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Article

The Effect of Immigration on Education  

Giorgio Brunello

Does a higher share of immigrants affect the school performance of both immigrants and natives? Do desegregation policies improve efficiency? The existing evidence suggests that a higher share of immigrants has a negative (and often sizable) effect on the school performance of immigrants and a negative but probably small effect on the performance of natives. When average school performance is considered, this asymmetry generates concave peer effects, a key condition for the efficiency of desegregating policies. The broad message from the empirical literature is that these policies are not only equitable, in that they provide better opportunities to individuals with relatively low parental background, but also efficient.

Article

Hedge Funds: Performance, Risk Management, and Impact on Asset Markets  

Vikas Agarwal and Honglin Ren

Hedge funds are dynamic, versatile, opaque, and, according to BarclayHedge, their assets under management have nearly doubled from $2.6 trillion in 2015 to $4.9 trillion in 2021. In the recent decade, whether hedge funds have delivered superior performance is in debate. Researchers conclude differently depending on the sample of hedge funds available for investigation. Recent research has made significant advances in understanding factors that contribute to or impair fund performance and in identifying potential sources of managerial skill. These include changes in disclosure requirements, examination of timing ability, the role of short selling and derivatives use, the effect of fund and manager characteristics, and applications of more advanced econometric techniques. Recent research has also examined different risks hedge funds are exposed to and the risk management practices of hedge funds. Particularly, studies have focused on systematic risk, liquidity risk, and financial intermediary risk stemming from trading in the market and interacting with other market participants. With greater availability of novel data such as regulatory filings (e.g., Form PF), studies have improved understanding of types of risks hedge funds take on and implications of risk taking on fund performance, factors related to heterogeneous risks, and risk management process of hedge funds. Lastly, recent research has also studied the role of hedge funds in the asset market. Hedge funds possess stronger incentives, are less constrained, and are nimbler in their trading than other institutional investments. Studies have investigated the important role of hedge funds in contributing to price discovery, market efficiency, and liquidity in financial markets. Evidence suggests that the ability of hedge funds to arbitrage or provide liquidity depends on market conditions and funds’ funding conditions.

Article

Incentives and Performance of Healthcare Professionals  

Martin Chalkley

Economists have long regarded healthcare as a unique and challenging area of economic activity on account of the specialized knowledge of healthcare professionals (HCPs) and the relatively weak market mechanisms that operate. This places a consideration of how motivation and incentives might influence performance at the center of research. As in other domains economists have tended to focus on financial mechanisms and when considering HCPs have therefore examined how existing payment systems and potential alternatives might impact on behavior. There has long been a concern that simple arrangements such as fee-for-service, capitation, and salary payments might induce poor performance, and that has led to extensive investigation, both theoretical and empirical, on the linkage between payment and performance. An extensive and rapidly expanded field in economics, contract theory and mechanism design, had been applied to study these issues. The theory has highlighted both the potential benefits and the risks of incentive schemes to deal with the information asymmetries that abound in healthcare. There has been some expansion of such schemes in practice but these are often limited in application and the evidence for their effectiveness is mixed. Understanding why there is this relatively large gap between concept and application gives a guide to where future research can most productively be focused.

Article

Mergers and Acquisitions: Long-Run Performance and Success Factors  

Luc Renneboog and Cara Vansteenkiste

Despite the aggregate value of M&A market transactions amounting to several trillions dollars on an annual basis, acquiring firms often underperform relative to non-acquiring firms, especially in public takeovers. Although hundreds of academic studies have investigated the deal- and firm-level factors associated with M&A announcement returns, many factors that increase M&A performance in the short run fail to relate to sustained long-run returns. In order to understand value creation in M&As, it is key to identify the firm and deal characteristics that can reliably predict long-run performance. Broadly speaking, long-run underperformance in M&A deals results from poor acquirer governance (reflected by CEO overconfidence and a lack of (institutional) shareholder monitoring) as well as from poor merger execution and integration (as captured by the degree of acquirer-target relatedness in the post-merger integration process). Although many more dimensions affect immediate deal transaction success, their effect on long-run performance is non-existent, or mixed at best.

Article

Economic History of Ming-Qing and Modern China  

Kent Deng

The Ming Dynasty (1368–1644) marked in the long history of China a period of cultural, political, demographic, and economic renaissance, after less than a century (1271–1368) of rule by the alien Mongol conquerors from the steppes. The wealth of the Ming Empire attracted European traders and missionaries with whom foreign silver, crops, and knowledge flowed into the country at unprecedented speed. Meanwhile, the Ming Empire reached out to the Indian Ocean with the largest armada in the world at the time. The Ming rule was ended by a military takeover by Manchu mercenaries who did not return to Manchuria after helping the Ming authorities crack down on a rebellion, an important factor that ultimately dictated the behavior of the Qing state (1644–1911). The main institutions and policies of the Ming remained intact, and in 1712 the Qing state voluntarily capped its total tax revenue, a Confucian gesture to gain legitimacy, which marked a major step toward a withering state whereby the tax burden became lighter and consequently state control over the population and territory became weaker. At the beginning, the waning state produced some positive outcomes: both farmland and population multiplied, and domestic and foreign trade were prosperous. The Qing economy outperformed that of the Ming and became one of the largest in the world by 1800, with a decent standard of living. Even so, a withering state was a time bomb. The unintended consequences of the weakening state loomed large. Externally, the empire did not have the ability to prevent the invasion of foreign bullies. From 1840 to 1900, China lost all five wars it fought with foreign forces. Internally, unrest swept the empire from 1860 to 1880. Imperial order and tranquility was replaced by anarchy, a rather logical outcome of a withering state. To a great extent the benefits of growth during the Qing rule had been lost by the second half of the 19th century. Meanwhile, fully aware of the root cause of the problem, the Qing elite sought solutions to save the empire from within. This led to a more open approach to foreign aid, loans, and technology, known as the “Westernization Movement” (c. 1860–1880). This movement marked the beginning of state-led modernization in China. The path of modernization in China was, however, rugged. It began with the ideal of “Chinese knowledge as the foundation and Western learning for utility” (until 1949), then proceeded to “Russian (Soviet) ideology as the foundation and Russian (Soviet) learning for utility” (1949–1976), and then to “Russian (Soviet) ideology as the foundation and Western learning for utility” in the post-Mao era (1977–present day). With such a swing, the performance of China’s growth and development fluctuated, sometimes violently.

Article

Changes in Hospital Financing and Organization and Their Impact on Hospital Performance  

Jonas Schreyögg

Since the 1980s policymakers have identified a wide range of policy interventions to improve hospital performance. Some of these have been initiated at the level of government, whereas others have taken the form of decisions made by individual hospitals but have been guided by regulatory or financial incentives. Studies investigating the impact that some of the most important of these interventions have had on hospital performance can be grouped into four different research streams. Among the research streams, the strongest evidence exists for the effects of privatization. Studies on this topic use longitudinal designs with control groups and have found robust increases in efficiency and financial performance. Evidence on the entry of hospitals into health systems and the effects of this on efficiency is similarly strong. Although the other three streams of research also contain well-conducted studies with valuable findings, they are predominantly cross-sectional in design and therefore cannot establish causation. While the effects of introducing DRG-based hospital payments and of specialization are largely unclear, vertical and horizontal cooperation probably have a positive effect on efficiency and financial performance. Lastly, the drivers of improved efficiency or financial performance are very different depending on the reform or intervention being investigated; however, reductions in the number of staff and improved bargaining power in purchasing stand out as being of particular importance. Several promising avenues for future investigation are identified. One of these is situated within a new area of research examining the link between changes in the prices of treatments and hospitals’ responses. As there is evidence of unintended effects, future studies should attempt to distinguish between changes in hospitals’ responses at the intensive margin (e.g., upcoding) versus the extensive margin (e.g., increase in admissions). When looking at the effects of entering into a health system and of privatizations, there is still considerable need for research. With privatizations, in particular, the underlying processes are not yet fully understood, and the potential trade-offs between increases in performance and changes in the quality of care have not been sufficiently examined. Lastly, there is substantial need for further papers in the areas of multi-institutional arrangements and cooperation, as well as specialization. In both research streams, natural experiments carried out using program evaluation design are lacking. One of the main challenges here, however, is that cooperation and specialization cannot be directly observed but rather must be constructed based on survey or administrative data.

Article

Price Regulation and Pay-for-Performance in Public Health Systems  

Luigi Siciliani

Payment systems based on fixed prices have become the dominant model to finance hospitals across OECD countries. In the early 1980s, Medicare in the United States introduced the diagnosis-related group (DRG) system. The idea was that hospitals should be paid a fixed price for treating a patient within a given diagnosis or treatment. The system then spread to other European countries (e.g., France, Germany, Italy, Norway, Spain, the United Kingdom) and high-income countries (e.g., Canada, Australia). The change in payment system was motivated by concerns over rapid health expenditure growth and replaced financing arrangements based on reimbursing costs (e.g., in the United States) or fixed annual budgets (e.g., in the United Kingdom). A more recent policy development is the introduction of pay-for-performance (P4P) schemes, which, in most cases, pay directly for higher quality. This is also a form of regulated price payment but the unit of payment is a (process or outcome) measure of quality, as opposed to activity, that is admitting a patient with a given diagnosis or a treatment. Fixed price payment systems, either of the DRG type or the P4P type, affect hospital incentives to provide quality, contain costs, and treat the right patients (allocative efficiency). Quality and efficiency are ubiquitous policy goals across a range of countries. Fixed price regulation induces providers to contain costs and, under certain conditions (e.g., excess demand), offer some incentives to sustain quality. But payment systems in the health sector are complex. Since its inception, DRG systems have been continuously refined. From their initial (around) 500 tariffs, many DRG codes have been split in two or more finer ones to reflect heterogeneity in costs within each subgroup. In turn, this may give incentives to provide excessive intensive treatments or to code patients in more remunerative tariffs, a practice known as upcoding. Fixed prices also make it financially unprofitable to treat high cost patients. This is particularly problematic when patients with the highest costs have the largest benefits from treatment. Hospitals also differ systematically in costs and other dimensions, and some of these external differences are beyond their control (e.g., higher cost of living, land, or capital). Price regulation can be put in place to address such differences. The development of information technology has allowed constructing a plethora of quality indicators, mostly process measures of quality and in some cases health outcomes. These have been used both for public reporting, to help patients choose providers, but also for incentive schemes that directly pay for quality. P4P schemes are attractive but raise new issues, such as they might divert provider attention and unincentivized dimensions of quality might suffer as a result.

Article

Leverage in Private Equity Real Estate  

Jacob S. Sagi and Zipei Zhu

Private equity real estate (PERE) refers to professionally managed pooled investments in the real estate market available only to institutions (e.g., pension funds), private accredited investors, and high-net-worth individuals. In the ownership structure of PERE funds, general partners (GPs) serve as the active fund managers who raise an extensive amount of external capital from limited partners (LPs) to acquire and operate commercial real estate properties. Debt financing, namely the use of leverage, is prevalent in real estate investments and even more so in the setting of PERE funds. Though much empirical research is devoted to PERE fund performance, few studies directly investigate the role of financial leverage in PERE funds. In an ideal friction-free setting, leverage creates no value and is essentially part of a zero-sum game of rights and privileges between various asset stakeholders. In practice, however, leverage seems far from irrelevant due to the existence of market frictions that could lead to value creation (or destruction) by its use. Financial economic theories indicate that leverage can amplify skill (or the lack thereof), reallocate cash flow rights, and shift incentives in the presence of market frictions. With PERE, existing work provides mixed or little evidence that leverage is employed to amplify skill and consistently hints that its use shifts the balance of benefits toward fund sponsors over their limited partners. Based on data from Preqin and StepStone, a typical closed-end PERE fund targets roughly 65% debt to the value of total assets under management. Funds managing more risky real estate tend to use more leverage, and there is little evidence that fund terms are adjusted to reflect potential conflicts of interest posed by more intensive use of leverage. Rather, stylized facts raise concerns that the scope for conflict of interest may have increased over the past 10 years. Among these concerns is an increase in strategic longer-term use of subscription facilities. The bulk of evidence in the literature points to robust underperformance of high-leverage funds on a net-of-fee risk-adjusted basis. In other words, there is little evidence supporting the notion that leverage is employed to enhance skilled management and to benefit LPs. This suggests that a significant portion of PERE investors are not optimizing risk-return tradeoffs in allocating investments to high-leverage PERE funds. More work is needed to refine these findings and, more importantly, understand the source of market frictions behind them.

Article

Happiness and Productivity in the Workplace  

Mahnaz Nazneen and Daniel Sgroi

Happiness has become an important concept in economics as a target for government policy at the national level. This is mirrored in an increasing understanding of the microeconomic effects of increased happiness. While correlational studies have for many years documented a relationship between individual-level happiness and productivity, more recent work provides causal evidence that a positive shock to happiness can boost productivity significantly. These studies include three strands of research. The first provides a number of longitudinal surveys that have generated evidence linking happiness to productivity but run the risk of confounding happiness with other related variables that may be driving the relationship. The second includes laboratory experiments that simulate a workplace under tightly controlled conditions, and this strand has established a clear relationship between positive happiness shocks and rises in productivity. The third involves examining experimental field data, which sacrifices the control of laboratory experiments but offers greater realism. However, there is still work to be done generalizing these findings to more complex work environments, especially those that involve cooperative and team-based tasks where increases in happiness may have other consequences.

Article

Pay-for-Performance and Long-Term Care  

Jun Li and Edward C. Norton

Pay-for-performance programs have become a prominent supply-side intervention to improve quality and decrease spending in health care, touching upon long-term care, acute care, and outpatient care. Pay-for-performance directly targets long-term care, with programs in nursing homes and home health. Indirectly, pay-for-performance programs targeting acute care settings affect clinical practice for long-term care providers through incentives for collaboration across settings. As a whole, pay-for-performance programs entail the identification of problems it seeks to solve, measurement of the dimensions it seeks to incentivize, methods to combine and translate performance to incentives, and application of the incentives to reward performance. For the long-term care population, pay-for-performance programs must also heed the unique challenges specific to the sector, such as patients with complex health needs and distinct health trajectories, and be structured to recognize the challenges of incentivizing performance improvement when there are multiple providers and payers involved in the care delivery. Although empirical results indicate modest effectiveness of pay-for-performance in long-term care on improving targeted measures, some research has provided more clarity on the role of pay-for-performance design on the output of the programs, highlighting room for future research. Further, because health care is interconnected, the indirect effects of pay-for-performance programs on long-term care is an underexplored topic. As the scope of pay-for-performance in long-term care expands, both within the United States and internationally, pay-for-performance offers ample opportunities for future research.

Article

The Effects of Parental Job Loss on Children’s Outcomes  

Jenifer Ruiz-Valenzuela

Severe economic downturns are typically characterized by a high incidence of job losses. The available evidence suggests that job losers suffer short-run earning losses that persist in the long run, are more likely to remain unemployed, suffer negative health impacts, and experience an increased likelihood of divorce. Job losses have therefore the potential to generate spillover effects for other members of the household, including children. This comes about because most of the negative consequences of job loss have a direct effect on variables that enter both the production function of cognitive achievement and the health production function. Workers who lose their jobs are likely different from those who remain employed in ways that are unobserved to the researcher and that might, in turn, affect child outcomes. Omitted variable bias poses a challenge to obtaining causal estimates of parental job loss. The way the literature has tried to approximate the ideal experiment has mainly depended on whether the child outcome under analysis could be observed both before and after the shock (i.e., both before and after parental job loss), normally relying on job losses coming from plant closures or downsizes and/or individual fixed effects. A survey of the literature shows that father’s job losses seem to have a detrimental impact on outcomes measuring children’s health and school performance. The impact of mother’s job losses on these same outcomes is mixed (including negative, null, and positive impacts). The impact on more long-term outcomes is less clear, with very mixed findings when it comes to the effect of parental job loss on college enrollment, and small impacts on earnings. In many studies, though, average effects mask important differences across subgroups: the negative impact of parental job loss seems to be mostly concentrated on disadvantaged households.

Article

Explaining the Mathematics Gender Gap: The Role of Stereotypes  

Pilar Cuevas Ruiz, Ismael Sanz, and Almudena Sevilla

Descriptive stereotypes such as “girls are not good at mathematics” or prescriptive stereotypes, that is, fixed views about women’s societal roles, can explain the persistent gender gap in mathematics. Stereotypes lower girls’ beliefs, expectations, and incentives to put forth effort, and can constrain girls’ choices in male-dominated high-paying careers that are math-intensive and that require strong math skills. This gap slows progress toward gender equality in the labor market and hinders productivity and economic growth. Policy interventions to alleviate the negative impacts of descriptive stereotypes aim to prevent girls from internalizing socially constructed behaviors aligned with prevalent gender stereotypes regarding the innate mathematical abilities of boys and girls. Boosting girls’ confidence in their math skills includes introducing them to female role models, such as women math teachers, using gender-neutral language, and providing textbooks and other teaching materials that challenge gender stereotypes. A different set of policies focuses on altering the environment in which girls learn, rather than modifying their beliefs. By adjusting the testing methods (such as reducing the level of competition) or adapting the instructional approach to better align with the learning style of girls, it is possible to create an environment that enables more girls to achieve their maximum potential and to accurately assess their math abilities and interests, rather than simply their test-taking or classroom performance. However, interventions that aim to modify the beliefs and attitudes of girls and women ex post, as well as those that seek to alter the environment, may not work in the long term because they reinforce preexisting stereotypes and operate within the constraints of those stereotypes. For instance, while modifying the testing environment may result in higher grades for girls, it may not necessarily alter the perception that girls are incapable of excelling in math. In some cases, these interventions may even have negative consequences. Encouraging girls to “lean in” and behave like boys, for example, can lead to unequal, unjust, and inefficient outcomes because the benefits (economic returns) of doing so are lower or even negative for girls in light of existing gender stereotypes. One popular and affordable approach to combating gender stereotypes involves addressing (unconscious) biases among teachers, parents, and peers through initiatives such as unconscious bias training and self-reflection on biases. The underlying premise is that by increasing awareness of their own (unconscious) biases, individuals will engage their more conscious, non-gender-stereotypical thinking processes. However, such behavioral interventions can sometimes have unintended consequences and result in backlash, and their effectiveness may vary significantly depending on the context, so that their external validity is often called into question. The recognition of the adaptable nature of both conscious and unconscious stereotypes has led to progress in economics, with the development of social learning and information-based theories. Interventions resulting from these models can effectively counteract prescriptive stereotypes that limit girls’ education to certain fields based on societal expectations of gender roles. However, prescriptive gender stereotypes are often based on biased beliefs about the innate abilities of girls and women. Overcoming deeply ingrained descriptive stereotypes about innate abilities of boys and girls is a fruitful avenue for future economics research and can help close the gender performance gap in mathematics.