ECON 201 –003, Assignment #3 Market Intervention

Due Date: February 05, 2013 @ 13.00

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Question 1: Market for lobster – Revisited (52 points)

Consider again the market for Atlantic lobster presented in Q#1 of the previous

assignment where the annual demand and supply for lobster is given by the

following equations: 100 0.2 D

P Q= − , and 25 0.1 S

P Q= + , where P is the price per kg

in dollars, Q D

and Q S

are respectively the quantity demanded and the quantity

supplied (in thousand of Kgs). The government imposes a quota of 150 thousand

of kgs per year in the lobster industry and licenses are issued to allocate the rights

to harvest lobster.

1. Reconstruct the Demand and Supply curves in a graphing paper and show

graphically the equilibrium price P* and quantity Q* for lobster in the

absence of quota (8 points).

2. Denote the quota by Q and show it graphically. Calculate the demand price

and the supply price under this quota and show them graphically (7 points).

3. Calculate the quota wedge (the quota rent) per Kg of lobster when 150

thousand of Kgs are sold? (7 points)

Another way to achieve the same reduction of the harvested lobster at 150

thousand of kgs per year is by imposing an excise tax. Consider now that the

government imposes an excise tax that is officially paid by the fishing industry.

4. Find the excise tax rate (in dollars) and fully explain how does the tax work

(i.e. which side of the market will it affect and how) by illustrating your

answers graphically (8 points)

5. Calculate the tax revenue collected by the government in this scenario and

show it in the graph (7 points).

ECON 201 –003, Assignment #3 Market Intervention

Due Date: February 05, 2013 @ 13.00

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6. Calculate the incidence of the tax (i.e. the portion paid by each party per

kg), show it graphically and identify which party (consumers/producers)

pays the heavier tax burden. Illustrate graphically (10 points)

7. Comment briefly on positive effects (if any) of these policies (5 points)

Question 2: Effect of Taxes (48 points)

In each following cases (16 points) involving taxes, calculate and explain:

1) Whether the incidence of the tax fall more heavily on consumers or

producers (4 points).

2) Why the government revenue raised from the tax (calculate it) is not a good

indicator of the tax (4 points).

3) What missed opportunity or inefficiency arises (3 points).

4) Illustrate your answers with a simple graph (5 points).

a. The government imposes an excise tax on the sale of all college textbooks.

Before the tax was imposed 1 million textbooks were sold every year at price

of $50. After the tax is imposed 600, 000 books are sold yearly; students pay

$55 per book, while publishers receive $30 per book.

b. The government imposes an excise tax on the sale of all airplane ticket.

Before the tax was imposed, 3 million airline tickets were sold every year at

a price of $500. After the tax is imposed 1.5 million tickets are sold every

year; travelers pay $550 per ticket, while airlines receive $450 per ticket.

c. The government imposes an excise tax on the sale of all toothbrushes.

Before the tax 2 million toothbrushes were sold yearly at a price of $2.00.

After the tax is imposed, 800,000 toothbrushes are sold yearly; consumers

pay $2.50 per toothbrush, while producers receive $ .75 per toothbrush.

www.ids-scheer.com

Why two thirds of Enterprise Architecture projects fail

An explanation for the limited success of architecture projects

ARIS Expert Paper

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This is the conclusion of a study for the Rotterdam University carried out by Jonathan Broer in the summer of 2008, ordered by BPM and EA software vendor IDS Scheer. Broer questioned 161 respondents from 89 organizations represent- ing a range of industries about their vision and implementation of the enterprise architecture concept.

A clear majority of respondents – 92 percent – believes that EA should be deter- mined by the vision, strategy and objectives of the company. Yet only 40 percent of them actually included objectives and policies in their EA program. The align- ment of Business and IT is seen as the most important argument for organiza- tions to start using EA. At the same time connecting IT architecture and business elements, and arriving at important decisions about structure and layout on that basis, is found to be one of the biggest problems confronting businesses. Among the reasons for the failure of EA programs to fulfill expectations were a lack of EA awareness and the fact that it took longer than expected to set up an archi- tecture.

Why two thirds of Enterprise Architecture projects fail

An explanation for the limited success of architecture projects

Large and medium-sized organizations regard the alignment of business and IT as the most important motive for working on an enterprise architecture (EA). Other important reasons for putting EA on the agenda are support for change processes and strengthening the flexibility of the company. In spite of the huge interest in EA it turns out that 66 percent of programs did not ful- fill expectations.

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ARIS Expert Paper

This ARIS Expert Paper comprises: � an overview of typical Enterprise Architecture project roles and

drivers

� main targets of Enterprise Architecture projects and initiatives � critical success factors derived out of the survey

About the authors:

Sven Roeleven is Global Solutions Manager at IDS Scheer. After graduating in Public

Administration from Erasmus University Rotterdam (the

Netherlands), he went on to spe- cialize in business process man-

agement within ERP environ- ments. Since joining IDS Scheer in

2002, Sven has gained extensive hands-on experience covering all ARIS platform products through- out the course of dozens of proj-

ects within medium-sized and larger organizations across a vari-

ety of industries.

Jonathan Broer completed his studies in Business

Informatics at the Rotterdam University in 2008 (with a minor in BPM). For his practical training in

the final year of his degree, he carried out a study of enterprise architecture at IDS Scheer. Since

September 2008 he has been employed by Capgemini as a con-

sultant in the field of Architecture, Governance & Infrastructure.

Contact: [email protected]

Fig. 1: Industries that participated in the study

Drivers for EA

Organizations start using EA for different reasons. Business and IT streamlining, supporting change processes and achieving greater flexibility are the three most important reasons for starting an EA project. This fits the definition of EA used by research agency Gartner:

“Enterprise architecture is the process of trans- lating business vision and strategy into effective enterprise change [..]”.

The fact that EA is determined by vision, strategy and objectives is also affirmed by 92 percent of the organizations taking part in the study. In other words, organizations have a clear understanding of the reasons for starting an EA project, and they know that these drivers are partly determined by the business strategy. In their vision EA is there- fore a holistic, business-driven discipline.

Older organizations have higher integration of architectures

Apart from their well-developed vision, organizations have also come quite far in the implementation of enterprise archi- tectures. 74 percent already use a framework for EA, and the majority of those without a framework are in the process of choosing one. The most commonly used standard frameworks are TOGAF (The Open Group Architecture Framework) and ArchiMate (adopted by TOGAF in 2008 as standard modeling language).

The older organizations (more than 50 years old) are often further ahead in the integration of domain architectures. In many cases they have been involved in mergers or takeovers which necessitate a good integration. The presence of lega- cy systems also plays an important role. It is important after all to know what the consequences of phasing out a system will be for the entire operational management – the consequences for data exchanged with the system for example, or for the infrastructure on which it runs, or for the processes supported by the system which is about to be phased out.

Large organizations have more EA roles

There is also a connection between the size of an organization and the presence of EA relat- ed roles. The larger the organization, the larg- er the presence of these roles in the EA work field.

For small organizations the information archi- tect is used the most. For large organizations it is the business architect. Respondent com- ments show that small organizations approach EA much more from an IT point of view. Larger organizations which appear to be more mature in their enterprise architecture have a more business-oriented approach, and they cite the business architect as the most common role.

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ARIS Expert Paper

Fig. 2: Drivers for EA projects

Fig. 3: Presence of EA related roles

Who is responsible for the purchasing of an EA tool?

As regards the responsibility for purchasing an EA tool, it is notable that the IT manager and CIO play a far bigger role in the purchase of an EA tool than in the purchase of an ERP pack- age for example. When purchasing an ERP package there is a larger contribution from the business, whereas EA tooling is primarily approached from the IT perspective. This is rather surprising considering that the older, larger companies tend to approach EA from a business perspective. One possible explana- tion for this is that the business reality has already been reproduced in a process model- ing tool, and this is the responsibility of the CIO and the IT manager in most organizations.

Explanations for disappointing results

In spite of the fact that organizations already have a reason- ably mature vision and implementation, the expected results are not achieved in 66 percent of the EA projects. The most fre- quent explanation given for this failure is that connecting EA to business elements such as strategy and BPM is found to be difficult in practice.

Other reasons given by many respondents for the failure to meet expectations were:

� Not enough support from C-level (CIO and CFO for example) so that EA is not given enough status and expectations cannot be fulfilled in practice.

� Limited commitment from interested parties so that there is a return to old habits, and agreements are not complied with.

� Not enough EA awareness among interested parties inside the organization. EA not a generally accepted concept in daily business activities.

� Financial and political issues that thwart EA projects.

� Setting up an architecture takes longer than expected. This means it takes longer for the results to become visible, which means there is a considerable risk factor for EA.

Another possible explanation is the discrep- ancy between initial intentions for EA on the one hand and the actual realization of the architectures and degree of compliance with agreements on the other. For example: 92 per- cent of the organizations believe that vision, strategy and objectives are determining fac- tors for EA, yet only 40 percent incorporated them in the architecture. On this basis it is of course impossible to define the direct impact of strategic choices on the architectural lay- out. The following histogram provides an overview of the most frequently recorded domain architectures, including those for objective and policies.

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ARIS Expert Paper

Fig. 4: Responsibility for IT investments

Fig. 5: Most common EA problems

Fig 6: Most commonly recorded domain architectures

The three most frequently recorded architectures are found to be the application architecture, process architecture and information architecture.

The recording of domain architectures does not mean there is a successful enterprise architecture in place however. Agreements also have to be complied with about the use of one another’s information, the methods to be used, owner-

ship, and procedures for arriving at innovations. All this is collectively referred to as EA Governance. In the following graph, four principles of EA Governance show that the organizations do not score highly for maturity. This may help to explain the disappointing results of EA projects. Even when a big effort has been made to sort out EA, a lack of (compliance with) agree- ments leads to relatively low yields.

Since the recorded EA is not an integrated component of operational management, there is a lack of commit- ment. This undermines the status of EA inside the organization. Also, architectures are often constructed which bear no relation to other architectures inside the organization. As a result there are no gains from rapid impact analyses, coordination between domain

owners and integrated project scheduling. Structural monitoring of compliance with architectural principles can help in this regard, but this is not sufficiently applied in practice.

How can we ensure the success of an EA project?

The study shows that the following three rules will help to create the right conditions for making EA successful in an organization:

1. Set clear, enterprise-wide EA objectives before you start, and manage expectations inside the organization. The objectives affect the choice of the EA concept, including the choice of domain architectures and the degree of inte- gration between them. With clear objectives it is easier to manage expectations in relation to EA inside the organi- zation. In this way disappointment is avoided and the organization does not have to spend a lot of time and energy trying to create an architecture which is never realized. By deploying EA enterprise-wide it is also easier to demon- strate that a shared approach to EA pays off, in comparison to the silos of documentation in Excel, Word and niche tools, with all the duplication and inconsistencies these involve. Use it to raise the level of commitment and cele- brate the successes achieved.

2. Set up EA Governance and comply with it. If the methods and agreements drawn up are not complied with by the EA roles, the yield from the EA initiative will be inadequate. Appoint a Chief EA to oversee compliance who also reports to higher management (C-level). Higher management can in turn ask for feedback through the Chief EA about the impact of strategic management choices on operational management and operational structures. In the context of EA Governance, it is important to specify in the standard project approach that it is mandatory to check what infor- mation has already been recorded on the scope of the project; this information should be used as a starting point for the TO-BE situation. It is also important of course that EA owners validate innovations according to a fixed release procedure, and for the new AS-IS situation to be documented in the EA tool before discharging responsibil- ity for the project.

3. Make sure the business is sufficiently involved in these initiatives, starting with the choice of the EA tool. Do not allow EA procedures and tooling to become an IT matter, otherwise the EA will not serve as driver of business and IT streamlining. Choose a tool that supports all domain architectures and is able to connect them in a single repos- itory. Also make sure the tool can incorporate ownership, combine the different methods used, and produce flexible reports. Tools that already provide standard EA frameworks such as TOGAF, IAF and ArchiMate are preferable in this regard.

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ARIS Expert Paper

Fig 7: The way EA is implemented

ARIS Expert Paper

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IDS Scheer AG

Headquarters Altenkesseler Str. 17 66115 Saarbruecken Phone: +49 681 210-0 Fax: +49 681 210-1000 E-mail: [email protected]

www.ids-scheer.com

© Copyright (C) IDS Scheer AG, 2001 – 2009. All rights reserved. The contents of this document is subject to copyright law. Changes, abridgments, extensions and sup- plements require the prior written consent from IDS Scheer AG, Saarbrücken, Germany. Reproduction is only permitted provided that this copyright notice is retained on the reproduced document. Each publication or translation requires the prior written consent from IDS Scheer AG, Saarbrücken, Germany. “ARIS”, “IDS”, “ProcessWorld”, “PPM”, “MashZone”, ARIS with Platform symbol and Y symbol are trademarks or registered trademarks of IDS Scheer AG in Germany and in many countries all over the world. “SAP NetWeaver” is a trademark of SAP AG, Walldorf. All other trademarks are the property of their respective owners. U.S. pat. D561,778, pat. D561,777, pat. D547,322, pat. D547,323, pat. D547,324

ID-Number: EP-EA-0609-EN