• Frontier research on Public-Private Partnerships


    A couple of weeks ago, I took part in the workshop “Financing infrastructure in crisis times: How to gather the strengths of the public and the private sector to foster growth?“, at Paris School of Economics. Really nice stuff overall, including the panel discussion (a noteworthy exception to usual boring policy panels!).

    On the workshop’s website, you’ll find several recent contributions by some of the big names on the topic, including David Martimort (who is definitely the number one producer of top-notch theory on PPPs, co-author of 3 of the papers presented!), Elisabetta Iossa, Antonio Estache, and Eduardo Engel.

    A couple of applied theory papers that I liked:

    – On the link between contract completeness, risk allocation and provision of incentives when corruption is an issue: “Post-tender Corruption and Risk Allocation: Implications for Public Private Partnerships” by Elisabetta Iossa and David Martimort.

    – On the fact that efficiency gains under PPPs are the flip side of higher risk borne by the firm (thus qualifying the view that one should choose PPPs only if higher cost of debt is compensated by efficiency gains.): “Is There a PPP Interest Rate Premium?” by Eduardo Engel, Ronald Fisher and Alexander Galetovic .

    – The skeptic practicioner’s view by Antonio Estache: “Infrastructure Finance for Development: Too Much Cheap Talk, Too Little Action”.

    – Finally, let me mention my paper on the link between the choice of capital structure by project companies and the regulatory regime, with Alex Moore and Jean-Jacques Dethier. The paper is forthcoming in the Journal of Regulatory Economics.

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  • Can economics be a value-neutral science?

    moral reasoning

    Michael Sandel thinks it can’t, in this really nice paper in the last issue of the Journal of Economic Perspectives :

    Market Reasoning as Moral Reasoning: Why Economists Should Re-engage with Political Philosophy
    In my book What Money Can’t Buy: The Moral Limits of Markets (2012), I try to show that market values and market reasoning increasingly reach into spheres of life previously governed by nonmarket norms. I argue that this tendency is troubling; putting a price on every human activity erodes certain moral and civic goods worth caring about. We therefore need a public debate about where markets serve the public good and where they don’t belong. In this article, I would like to develop a related theme: When it comes to deciding whether this or that good should be allocated by the market or by nonmarket principles, economics is a poor guide. Deciding which social practices should be governed by market mechanisms requires a form of economic reasoning that is bound up with moral reasoning. But mainstream economic thinking currently asserts its independence from the contested terrain of moral and political philosophy. If economics is to help us decide where markets serve the public good and where they don’t belong, it should relinquish the claim to be a value-neutral science and reconnect with its origins in moral and political philosophy.

    Actually worth reading until the end. Two main claims here. The first one, which is made quite forcefully, is that introducing market relationships in all spheres of human and social interactions is not just about efficiency as we economists understand it, but also about the fact that it may change the very nature of the goods or services so traded, and may erode or corrupt nonmarket values and norms.

    As for the second one, you will discover, like I did, that there are economists out there (and not the least of them) who think that “ethical behavior is a commodity that needs to be economized”, something that can precisely be done by relying on markets whenever possible. Fascinating isn’t it? I am quite sure that this could be addressed (and refuted) nicely in the context of some of the topics that are of interest to development economists, such as the evolution of risk-sharing networks, social capital, etc.

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  • Trash quote of the day


    “By 2000, the 2.9 billion people living in cities (49% of the world’s population) were creating more than 3 million tonnes of solid waste per day. By 2025 it will be twice that — enough to fill a line of rubbish trucks 5,000 kilometres long every day.”

    A Nature Comment article by Daniel Hoornweg, Perinaz Bhada-Tata and Chris Kennedy on the worldwide waste production trend.

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  • How to reduce corruption in public procurement


    A paper by Anh Tran, at Indiana University. Not new, but worth attention for those interested in mechanisms to effectively reduce corruption in the public procurement process:

    Which Regulations Reduce Corruption? Evidence from the Internal Records of a Bribe-paying Firm

    This paper documents pervasive corruption in government procurement and evaluates the effect of auction regimes on kickbacks, using the internal records from an Asian trading firm. The average kickback was 14.7 percent of the product cost when auctions were not required. The government mandated scoring auctions in 2001, and strengthened them to price-only auctions in 2004. Exploiting a quasi-experimental design, I find that price-only auctions are much more effective than scoring auctions in reducing corruption. Moreover, these mandatory auctions discouraged some corrupt officials from running secret auctions to identify the largest bribe-giver, therefore allocating the contracts to less efficient firms.

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  • Cement: An empirical model of regulation


    Nice paper, presented by Mar Reguant in the Environment Economics Seminar at Toulouse School of Economics.

    Market-Based Emissions Regulation and Industry Dynamics

    We assess the long-run dynamic implications of market-based regulation of carbon dioxide emissions in the US Portland cement industry. We consider several alternative policy designs, including mechanisms that use production subsidies to partially offset compliance costs and border tax adjustments to penalize emissions associated with foreign imports. Our results highlight two general countervailing market distortions. First, following Buchanan (1969), reductions in product market surplus and allocative inefficiencies due to market power in the domestic cement market counteract the social benefits of carbon abatement. Second, trade-exposure to unregulated foreign competitors leads to emissions \leakage” which offsets domestic emissions reductions. Taken together, these forces result in social welfare losses under policy regimes that fully internalize the emissions externality. In contrast, market-based policies that incorporate design features to mitigate the exercise of market power and emissions leakage can deliver welfare gains when damages from carbon emissions are high.

    The magnitude of the impact on the price of cement (the second most consumed product on earth after water!) in certain scenarios is huge, and so are the potential general equilibrium effects through the sectors that are big users of cement (think of the construction industry). I can only think of the Paraguayan economy recently grinding to a halt because of the paralysis of its outdated public cement industry and of the ban on imports that fuels so much corruption there. So, I very much look forward the authors’ future research on the topic, which will exploit industrial data on intersectoral linkages to better address this issue.

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  • Seminar at Berkeley, Haas Business School on roads and development


    On Thursday, September 12, I’ll be giving a talk at the Oliver E. Williamson Seminar on Institutional Analysis, at Haas Business School Berkeley. The seminar is from 4:10 – 6:00 pm in room C325 Cheit Hall.

    Here is a short preview of the paper:

    Road Access and the Spatial Pattern of Long-term Local Development in Brazil
    Julia Bird and Stéphane Straub, Toulouse School of Economics

    This paper studies the impact of the rapid expansion of the Brazilian road network, which occurred during the 1960s to the 2000s, on the growth and spatial allocation of population and economic activity across the country’s municipalities. It addresses the problem of endogeneity in infrastructure supply and location by using an original empirical strategy, based on a “historical natural experiment” constituted by the creation of the new federal capital city Brasília in 1960. The results reveal a dual pattern of development, with improved transport connections increasing concentration of economic activity and population around the main centers in the South of the country, while spurring the emergence of secondary economic centres in the less dense North. The spatial impacts on GDP and population roughly balance, meaning that the effects on GDP per capita are minimal.

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