Volume 48, Issue 3

Since the fiscal equalization system among states in Germany was repeatedly the subject of controversial political discussions, there exist many proposals in economics for far-reaching reforms. However, these proposals are deficient because they do not take into account the necessity of political consensus as well as the fact of path dependencies of institutional change. The paper is aiming at a better foundation of scientific advice by “reconstructing” the actor’s incentives in terms of collective dilemmata. This institutional economics approach explains, with respect to the fiscal equalization system among the German states, which type of proposal has greater chances to be politically adopted.

The German health care sector provides a good example for the negative effects of a substitution of potential market failure by real state failure. Generally, buyers and sellers should be allowed to determine the appropriate level and mix of resources that will be channeled into the health sector. The only way to assure that the system provides an efficient allocation is to have well-designed, structural incentives for each party involved in the health care sector. From this perspective, the article identifies the incentives for patients, the providers of medical treatment and for the financing insurance plans as the mere source for inefficiencies. These incentives result from a lack of equivalence and a lack of competition within the German health care sector. They can therefore be related to inadequately designed framework legislation. The article outlines proposals for an improved design of the economic incentives for patients, providers, and insurers in Germany.

This economic policy forum focuses on the liberalisation of the German telecommunication market. In view of former experiences future regulation requirements are discussed. Günter Knieps stresses that the problem of market power is central for answering the question of future division of labour between sector-specific regulations and the application of the competition law. Net-specific market power is only expected in monopolistic bottlenecks characterised by irreversible costs so that sector-specific regulations should be exclusively restricted to these monopolistic bottlenecks. Knieps aims at establishing service as well as infrastructural competition in competitive telecommunication markets. He argues that the telecommunication markets should not be distorted by regulations. Another aspect of Knieps’ article is the question how the mobile telecommunication market should be regulated. He examines whether the mobile telecommunication markets are characterised by monopolistic bottlenecks. However, Knieps does not find evidence for the existence of the latter. Finally, the author concludes that slimy regulations of net-specific market power is necessary to use all advantages provided by liberalised telecommunication markets. Therefore, the concept of “essential facility” should be employed. Ingo Vogelsang emphasises that the telecommunication sector is characterised by a great volume of investment. Rapid technical progress and fast changing markets can lead to uncertainty which makes investment insecure. On the one hand, Vogelsang points out that regulations can reduce the investors’ uncertainty. On the other hand, he reminds the reader that regulations can raise risk of investments. The main aspect in this context is the increasing uncertainty in law. Therefore, the author proposes regulative decisions that are predictable in the long run. Yet, long-term plans specifying definite time plans for regulations would not be successful. In contrast, the author suggests time independent development steps. For this reason, Vogelsang introduces a “Four Step Plan of Regulation” discussed in this article. Eberhard Witte remarks that the current regulations in the German telecommunication market result from several reform steps. He points out that the reforms in other countries, as e.g. in the United States or the United Kingdom have advancedthe liberalisation in Germany. Hence he describes the process of the German telecommunication market liberalisation with regard to the speed and the sequence of political actions. According to Witte’s opinion, the necessary rearrangements of the German telecommunication market are not yet finished. The author emphasises that one problem remains: Should new competitors be allowed to use the old infrastructure or should they be required to implement their own? Finally, he tries to answer this question for Germany and draws comparison to the experience of other countries.

Convergence is a fundamental objective of the European Union, which should be achieved by structural, regional and so-called cohesion funds. It is defined as a process of countries to grow more alike. In the neoclassical view, convergence is attained automatically by factor mobility or, alternatively, by free trade. The theory of factor proportions predicts the equalization of factor prices. Also the catching-up hypothesis points out the path of convergence between unequal trade partners through imitation and diffusion of technology, which leads to an increase of productivity. But the New Growth Theory depicts another scenario: Advanced nations will have a continous advantage, because learning-by-doing and accumulation of human capital will lead to advantages of technology and of higher productivity. Additionally, regional economics support the assumption of agglomeration advantages. Convergence policy now tries to influence the development process by a transfer of payments in order to avoid negative backwash effects in underdeveloped regions. But the success of such policies is doubtful. If the reasons for growth deficits are not identified, convergence policy may only cause additional economic distortions.

This study yields the impact of firm size as a determinant of employment. Using the theoretical framework of labor elasticities, it is argued that Small and Medium sized Enterprises (SME’s) are superior in creating jobs if an increase in their share - by reducing the share of large firms - stimulates the aggregate demand for labor. This could be due to a (static) more labor intensive production technology and/or a (dynamic) higher efficiency. The so determined Mittelstands-hypothese is theoretically and empirically examined. Further - from an ordoliberal perspective - the question is raised whether other indicators are more qualified to boost employment and to refresh market forces in the longrun.