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Ambulance service --- Ambulance service --- Medicare --- Costs. --- Costs. --- Costs.

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Logging --- Logging --- Machinery --- Costs.

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May 1995 How does an economy's efficiency in financial transactions affect its efficiency in physical production? And how does the volume of financial transactions relate to the level of real activity? There is a close, if imperfect, relationship between the effectiveness of an economy's capital markets and its level (or rate of growth) of real development. This may be because financial markets provide liquidity, promote the sharing of information, or permit agents to specialize. There is literature about how these functions help increase real activity, but surprisingly little literature predicting how the volume of activity in financial markets relates to the level or efficiency of an economy's productive activity. Bencivenga, Smith, and Starr address this question: How does the efficiency of an economy's equity market -- as measured by transaction costs -- affect its efficiency in producing physical capital and, through this channel, final goods and services? The answer: As the efficiency of an economy's capital markets increases (that is, as the transaction costs fall), the general effect is to cause agents to make longer-term -- hence, more transaction-intensive -- investments. The result is a higher rate of return on savings and a change in its composition. These general equilibrium effects on the composition of savings cause agents to hold more of their wealth in the form of existing equity claims and to invest less in the initiation of new capital investments. As a result, a reduction in transaction costs can cause the capital stock either to rise or fall (under scenarios described in the paper). Further, a reduction in transaction costs will typically alter the composition of savings and investment, and any analysis of the consequences of such changes must take those effects into account. This paper -- a product of the Finance and Private Sector Development Division, Policy Research Department -- was prepared for a World Bank Conference on Stock Markets, Corporate Finance, and Economic Growth. The study was funded by the Bank's Research Support Budget under the research project Stock Market Development and Financial Intermediary Growth (RPO 679-53).

Transaction costs. --- Externalities (Economics)

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Civil rights --- Transaction costs

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March 1995 Six case studies show that raising energy prices to eliminate subsidies does not harm the poor, growth, inflation, or industrial competitiveness. And public revenues improve. When domestic energy prices in developing countries fall below opportunity costs, price increases are recommended to conserve fiscal revenue and to ensure efficient use of resources. Using six case studies, Hope and Singh investigate the effect of energy price increases on the poor, inflation, growth, public revenues, and industrial competitiveness. The effect on households in various income classes depends on the energy commodity's share in the household budget and the price elasticity of demand. For energy as a whole (electricity and fuels, traditional and commercial), budget shares often decline with income. So in terms of income distribution, taxing energy is not ideal. But commercial fuel consumption increases greatly with income, so any subsidies applied will largely benefit nonpoor urban households. For each commercial energy source (electricity, kerosene, diesel, and gasoline) proportionate household spending will generally be lower, and some energy sources will be luxuries. In no instance does energy spending exceed 10 percent of the typical household budget for any income group. The effect on industry is generally modest, since cost shares for energy typically range from 0.5 to 3 percent (with the typical value being 1.5). In addition, many industries are flexible enough to substitute when energy prices increase. Energy prices tended to increase in adjustment and liberalization programs, and industrial output usually increased even with the higher energy prices. This suggests that the effect of the price increase is modest compared with the effects of other changes in the environment. There are exceptions, of course, such as energy-intensive industries with limited possibilities for substitution. Estimating the effects on public deficits is straightforward, even with uncertainty about demand elasticities: Energy price increases reduce the drain on public resources significantly. It is harder to trace the effects on inflation and growth in national income. The effects on inflation will generally not be severe, and inflation may even be reduced in the intermediate to long run, through lowered public deficits. Income growth rates were generally higher after the years of energy price adjustments than they were in the years before the price increases (with one exception) and the years of the price increases (with one exception). Income growth rates were higher during the years of price increases than before in about half of the case-study countries. This paper -- a product of the Public Economics Division, Policy Research Department -- is part of a larger effort in the department to study the distributional and environmental effects of energy pricing policies. The study was funded in part by the Bank's Research Support Budget under the research project Pollution and the Choice of Economic Policy Instruments in Developing Countries (RPO 676-48)3.

Electric utilities --- Costs.