Government Incentives for Private Ownership of Public Goods: Theory and Evidence from Belgium

Abstract : We study the effect of a subsidy to land purchases by non-profits in views of creating natural reserves. A simple theoretical model finds that while the subsidy makes prices soar in the short run, the effect does not persist in time and prices decline in the long run. We suggest that this happens because the subsidy releases resources for the non-profits that allow them to exert more effort negotiating prices and stimulating supply, effectively driving prices down. We test this prediction empirically using first-hand collected notarial data from Belgium and exploiting the structural break created by the introduction of the subsidy. Using an estimation method robust to outliers, we provide a methodological contribution in the analysis of markets with quasi-donations. The method is relevant for markets of goods with patrimonial value where some sellers are willing (or are persuaded) to donate their assets for the common good.

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The Proper Scope of Government in Hospitals

Abstract : Do organizations in governmental and in private, for-profit ownership make different strategic decisions in predictable directions? Hart et al. (1997) constructed a model to answer this question but a conclusive empirical answer is still missing. We analyze a unique data set containing information on quality indicators, inputs, and organizational form of all German hospitals. Our preliminary results confirm the link hypothesized by Hart et al. between lower cost and lower service quality. However, we have to refute the idea that private hospitals focus on cost cutting. Our results suggest the opposite: private hospitals focus on high-quality production. As high quality requires more health personnel, private hospitals also incur higher cost of production than public hospitals.

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An Academic Question

Abstract : Economists have offered several incentive- and risk-based rationales for academic tenure as well as a few attempts to explain the role of faculty in university governance. Missing from the literature, however, is an explanation for why the reputational forces and standard contracting practices relied on in private sector employment relationships are not adequate for addressing incentive problems in academia. Relationship-specific investments do not seem to provide an answer: For the most part, neither teaching nor research is specific to any particular institution. This paper argues, first, that the source of commitment problems in academia lies in the combined research and non-research responsibilities of faculty: The sacrifice of research time today affects the earning potential of faculty over the rest of their career, the size and timing of compensation for which present the same problems posed by relationship-specific investments in other settings. The argument explains why academic tenure and faculty governance did not become prominent features of U.S. colleges and universities until the emergence of research as a primary function of higher education institutions toward the beginning of 20th century; and why both tenure and governance rights are generally restricted to “regular” faculty who perform both teaching and research. The paper then combines data on faculty authority over personnel decisions at over 1,000 U.S. colleges and universities and publication data going back to 1900 to show that faculty authority over hiring, promotion, and dismissal decisions is strongly associated with both the quantity and types of research produced.

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