Disagreements on the Market

A general equilibrium model of publicly traded firms is provided in the case of a perfect market; it shows how, at the market equilibrium, shareholders agree that profits should be maximized, and about how to compute profits. Hence, they all agree on the objectives of the firms. Next three different contexts of market failure are introduced: incomplete financial markets, production externalities, and monopolistic competition. By use of a common tool (value vectors), it is shown how the market mechanism fails to generate full alignment between shareholders: when facing production externalities or monopolistic competition, shareholders do not necessarily agree that profit should be maximized; when facing incomplete financial markets, shareholders disagree on how to compute profits. In a nutshell: trading on the market generates agreement, but if trading is incomplete or imperfectly competitive then agreement is only partial, and the residual disagreements give rise to problems for collective decision-making.

Does Eco-Certification Correlate with Improved Financial Performance? Evidence From a Longitudinal Study in the US Hospital Industry

Health care-based negative production externalities, such as greenhouse gas emissions, underscore the need for hospitals to implement sustainable practices. Eco-certification has been adopted by a number of providers in an attempt, for instance, to curb energy consumption. While these strategies have been evaluated with respect to cost savings, their implications pertaining to hospitals’ financial viability remain unknown. We specify a fixed-effects model to estimate the correlation between Energy Star certification and 3 different hospitals’ financial performance measures (net patient revenue, operating expenses, and operating margin) in the United States between 2000 and 2016. The Energy Star participation indicators’ parameters imply that this type of eco-certification is associated with lower net patient revenue and lower operating expenses. However, the estimated negative relationship between eco-certification and operating margin suggests that the savings in operating expenses are not enough for a hospital to achieve higher margins. These findings may indicate that undertaking sustainable practices is partially related to intangible benefits such as community reputation and highlight the importance of government policies to financially support hospitals’ investments in green practices.

Local Industrial Policy and Sectoral Hubs

We study the desirability of industrial policies that generate sectoral hubs using a quantitative spatial model with cognitive nonroutine and other occupations. The productivity of each occupation in an industry depends on sector-specific production externalities, which we estimate using a model-implied instrumental variable approach. We find that the optimal policy gives rise to national hubs in coastal cities in tradable services, like professional services, and smaller regional hubs in less tradable services, like health and education. The optimal policy prescribes developing manufacturing in smaller towns. We decompose the implied changes in local costs and the available varieties in each sector.

Implications of Entry Restrictions to Address Externalities in Aquaculture: The Case of Salmon Aquaculture

This paper investigates production license management when regulation constrains the number of production licenses to address production externalities. This is increasingly relevant for aquaculture production where disease issues threaten future seafood supply. The regulatory problem is analyzed in the context of Norwegian salmon aquaculture where a stop in issuance of new production licenses has been implemented to address social costs of parasitic sea lice. Our theoretical model shows that restricting number of licenses raises prices and shifts production efforts excessively towards greater stocking of fish per license. Hence, the policy cannot achieve a first-best welfare-maximizing allocation. Furthermore, restricting entry by limiting number of licenses can create regulatory rents, which effectively subsides rather than tax the source of the externality.