Asymmetric cost behavior in local public enterprises: exploring the public interest and striving for efficiency
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Asymmetric cost behavior, which was first identified in Germany in the 1920s, has attracted the attention of researchers over the last two decades. Cost management is essential not only for commercial enterprises (CEs) but also for public organizations. Therefore, in this research, I focus on local public enterprises (LPEs), one type of public organization in Japan, and clarify their cost behavior. Then, taking the perspective of institutional theory, I compare LPEs with CEs. Because LPEs are required to behave according to the restrictions of LPE law, they are more vulnerable to institutional pressure. Specifically, LPEs have two normative institutional constraints: (1) efficiency and (2) the public interest (i.e., the responsibility to support people’s everyday lives). Therefore, LPEs must provide certain services even if they are unprofitable. To explore whether normative institutional pressure causes LPEs to be cost inefficient, I compare the cost behavior of these enterprises with that of CEs in five ways. I analyze (1) panel data covering 40 years, (2) the change over time, (3) the differences by industry type, (4) the relationship with population changes, and (5) the effect of political influence. I find that LPEs’ cost management is not necessarily cost inefficient; however, their ability to adjust costs may be lost in the future due to the influence of institutional constraints. I therefore assert that LPE administrators must constantly struggle to balance the institutional constraints of the public interest and efficiency since these factors require long-term, stable management.
KeywordsLocal public enterprises Sticky costs Anti-sticky costs Asymmetric cost behavior Public interest Efficiency Institutional constraints
JEL ClassificationH83 M41
I am very grateful to Thomas Werner Guenther not only for suggesting improvements to the manuscript but also for all the advice he has given me to improve my research over the years. I would also like to thank the two reviewers for carefully reviewing the manuscript and for their many useful comments.
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