Investment and Pricing Policy in the French Public Sector
The French public sector has become very extensive as the result of post-World War II nationalizations. This situation naturally led French economists to study with special care the methods of investment and pricing to be used by public bodies. These studies first took place in the electric utility company (EDF). Specific tools were derived and applied to this sector during the 1950's (G. Bessiere and G. Morlat, ed.; English text, Nelson, ed.). We will not elaborate on this point, which is well known (for recent developments on optimal control and marginal cost pricing applied to electric utilities, see A. Breton and F. Falgarone, Balasko). During the 1960's, these tools were tentatively applied to other fields such as intercity transportation, town planning, housing, farming, water resources, etc. This extension was part of a large effort towards improvement of management methods in government, called Rationalisation des choix budg6taires (RCB). RCB is somewhat similar to Planning Program Budgeting System. Its development is placed under supervision of Direction de la Prevision (ministry of finance) which supplies technical assistance when required (Levy-Lambert and H. Guillaume). Criteria were originally based on the classical concept of economic optimum where market prices exist. They were progressively improved in three ways: taking into account imperfection of the environment led to substitute comparison of various possibilities through simulation models to straightforward optimization; taking into account nonmarket costs and benefits led either to tentative valuation thereof or to use of multicriteria decision-making tools; taking into account macroeconomic effects of microeconomic decisions under study led to introduction of shadow prices and addition of special terms to the conventional decision criteria. (See for instance Levy-Lambert and J. P. Dupuy, Vol. 2, Ch. VII.) These developments were based on works by M. Allais, M. Boiteux, J. Lesourne, E. Malinvaud, P. Masse, in microeconomic theory. A fairly good review of these works is to be found in J. Dreze. Linkage between micro and macroeconomic tools was analyzed by CEPREMAP (R. Guesnerie and P. Malgrange). They derived an endogenous government utility function through analysis of the 6th plan decision process, using a macroeconomic model called FIFI (M. Aglietta and R. Courbis). Their work led to a valuation of tradeoffs between household consumption and the main parameters that characterize a given state of the economy, such as unemployment, price level, trade balance, budget deficit or surplus, etc. This valuation was tentatively used as a substitute for surplus maximization as explained below (Section III, Farming). Long-term models were also used to derive a national discount rate based on the marginal productivity of capital (L. Stoleru, Guillaume). The influence of recent disturbances in the world economy led to its reduction from 10 to 9 percent in real terms (A. Bernard). The following examples in the areas of transportation, housing, farming and water resources show the way the theoretical tools have been effectively put to use in France.
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