Implicit Costs Research Articles

Coexistence in an Inhomogeneous Environment

We examine the two-dimensional extension of the model of Kessler and Sander of competition between two species identical except for dispersion rates. In this class of models, the spatial inhomogeneity of reproduction rates gives rise to an implicit cost of dispersal, due to the tendency to leave favorable locations. Then, as in the Hamilton-May model with its explicit dispersal cost, the tradeoff between dispersal case and the beneficial role of dispersal in limiting fluctuations, leads to an advantage of one dispersal rate over another, and the eventual extinction of the disadvantaged species. In two dimensions we find that while the competition leads to the elimination of one species at high and low population density, at intermediate densities the two species can coexist essentially indefinitely. This is a new phenomenon not present in either the one-dimensional form of the Kessler-Sander model nor in the totally connected Hamilton-May model, and points to the importance of geometry in the question of dispersal.

Linguistic justice in IP policies: evaluating the fairness of the language regime of the European Patent Office

Alternative intellectual property laws relating to the use of languages in IP organisations can result in an asymmetric distribution of costs of patenting between innovators. We present a framework for the characterisation and evaluation of the fairness of the language regime of the European Patent Office (EPO), which is currently based on three official languages: English, French and German. We estimate that the costs of access to patenting procedures borne by English-, French- or German-speaking applicants are at least 30 % lower than those borne by European applicants whose first language is not one of the current official languages of the EPO. In order to correct language-related cost asymmetries, we explore two possible alternative language regimes. In both cases, we introduce a centralised system of financial compensation that covers translation costs borne by European applicants whose first language is not one of the official languages of the EPO. In the first alternative, financial compensation is covered by savings on current translation costs at the granting stage. In the second alternative, the number of official languages is increased to five and financial compensation is funded by an increase in filing fee and by partial savings on translation costs at the granting stage. We show that both alternatives could substantially reduce language-related costs asymmetries among European applicants. In addition, we show that the five-language alternative would reduce the global costs of access to patenting procedures borne by all European applicants. Thus, more multilingualism can be cheaper than less multilingualism, provided that “implicit costs” are taken into account. We conclude discussing under which conditions the alternative language regimes proposed could have a positive impact on the effectiveness and the cost-effectiveness of the EPO language regime.

IMPACT OF CORRUPTION ON FARM PRODUCTION AND PROFIT

By analyzing experiences of 210 rice belonging to six villages of six different districts in Bangladesh this article estimates the impact of corruption on farm production and profit. Unlike existing literature corruption here is defined in broader term. Both explicit and implicit cost items are included while calculating the cost of corruption. Through estimating the marginal physical product of fertilizer, a relative impact of corruption on farm production is estimated. Then by hypothesizing different scenarios with different levels of corruption, changes in a farmers benefit cost ratio is estimated. It has been observed that with reducing cost of corruption observe higher benefit cost ratio and vice versa. Cost of corruption is found to be relatively higher in restricted input market situation and relatively lower when the market is more competitive. Thus our results are suggestive for competitive market policy to reduce corruption which will ultimately result in more farm production and profit.

What’s Wrong with Rights?

We develop and test an explanation for the rights issue paradox that stems from risk of offering failure. Firms can reduce failure risk by getting underwriting or by self-insuring through subscription price discounts and subscription precommitments. Self-insurance is generally regarded to be relatively costless, but we provide evidence consistent with the existence of implicit costs. In particular, existence of self-insurance costs implies that firms with better projects will have larger discounts and that firms with higher ownership concentration will have more precommitments. Hence, our results support costly self-insurance against issue failure as a factor in explaining the rights issue paradox.

Do Private Prisons Really offer Savings Compared with their Public Counterparts?

AbstractPrivate contracting of public services has been alleged to reduce costs. We address the critical question of whether private contracting really saves money, using the US prison privatisation experience as an example. Although the consensus in the literature identifies such savings, we raise economic issues of incomplete contracting, asymmetric information and moral hazard, which complicate matters. We discuss explicit, implicit, and agency costs that show that measuring the savings and quality impact of private contracting is more challenging than the literature suggests, and often inconclusive. This may suggest caution in designing solutions to cost pressures.

Cost-Benefit Analysis: Why Relative Economic Position Does Not Matter

The current debate over cost-benefit concerns in agencies' evaluations of government regulations is not so much whether to consider costs and benefits at all but rather what belongs in the estimated costs and benefits themselves. Overlaid is the long-standing concern that the distribution of costs and benefits needs some consideration in policy evaluations. In a recent article in the University of Chicago Law Review, Robert Frank and Cass Sunstein proposed a relatively simple method for adding distributional concerns to policy evaluation that enlarges the typically constructed estimates of the individual's willingness to pay for safer jobs or safer products. One might pay more for safety if it were the result of a government regulation that mandated greater safety across-the-board. The reason, Frank and Sunstein argue, for enlarging current estimates is that someone who takes a safer job or buys a safer product gives up wages or pays a higher price, which then moves him or her down in the ladder of income left over to buy other things. Alternatively, a worker who is given a safer job via a government regulation has no relative income consequences because all affected workers have lower pay. We show that when considering the core of the Frank and Sunstein proposal carefully one concludes that current regulatory evaluations should be left alone because there is no reason to believe that relative positional effects are important either to personal decisions in general or to currently constructed cost-benefit calculations of government regulations in particular. One of the practical problems with trying to consider relative position of income and consumption when estimating willingness to pay is that there is no unique way to ascertain from a statistical model the person's actual social reference group. A researcher must specify ex ante a reference group and then net out the behavioral effects of a possibly incorrectly attributed reference group's behavior on the individual. There is no well-established result from survey data for a typical person's economic reference group. Moreover, the econometric literature generally finds that reference group or social interaction effects are small and easily ignored, perhaps because the relative positional effects of workplace or product safety offset possible reference group effects on residual income (income net of the implicit cost of the extra product or job safety). It is also the case that Frank and Sunstein's recommended increase in the value of willingness to pay for safety used in current regulatory evaluations is already considered. Regulatory evaluations often include a pessimistic and an optimistic value of likely benefits, and Frank and Sunstein's suggested revised value of willingness to pay is still below the optimistic case that carefully formulated cost-benefit studies use. It is easy to show that almost doubling the estimated value of a statistical life would have an inconsequential effect on the economic desirability of a broad set of regulatory policies. Finally, we argue that the most important refinements one could make in the area of regulatory evaluation would be for agencies involved to adhere more to the framework of what is generally considered a carefully done cost-benefit study, and for agencies to make greater actual use of appropriately done cost-benefit studies when recommending regulations.

Total Cost of Ownership and Cost of Capital in Outsourcing Decisions

The outsourcing decision plays a strategic role for competing in a global environment and it implies a systemic assessment of its impact on firm performance. We focus on the problem of the construction of cost information required by the decision-making process to better compare outsourcing and the internal production choice. The aim of this paper is to develop a full costing model which highlights the explicit and implicit costs of the two alternatives, taking into account the various levels of management complexity they involve. We therefore present an activity-based costing model to compare the total cost of ownership of outsourcing with the cost of internal production, taking into account the cost of the capital required for performing the activities. This paper contributes to the advancement of costing methodologies applicable to outsourcing decisions, proposing a model suitable for any type of outsourcing and useful in different phases of the process.

Capital structure decisions of LPTs in a small economy

Purpose – The existing literature on real estate investment trust (REIT) capital‐structure decisions implicitly excludes either interest payment tax shield benefits or a trust's growth potential. The purpose of this paper is to test the long‐term debt leverage decisions of listed property trusts (LPTs), but without excluding interest payment tax shield benefits and growth potential. A new variable, the exchange rate, is included in the tests, because financial products subject to globalization, such as SWAPs are currently used to support the funding of small economies.Design/methodology/approach – This paper uses a truncated regression and probit model to empirically test two competing hypotheses – the trade‐off theory and the pecking order theory. It also takes into account the implicit debt costs influenced by the exchange rate. The data for New Zealand LPTs are used.Findings – Unlike the existing literature, it is found that the trade‐off theory is supported, while the pecking order theory is rejected,...

Stuck on Stubble? The Non‐market Value of Agricultural Byproducts for Diversified Farmers in Morocco*

Diversified agricultural households often use byproducts of one activity as inputs for another. For crop‐livestock farmers, cereal production provides grain and crop residue, where the latter can be used as livestock feed. To properly assess the cost of introducing new technologies into such systems, one must value the implicit cost of byproducts, which is made difficult by missing byproduct markets. We estimate the shadow value of non‐market crop stubble using household data from Morocco and find that stubble accounts for around one‐quarter of the value of cereal production in a normal rainfall year and three quarters in a drought year.

Explicit and Implicit Costs of Government-Provided Deposit Insurance

The Diamond–Dybvig model is often cited as a theoretical justification for government-provided deposit insurance. Guaranteeing bank deposits removes the temptation for individual depositors to run on the bank and thereby precludes the need to ever use the deposit insurance. Hence, deposit insurance provides a costless solution to the threat of bank runs. In practice, however, government-provided deposit insurance is not a costless solution as it is frequently invoked to cover the losses of failed banks. We maintain that potential alternatives to government deposit insurance should be compared to the current system rather than to a theoretically optimal system of insurance. Focusing on the FDIC, we consider the differences between deposit insurance in theory and practice, review how the explicit cost of providing deposit insurance has changed over time, and consider implicit costs from taxpayer backing and suboptimal assessment rates.

Sustaining Production Chains through Financial Linkages

The technological constraints on sustaining production chains have been discussed extensively by development economists, but the role of financial linkages has received less attention. In a model of recursive moral hazard for a manufacturing supply chain, we show that the structure of interlocking receivables and payables serve as the glue for the production chain that sustains complex manufacturing output. The inefficiency associated with recursive moral hazard can be mitigated through optimal delays in payments along the chain. However, efficiency requires large stocks of working capital, and invoice prices are high due to implicit amortization costs of inter-firm credit.

Methodology for benefit–cost analysis of seismic codes

A number of high-profile seismic events have occurred in recent years, with a wide variation in the resulting economic damage and loss of life. This variation has been attributed in part to the stringency of seismic building codes implemented in different regions. Using the HAZUS Earthquake Model, a benefit–cost analysis was performed on varying levels of standard buildings codes for Haiti and Puerto Rico. The methodology computes expected loss assuming a Poisson event process with lognormally distributed event magnitude and idealized damage–magnitude response functions. The event frequency and magnitude distributions are estimated from the historical record, while the damage functions are fit using HAZUS simulation results for events with systematically varying magnitudes and different seismic code levels. To validate the approach, a single-event analysis was conducted using alternative building codes and mean magnitude earthquakes. A probabilistic analysis was then used to evaluate the long-term expected value for alternative levels of building codes. To account for the relationship between lives saved and economic loss, the implicit cost of saving a life is computed for each code option. It was found that in the two areas studied, the expected loss of life was reduced the most by use of high seismic building code levels, but lower levels of seismic building code were more cost-effective when considering only building damages and the costs for code implementation. The methodology presented is meant to provide a basic framework for the future development of an economic-behavioral model for code adoption.

Information and the Value of Execution Guarantees

We investigate the role of a class of alternative market structures known as electronic crossing networks or "dark pools". Relative to traditional "lit" markets, dark pools offer investors the trade-off of reduced transaction costs in exchange for greater uncertainty of trade. Our paper studies the welfare implications of operating a dark pool alongside traditional lit markets. We study equilibria of a market with intrinsic traders and speculators, each endowed with heterogeneous fine-grained information, who endogenously choose between dark and lit venues. We establish that while dark pools attract relatively uninformed investors, the orders therein experience an implicit transaction cost in the form of adverse selection. Moreover, the informational segmentation created by a dark pool leads to greater transaction costs in lit markets. Taken together, we establish that there exist reasonable parameter regimes where the introduction of a dark pool decreases the overall welfare of market participants.

Growth projection and valuation of restoration of the shortleaf pine–bluestem grass ecosystem

The fire-dependent shortleaf pine–bluestem grass ecosystem that existed prior to European settlement is being restored on approximately 62,700ha in the Ouachita National Forest. The restoration effort's economic effects are not completely understood. This study will provide the Forest Service with a framework for better communicating the biological and economic impacts of future forest plans and amendments. It also seeks to provide information on how shortleaf pine responds to different management regimes and the implicit cost to maintain the endangered red cockaded woodpecker habitat, and the economic consequences of transitioning from the traditional management regime to a regime which restores the shortleaf pine–bluestem grass ecosystem. The paper suggests by adopting the new pine–bluestem management regime, timber harvests in the pine–bluestem area decline by 25% during the 100-year simulation period, which will incur an additional implicit cost of $72/ha/year to maintain the red cockaded woodpecker habitat. An implied value for each pair of woodpeckers amounts to either $10,550 per year (for the desired 400 total pairs) or $16,880 per year (for the 250 reproducing pairs). Timber sale marking costs decline, while prescribed burning costs increase. The success of the pine–bluestem restoration requires the maintenance of a burning regime that prevents competing vegetation from occupying the middle canopy layer. Maintaining the pine–bluestem ecosystem will be difficult if environmental regulations become more stringent.

On learning and the economics of firm efficiency: a state-contingent approach

The paper investigates the microeconomics of learning for an owner-managed firm. The analysis relies on a general state-contingent approach to uncertainty. In the presence of price and production uncertainty, it examines the case where acquiring information is costly. It evaluates the microeconomic efficiency of decisions, with a focus on three factors: sure income, the value of information, and a risk premium (measuring the implicit cost of private risk bearing). The analysis stresses the role of information and learning in microeconomic decisions. Implications for efficiency and productivity measurements are discussed.

Public Infrastructure Investment, Renewed Economic Growth, and the U.S. Fiscal Position

We show that large-scale debt-financed public infrastructure spending, in addition to (a) generating growth and employment on a similarly large scale and (b) significantly reducing inefficiency-generated public and private costs economy-wide, will also (c) be substantially “self-financing” by dint of the revenue gains that it likewise will generate. Not to pursue such projects now, moreover, with (a) labor, material, and financing costs at historic lows, and (b) cost-acceleration set to kick-in in the very near future, will itself occasion large-scale implicit costs. Insofar as these investments are agreed by all to be necessary at some point, now is that point.

The information content of trade credit

During 1992–2007, suppliers financed almost 10% of the total assets of US listed firms. This intensive usage of trade credit is puzzling in the light of its high (implicit) costs. By arguing that trade credit use provides valuable information to outside investors, we first derive a theoretical model that predicts a positive correlation between trade credit use and the quality of the firm’s investments. Then, using several proxies for firm’s investment quality (Z-score, return on assets, and long-run abnormal returns), we show that this prediction receives strong support from a large sample of US firms.

Research on Applying the Total Quality Management to Implicit Cost Control in Construction Projects

Construction industry is one of the pillar industries in national economy. In this field, how to control the implicit cost is a difficult problem to the cost control in construction projects. This text analyses the measures about implementing total quality management in construction projects, which aims to control the implicit cost in a more effective way and will increase the benefit and core competence of enterprises.

How to Use Lean Construction to Control the Implicit Quality Costs in Construction Projects

It is a difficult problem to control the implicit quality cost in the cost control of construction project. This text discussed the implementing of lean construction, aiming at control the implicit quality costs in construction projects effectively by the way of lean construction.

Word position affects stimulus recognition: Evidence for early ERP short-term plastic modulation

The present study was aimed at investigating the short-term plastic changes that follow word learning at a neurophysiological level. The main hypothesis was that word position (left or right visual field, LVF/RH or RVF/LH) in the initial learning phase would leave a trace that affected, in the subsequent recognition phase, the Recognition Potential (i.e., the first negative component distinguishing words from other stimuli) elicited 220–240 ms after centrally presented stimuli. Forty-eight students were administered, in the learning phase, 125 words for 4 s, randomly presented half in the left and half in the right visual field. In the recognition phase, participants were split into two equal groups, one was assigned to the Word task, the other to the Picture task (in which half of the 125 pictures were new, and half matched prior studied words). During the Word task, old RVF/LH words elicited significantly greater negativity in left posterior sites with respect to old LVF/RH words, which in turn showed the same pattern of activation evoked by new words. Therefore, correspondence between stimulus spatial position and hemisphere specialized in automatic word recognition created a robust prime for subsequent recognition. During the Picture task, pictures matching old RVF/LH words showed no differences compared with new pictures, but evoked significantly greater negativity than pictures matching old LVF/RH words. Thus, the priming effect vanished when the task required a switch from visual analysis to stored linguistic information, whereas the lack of correspondence between stimulus position and network specialized in automatic word recognition (i.e., when words were presented to the LVF/RH) revealed the implicit costs for recognition. Results support the view that short-term plastic changes occurring in a linguistic learning task interact with both stimulus position and modality (written word vs. picture representation).