bureaucratic minimal squawk behavior theory and evidence from regulatory agencies this paper develops a model in which a desire to avoid criticism prompts otherwise public spirited bureaucrats to behave inefficiently decisions are taken to keep interest groups quiet and to keep mistakes out of the public eye the policy implications of this minimal squawk behavior are at odds with the view that agencies should be structured to minimize the threat of capture an empirical test using data from us state public utility commissions rejects the capture hypothesis and is consistent with the squawk hypothesis longer puc terms of office are associated with a higher incidence of rate reviews and lower household electricity bills jel d73 l51 l97 l98

submarkets and the evolution of market structure we construct a model of industry evolution in which the central force for change is the creation and destruction of submarkets firms expand when they are able to exploit new opportunities that arrive in the form of submarkets they contract and ultimately exit when the submarkets in which they operate are destroyed this simple framework can transparently explain a wide range of well known regularities about industry dynamics most notably the subtle relationships between size age growth and survival data on the laser industry where submarkets are prominent further illustrate the ability of the model to explain distinctive patterns in the evolution of industries and firms

corporate conservatism and relative compensation this paper demonstrates that in a simple setting with managerial concern for reputation and asymmetric information on ability most managers may refrain from undertaking innovations that stochastically dominate an industry standard common components of uncertainty lead to market inferences of managerial ability based on relative performance managers who undertake the industry standard are consequently evaluated with a more accurate benchmark than those innovating discontinuities in compensation when performance is low because of firings lead managers to have differing valuations of an accurate benchmark depending on type in particular very high and very low ability managers are more likely to undertake superior innovations than those of average ability

product innovation and firm growth evidence from the integrated circuit industry applied research on growth and innovation seems to suggest that successful innovations do not significantly enhance firm growth this paper tests the hypothesis that the level of observation at which applied research is typically conducted hampers identification of a significant association between innovation and sales growth rates exploiting a unique data set we find that product innovations commercialized in the immediate past positively affect the corporate revenue streams of semiconductor companies

financial reforms and income inequality abstract using a panel of 62 countries for 1973 2005 we assess the impact of financial reforms on income inequality we find that removal of policies towards directed credit and excessively high reserve requirements and improvements in the securities market reduce inequality

does entry size matter the impact of the life cycle and technology on firm survival a wave of empirical studies has recently emerged showing that smaller scale entry is confronted with a lower likelihood of survival than their larger counterparts the purpose of this paper is to examine whether the relationship between size of a firm when entering an industry and the likelihood of survival holds under different technological conditions and across the different stages of the industry life cycle the empirical evidence suggests that the relationship between firm size and the likelihood of survival is shaped by technology and the stage of the industry life cycle while the likelihood of survival confronting small entrants is generally less than that confronting their larger counterparts the relationship does not hold for mature stages of the product life cycle or in technologically intensive products in mature industries that are still technologically intensive entry may be less about radical innovation and possibly more about filling strategic niches thus negating the impact of entry size on the likelihood of survival

history friendly models of industry evolution the computer industry the model presented in this paper is the first of a new generation of evolutionary economic models history friendly models history friendly models are formal models that aim to capture in stylized form qualitative and appreciative theories about the mechanisms and factors affecting industry evolution technological advance and institutional change put forth by empirical scholars of industrial economics technological change business organization and strategy and other social scientists in this paper we have analyzed the long term evolution of the computer industry in particular we have examined the emergence of a dominant firm in mainframes the introduction of a major innovation microprocessor the opening up of a new market segment personal computers ad the competition there between newcomers and diversified old established firms we have taken a body of verbal appreciative theorizing developed a formal representation of that theory and found that the formal version of that theory is consistent and capable of generating the stylized facts the appreciative theory purports to explain going through this analytic exercise has significantly sharpened our theoretical understanding of the key factors behind salient aspects of the evolution of the computer industry copyright 1999 by oxford university press

analyst forecasts and herding behavior the use of analyst forecasts as proxies for investors earnings expectations is commonplace in empirical research an implicit assumption behind their use is that they reflect analysts private information in an unbiased manner as demonstrated here this assumption is not necessarily valid there is shown to be a tendency for analysts to release forecasts closer to prior earnings expectations than is appropriate given their information further analysts exhibit herding behavior whereby they release forecasts similar to those previously announced by other analysts even when this is not justified by their information these results are shown to have interesting empirical implications article published by oxford university press on behalf of the society for financial studies in its journal the review of financial studies

the legacy of steven klepper industry evolution entrepreneurship and geography this introductory essay of the special issue honoring steven klepper provides a synthesis of his work and places the articles of the special issue within the context of his scholarship steven klepper s pioneering work linked life cycle patterns in industry evolution to underlying micro level firm innovation dynamics and employee entrepreneurship and to the macro level implications regarding geographical agglomeration and the growth of economies taken together the lifetime of klepper s research provides an integrated account of the key industrial mechanisms at work and also sets the stage for future research as is elaborated in individual contributions to the special issue

user innovators and local information the case of mountain biking in a study of innovations developed by mountain bikers we find that userinnovators almost always utilize local information information already in their possession or generated by themselves both to determine the need for and to develop the solutions for their innovations we argue that this finding fits the economic incentives operating on users local need information will in general be the most relevant to user innovators since the bulk of their innovation related rewards typically come from in house use user innovators will increasingly tend to rely on local solution information as the stickiness of non local solution information rises

user industry spinouts downstream industry knowledge as a source of new firm entry and survival recent scholarship on entrepreneurship suggests that the pre entry know how of start ups embodied in their founders affects not only entry but also performance although prior work focuses on new entrants from the focal industry i e employee spinouts and academic organizations i e university spinoffs this study identifies and examines a hybrid category of start ups from downstream user industries which we call user industry spinouts we draw from the literature on evolutionary theory user innovation and industrial dynamics to propose that given the unique combination of knowledge inherited by these entrants their choices at entry and their ability to survive in the focal industry will differ with respect to other start ups we do this by extending existing work on new firm creation to investigate entry and performance in different product markets our findings based on a dataset of start ups in the semiconductor industry over a 10 year period 1997 2007 show that user industry spinou

getting off to a good start the effects of upper echelon affiliations on underwriter prestige the initial public offering ipo is one of the most critical events in the lifetime of a young firm prior research has shown that firms tend to have successful ipos if they go public with the endorsement of a prestigious lead underwriter this paper examines the antecedents to receiving endorsement by a prestigious underwriter and links this to the experience base of a firm s upper echelon we theorize that the amount and type of upper echelon experience serve as important symbols of a young firm s legitimacy to critical outsiders we introduce a typology of upper echelon experience that distinguishes between upper echelon upstream horizontal and downstream employment based affiliations and suggest that these different types of upper echelon affiliations allay different types of endorser concerns regarding firm legitimacy affecting the endorsement process further we theorize that the relationships between upper echelon experience and investment bank prestige will be moderated by technological uncertainty we test our assertions on a comprehensive sample of public and private biotechnology firms that were founded between 1961 and 1994 and that went public between 1979 and 1996 analyses of the five year career histories of the over 3 200 executives and directors that make up the upper echelons of these firms show that firms with upper echelons with affiliations with prominent downstream organizations i e pharmaceutical and or healthcare companies and with prominent horizontal organizations i e biotechnology companies are more likely to attract the endorsement of a prestigious investment bank we also find that the greater the range of upper echelon affiliations across the categories of upstream horizontal and downstream affiliations the more prestigious the firm s lead underwriter we also find that these latter results are moderated by technological uncertainty the present research has implications for the study of organizational legitimacy interorganizational endorsements and entrepreneurship

anti herding and strategic consultation in this paper i analyze how careerist decision makers aggregate and use information provided by others i find that decision makers who are motivated by reputation concerns tend to anti herding i e they excessively contradict public information such as the prior or others recommendations i also find that some decision makers may deliberately act unilaterally and not consult advisers although advice is costless moreover advisers to the decision maker may not report their information truthfully even if the advisers care only about the outcome they bias their recommendation since they anticipate inefficient anti herding behavior by the decision maker

partisanship and the effectiveness of oversight abstract we examine the welfare effects of partisanship in a model of checks and balances an executive makes a policy proposal and an overseer then decides whether or not to veto the executive s proposal both the executive and the overseer have private information as to the correct policy to pursue and both are motivated by the desire to appear competent a partisan overseer is one who in addition to seeking to promote her own reputation cares how her decision will impact the executive s reputation our main result is that partisanship can improve the efficacy of an oversight regime as the distortions caused by a partisan overseer s desire to affect the executive s reputation can offset the distortions caused by her desire to enhance her own our results provide a new rationale for divided government as partisan considerations are often necessary to prevent the overseer from rubber stamping all executive proposals

media and gridlock abstract i develop a model of the relation between the media environment and political obstructionism i show that when voters are less informed by media obstructionism becomes a more effective political signal for the minority party the model thus implies that media change can cause gridlock via signaling by contrast the previous literature on causes of gridlock focuses on polarization and other factors the model also makes several auxiliary predictions consistent with recent trends in u s politics

the drivers of efficient knowledge transfer performance evidence from british universities using data from the united kingdom this study explores the institutional and environmental factors that influence universities efficiency in knowledge transfer while studies of universities knowledge transfer performance have so far focused on patent commercialisation and research contracting with industry it is increasingly acknowledged that universities engage in a broader range of knowledge transfer activities including consulting public engagement and provision of knowledge intensive services when these are taken into account less research intensive universities and those with a greater share of staff in the arts and humanities improve their relative efficiency more specialised older and larger institutions are more efficient performers while research intensity is no longer a strong predictor of efficiency

reputation and imperfect information abstract a common observation in the informal literature of economics and elsewhere is that is multistage games players may seek early in the game to acquire a reputation for being tough or benevolent or something else but this phenomenon is not observed in some formal game theoretic analyses of finite games such as selten s finitely repeated chain store game or in the finitely repeated prisoners dilemma we reexamine selten s model adding to it a small amount of imperfect or incomplete information about players payoffs and we find that this addition is sufficient to give rise to the reputation effect that one intuitively expects

decision making in committees transparency reputation and voting rules in this paper i analyze the effect of the transparency of the decision making process in committees on the decisions that are eventually taken i focus on committees whose members are motivated by career concerns so that each member tries to enhance his own reputation when the decision making process is secretive the individual votes of the committee members are not exposed to the public but only the final decision thus individuals are evaluated according to the group s decision i find that in such a case group members are induced to comply with preexisting biases for example if the voting rule demands a supermajority to accept a reform individuals vote more often against reforms and exacerbate the conservatism of the voting rule when the decision making process becomes transparent and individual votes are observed this effect disappears and such committees are then more likely to accept reforms i also find that coupled with the right voting rule a secretive procedure may induce better decisions than a transparent one

publicity of debate and the incentive to dissent evidence from the us federal reserve transparency in committee decision making may have clear benefits by making members more accountable to outside observers we consider one potential cost the possibility that publishing records of deliberations will make members more reluctant to offer dissenting opinions we construct a model that compares incentives for members with career concerns to voice dissent when deliberations occur in public or in private we test the model using an original dataset based on deliberations of the federal reserve s federal open market committee asking whether the fomc s 1993 decision to begin releasing transcripts of its meetings has altered incentives for dissent we find evidence that this is indeed the case there has been much recent discussion of the advantages of transparency in agency relationships both in and outside of government while research has attempted to model this issue theoretically there has been less progress with empirical tests a problem due no doubt in large part to the fact that it is difficult to make before and after comparisons of a shift in transparency often no data are available on an agent s actions prior to the establishment of transparency in this article we focus on one specific type of transparency publishing verbatim transcripts of committee meetings and one specific reason why this type of transparency might not be desirable the possibility that the quality of deliberation on a committee will suffer if the deliberations take place in public we develop a theoretical model that helps to identify the potential costs of this type of transparency and we then test the model empirically using an original dataset on deliberations of the federal reserve s federal open market committee fomc our dataset is unique in that it records views expressed by policymakers at fomc meetings and not just their official votes our empirical tests focus in particular on the observed effect of the institutional change that occurred in 1993 when the fomc decided to begin releasing transcripts of its meetings after a delay of five years transparency is a particularly relevant issue in monetary policy because it is commonly argued that when central banks take actions such as publishing macroeconomic forecasts revealing individual votes on monetary policy committees or releasing minutes of meetings this will lead to improved economic outcomes while simultaneously facilitating democratic accountability 1

demand structure and technological change the case of the european semiconductor industry abstract this article proposes that the structure of demand is one of the major factors that affect the rate and direction of technological change and the evolution of high technology industries both over time and across countries this article presents an analysis of the semiconductor industry in europe the united states and japan although particular emphasis is placed on the european case the decline of the european industry 1960s from a position equal to that of the american industry 1950s can to a large extent be explained by the dominance of electronics consumer goods demand rather than public procurement or computer demand in the structure of demand in these countries the later technological convergence of electronics final markets 1970s played a major role in the commitment of the european semiconductor industry to lsi technology this commitment however came too late to allow the european industry to catch up with its american and japanese counterparts

the impact of entrepreneurial capacity experience and organizational support on academic entrepreneurship abstract although sources and determinants of academic entrepreneurship have begun to command the attention of policy makers and researchers there remain many unanswered questions about how individual and social factors shape the decisions of academics to engage in entrepreneurial activities using a large scale panel of academics from a variety of uk universities from 2001 to 2009 this paper examines how an academics level of entrepreneurial capacity in terms of opportunity recognition capacity and their prior entrepreneurial experience shape the likelihood of them being involved in starting up a new venture in addition we explore what role university technology transfer offices ttos play in stimulating venture creation the results show that individual level attributes and experience are the most important predictors of academic entrepreneurship we also find that the social environment surrounding the academic also plays an influential role but its role is much less pronounced than individual level factors finally we show that the activities of the tto play only a marginal indirect role in driving academics to start new ventures we explore the implications of this analysis for policy and organizational design for academic entrepreneurship

well informed intermediaries in strategic communication this paper studies how a sender with private information can influence the decisionmaker through well informed intermediaries both the sender and the intermediary may be independently objective or biased with the objective type assumed to pass on the most accurate information while the biased type wanting to push a particular agenda but also to appear objective although using one s own information is a sign of objectivity the biased intermediary selectively incorporates the sender s information to push his agenda and his truth telling incentives always decrease in those of the biased sender s hence measures raising the sender s reputation cost worsen the intermediary s distortion and may make the decisionmaker strictly worse off in contrast the biased sender s and the intermediary s truth telling incentives are strategic complements if they report simultaneously

submarket dynamics and innovation the case of the us tire industry beginning in 1922 the rate of exit of us tire producers increased sharply and the industry began a severe and protracted shakeout just 5 years earlier the tire industry experienced a surge in entry that led to a rise of over 80 in the number of producers we propose an explanation for this episode based on the idea of industry submarkets which we incorporate in a model of shakeouts we test this theory and alternative explanations for the surge in entry and exit and the shakeout using a novel data set on patenting in tires and production in the early 1920s of the cord tire a key innovation we feature in our theory our analysis suggests that the development of a new submarket can open up opportunities for entry but also stimulate innovation and in the process reinforce the advantages of the leading incumbents accentuating the shakeout of producers copyright 2010 the author 2010 published by oxford university press on behalf of associazione icc all rights reserved oxford university press

the relationship between firm growth size and age estimates for 100 manufacturing industries this study uses a sample of all firms operating in 100 manufacturing industries to examine some aspects of firm dynamics it finds that firm growth the variability of firm growth and the probability that a firm will fail decrease with firm age it also finds that firm growth decreases at a diminishing rate with firm size even after controlling for the exit of slow growing firms from the sample gibrat s law therefore fails although the severity of the failure decreases with firm size copyright 1987 by blackwell publishing ltd

university revenues from technology transfer abstract this paper analyzes the financial return of universities taking equity in their spin off companies and the prevailing attitudes toward taking equity the reasons for taking equity include the flexibility it gives licensing managers in structuring deals the possibility that the university will still hold something of value if their technology is replaced and the reduced time required to generate revenue compared to a traditional license a traditional license is preferred when the technology is not suitable for a spin off company or when the technology is one of the rare jackpot licenses that bring in millions of dollars every year the financial reward of taking equity was determined by comparing the value of equity sold in public spin off companies to the return on an average license a traditional license consists of a license issue fee between 10 000 and 250 000 and an annual royalty on sales in 1996 the average annual income from a traditional license was 63 832 the average value of equity sold in 16 university spin off companies is 1 384 242 if one assumes that half the spin offs fail before they go public the average value of equity is 692 121 this is more than 10 times the average annual income from a traditional license and is significantly higher than the amount usually received as a license issue fee the high average value of equity depends on the presence of a few million dollar equity sales if those sales are excluded the average value of equity is 139 722 which is within the range that can be received as a license issue fee there is a high correlation between million dollar equity sales and the amount of venture capital spending in the region the million dollar sales in this study all occurred in the top 11 states in the country in terms of venture capital spending in 1997 from a financial viewpoint it makes sense for licensing managers to take equity in their start up companies our data show that even if none of the start ups produces a million dollar equity sale the financial return of equity will be within the range normally received as a license issue fee taking equity leaves the door open for the occasional jackpot which will bring in significantly more money than a standard license when combined with a strong program of traditional licensing taking equity in start up companies maximizes the financial return that universities realize from their intellectual property

technological innovation in canada a comparison of independent entrepreneurs and corporate innovators abstract this paper compares a sample of 124 independent high technology entrepreneurs with 112 corporate entrepreneurs intrapreneurs involved in developing and introducing high tech innovations across canada the study investigates the general management and technical problems faced by these entrepreneurs and contrasts their approach to such issues as market research financing and production the approaches used by the two groups in analyzing their markets and in planning and financing of innovations are compared and contrasted in general the independent entrepreneurs were technically trained usually possessing engineering training but no general management training or experience neither themselves nor members of their management team corporate entrepreneurs were as likely to come from management backgrounds as technical or else supported their lack of general management skills by adding people to their team with skills in marketing finance and manufacturing their problems were more often defending their ideas to management within the corporation obtaining funding and other resources within the firm and finding a corporate mentor to assist them in such areas as fighting political battles providing rewards and incentives for team members and creating the proper overall environment or culture for innovation within the corporation the lack of general management training and experience by the independent entrepreneurs led them to rate various marketing problems as the most serious difficulties in rating the obstacles to launching their innovations the innovations of the independent entrepreneurs were all new products while some of the corporate innovations were new systems or processes often installed within the corporation so the markets for these innovations were also within the corporation and required less of a marketing effort corporations were also much better prepared to handle problems in the marketing planning and operational areas but they had more problems of an interpersonal nature such as the unwillingness to consider alternative approaches the most significant difference in the obstacles encountered was that independent entrepreneurs listed their five most important problems as marketing difficulties in launching their new products corporate entrepreneurs also rated imperfect market analysis as their most important problem but it was closely followed by the lack of entrepreneurial talent within the company these obstacles lead to the primary recommendation of cooperative agreements of partnerships between large and small firms to solve some of these difficulties corporate responses indicated significant difficulty in gaining support within the corporation while independent entrepreneurs did not have to justify their efforts to a corporate hierarchy

firm survival and industry evolution in vertically related populations this paper examines how the density and governance of vertically related populations affect the life chances of organizations we integrate the literatures on organizational ecology and vertical integration to develop a theory of how 1 specialized upstream industries affect downstream survival rates 2 the prevalence of different governance forms among upstream and downstream organizations moderates this relationship and 3 different forms of governance exert differential competitive pressures on focal organizations we find evidence supporting our hypotheses in an empirical examination of the downstream laser printer industry and upstream laser engine industry this paper was accepted by jesper sorensen organizations

heterogeneous preferences and new innovation cycles in mature industries the amateur camera industry 1955 1974 this paper examines the amateur camera industry between 1955 and 1974 the case raises important issues for our understanding of the product lifecycle first an industry can experience more than one round of radical product and process innovation in its history second there is not a strict sequence of product innovation followed by process innovation third the existence of a dominant design depends on there being a relatively homogeneous set of consumers heterogeneous consumer preferences support different camera designs in two distinct market niches in the amateur camera industry fourth new rounds of entry and exit and new industry shake outs can occur with new innovative entrants displacing old firms fifth when the new firms are from developing countries a shift in global production occurs the success of new japanese entrants in this period lay in their being more successful innovators not in their exploiting wage cost advantages

managerial incentive problems a dynamic perspective the paper studies how a person s concern for a future career may influence his or her incentives to put in effort or make decisions on the job in the model the person s productive abilities are revealed over time through observations of performance there are no explicit output contingent contracts but since the wage in each period is based on expected output and expected output depends on assessed ability an implicit contract links today s performance to future wages an incentive problem arises from the person s ability and desire to influence the learning process and therefore the wage process by taking unobserved actions that affect today s performance the fundamental incongruity in preferences is between the individual s concern for human capital returns and the firm s concern for financial returns the two need be only weakly related it is shown that career motives can be beneficial as well as detrimental depending on how well the two kinds of capital returns are aligned it is well understood by now that informational externalities may place special demands on the organization of economic exchange simple price mediated markets will frequently fail in the presence of asymmetric information in that case more elaborate contractual arrangements have to be used as substitutes for the price system lately considerable effort has been devoted to the analysis of contracting under incomplete information with the objective to understand the range of economic institutions that emerge in response to the failure of the price system the analysis of moral hazard has played a prominent role in this development moral hazard problems arise when for some reason or another transacting parties cannot contract contingent on the delivery of the good for instance in buying labour services it may be that the amount of labour supplied is not directly observable precluding a simple exchange of wage for labour as a partial remedy to this problem an imperfect mutually observed signal about the supply of labour can be used as a proxy in the contract frequently output is taken as such a proxy the drawback is that output is often influenced by other factors than labour input which induce undesirable risk into the contract one is therefore faced with a tradeoff between allocating risk associated with incomplete observability and providing incentives for a proper supply of labour gaining insight into this tradeoff is important not only for understanding contracting in the small e g managerial incentive schemes but also because it is closely related to the fundamental tension between equity and efficiency in the society as a whole while our understanding of moral hazard has advanced a lot in past years it is clear that much work remains an important question that has received little attention until

firm survival and the evolution of oligopoly after their commercial introduction the number of producers of autos tires televisions and penicillin initially grew and then experienced a sharp decline or shakeout guided by an evolutionary model of entry and exit firm survival patterns in the four products are examined to determine whether there were common forces governing their distinctive evolution predictions concerning the effects of pre and post entry experience and the timing of entry on firm survival are tested the findings are used to reflect on why industries experience shakeouts and evolve to be oligopolies

are researchers deliberately bypassing the technology transfer office an analysis of tto awareness most universities committed to the commercialization of academic research have established technology transfer offices ttos nonetheless many researchers bypass these ttos and take their inventions directly to the marketplace while tto bypassing has typically been portrayed as deliberate and undesirable behavior we argue that it could be unintentional as many researchers may simply be unaware of the tto s existence taking an information processing perspective and using data on 3250 researchers in 24 european universities we examine researcher attributes associated with tto awareness our evidence confirms that only a minority of researchers are aware of the existence of a tto at their university tto awareness is greater among researchers who possess experience as entrepreneurs closed many research and consulting contracts with industry partners conduct research in medicine engineering or life sciences or occupy postdoctoral positions policy implications of these findings are discussed

on industry life cycles delay entry and shakeout in beer brewing abstract this paper proposes a new explanation for industry shakeout an event evident in the life cycle of many industries in which the number of firms drops significantly in a short interval of time based on an in depth analysis of the shakeout in the united states beer brewing industry between 1880 and 1890 we propose that industry shakeouts naturally follow periods of mass entry by firms similar patterns are evident in two other industries we briefly examine the us automobile and tire industries while entry rates fluctuate broadly in all these industries we find that the timing of exit for a given cohort of entrants is remarkably similar over time the exit hazard rate is peaked in the first two years of every cohort s life and drops dramatically to low and stable levels for subsequent ages in this sense mass exit follows mass entry and does not require a deep explanation it is the mass entry evident in the data for these industries that requires an explanation we propose a theoretical model of information accumulation to explain entry into an industry entrepreneurs are uncertain about the profitability of the industry and this uncertainty is resolved through sufficient accumulation of information regarding the fortunes of incumbent firms delay in entry occurs solely due to the fact that it takes time to accumulate sufficient information to support more entry the resulting entry pattern from simulations of the model looks much like that observed in the industries we study

the moderating role of submarket dynamics on the product customization firm survival relationship in this paper we examine how the provision of product customization services affects firm survival integrating literatures on industry evolution product related adapting services and entry deterrence we hypothesize that the relationship between product customization the costly modification of a product to cater to customer needs and firm survival differs across industries based on the extent of submarkets we argue that in industries that feature submarkets more prominently the positive association between product customization and firm survival is stronger for two conceptually distinct and empirically distinguishable mechanisms customizing firms enter new submarkets and also deter potential entry we conclude that offering product customization services has strategic benefits that sometimes outweigh the cost of coordinating with customers

multi fibre arrangement and wage inequality firm and state level evidence from india and a theoretical model the phased elimination of multi fibre arrangements mfa for textile and apparel has been one of the most compelling trade policy reforms that removed a system of bilateral quotas the reform brought in significant changes in the industrial structures for exporters from the south including india has the labour intensive high employment textile and clothing industry in india benefited from this global move towards freer trade for india the industry has witnessed unprecedented market concentration of export oriented firms firm level empirical estimate illustrates that workers in the export oriented firms in india are adversely affected due to withdrawal of quota accumulation of net fixed assets and growth of sales impart positive impact on firm level wages that cannot outweigh negative impact due to fall in exports we also find negative impact of profit on aggregate wage bill for the industry with firms spread over 11 major states in india we show that the mean deviation of industry level wage is positively and significantly associated with mean deviation of the number of factories at the state level and negatively with profit finally a brief analytical exercise obtains conditions under which joint withdrawal of quota and import tariff could raise the aggregate labour income in developing countries in general

knowledge creates markets the influence of entrepreneurial support and patent rights on academic entrepreneurship we use an exogenous change in german federal law to examine how entrepreneurial support and the ownership of patent rights influence academic entrepreneurship in 2002 the german federal government enacted a major reform called knowledge creates markets that set up new infrastructure to facilitate university industry technology transfer and shifted the ownership of patent rights from university researchers to their universities based on a novel researcher level panel database that includes a control group not affected by the policy change we find no evidence that the new infrastructure resulted in an increase in start up companies by university researchers the shift in patent rights may have strengthened the relationship between patents on university discovered inventions and university start ups however it substantially decreased the volume of patents with the largest decrease taking place in faculty firm patenting relationships

careerist experts and political incorrectness abstract while political correctness is a dominant norm in many public situations we also observe behaviors that are apparently politically incorrect often from professionals and experts this paper examines the flip side of political correctness as analyzed in morris 2001 to shed some light on the elusive notion of political incorrectness and elucidate its equilibrium and welfare properties we show that there are circumstances in which unbiased experts deliberately take a politically incorrect stance out of reputational concerns and identify key elements which give rise to this perverse reputational incentive the results suggest that political incorrectness cannot necessarily be viewed as a sign of blunt honesty when informed experts have long term reputational concerns we also examine the welfare consequences of political incorrectness and argue that this form of information manipulation can be beneficial under some conditions

technological extinctions of industrial firms an inquiry into their nature and causes after a buildup in the number of firms new industries commonly experience a shakeout in which the number of firms declines sharply three theoretical perspectives on how technological change contributes to industry shakeouts are analyzed the theories are used to synthesize predictions concerning technological change and industry evolution the predictions inform an analysis of four us industries that experienced sharp shakeouts automobiles tires televisions and penicillin using data on firm participation and innovation from the commercial inception of the four products through their formative eras we uncover regularities in how the products evolved the regularities suggest that shakeouts are not triggered by particular technological innovations nor by dominant designs but by an evolutionary process in which technological innovation contributes to a mounting dominance by some early entering firms copyright 1997 by oxford university press

entry and patenting in the software industry to what extent are firms kept out of a market by patents covering related technologies do patents held by potential entrants make it easier to enter markets we estimate the empirical relationship between market entry and patents for 27 narrowly defined categories of software products during the period 1990 2004 controlling for demand market structure average patent quality and other factors we find that a 10 increase in the number of patents relevant to market reduces the rate of entry by 3 8 and this relationship intensified following expansions in the patentability of software in the mid 1990s however potential entrants with patent applications relevant to a market are more likely to enter it finally patents appear to substitute for complementary assets in the entry process because patents have both greater entry deterring and entry promoting effects for firms without prior experience in other markets this paper was accepted by bruno cassiman business strategy

knowledge conversion capability and the performance of corporate and university spin offs corporate and university spin offs are often created to commercialize new technologies yet it is not clear how these spin offs transform their inventions into new products goods and services that create value in this article we use the knowledge based theory to argue that this transformation requires a knowledge conversion capability kcc that has three components conceptualization and visioning of applications of that knowledge configuration and design of potential products and other applications and the embodiment and integration of knowledge into products using data from 91 corporate and 78 university spin offs we find that these two sets of firms differ in their emphasis on the three kcc components benefit differentially from these three components in terms of their performance and vary significantly in their performance

regional co evolution of firm population innovation and public research evidence from the west german laser industry abstract we trace the co evolution of regional firm population sizes private sector patenting and public research in german laser research and manufacturing for over 40 years from the emergence of the industry to the mid 2000s qualitative as well as quantitative evidence suggests a co evolutionary process of mutual interdependence rather than a unidirectional effect of public research on private sector activities

explaining the distribution of firm growth rates empirical analyses on aggregated datasets have revealed a common exponential behavior in the shape of the probability density of corporate growth rates we present clear cut evidence on this topic using disaggregated data we explain the observed regularities proposing a model in which firms ability to take up new business opportunities increases with the number of opportunities already exploited a theoretical result is presented for the limiting case in which the number of firms and opportunities go to infinity moreover using simulations we show that even in a small industry the agreement with asymptotic results is almost complete

managerial incentives and capital management the paper shows how career concerns rather than effort aversion can induce a natural incongruity in risk preferences between managers and superiors a model based on learning about managerial talent is developed to study second best contractual remedies we show that the optimal wage contract is an option of the value of the manager s human capital for insurance reasons and that consequently rationing of capital is often required to counterbalance the manager s resulting incentive to overinvest rationing is strictly superior to price decentralization offering one reason for the prevalence of centralized capital budgeting procedures

resources capabilities risk capital and the creation of university spin out companies abstract the commercialization of university research has become an increasingly important issue given concerns regarding licensing and the university s desire to maximize the returns to intellectual property ip in this paper we assess the impact of university resources and routines capabilities on the creation of spin out companies we find that both the number of spin out companies created and the number of spin out companies created with equity investment are significantly positively associated with expenditure on intellectual property protection the business development capabilities of technology transfer offices and the royalty regime of the university these results highlight the importance not just of resource stocks but also of developing appropriate capabilities of technology transfer officers in spinning out companies the results suggest that universities and policy makers need to devote attention to the training and recruitment of technology officers with the broad base of commercial skills

disagreements spinoffs and the evolution of detroit as the capital of the u s automobile industry the agglomeration of the automobile industry around detroit michigan is explained using a theory in which disagreements lead employees of incumbent firms to found spinoffs in the same industry predictions of the theory concerning entry and firm survival are tested using data on the origin location and years of production of every entrant into the industry from 1895 to 1966 the geographic concentration of the industry is attributed to four early successful entrants and the many successful spinoffs they spawned in the detroit area and not to conventional agglomeration economies benefiting co located firms as featured in modern theories of agglomeration implications of the findings regarding firm strategy are discussed

the magnitude of innovation by demand in a sectoral system the role of industrial users in semiconductors abstract how relevant is innovation by demand compared to innovation by other actors in a sector in quantitative terms this is a yet unanswered question the current study fills this major gap in the literature on industry studies by taking a sectoral system perspective this study is able to highlight the magnitude of innovation by intermediate user firms in a high technology sector semiconductors using a combination of different datasets patents co patents r d alliances and new ventures in semiconductors this study proposes a novel quantitative approach to assessing the magnitude of innovative activity by user firms the study reaches several findings first the magnitude of innovation by user firms as measured by patents is high in both absolute and relative terms compared to semiconductor firms and other actors in the sector second the distribution of patents among different demand segments is highly uneven third innovative user firms are highly heterogeneous in terms of size diversification and vertical integration fourth collaboration in r d and co patenting activity in semiconductors take place not just between user firms and semiconductor firms but also among user firms themselves fifth innovative user firms are quite active in entrepreneurial activity in semiconductors and their new ventures on average survive longer than spin offs or other start ups

mid range universities linkages with industry knowledge types and the role of intermediaries we analyze how mid range universities can contribute to industrial change through the transfer of tacit and codified knowledge in the areas of spin offs licensing and patents contract research consultancy and reach out and graduate and researcher mobility we use archival survey and interview data relating to mid range universities in mid range environments in the uk belgium germany and sweden our findings suggest that mid range universities primarily need to focus on generating world class research and critical mass in areas of expertise as well as developing different types of intermediaries mid range universities may need to develop a portfolio of university industry linkages in terms of the scope of activities and the types of firms with which they interact we also show that different intermediaries have important roles to play in developing university industry linkages for mid range universities

information aggregation in debate who should speak first abstract privately informed individuals speak openly in front of other members of a committee about the desirability of a public decision each individual wishes to appear well informed for any given order of speech committee members may herd by suppressing their true information with individuals of heterogeneous expertise optimizing over the order of speech can improve the extraction of information but not perfectly so it is not always optimal to use the common anti seniority rule whereby experts speak in order of increasing expertise a committee with more able experts may be afflicted by greater herding problems yielding a worse outcome

the making of an oligopoly firm survival and technological change in the evolution of the u s tire industry the number of producers in the u s tire industry grew for 25 years and then declined sharply and the industry evolved to be an oligopoly the role of technological change in shaping the industry s market structure is explored a model of industry evolution featuring technological change is used to derive predictions that are tested using a novel data set on firm entry exit size location distribution networks and technological choices prior to the shakeout of producers consistent with the model earlier entering and larger firms survived longer principally because of the influence of age and size on technological change

predation reputation and entry deterrence abstract economists often argue that predatory practices are irrational since there exist cheaper or more certain means to gain or maintain a monopoly our gametheoretic equilibrium analysis suggests that if a firm is threatened by several potential entrants then predation may be rational against early entrants even if it is costly when viewed in isolation because it yields a reputation which deters other entrants asymmetric information plays a crucial role in our analysis since it provides the rationale for entrants to base their expectations of the firm s future behavior on its past actions the analysis also suggests methods to treat general reputational phenomena

academic spin off s transfer speed analyzing the time from leaving university to venture for academic spin offs i analyze the length of time between the founder s leaving of academia and the establishment of his firm technology transfer can take place even years after leaving the mother institution a duration analysis reveals that a longer time lag is caused by the necessity of assembling complementary skills either by acquisition by a single founder or by searching for suitable team members furthermore new ventures are established earlier if the intensity of technology transfer is high the founders have access to university infrastructure or received informal support by former colleagues

dynamic capabilities what are they this paper focuses on dynamic capabilities and more generally the resource based view of the firm we argue that dynamic capabilities are a set of specific and identifiable processes such as product development strategic decision making and alliancing they are neither vague nor tautological although dynamic capabilities are idiosyncratic in their details and path dependent in their emergence they have significant commonalities across firms popularly termed best practice this suggests that they are more homogeneous fungible equifinal and substitutable than is usually assumed in moderately dynamic markets dynamic capabilities resemble the traditional conception of routines they are detailed analytic stable processes with predictable outcomes in contrast in high velocity markets they are simple highly experiential and fragile processes with unpredictable outcomes finally well known learning mechanisms guide the evolution of dynamic capabilities in moderately dynamic markets the evolutionary emphasis is on variation in high velocity markets it is on selection at the level of rbv we conclude that traditional rbv misidentifies the locus of long term competitive advantage in dynamic markets overemphasizes the strategic logic of leverage and reaches a boundary condition in high velocity markets copyright 2000 john wiley sons ltd

explaining the shakeout process a successive submarkets model this paper explains contemporaneous exit and entry in a new industry with a diffusion process across submarkets it allows a re interpretation of the shakeout process in some industries in a novel way the industry is a collection of initially inactive independent submarkets the timing of their activation is determined by an exogenous aggregate diffusion process new submarket opening attracts new entry however the post entry endogenous sunk investment requirement induced by innovations also forces much exit to follow entry the aggregate market thus has overlapping exit and entry and has a shakeout if the aggregate diffusion process follows a typical s shape

herding and anti herding a model of reputational differentiation abstract we analyze a model related to the strategic herding literature where a second expert maximizes his expected second period value by conforming with a first expert herding in contrast to the herding literature we assume that an agent is most valuable if he is the only smart agent if the value of being the only smart agent is sufficiently large the second expert always opposes its predecessor s report otherwise herding may result

institutional determinants of university spin off quantity and quality a longitudinal multilevel cross country study the creation of spin off firms from universities is seen as an important mechanism for the commercialization of research and hence the overall contribution from universities to technological development and economic growth governments and universities are seeking to develop framework conditions that are conductive to spin off creation the most prevalent of such initiatives are legislative changes at national level and the establishment of technology transfer offices at university level the effectiveness of such initiatives is debated but empirical evidence is limited in this paper we analyze the full population of universities in italy norway and the uk three countries adopting differing approaches to framework conditions to test whether national and university level initiatives have an influence on the number of spin offs created and the quality of these spin offs building on institutional theory and using multilevel analysis we find that changes in the institutional framework conditions at both national and university levels are conductive to the creation of more spin offs but that the increase in quantity is at the expense of the quality of these firms hence the effect of such top down changes in framework conditions on the economic impact from universities seems to be more symbolic than substantive

do uk venture capitalists still have a bias against investment in new technology firms abstract the growing economic and political importance of the new economy throughout 1990s has added greater saliency to both supply and demand sides policy oriented questions about the availability of venture capital as a catalyst for new or high technology based early stage investments this paper analyses the changing attitudes of uk venture capital firms to investment in technology enterprises a 1999 survey of 60 uk venture capital firms was structured to be directly comparable to a 1991 study the main findings demonstrate the increasing importance of technology investments to vc firms particularly generalists accordingly the adoption of collaborative strategies to access intellectual capital and complimentary resources via inter firm networks is particularly important the authors conclude that despite material improvements a bias is likely to remain against vc firms involvement in the earliest seed and start up stages of the technology investment cycle

latent submarket dynamics and industry evolution lessons from the us laser industry in its first 35 years the us laser industry was characterized by steady growth in output and the number of producers whereas subsequently the number of producers steadily declined despite continued growth in the industry s output a model of industry evolution that features the creation destruction and fusing of independent submarkets is developed to explain these two eras data on all laser producers are used to test various implications of the model concerning entry exit and innovation the findings suggest that the emergence of an integrative submarket can fundamentally alter an industry s market structure and the character of innovation which is applied to explain historical developments in the evolution of various innovative industries

corporate versus independent new ventures resource strategy and performance differences abstract this study examines differences between independent ventures ivs which are established by individual entrepreneurs and corporate ventures cvs which are controlled by larger companies it focuses on differences between these ventures related to the resources strategies and performance of firms in the computer and communications equipment manufacturing industries thus the findings increase the understanding of the different challenges faced by each venture type and provide insight into how each venture type should be managed the study finds that managers of cvs and ivs emphasized different resources and strategies specifically cvs emphasized the following resources internal capital sources proprietary knowledge and marketing expertise ivs emphasized external capital sources technical expertise and development of brand identification they also differed in their strategies ivs pursued greater strategic breadth more customer service and focused more on specialty products the findings that cvs had less strategic breadth was surprising in that cvs emphasized resources such as internal capital sources which could make pursuing broad strategies more feasible for cvs it is possible that some cvs do not pursue broad strategies because they may be infringing upon someone else s turf within the corporation and thus may be discouraged in spite of finding significant strategy and resource differences the study found that ivs and cvs did not differ in performance and that resources were not directly related to performance based on the concept of equifinality it follows that both venture types can be equally successful even if they follow different roads to success success may be less a function of the different resources ivs and cvs have and more a function of what strategies the firms choose based upon their resources strategy variables did relate to performance a low cost strategy lowered performance regardless of venture type and the influence of an aggressive strategy i e wide strategic breadth on performance depended upon venture origin managers pursuing a low cost strategy may have had lower performance if they became penny wise and pound foolish missing opportunities in their efforts to lower costs this suggests that regardless of venture type managers of new ventures in these industries and perhaps in other volatile industries may need to be opportunistic this study indicates that pursuing broad strategies increased the performance of ivs and decreased the performance of cvs this finding was surprising in that cvs had greater resources which one might think would lead to successful implementation of aggressive strategies in securing enough resources to pursue aggressive strategies from their parents cvs may lose the freedom of action they need to cope with the dynamism of high technology industries this suggests that managers of cvs within the computer and communications equipment manufacturing industries should either not pursue broad strategies or if pursuing broad strategy they should maintain their flexibility in contrast ivs that pursued broad strategies achieved higher performance indicating that perhaps ivs unencumbered by the bureaucracy that characterizes cvs may be able to pursue aggressive strategies while simultaneously maintaining flexibility thus this study offers iv and cv managers several valuable insights first it argues that managers of each type of venture may need to pursue different strategies to increase venture performance and make optimal use of their unique resources furthermore it suggests that cv managers encounter difficulties in applying resources to strategies and not in accessing resources whereas political obstacles may occur cv managers may primarily encounter these difficulties when trying to implement strategies rather than when accumulating resources from the parent suggesting a pitfall that managers of cvs and their parents need to avoid although this study has indicated that both venture types can be equally successful it suggests that they may face different obstacles and follow different roads to success

the independent submarkets model an application to the spanish retail banking market abstract the aim of this paper is to test the predictions of sutton s independent submarkets model with data on the spanish retail banking market the prediction of this model for aggregates of submarkets is that the form of equilibrium outcome must involve some minimal degree of size inequality however within each submarket when three conditions hold the only form of equilibrium outcome will be an extreme fragmented structure to test these predictions firstly i propose methods to identify independent submarkets then i analyze the degree of inequality in bank sizes for markets with different levels of aggregation submarkets regions and national market using concentration by towns data i find that in single submarket towns the degree of inequality of the size among banks is zero moreover multimarket towns with a significant degree of concentration are shown to be formed by a different number of independent submarkets where each bank owns one branch nonetheless when the regional and the national bank markets are considered the degree of inequality in bank sizes becomes high these results are consistent with the predictions of the theoretical model

technological platforms and diversification as the invention of fundamental new sciences spawns subsequent research discovery and commercialization core technologies branch into new applications and markets some of them evolve over time into many derived technologies whereas others are essentially dead ends the pattern of evolution and branching is called a technological trajectory an intriguing question is whether some firms can ride the trajectory by developing proprietary experience in a platform technology because the knowledge is proprietary firms that originate in industrial fields based on a platform technology acquire the technological skills to diversify and to mimic the branching of the underlying technological trajectory the ability to compete in hypercompetitive markets depends on the acquisition of know how that is applicable to a wide set of market opportunities such capabilities serve as platforms into quickly evolving markets to respond rapidly to market changes a firm must have already acquired fundamental compet

confirmation bias and signaling in downsian elections how do voters behavioural biases affect political outcomes we study this question in a model of downsian electoral competition in which office motivated candidates have private information about the benefits of policies and voters may infer candidates information from their electoral platforms if voters are bayesian candidates have strategic incentives to anti pander they choose platforms that are more extreme than is justified by their private beliefs however anti pandering incentives are ameliorated if voters inferences are subject to confirmation bias voter confirmation bias can thus counteract distortions due to the strategic interaction between candidates potentially leading to welfare improvements indeed we show that all observers whether biased or bayesian would like the representative voter in our model to exhibit more confirmation bias than they do themselves

technology transfer offices and commercialization of university intellectual property performance and policy implications the recent increase in the rate of commercialization of intellectual property at us and european universities has important performance and policy implications we review recent studies of the antecedents and consequences of these activities and then draw some lessons learned for policy makers a key conclusion is that universities and regions must formulate and implement coherent and feasible technology transfer commercialization strategies

when second opinions hurt a model of expert advice under career concerns we augment the standard career concerns model by introducing i an action that blocks the information about the true state of the world and ii a second opinion interim news after the initial consultation with the expert in this model the principal s action as well as the expert s message endogenously determine the observability of the states and consequently the assessment of the expert s ability by the principal we show that having access to better interim news could reduce the welfare of the principal due to its strategic effect on the expert s recommendation we also discuss the implication of the results for possible delegation of decision making to another person with different decision parameters

innovation and corporate growth in the evolution of the drug industry abstract this work studies the processes of growth of the worlds top 150 pharmaceutical firms on the grounds of an original database which also allows disaggregate analysis at the level of single therapeutical classes and chemical entities our findings show that the industry whose long term evolution is driven by innovation imitation and permanent creation of new markets displays i fat tails in the distribution of growth shocks present at all levels of aggregation with relatively rare big spurs of growth ii a significant autocorrelation of growth rates iii a fall of variance of growth rates with size entirely dependent on corporate diversification patterns in turn plausibly shaped by the competence scope of each firm and iv different lifecycles of diverse types of products and persistent forms of heterogeneity across firms in terms of innovative output which however do not not seem to affect comparative growth performances

the capabilities of new firms and the evolution of the us automobile industry firms that diversify into new and existing industries typically outperform de novo entrants but in some new industries diversifying firms are displaced by later entering de novo firms little is known about when and how new firms can overcome the advantages of diversifying firms this is investigated for one industry automobiles where new firms had considerable success all the entrants into the industry from its inception in 1895 through 1966 are identified the heritage of every entrant into the industry is traced including the founders of de novo entrants to explore how time of entry and pre entry experience affected firm survival while diversifying firms on average outperformed de novo entrants de novo entrants founded by individuals that worked for the leading automobile firms outperformed all firms and dominated the industry this is attributed to the novel organizational challenges faced by automobile firms which made the leading firms ideal training grounds for new entrants the implications of these findings for firm capabilities industry competition and regional economic development are discussed copyright 2002 oxford university press

a political agency theory of central bank independence we propose a theory to explain why and under what circumstances a politician endogenously gives up rent and delegates policy tasks to an independent agency we apply this theory to mon etary policy by extending a stochastic general equilibrium model this model provides a theory of central bank independence that is unrelated to the standard time inconsistency problem which underlies all formalized theories of central bank independence we derive five key predictions of the model and show that they are broadly consistent with the data finally we show that while instrument independence of the central bank is desirable goal independence is not

product demography of de novo and de alio firms in the optical disk drive industry 1983 1999 little theory and research addresses the ways organizational context affects the demography of products we examine this question here by focusing on an organization s mode of market entry specifically we explore differences between firms entering a market de novo start up and those entering de alio diversification from another market we analyze all products ever shipped in the worldwide optical disk drive odd industry 1983 1999 we find an almost paradoxical empirical pattern whereby de novo firms typically introduce products with widely agreed upon better that is universally more appealing technological characteristics yet these products generally stay on the market for a shorter time than those of de alio firms whose products generally display less appealing technological features

the life cycle of a competitive industry firm numbers first rise then later fall as an industry evolves this nonmonotonicity is explained using a competitive model in which innovation opportunities fuel entry and relative failure to innovate prompts exit equilibrium time paths for price and quantity also share features of the data the model is estimated using data from the u s automobile tire industry a particularly dramatic example of the nonmonotonicity in firm numbers

transparency and deliberation within the fomc a computational linguistics approach how does transparency a key feature of central bank design aect the deliberation of monetary policymakers we exploit a natural experiment in the federal open market committee in 1993 together with computational linguistic models particularly latent dirichlet allocation to measure the eect of increased transparency on debate commentators have hypothesized both a benecial discipline eect

the survival of new plants start up conditions and post entry evolution abstract this paper examines the longevity of entrants we find size to be an important determinant of the chances of survival this being particularly relevant to de novo entrants as compared with entry by established firms current size is also found to be a better predictor of failure than initial size moreover our findings indicate that after controlling for size differences past growth matters for survival suggesting a partial adjustment process for firm size in the post entry period finally new plants are more likely to live longer if they enter growing industries or industries with little entry activity

income and democracy existing studies establish a strong cross country correlation between income and democracy but do not control for factors that simultaneously affect both variables we show that controlling for such factors by including country fixed effects removes the statistical association between income per capita and vari ous measures of democracy we present instrumental variables estimates that also show no causal effect of income on democracy the cross country corre lation between income and democracy reflects a positive correlation between changes in income and democracy over the past 500 years this pattern is con sistent with the idea that societies embarked on divergent political economic development paths at certain critical junctures jel d7 e 1

bringing individuals back in the effects of career experience on new firm founding because of methodological and theoretical obstacles research on organizational foundings has largely focused on societal and population level explanations this paper takes the view that understanding firm foundings also requires linking to individual level processes we suggest that careers are an important mechanism linking individual level processes to firm foundings the firm founding experience of potential founders impacts organizational foundings by influencing expectations of the liability of newness we test our explanation on the set of inventions patented by the massachusetts institute of technology over the period 1980 1996 by examining the effect of inventors career experiences on the likelihood that an invention will be commercialized through the founding of a new organization copyright 2003 oxford university press

firm size distribution testing the independent submarkets model in the italian motor insurance industry this paper tests the presence of multiple independent submarkets in the italian motor insurance industry independence is motivated by administrative boundaries among provinces and by further locational reasons we find that the independence effects are sufficient to induce a minimum degree of inequality in the size distribution of firms once submarkets are aggregated these results are fully consistent with the predictions of sutton 1998 we also show that the degree of skewness in the firms size distribution is related to characteristics such as the population living in an area its density and the riskiness of a submarket

reputation concerned policy makers and institutional status quo bias abstract we study the policy choice of an office holding politician who is concerned with the public s perception of his capabilities the politician decides whether to maintain the status quo or to conduct a risky reform the reform s success depends critically on the politician s capabilities which are privately known to the politician the public observes both his policy choice and the outcome of the reform and assesses his competence we show that the politician may engage in socially detrimental reform in order to be perceived as more capable we investigate the institutional remedy that balances the gains and costs when the policy maker is subject to reputation concerns conservative institutions that thwart beneficial reform may potentially improve social welfare

herd behavior and investment comment in an influential paper david s scharfstein and jeremy c stein 1990 modeled sequential investment by agents concerned about their reputation as good forecasters consider an agent who acts after observing the behavior of another ex ante identical agent scharfstein and stein argue that reputational herding requires that better agents have more correlated signals conditionally on the state of the world they claim that without correlation the second agent would have no incentive to attempt to manipulate the market inference about ability by imitating the behavior of the first agent in this note we show that in their model correlation is not necessary for herding other than in degenerate cases our clarification exploits a parallel with statistical herding introduced by abhijit v banerjee 1992 and sushil bikhchandani et al 1992 henceforth bhw bhw feature investors who maximize expected profits in a common value environment and have access to conditionally independent private signals of bounded precision while still observing the behavior of others eventually the evidence accumulated from observing earlier decisions is sufficiently strong to swamp the private information of a single decision maker thereafter everyone rationally copies the prevailing behavior we notice that payoffs have a common value nature in both the statistical and the reputational model the observed behavior of other agents possibly affects the probability belief attached to different states of the world as well as the payoff conditional on each state herding arises from the interaction of these two channels affecting the expected payoff be it physical or reputational positive differential conditional correlation of signals in the reputational model is tantamount to the introduction of positive payoff externalities in the statistical model this reinforces the tendency to herd already present with independence the fact that differential conditional correlation is not needed for herding is a clear strength of the reputational herding model it is not necessary to assume common unpredictable components of returns at the individual level in order to rationalize the empirical findings that individual prediction errors of security analysts are correlated after setting up scharfstein and stein s model in section i we summarize their findings in section ii and provide a unified definition of herd behavior in section iii section iv contains our critique of their line of argument and clarifies the role of differential conditional correlation in section v we propose alternative robust scenarios where herding would indeed be driven by correlation section vi concludes