Vortrag
Voting for Inefficiency

Maria Nieswand, Pio Baake, Lilo Wagner


42nd Annual Conference of the European Association for Research in Industrial Economics : EARIE 2015
München, 28.08.2015 - 30.08.2015


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Abstract:
In this paper, we propose a probabilistic voter model that rationalizes the inefficient use of labor input in municipality-owned enterprises. Our focus is on the relationship between absolute as well as relative inefficiency measures and the size of the municipality in which public firms operate. We show that larger communities maintain enterprises which are on average more efficient in absolute as well as relative terms and that efficiency shows a lower variance for large enterprises. Using data from a sample of electricity distribution companies in Germany we find our theoretical predictions consistent with the companies' observed behavior.

Abstract

In this paper, we propose a probabilistic voter model that rationalizes the inefficient use of labor input in municipality-owned enterprises. Our focus is on the relationship between absolute as well as relative inefficiency measures and the size of the municipality in which public firms operate. We show that larger communities maintain enterprises which are on average more efficient in absolute as well as relative terms and that efficiency shows a lower variance for large enterprises. Using data from a sample of electricity distribution companies in Germany we find our theoretical predictions consistent with the companies' observed behavior.

Pio Baake

Forschungsdirektor Regulierung in der Abteilung Unternehmen und Märkte



JEL-Classification: H83;H72;L32;D24
Keywords: Voting, Cost inefficiency, Asymmetric information, Electricity distribution
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