Activity-Based Costing in Government: Possibilities and Pitfalls

Activity-based costing (ABC) is at the center of the larger management perspective known as activity-based management, or ABM. Despite its popularity in the literature, relatively little is still known about the details of ABC, especially in government circles. There are many unanswered questions relating to the details of how to go about implementing ABC, its possible uses, and its costs and benefits. Indeed, it is still unclear to many whether it is even appropriate to use ABC in government, given the reality that many governmental programs do not sell their services This article attempts to address these concerns by presenting the conceptual underpinnings and details of ABC, contrasting the system with more traditional cost accounting systems, discussing the fit of ABC in government, and considering in some detail how one small city might benefit from implementing ABC.     

Retention and retirement: The case of the U.S. military

The military retirement system provides an immediate, lifetime, inflation-protected annuity to personnel who complete 20 or more years of service. The cost of this system has risen substantially in the past 15 years, and the system's actuarial costs now comprise almost one-third of total military manpower costs. Because of its importance in the total military compensation system, the military retirement system exerts a significant influence on the age structure of the force and on personnel turnover patterns. This article evaluates the relative efficiency of the current retirement system by comparing it with two recently proposed alternatives, one by a presidential commission and one by the Department of Defense. It estimates the impact of these proposed alternatives on the military personnel force structure and on manpower costs. It is concluded that these alternatives would provide a force as capable as today's force at significantly lower cost.Order of authorship determined alphabetically. This paper presents results of analysis conducted while Enns and Nelson were associated with the Department of Defense and Warner was on the staff at the Center for Naval Analyses. The views presented herein are those of the authors.     

Party factions and coalition government: portfolio allocation in Italian Christian Democracy

In this paper I elaborate a recently advanced argument about government formation, and assess it by studying the factions of the Italian Christian Democratic Party (DC). I contend that the costs of making and breaking coalitions depend on political institutions and on the configuration of actors in policy space. Comparisons across parties in Italy and other countries support this argument. So also do comparisons across party factions. The Christian Democratic factions that incurred the lowest office costs to build coalitions were those at or near the left–right median in Italy's core party. When electoral rules were rewritten in the DC, internal party competition over portfolio allocation changed as well. The paper's conclusion outlines how the argument would guide further research on party factions.     

EXTERNAL INFLUENCES ON PRODUCTIVITY: EPA'S IMPLEMENTATION OF TSCA

Discussions of governmental productivity typically focus on managerial improvements within bureaucratic organizations. A more balanced, political approach to governmental efficiency and effectiveness would give equal emphasis to productivity obstacles and opportunities In an agency's legislative mandate and working environment. EPA's implementation of the Toxic Substances Control Act illustrates how productivity can be signiflcantly affected by minor legislative provisions, b y the configuration of group interests and resources, and by other factors beyond the control of an administrative agency. Some of these obstacles could be reduced i f given appropriate attention in scholarly research and in policy deliberations.     

Purchasing Policy Advice: The Limits to Contracting Out

Throughout the OECD, governments have been contracting out an increasing range of goods and services. Against this background, this article outlines the case for, and assesses the merits of, placing the purchase of governmental policy advice on a more competitive basis. Two options are given particular attention: first, the creation of an internal market for policy advice within the public sector under which departments and other government agencies would tender to supply specific policy outputs; and second, a more radical option under which public and private sector organizations would compete for the contracts to supply governmental policy advice. Drawing on the insights of the new institutional economics, it is argued that neither option is likely to enhance the efficiency or effectiveness with which policy advice is produced, whether under conditions of short-term or long-term contracting. This is due to the likelihood of: only partial contestability (due, among other things, to asset specificity in the form of transaction-specific expertise and trust); a greater risk of opportunistic behavior by the suppliers of advice (and also, under some conditions, by the purchasers); higher agency costs and transaction costs; and greater problems with respect to horizontal and vertical policy coordination. Such considerations suggest that the widespread reliance of governments on relatively permanent advisory institutions and in-house expertise can be explained and justified on the same theoretical grounds that have prompted the contracting out of other publicly-funded goods and services.     

The cost-effectiveness of methanol for reducing motor vehicle emissions and urban ozone

This article analyzes the costs and emissions characteristics of methanol vehicles. The cost-effectiveness of methanol—the cost per ton of reactive hydrocarbon emissions reduced—is calculated and compared to the cost-effectiveness of other hydrocarbon reduction strategies. Methanol is found to cost from $33,000 to nearly $60,000 per ton, while several other options are available for under $10,000 per ton. The cost per part-per-million reduction in peak ambient ozone levels is also computed for two cities, Houston and Philadelphia. Despite the greater improvement in ozone in Philadelphia than Houston, methanol is found to be more cost-effective in Houston. This result occurs because Houston's distribution and marketing costs are lower than Philadelphia's. The costs in both cities, however, are far higher than estimates of the benefits from acute health improvements. Finally, the reduction in ozone exposure in Los Angeles is estimated and the costs of the reduction compared with an estimate of acute health benefits. Again, the benefits fall far short of the costs.     

Defense Business Operations Fund (DBOF): Problems and Promise

In 1991, the United States Department of Defense established the Defense Business Operations Fund (DBOF). The DBOF includes support activities with a business volume well in excess of $80 billion annually, and it provides activities and services that are essential to the operation of the military forces. The necessity to reduce the defense budget and to find innovative ways of producing more defense than would be possible under prior operating and management arrangements caused the Department of Defense (DoD) to look to alternative economic and business models. The changes made are dramatic. The implementation has not gone as smoothly as some observers expected, and Congress and former Secretary of Defense Aspin each considered reversing the innovation. This article addresses the problems and the promised improvements in the context of the economic and management concepts undergirding the DBOF, concepts that are dramatically different than those previously applied in the DoD     

Improving child support enforcement for children receiving SSI

Less than half of all children who receive Supplemental Security Income (SSI) benefits and live in a single-parent home receive child support services. Although filing for child support is a condition of eligibility for income assistance programs such as Temporary Assistance for Needy Families (TANF), it is not a condition of eligibility for SSI benefits. Requiring single custodial parents applying for SSI on behalf of their children to pursue child support payments might result in more children on SSI receiving child support, and since the Social Security Administration (SSA) excludes one-third of child support when determining benefit amounts, increased receipt of child support would enhance the financial well-being of SSI children. Improving access to data on child support would enhance the integrity of the SSI program by reducing overpayments to children receiving child support. This article looks at the child support provisions in SSI and other means-tested programs and discusses policy options for improving receipt of child support and access to related data. Requiring cooperation with child support enforcement agencies would be consistent with the philosophy that the SSI program should serve as a program of last resort. Whenever possible, both parents should take primary responsibility for their children. While such a requirement has the potential to improve the financial status of children receiving SSI, factors such as their low-income status and their involvement with the TANF program raise questions about how much those children will actually benefit from such a requirement. Even if many additional children do not receive child support, the requirement demonstrates SSA's dedication to the stewardship of the SSI program. However, if custodial parents fail to comply with the requirement, children may be worse off as a result of the requirement. SSA should carefully pursue a requirement to induce cooperation while protecting children to the greatest extent possible. Improving access to child support data would enhance the integrity of the SSI program by reducing overpayments to children receiving child support. Given the reality of limited administrative resources as well as the apparent difficulties of gaining access to the needed child support data, SSA must decide which data matches to pursue and which requirements enhance the program enough to justify the additional resources. Although the options discussed in this article may be chosen independently, there are important interactions to consider. For example, although a requirement to pursue support might result in more children receiving child support, SSA would still rely on parents to report that income unless it was able to gain better access to child support data. Implementing the option to require cooperation with child support enforcement (CSE) agencies could improve verification of income from child support if field offices developed better communication with local CSE offices. However, by itself, it would not have as great an effect on overpayments as would having direct access to child support data. In a 1999 report, the General Accounting Office acknowledged that the potential benefit reductions would be offset by the cost for SSA to administer a child support cooperation requirement and by the costs to the CSE programs to provide services. The report suggested that the goals of promoting parental responsibility and increasing the income of children receiving SSI should be pursued despite the costs. Requiring cooperation may increase administrative costs by $6 million over 5 years and may result in program savings. Gaining access to data may be more expensive and may not prevent overpayments to the same extent as other data-matching workloads on which SSA has placed a priority. SSA should continue to work with federal child support enforcement and with individual states to develop a cost-effective way to identify child support income.     

On the accuracy of regulatory cost estimates

This study compares ex ante estimates of the direct costs of individual regulations to ex post assessments of the same regulations. For total costs the results support conventional wisdom, namely that the costs of regulations tend to be overestimated. This is true for 14 of the 28 rules in the data set discussed, while for only 3 rules were the ex ante estimates too low. For unit costs, however, the story is quite different. At least for EPA and OSHA rules, unit cost estimates are often accurate, and even when they are not, overestimation of abatement costs occurs about as often as underestimation. In contrast, for those rules that use economic incentives, unit costs are consistently overestimated. The difference between the total‐cost and the unit‐cost results is caused by frequent errors in estimates of the effects of individual rules, which suggests, in turn, that the rule's benefits may also be overestimated. The quantity errors are driven both by difficulties in determining the baseline and by incomplete compliance. In cases of unit‐cost overestimation, unanticipated technological innovation appears to be an important factor — especially for economic incentive rules, although procedural and methodological explanations may also apply. © 2000 by the Association for Public Policy and Management.     

A Veteran's View of Science Education Today

Science education in our schools is fundamentally the same today as it was fifty years ago and the scientific method has not really changed. Good science teaching is defined as the never‐ending search for evidence, for objective data, which leads to truth, and the search for truth should be at the heart of education in all subjects at all levels, and teacher training should address this objective view point. Science in our schools is watered down with derivatives such as environmental education. Steps should be taken to increase the level of science content knowledge in schools and science teacher education. Additionally, the rules of the open market should be invoked to give science teachers the latitude to offer their services as other providers of professional services do, and receive compensation greater than they would as regular full‐time teachers. These issues are discussed with implications for policy.     

Jokes and their relation to the mode of production

Abstract

The governmentality literature offers a host of insights into liberal modes of government. A key theme in this literature is that the economy came to be seen as an autonomous domain requiring its own form of governmental reason. Yet the emergence of the economy has never been specified, in terms of both what would constitute an economy and how it was constituted. Instead, the appearance of an economy has been conflated with the general rise of liberal understandings of agency. In this paper I seek to provide an alternative and more precise account. This involves showing how the importance of Smith lies not so much in his formulation of a liberal version of agency, but in the disjunction he introduces between reason of state and political oeconomy. Crucially, despite his significance, Smith's arguments do not usher in an economy. For that event we have to wait for Ricardo's problematic of distribution. This alternative account is intended to weaken the association of the rise of liberal government with the emergence of the economy as an object of thought.     

Debt Issued Through Others: Conduits,Joint Powers Authorities,and Borrowing Costs in California Local Governments

The issuance of debt is a complicated and time‐consuming task requiring governments to pay substantial fixed transaction costs. Conduit financings, where one entity issues debt on behalf of a government, including bond pools, where multiple governments issue debt together, are methods that offer the potential to reduce the burdens of participating governments, ideally lowering their costs. But conduit hosts have costs of their own to cover and may not be able to offer a cost advantage to their participants. In this paper we examine debt issued under the Marks Roos Act of 1985, a law created to facilitate pooling but actually used for conduit financing. We seek to determine how issuers fare using this mechanism rather than issuing by themselves. We examine issuance costs and borrowing costs (true interest cost) and find both to be significantly lower for those governments that issued by themselves.     

Human rights and future people — Possibilities of argumentation

Questions of sustainability will be of crucial importance for the twenty-first century. But do we have to think about questions of responsibilities regarding future people in terms of human rights? And if duties regarding sustainability fall outside the scope of human rights, what would this imply for the moral and political importance of human rights in general? This article investigates conceptually how we should see the relationship between human rights and long-term global ecological challenges. We will discuss how a human rights approach to questions of sustainability would be different from other approaches and what would be required to see those ecological challenges as human rights questions. We will discuss the possibilities for conceptualizing the relationship between human rights and sustainability. And we will briefly draw some conclusions in terms of topics for further debate.     

Skunks in an English Woodland: Should England Embrace For‐Profit Higher Education?

The British government is encouraging the growth of for‐profit alternative providers of higher education (HE). While it is true that for‐profits have opened HE access to previously under‐served groups and have been more agile in reacting to market demand, they have done so at a considerable cost to students and the taxpayer because they do not share in the cost of the failure of HE to ensure a payoff for many of their students. The US experience with for‐profits should be a cautionary tale for those supporting their expansion in Britain. Policy is needed to craft a regulatory framework that produces the benefits that for‐profits can provide, but minimises the costs that often accompany them. At present, it is far from clear that expanding alternative providers—that is, for‐profits—would ‘work better’ for students.     

The Political Viability of Carbon Pricing: Policy Design and Framing in British Columbia and California

The adoption of climate policies with visible, substantial costs for households is uncommon because of expected political backlash, but British Columbia's carbon tax and California's cap‐and‐trade program imposed such costs and still survived vigorous opposition. To explain these outcomes, this article tests hypotheses concerning policy design, framing, energy prices, and elections. It conducts universalizing and variation‐finding comparisons across three subcases in the two jurisdictions and uses primary sources to carry out process tracing involving mechanisms of public opinion and elite position‐taking. The article finds strong support for the timing of independent energy price changes, exogenous causes of election results, reducing the visibility of carbon pricing, and using public‐benefit justifications, as well as some support for making concessions to voters. By contrast, the effects of the use of revenue, industry exemptions/compensations, and making polluters pay are not uniform, because the effects of revenue use depend on how it is embedded in coalition building efforts and a middle path between exempting or compensating industry and burdening it appears to be more effective than pursuing just one or the other approach.     

The Importance of Contract Design

This article examines the contract design decisions of three federal agencies—the Departments of Health and Human Services, Defense, and Homeland Security—using five years of data from the Federal Procurement Data System. Three basic contract design elements are charted—type (fixed price versus cost reimbursement), length, and value—across simple to complex products. All three agencies use short‐term, fixed‐price contracts for the majority of the purchases that they make. This basic contract design allows agencies to tap the benefits of competition: innovation and cost‐efficiency. However, the Departments of Defense and Homeland Security often dramatically increase the length and value of contracts through modifications to initial agreements. This approach forgoes the benefits of competition and may expose the agency to the risk of cost overruns, delivery delays, and diminished product quality.     

Transactions costs and the optimal instrument and intensity of air pollution control

Conclusions To what extent do the transactions costs of implementing alternative instruments for pollution control affect the choice of the optimal instrument and the efficient intensity of control under that instrument? In a comparison of Least-Cost Regulatory Standards and Revenue-Neutral Pigouvian Taxes, it is the higher transactions costs of implementing the taxes that make Pigouvian Taxes the more costly of the two instruments. However, a more practical comparison of instruments is between Politically Feasible Standards, Marketable Discharge Permits, and Revenue-Raising Pigouvian Taxes. Here, the relationship between the transactions costs of implementation and total pollution costs are in an almost linear inverse relationship. The lower the pollution costs associated with a particular instrument, and therefore the more desirable the instrument, the higher the transactions costs of implementation. Other factors such as political distortion and welfare gains prove to be more important than the transactions costs of implementation.Assuming that variable transactions costs decrease with the optimal level of pollution for regulatory standards but increase with the optimal level for market oriented instruments, an accounting of transactions costs results in less stringent control in the case of regulatory standards and more stringent control in the case of market oriented instruments. However, the percentage effect is very small. Moreover, it is smaller in both cases if marginal pollution damage rises with the level of pollution, as it is usually presumed to do, rather than remain constant as assumed in this paper for purposes of aggregation. A major conclusion of this paper is that Pigouvian Taxes are the superior instrument for pollution control when the raising of public revenues is a desired objective. However, the various conclusions of this paper should be viewed as tentative because the data on which they are based are no longer current. Moreover, the critical estimates of transactions costs are somewhat dubious. It is hoped that new data will be collected for answering the questions raised in this paper. When this is done, a more powerful approach, one that obviates the need for the artificial, one-dollar-damaging, aggregate pollutant, would be an expanded linear programming model in which the transactions costs are treated as separate coefficients of the individual pollution control methods. Separate sets of such coefficients, each corresponding to a different policy instrument such as Least-Cost Regulatory Standards, Revenue-Neutral Pigouvian Taxes, etc., would enable the investigator to directly derive solutions that specify the optimal policy instrument as well as the optimal set of pollution control method activity levels.I am grateful to William Ascher, Murray Weidenbaum, and two anonymous referees for helpful guidance on the paper.     

Buying in a Businesslike Fashion— And Paying More?

The government, particularly the Department of Defense (DoD), is undergoing yet another wave of acquisition reforms, which are intended to bring commercial buying practices to DoD's purchasing operations. This research shows that, prior to these reforms, the DoD's buying practices were superior to commercial practices in terms of prices paid for a large number of electronic and engine parts. The research compares DoD and purchasing of more than 676,000 identical items costing more than $60 million with commercial purchasing of the identical items. It finds that the DoD's purchasing superiority holds even when purchasing costs are considered. The DoD achieved these results because it was already using commercial practices commonly followed by large firms: aggregating purchases, using cost data, and negotiating aggressively in markets with few suppliers. Some of the recent reforms will undermine the DoD's ability to exploit these common commercial practices and will raise the government's costs.     

Leasehold or Freehold? Leader-Eviction Rules in the British Conservative and Labour Parties

This paper examines how leader-eviction rules affect the security of tenure of party leaders in the British Conservative and Labour parties. It sets out a framework for analysing and comparing eviction rules based on the political risks and institutional costs incurred by challengers and selectors alike in removing incumbents. Entering a contest entails mobilisation costs as challengers seek the backing of allies. Political risks are increased for the incumbent's rivals if they must stand directly against the incumbent in a contest. In contrast, rules that separate incumbent eviction and replacement enable rivals to freeride on the evicting efforts of other actors, significantly diminishing the incumbent's security of tenure. This paper looks at three systems: the Labour Party's electoral college, the Conservative Party's parliamentary ballot system and the Tories' new parliamentary mass-membership hybrid. High nomination barriers and the necessity to challenge the incumbent directly make Labour leaders secure. Eviction costs are lower in the two Conservative systems. This paper also argues that a party's eviction rules must be viewed in the context of its broader internal distribution of power: as party leaders gain more power over decision-making, raising barriers to challengers may simply encourage internal opponents to rebel or exit.     

Organizational Process,Rulemaking Pace,and the Shadow of Judicial Review

Scholars have long understood that structuring internal work processes into more hierarchical or team‐based arrangements has consequences for organizational outputs. Building on this insight, this research examines the relationship between how agencies organize their rulemaking routines and the resulting rules. Tracking the job functions of rule contacts for economically significant rules proposed over a four‐year period, the analysis demonstrates that expanding the breadth of personnel types closely involved in a rulemaking is associated with a reduction in the time it takes to promulgate the rule. However, increasing the pace at which rules are finalized is not without cost, as those completed faster appear more likely to be overturned when challenged in court. The article not only adds another dimension to empirical scholarship studying rulemaking, which has largely focused on how forces originating outside the agency affect rules, but also suggests the importance of considering competing priorities in designing rulemaking processes.