the high public sector employment, a substantial amount of working time is spent rent-seeking, which in turn leads to signifi cant losses in terms of output; (ii) The measures for the rent-seeking cost obtained from the model for the major EU countries are highly-correlated to indices of bureaucratic ineffi ciency; (iii) Under the optimal scal policy regime,steady-state rent-seeking is smaller relative to the exogenous policy case, as the government chooses a higher public wage premium, but sets a much lower public employment, thus achieving a decrease in rent-seeking.