Attribution of objectives

One of the most fascinating recent developments in law economics can be described as a conscious turning away from prescriptive propositions to research work intended to evaluate the actual performance of identifiable institutions in the light of contemporary public finance theory.

1. specifying explicitly the objective(s) attributed to the public firms;

2. providing a convincing justification for the selected objectives;

3. translating each one of these objectives in terms of indicators that are observable, and preferably measurable;

4. devising methods whereby the comparison can be established between the observed values of the said indicators, and those values that corre­spond to a complete fulfilment of the corresponding objective. (Tulkens, 1986, p. 430)

While the performance approach to evaluating public enterprise perform­ance is undoubtedly an improvement on normative work, as Marchand et al. (1984) rightfully claim, the specific approach suggested may be characterized as a conflict between technique and purpose. If the purpose is to investigate to what extent normative public enterprise economics speaks to identifiable institutions in terms of detecting the normatively established priorities in the course of the actual performance of these institutions, that purpose of inquiry is an epistemological one and there is probably no point of disagreement between the present author and the researchers supporting the performance approach. If, on the other hand, the attributed criteria are used for the evalu­ation of the analysed enterprises instead of the theory from which they are derived, it is suggested that technique and purpose are at odds with each other.

To be sure, Tulkens for one is aware of the problem raised here. He writes: ‘Indeed, a distinction ought probably to be made between the objectives attributed to public firms by the economist, when he develops his analysis, and those attributed to such firms by society when the latter establishes them’ (ibid., p. 431, original emphasis). The possibility of one set of values held by the economics profession and another one held in society, although perhaps descriptive of the profession, seems to be at odds with received welfare economics.

The question then arises whether a mere attribution of policy objectives against which public enterprises are to be evaluated can be replaced by a theoretically based analysis leading to a determination of their (sets of) objectives. Again, the question is explicitly addressed by Tulkens himself:

An implication for our purposes... is that objectives quite different from those above can conceivably be attributed to public firms, such as e.g. maximization of managers’ compensation, or maximization of labor pay. Whether the term of performance still correctly applies in this perspective may be left to semantics; but a valid methodological question raised thereby is that of devising appropriate statistical methods for testing to what extent such ‘positive’ behavioral hypotheses can be supported by evidence. This needs to be done much along the same stages as those who outline the outset for the performance approach. (Ibid.)