cost reduction competition and industry performance in many markets firms compete over time by expending resources with the purpose of reducing their costs sometimes the cost reducing investments operate directly on costs in many instances they take the form of developing new products that deliver what customers need more cheaply therefore product development can have the same ultimate effect as direct cost reduction in fact if one thinks of the product as the services it delivers to the customer in the way that lancaster pioneered then product development often is just cost reduction

cooperative and noncooperative r d in duopoly with spillovers contrary to the usual assumption made in most oligopoly models relations among firms are seldom of a wholly cooperative or noncooperative type in many situations they compete in some fields while they cooperate in others an important example is the case of cooperative research efforts bringing fierce competitors together two types of agreement are observed first r d cooperation can take place at the so called precompetitive stage companies share basic information and efforts in the r d stage but remain rivals in the market place 1 a second type of agreement involves an extended collusion between partners creating common policies at the product level the usual justifications of this extension are the difficulties of protecting intellectual property the idea is then to allow partners who have achieved inventions together to also control together the processes and products which embody the results of their collaboration in order to recuperate jointly their r d investments 2 what could be expected from these types of agreement is a reduction in r d expenditures because of less wasteful duplication and a reduction of total production because of more reprinted from the american economic review 78 5 1133 1137 1988 center for operations research econometrics 1348 louvain la neuve belgium we are grateful to jean

jump diffusion processes and the term structure of interest rates the authors investigate the term structure of interest rates when the underlying state variables and production technologies follow the jump diffusion processes even in some cases where the traditional expectations theory about the term structure is consistent with general equilibrium under diffusion processes the traditional theory is not consistent under jump diffusion processes it is shown that bond prices are strictly higher under jump risks than otherwise and that consumers with logarithmic utility functions will develop hedge portfolios in the presence of jump diffusion a number of continuous time asset pricing models have been derived under stochastic diffusion processes with continuous sample paths see e g black and scholes 2 merton 21 breeden 3 and cox ingersoll and ross 8 however recent empirical studies see e g brown and dybvig 4 feinstone 10 and jarrow and rosenfeld 17 suggest that the underlying processes may follow

british regional growth and sectoral trends global and local spatial econometric approaches this article looks beneath the surface of british sub regional aggregate gross value added gva growth over the period 1995 to 2007 by examining how the differing growth dynamics of the secondary and services sectors have influenced the overall regional growth process a spatial econometric analysis is undertaken which tests regional secondary and services real gva per capita for absolute and conditional convergence at the nuts 3 level both local and global spatial analysis techniques are utilized in order to gain a detailed insight into the growth process over the period 1995 to 2007

on the role of demand and strategic uncertainty in capacity investment and disinvestment dynamics abstract even mature industries seldom settle down into a long run steady state fluctuations in demand disrupt the status quo and call for firms to adjust their capacities on an ongoing basis we construct a fully dynamic model of an oligopolistic industry with lumpy capacity and lumpy investment disinvestment decisions in addition to uncertainty about the evolution of demand a firm faces strategic uncertainty concerning the decisions of its rivals we numerically solve the model for its markov perfect equilibria for one set of parameter values three equilibria exist and while all of them have simple intuitive structures they exhibit widely varying patterns of response to demand shocks at one extreme one firm dominates the industry almost as a monopolist and changes its capacity to accommodate demand at the other extreme the larger firm keeps its capacity nearly constant while the smaller firm acts as the swing producer

an r d race with knowledge accumulation i develop a model of an r d race with knowledge accumulation my model does not inherit the memorylessness property of the exponential distribution that troubles existing models of r d races hence firms knowledge stocks are no longer irrelevant to their behavior during the r d race and knowledge accumulation has strategic implications in this more general setting i obtain results that stand in marked contrast to the previous literature in particular under some conditions the firm that is behind in the race engages in catch up behavior this pattern of strategic interactions action reaction is consistent with empirical research copyright 2003 by the rand corporation

the pricing of options on assets with stochastic volatilities one option pricing problem that has hitherto been unsolved is the pricing of a european call on an asset that has a stochastic volatility this paper examines this problem the option price is determined in series form for the case in which the stochastic volatility is independent of the stock price numerical solutions are also produced for the case in which the volatility is correlated with the stock price it is found that the black scholes price frequently overprices options and that the degree of overpricing increases with the time to maturity one option pricing problem that has hitherto remained unsolved is the pricing of a european call on a stock that has a stochastic volatility from the work of merton 12 garman 6 and cox ingersoll and ross 3 the differential equation that the option must satisfy is known the solution of this differential equation is independent of risk preferences if a the volatility is a traded asset or b the volatility is uncorrelated with aggregate consumption if either of these conditions holds the risk neutral valuation arguments of cox and ross 4 can be used in a straightfoward way this paper produces a solution in series form for the situation in which the stock price is instantaneously uncorrelated with the volatility we do not assume that the volatility is a traded asset also a constant correlation between the instantaneous rate of change of the volatility and the rate of change of aggregate consumption can be accommodated the option price is lower than the blackscholes b s 1 price when the option is close to being at the money and higher when it is deep in or deep out of the money the exercise prices for which overpricing by b s takes place are within about ten percent of the security price this is the range of exercise prices over which most option trading takes place so we may in general expect the b s price to overprice options this effect is exaggerated as the time to maturity increases one of the most surprising implications of this is that if the b s equation is used to determine the implied volatility of a near the money option the longer the time to maturity the lower the implied volatility numerical solutions for the case in which the volatility is correlated with the stock price are also examined the stochastic volatility problem has been examined by merton 13 geske 7 johnson 10 johnson and shanno 11 eisenberg 5 wiggins 16 and

approximate option valuation for arbitrary stochastic processes abstract we show how a given probability distribution can be approximated by an arbitrary distribution in terms of a series expansion involving second and higher moments this theoretical development is specialized to the problem of option valuation where the underlying security distribution if not lognormal can be approximated by a lognormally distributed random variable the resulting option price is expressed as the sum of a black scholes price plus adjustment terms which depend on the second and higher moments of the underlying security stochastic process this approach permits the impact on the option price of skewness and kurtosis of the underlying stock s distribution to be evaluated

r d policies trade and process innovation we set up a simple trade model with two countries hosting one firm each the firms invest in cost reducing r d and each government may grant r d subsidies to the domestic firm we show that it is optimal for a government to provide higher r d subsidies the lower the level of trade costs even if the firms are independent monopolies if firms produce imperfect substitutes policy competition may become so fierce that only one of the firms survives international policy harmonization eliminates policy competition and ensures a symmetric outcome however it is shown that harmonization is not necessarily welfare maximizing the optimal coordinated policies may imply an asymmetric outcome with r d subsidies to only one of the firms

breaking up a research consortium inter firm r d collaborations through contractual arrangements have become increasingly popular but in many cases they are broken up without any joint discovery we provide a rationale for the breakup date in r d collaboration agreements more specifically we consider a research consortium initiated by a firm a with a firm b b has private information about whether it is committed to the project or a free rider we show that under fairly general conditions a breakup date in the contract is a second best optimal screening device for firm a to screen out free riders with the additional constraint of renegotiation proofness a can only partially screen out free riders entry by some free riders makes sure that a does not have an incentive to renegotiate the contract ex post we also propose empirical strategies for identifying the three likely causes of a breakup date adverse selection moral hazard and project non viability

option valuation with systematic stochastic volatility we use an extension of the equilibrium framework of rubinstein 1976 and brennan 1979 to derive an option valuation formula when the stock return volatility is both stochastic and systematic our formula incorporates a stochastic volatility process as well as a stochastic interest rate process in the valuation of options if the mean volatility and covariance processes for the stock return and the consumption growth are predictable our option valuation formula can be written in preference free form further many popular option valuation formulae in the literature can be written as special cases of our general formula in this paper we investigate the valuation of individual stock options when the volatility of the underlying stock return is stochastic and has a systematic component which is related to the stochastic volatility of the consumption growth or the market return such an investigation is timely and of significant interest because there is now a considerable amount of evidence that the volatility of stock prices is not only stochastic but that it is also highly correlated with the volatility of the market as a whole for example see black 1975 conrad kaul and gultekin 1991 jarrow and rosenfeld 1984 jorion 1988 and ng engle and rothschild 1992 furthermore empirical work by black and scholes 1972 gultekin rogalski and tinic 1982 and whaley 1982 has shown that the empirical biases inherent in the black scholes option prices are different for options on high and low risk stocks because low risk stocks are mainly large firm stocks with stochastic return volatilities that are highly correlated with the return volatility of the market and high risk stocks are mainly small firm stocks with a lessimportant systematic volatility component incorporating systematic volatility effects in option valuation models has the potential to reduce the empirical biases exhibited by prices computed from the black scholes formula we use equilibrium arguments that extend the consumption based representative agent framework of rubinstein 1976 brennan 1979 and stapleton and subrahmanyam 1984 to allow individual asset returns and the consumption growth to exhibit stochastic volatility in particular we permit the volatility of individual asset returns to consist of a systematic component that is related to the consumption or market volatility in addi

a quick algorithm for pricing european average options an algorithm is described that prices european average options the algorithm is tested against monte carlo estimates and is shown to be accurate the speed of the algorithm is comparable to the black scholes algorithm a closed form solution is derived for european geometric average options

jump risks and the intertemporal capital asset pricing model the specification of the stochastic process for stock prices is an important assumption underlying most equilibrium and option pricing models in modern finance this is particularly true of the continuous time capital asset pricing models where it is assumed that asset prices follow diffusion processes with continuous sample paths see merton 1973a breeden 1979 grossman and shiller 1982 the extent to which the implications of these models generalize to discontinuous sample paths is an unanswered question in theoretical finance however the answer to this question is of more than just theoretical interest since accumulated empirical evidence appears to be inconsistent with the continuous sample path assumption see rosenberg 1972 oldfield rogalski and jarrow 1977 rosenfeld 1982 one purpose of this paper is to provide some answers to this question we do this by extending merton s 1973a intertemporal asset pricing model in the special case of a constant investment opportunity set to include discontinuous sample paths for asset prices the constant investment opportunity set assumption is imposed because we are interested in obtaining sufficient conditions under which an instantaneous capital asset pricing model capm results the extension of our model to a stochastic opportunity set is discussed briefly in the text this paper investigates an economy where stock prices follow a jump diffusion process the first part of the analysis derives a sufficient condition under which an instantaneous capm will characterize equilibrium expected returns the sufficient condition is that the jump component of a stock s return must be unsystematic and diversifiable in the market portfolio the second part of the paper is an empirical investigation of the satisfaction of this condition the evidence is seen to be inconsistent with the satisfaction of this hypothesis that is the market portfolio appears to contain a jump component

a pricing method for options based on average asset values abstract in this paper we present a new strategy for pricing average value options i e options whose payoff depends on the average price of the underlying asset over a fixed period leading up to the maturity date such options are of particular interest and importance for thinly traded assets e g crude oil since price manipulation is inhibited and both the investor and issuer enjoy a welcome degree of protection from the vagaries of the market these options are often implicit in a bond contract although they also appear in a straightforward form our results suggest that the price of an average value option will always be lower than that of a standard european option our pricing strategy involves monte carlo simulation with variance reduction elements and offers an enhanced pricing method to both arbitragers and hedgers as well as to the issuers of such bonds

on the economic dividend of devolution rodriguez pose a and gill n 2005 on the economic dividend of devolution regional studies 39 405 420 recent political and academic discourse about devolution has tended to stress the economic advantages of the transfer of power from national to subnational institutions this economic dividend arises through devolved administrations ability to tailor policies to local needs generate innovation in service provision through inter territorial competition and stimulate participation and accountability by reducing the distance between those in power and their electorates this paper however outlines two related caveats first there are many forces that accompany devolution and work in an opposite direction devolved governmental systems may carry negative implications in terms of national economic efficiency and equity as well as through the imposition of significant institutional burdens second the economic gains as well as the downsides that devolution may engender are contingent to some

unequal economic development in china spatial disparities and regional policy reconsideration 1985 1995 zhao x b and tong s p 2000 unequal economic development in china spatial disparities and regional policy reconsideration 1985 1995 reg studies 34 549 561 almost two decades into the implementation of deng xiaoping s get rich first policy and coastal development strategy income inequality and an imbalance in regional development have emerged as two of the most disturbing factors affecting contemporary china this paper examines regional disparities in contemporary china and their changing trends and magnitude based on a time series analysis of data sets for income and production across china for the last 10 years this paper focuses on the examination of gini coefficients and coefficients of variation for two key economic indicators gdp per capita and household income per capita at four levels of geographical aggregation provincial regional urban and rural given that chinese policy makers appear to have been strongly influenced by the two western theories of regional development w

networks of collaboration in oligopoly abstract in an oligopoly prior to competing in the market firms have an opportunity to form pair wise collaborative links with other firms these pair wise links involve a commitment of resources and lead to lower costs of production of the collaborating firms we study the incentives of firms to form links and the architecture of the resulting collaboration network we find that incentives to form links are intimately related to the nature of market competition our analysis also suggests that collaborations are used by firms to generate competitive advantage and that strategically stable networks are often asymmetric with some firms having many links while others have few links or are isolated specifically we show that networks with the dominant group architecture stars and inter linked stars are stable we also present some results on the architecture of socially efficient networks

political decentralization economic growth and regional disparities in the oecd ezcurra r and rodriguez pose a political decentralization economic growth and regional disparities in the oecd regional studies recent scholarly work has addressed whether decentralization affects economic growth and regional disparities by typically resorting to fiscal decentralization while disregarding political decentralization indices this article covers this gap by investigating the association between different political decentralization indices with two measures of economic performance changes in gross domestic product gdp per capita and in territorial inequalities the results suggest a lack of statistical relationship between political decentralization and economic growth regardless of how political decentralization is measured in the case of regional disparities the results depend on the index used and range from the absence of a link to a positive association between both factors ezcurra r and rodriguez pose a oecd

a differential game approach to investment in product differentiation abstract we consider a dynamic oligopoly where firms invest to increase product differentiation and an externality effect operates in the r d activity via the demand functions in the fully noncooperative setting we find that the degree of differentiation resulting from r d effort is higher the larger is the population of firms in the industry if firms cooperate in the r d activity by setting up an r d cartel aggregate investment is larger and product substitutability is lower than in the decentralised case

does decentralization reduce income inequality only in rich states we investigate the relationship between fiscal decentralization and income inequality using data from u s states over three and a half decades our study contributes to the literature in several ways in terms of empirical methodology and specification first we take into account integration and cointegration properties of the data and estimate the cointegratingrelationship between fiscal decentralization and income inequality using fully modified ordinary least squares following pedroni 2000 second we investigate the direction of the causality finally and perhaps most importantly we investigate if the relationship between fiscal decentralization and income inequality is conditional on income in each state we find that fiscal decentralization does reduce income inequality but only in rich states we also find that causality runs from fiscal decentralization to income inequality not the other way around

jump diffusion option valuation in discrete time we develop a simple discrete time model to value options when the underlying process follows a jump diffusion process multivariate jumps are superimposed on the binomial model of cox ross and rubinstein 1979 to obtain a model with a limiting jump diffusion process this model incorporates the early exercise feature of american options as well as arbitrary jump distributions it yields an efficient computational procedure that can be implemented in practice as an application of the model we illustrate some characteristics of the early exercise boundary of american options with certain types of jump distributions jump diffusion processes are popular in option valuation models these processes were incorporated by merton 1976 into the theory of option valuation and constitute an important alternative to the lognormal diffusion process assumed in the black and scholes 1973 model in this paper we develop a tractable discrete time model for valuing options with these processes many authors have suggested that incorporating jumps in option valuation models may explain some of the large empirical biases exhibited by the black scholes model 1 however in many cases closed form solutions for valuing options are not available for example this is true when there is a positive probability of early exercise when the jump distribution is neither lognormal nor discrete or when the option is based on the term structure of interest rates see ahn and thompson 1988 and jarrow and madan 1991 in these important cases the model developed in this paper can be used to value options another aim of this paper is to provide a model which relies on only simple mathematics to price options with jump diffusion processes it is hoped that the key economic relationships underlying jump diffusion models are transparent in this model we provide enough details to make the procedure readily accessible

dynamic r d with spillovers competition vs cooperation abstract we investigate dynamic r d for process innovation in a cournot duopoly where firms may either undertake independent ventures or form a cartel for cost reducing r d investments by comparing the profit and welfare performances of the two settings in steady state we show that private and social incentives towards r d cooperation coincide for all admissible levels of the technological spillovers characterising innovative activity we also evaluate the whole history of the dynamic system along the transition to the steady state showing that the conflict between private and social incentives does not necessarily emerge

does fiscal federalism promote regional inequality an empirical analysis of the oecd 1980 2005 sorens j does fiscal federalism promote regional inequality an empirical analysis of the oecd 1980 2005 regional studies this paper explores the relationship between fiscal federalism understood as institutionalized regional economic self rule and convergence in regional per capita incomes the principal economic argument against fiscal federalism is that unless paired with generous equalization grants it will enhance regional inequalities by reducing inter regional redistribution does the evidence support this claim multilevel spatial regressions on primary sub national jurisdictions in twenty five organisation for economic co operation and development oecd countries show that lower income regions tend to catch up with higher income regions only when they enjoy substantial economic powers indeed there is more convergence across member states of the european union than across regions within almost any of the european union member states fiscal federalism may pose less serious tradeoffs tha

increasing regional disparities in the 1990s the finnish experience kangasharju a and pekkala s 2004 increasing regional disparities in the 1990s the finnish experience reg studies38 255 267 this paper investigates why regional disparities in finland started to grow in the early 1990s after a decades long period of convergence the analysis focuses on per capita gdp and its subcomponents particularly labour productivity jobs and population the results show first that the evolution of labour productivity and the number of jobs account for the regional divergence of per capita gdp second even though interregional migration and fertility tend to have a convergent effect on regional per capita gdp its effect was not strong enough the divergence of productivity and jobs dominated third among divergent factors productivity and jobs primary production contributed the most to the divergence of per capita gdp during the recession of the 1990s and private services during the subsequent recovery one reason for divergence of the primary production sector may

uncertainty spillovers and cooperative r d abstract this paper extends the literature on cooperative r d in an oligopoly with spillovers the model has three new features it introduces uncertainty focuses on spillover of innovation instead of effort spillover and offers a new definition of the research joint venture rjv the rjv is an arrangement to coordinate r d efforts and also to share the innovation firms form an rjv only if the innovation raises flow industry profit but independently of the speed of spillovers and the degree of uncertainty the model is robust when we allow for licensing the single lab endogenous spillovers and r d effort spillovers

an analysis of cooperative research and development i analyze the effects of cooperative research whereby member firms agree to share the costs andfruits of a research project before they undertake it in this model industrywide agreements tend to have socially beneficial effects when the degree ofproduct market competition is low when there are r d spillovers in the absence of cooperation when a high degree of sharing is technologically feasible and when the agreement concerns basic research rather than development activities i show that a royalty free cross licensing agreement among any number offirms lowers the equilibrium level of innovation even though it increases the efficiency of r d through sharing

a p d e approach to asian options analytical and numerical evidence abstract we first derive a one state variable partial differential equation easy to implement which characterizes the price of a european type asian option this result is explained and related to previous literature we then derive new results on the hedging of an asian option and propose analytical and numerical analysis on the comparison between asian and european options our methodology which applies to fixed strike asian options as well as to floating strike asian options completes and clarifies various results in the literature in this paper we focus on backward starting asian options our approach is quite general however and we explain how to adapt our main results to the case of forward starting asian options

the impact of classes of innovators on technology financial fragility and economic growth in this article we study innovation processes and technological change in an agent based model by including a behavioral switching among heterogeneous innovative firms the model is able to replicate via simulations well known industrial dynamic and growth type stylized facts the main original element of the model is that firms are allowed to endogenously change among three different classes namely single innovators collaborative innovators and imitators moreover our analysis focuses on the impact of these three innovation categories on micro meso and macro aggregates we find that collaborative companies are those having the highest positive impact on the economic system furthermore we have paid particular attention to the role of credit market in promoting smart growth for this purpose we analyze the role of banks as sources of external funds for innovative entrepreneurs our results suggest a trade off between short term profit maximization and long term efficiency which prevents banks to foster investment in r d and technological progress the model is then used to study the effect that different innovation policies have on macroeconomic performance

technology ladders and r d in dynamic cournot markets abstract motivated by dramatic and unpredictable technological advances in energy production for instance drilling and extraction of shale oil we extend cournot models of competition to incorporate research and development rd for example the potential of future monopoly can spur r d investment now even if the firm is presently uncompetitive and not actively producing we also show that surprisingly random innovations have an ambiguous effect on r d this feature which is driven by the cournot framework contrasts with the common situation whereby uncertainty lowers innovation and delays r d investments finally we demonstrate that increased competition may actually increase efforts to innovate through higher desire to achieve dominance this would match the anecdotal evidence that the threat of market entrants forces incumbents to maintain high r d

small dimension pde for discrete asian options abstract this paper presents an efficient method for pricing discrete asian options in presence of smile and non proportional dividends using an homogeneity property we show how to reduce an n 0 dimensional problem to a one or two dimensional one we examine different numerical specifications of our dimension reduced pde using a crank nicholson method interpolation method grid boundaries time and space steps as well as the extension to the case of non proportional discrete dividends using a jump condition we benchmark our results with quasi monte carlo simulation and a multi dimensional pde

strategic incentives in dynamic duopoly abstract we compare steady states of open loop and locally stable markov perfect equilibria mpe in a general symmetric differential game duopoly model with costs of adjustment strategic incentives at the mpe depend on whether an increase in the state variable of a firm hurts or helps the rival and on whether at the mpe there is intertemporal strategic substitutability or complementarity a full characterization is provided in the linear quadratic case then with price competition and costly production adjustment static strategic complementarity turns into intertemporal strategic substitutability and the mpe steady state outcome is more competitive than static bertrand competition

does income polarization affect economic growth the case of the european regions ezcurra r does income polarization affect economic growth the case of the european regions regional studies this paper examines the relationship between income polarization and economic growth in the regions of the european union over the period 1993 2003 the results indicate that the level of income polarization is negatively associated with regional growth this finding is in fact robust to various alternative specifications including a number of additional explanatory variables such as initial per capita gross domestic product industry mix human capital stock population density or market potential furthermore it should be noted that the observed negative correlation between polarization and economic performance does not depend on the number of groups used to analyse the degree of income stratification within the sample regions ezcurra r la polarisation des revenus affecte t elle la croissance economique le cas des regions europeennes regional studies cet article etudie les relations en

the crash of ʼ87 was it expected the evidence from options markets transactions prices of s p 500 futures options over 1985 1987 are examined for evidence of expectations prior to october 1987 of an impending stock market crash first it is shown that out of the money puts became unusually expensive during the year preceding the crash second a model is derived for pricing american options on jump diffusion processes with systematic jump risk the jump diffusion parameters implicit in options prices indicate that a crash was expected and that implicit distributions were negatively skewed during october 1986 to august 1987 both approaches indicate no strong crash fears during the 2 months immediately preceding the crash attempts to explain what caused the stock market crashes around the world in october 1987 have suffered from the paucity of major economic developments occurring around that time that could have triggered the crashes shifting expectations regarding monetary policy foreign investors fears of a dollar decline increasing riskiness of assets none of these appeared major enough if present at all to explain the magnitude of the crashes and although portfolio insurance strategies could conceivably magnify the effects of a jump in fundamentals the initiating jump in fundamentals appears to be lacking

equilibrium and optimal size of a research joint venture in an oligopoly with spillovers this paper analyzes a simple oligopoly model with information spillovers firms spend on r d to affect their costs of production the main finding is that depending on the magnitude of the spillover the market may not provide enough incentives for the optimum degree of cooperation to take place it is shown that the equilibrium size of a research joint venture is usually less than the optimum size which requires all firms to participate in the research joint venture the policy implications of this result are that there should be encouragement for firms competing in high technology industries to form industry wide cooperative agreements copyright 1995 by blackwell publishing ltd

r d competition versus r d cooperation in oligopolistic markets with evolving structure this paper considers investment behavior of duopolistic firms subject to technological progress it is assumed that initially both firms offer a homogeneous product but after a stochastic waiting time they are able to implement a product innovation production capacities of both firms are product specific it is shown that firms anticipate a future product innovation by under investing if the new product is a substitute to the established product and higher profits and over investing in case of complements and lower profits compared to the corresponding standard capital accumulation game this anticipation effect is stronger in the case of r d cooperation furthermore since due to r d cooperation firms introduce the new product at the same time this leads to intensified competition and lower firm profits right after the new product has been introduced in addition we show that under r d competition the firm that innovates first overshoots in new product capacity buildup in order to exploit its temporary monopoly position taking into account all these effects the result is that if the new product is neither a close substitute nor a strong complement of the established product positive synergy effects in r d cooperation are necessary to make it more profitable for firms than r d competition

regional economic disparities and decentralisation the study of the influence of decentralisation on economic growth has received some attention in recent years but very few studies deal with its impact on regional inequalities this paper analyses the impact of both fiscal and political decentralisation on regional inequalities using alternative measures for a sample of 17 oecd countries in order to check for other possible influences the study also includes measures of public sector size and the type of party in government the final section studies the relevance of fiscal decentralisation in the regional convergence process observed by several authors during the past two decades the research reveals a strong negative correlation between decentralisation especially fiscal decentralisation and regional inequalities and also a positive influence of decentralisation on regional convergence

differences in gdp per head in gb counties some suggested explanations this paper examines the evidence concerning the convergence of gross domestic product gdp per head across gb counties during 1977 1995 in general the evidence rejects the hypothesis of convergence although there is some evidence of a north south divide with convergence in the north in the 1990s cross section results suggest that variation in gdp per head may be related to different economic activity rates and some aspects of industrial structure

economic reform and interprovincial inequalities in china abstract this note is an attempt to explore two issues 1 the trend of interprovincial inequality in the post 1978 reform era in china and 2 the factors behind the dynamics of interprovincial inequality using recently released provincial gross domestic product gdp data we have shown that interprovincial inequality decreased in the fast half of the 1980s but started to increase in the second half of the 1980s to understand the impact of sectoral reforms on interprovincial inequality the overall inequality in provincial per capita gdp is decomposed into the contributions by the primary secondary and tertiary sectors it seems that the trend of interprovincial inequality has been largely induced by the reforms of the industrial sector which make up a large share of the secondary sector in addition national income data from the socialist national accounting system are used to identify the impact of interprovincial resource flows on interprovincial inequalities the findings seem to suggest a relative decline in the role of redistributive budgetary transfers

is income inequality harmful for regional growth evidence from the european union this article examines the relationship between income inequality and economic growth in the regions of several european union countries over the period 1993 2002 using the information provided by the european community household panel taking into consideration the relevance of spatial effects in this context different versions of a spatial econometric model are estimated the results indicate that the degree of income dispersion is negatively associated with regional growth this finding is in fact robust to various alternative specifications including a number of additional explanatory variables such as initial per capita gdp the sectoral composition of economic activity human capital stock population density and market potential furthermore the observed negative correlation between income inequality and economic performance does not depend on the specific measure used to quantify the degree of income dispersion

mobility housing and labour markets in times of economic crises this special issue addresses the effects of the most recent financial and economic crisis starting in 2007 on mobility housing and labour markets in order to learn some lessons for the future t

cooperative r d under uncertainty with free entry abstract this paper analyzes the effects of cooperative r d arrangements in a model with stochastic r d and output spillovers our main innovation is to allow for free entry in both the r d race and product market moreover in contrast with the literature we assume that cooperative r d arrangements do not have to include all the firms in the industry we show that sharing of research outcomes is a necessary condition for the profitability of cooperative r d arrangements with free entry the profitability of rjv cartels depends on their size subsidies may be desirable in cases of larger rjvs since they are the ones which are less likely to be profitable

comparing cournot and bertrand equilibria in a differentiated duopoly with product r d abstract this paper compares bertrand and cournot equilibria in a differentiated duopoly with substitute goods and product r d i find that r d expenditure prices and firms net profits are always higher under quantity competition than under price competition furthermore output consumer surplus and total welfare are higher in the bertrand equilibrium than in the cournot equilibrium if either r d spillovers are weak or products are sufficiently differentiated if r d spillovers are strong and products are not too differentiated then output consumer surplus and total welfare are lower in the bertrand case than in the cournot case thus a key finding of the paper is that there are circumstances where quantity competition can be more beneficial than price competition both for consumers and for firms

innovative strategic groups in multinational industries abstract differences in innovative strategies between groups of domestic and multinational enterprises are analyzed within a two stage game model that incorporates the asymmetries in transaction costs between the two species of enterprises nash and cooperative behaviour is shown to result in different equilibrium r d strategies with the multinational companies doing typically more r d for larger markets and domestic companies focusing on specific market segments survey data from companies operating in eleven high tech multinational industries in belgium provide support for these strategic differences and show how they are related to company performance

lumpy capacity investment and disinvestment dynamics capacity addition and withdrawal decisions are among the most important strategic decisions made by firms in oligopolistic industries in this paper we develop and analyze a fully dynamic model of an oligopolistic industry with lumpy capacity and lumpy investment disinvestment we use our model to suggest answers to two questions first what economic factors facilitate preemption races second what economic factors facilitate capacity coordination with a series of examples we show that low product differentiation low investment sunkness and high depreciation tend to promote preemption races the same examples also show that low product differentiation and low investment sunkness tend to promote capacity coordination although depreciation removes capacity it might impede capacity coordination finally our examples show that multiple equilibria arise over at least some range of parameter values the distinct structures of these equilibria suggest that firms expectations play a key role in determining whether or not industry dynamics are characterized by preemption races and capacity coordination taken together our results suggest that preemption races and excess capacity in the short run often go hand in hand with capacity coordination in the long run

fiscal decentralisation and idc economic growth an empirical investigation the impact of fiscal decentralisation on ldc economic growth and development is widely debated in the development literature notwithstanding this there has been little attempt to test systematically this relationship accordingly in this note we present an empirical examination of the relationship between the level of fiscal decentralisation and economic growth rates across a sample of twenty three ldcsfrom 1974 to 1991 we fail to find however any strong systematic relationship between the two among our sample of ldcs

convergence and divergence in regional household incomes per head in the united kingdom 1984 93 this paper examines the convergence of regional household incomes in the uk and finds support for the idea that regions in the uk have in the recent past tended to diverge during booms and converge during slumps a new way of presenting the change in the distribution of regional incomes is offered the results are extended to the consideration of movements in the higher moments of the underlying distributions

strategic technology choice and capacity investment under demand uncertainty this paper studies the impact of competition on a firm s choice of technology product flexible or product dedicated and capacity investment decisions specifically we model two firms competing with each other in two markets characterized by price dependent and uncertain demand the firms make three decisions in the following sequence choice of technology technology game capacity investment capacity game and production quantities production game the technology and capacity games occur while the demand curve is still uncertain and the production game is postponed until after the demand curve is revealed we develop best response functions for each firm in the technology game and compare how a monopolist and a duopolist respond to a given flexibility premium we show that the firms may respond to competition by adopting a technology which is the same as or different from what the competitor adopts we conclude that contrary to popular belief flexibility is not always the best response to competition flexible and dedicated technologies may coexist in equilibrium we demonstrate that as the difference between the two market sizes increases a duopolist is willing to pay less for flexible technology whereas the decision of a monopolist is not affected further we find that a firm that invests in flexibility benefits from a low correlation between demands for two products but the extent of this benefit differs depending on the competitor s technology choice our results indicate that higher demand substitution may or may not promote the adoption of flexibility under competition whereas it always facilitates the adoption of flexibility without competition finally we show that contrary to intuition as the competitor s cost of capacity increases the premium a flexible firm is willing to pay for flexibility decreases

symmetric research joint ventures cooperative substitutes and complements we introduce the concepts of cooperative substitutes and complements and use them to explain when all firms in a research joint venture will choose equal levels of r d we show that the second order conditions for a symmetric optimum take a particularly simple form ruling out both excessive cooperative substitutability and excessive cooperative complementarity and nesting conditions already derived in the literature finally we apply our results to the comparison between cooperative and non cooperative r d and show in an important special case that asymmetric outcomes are only optimal for a very limited range of parameter values

product innovation incentives by an incumbent firm a dynamic analysis we employ a dynamic framework to study how product innovation activities of a firm are influenced by its investments in production capacity of an established product and vice versa the firm initially has capacity to sell an established product additionally it also has the option to undertake an r d project which upon completion allows the firm to introduce a new vertically and horizontally differentiated product to the market thereby extending its current product range the breakthrough probability of detecting the new product depends on both the value of the firm s r d stock and its current r d investment it is shown that the initial production capacity for the established product influences the intensity of r d activities of the firm in particular there are constellations such that for large initial production capacity for the established product the firm never invests in r d and the new product is never introduced for small initial capacity the firm keeps investing in r d implying that eventually the new product is always introduced finally for an intermediate range of initial capacity levels the firm initially invests in product r d but then reduces these investments to zero in this scenario the new product is introduced with a positive probability which is however substantially smaller than 1 from a technical perspective this analysis gives the example of a new type of skiba threshold phenomenon in the framework of a multi mode optimization model

agglomeration effects on regional economic disparities a comparison between the uk and japan in this study the reason and cause of regional economic disparities in terms of per capita value added are investigated by comparing the uk and japanese regions special attention is paid to agglomeration effects on the differences of regional productivities the gini coefficients of per capita values added exhibit relatively higher levels for the uk regions than for japanese regions over the period 1995 2003 the cause of this difference is found to be in labour productivities rather than employment rates or labour per population furthermore a decomposition of labour productivity into main industries clarifies agglomeration effects on manufacturing and service related industry between both countries based on these findings the production functions are estimated by main industries and differences in agglomeration effects on industries between the two countries are examined taking a dynamic view of the changing disparities across regions an increase in regional disparities is associated with the cum

optimal r d levels when firm j benefits from firm i s inventive activity abstract we amend the static model of industry structure in dasgupta and stiglitz to include external benefits from a firm s r d now the market can be seen to underinvest in r d relative to the social optimum the work of mansfield suggests that such external benefits are pervasive

option values under stochastic volatility theory and empirical estimates abstract this paper numerically solves the call option valuation problem given a fairly general continuous stochastic process for return volatility statistical estimators for volatility process parameters are derived and parameter estimates are calculated for several individual stocks and indices the resulting estimated option values do not differ dramatically from black scholes values in most cases although there is some evidence that for longer maturity index options black scholes overvalues out of the money calls in relation to in the money calls

asian and australian options a common perspective we show that australian options are equivalent to fixed or floating strike asian options and consequently that by studying asian options from the australian perspective and vice versa much can be gained one specific application of this australian approach leads to a natural dimension reduction for the pricing pde of asian options with or without stochastic volatility featuring time independent coefficients another application lies in the improvement of monte carlo schemes where the australian approach results in a path independent method we also show how the milevsky and posner 1998 result on the reciprocal approximation for asian options can be quickly obtained by using the connection to australian options further we present an analytical exact pricing formula for australian options and adapt a result of carr et al 2008 to show that the price of an australian call option is increasing in the volatility and by doing this answering a standing question by moreno and navas 2008

fiscal decentralization and economic growth a cross country study abstract we use a panel data set of 46 countries over the 1970 1989 period to investigate the relationship between fiscal decentralization and economic growth we find a negative relationship between fiscal decentralization and growth in developing countries but none in developed countries several explanations are offered for our findings

value and risk dynamics over the innovation cycle this paper studies investment in intellectual capital and corresponding value and risk dynamics over the innovation cycle we assume that the innovation cycle consists of three phases r d trial and market introduction phases we use a real option investment model to characterize firm value and risk dynamics over the innovation cycle and find that firm value is the sum of the value of assets in place and non linear option values related to breakthrough exit and market introduction options firm risk over the innovation cycle is highly non linear and quite distinct in different phases during the r d phase risk is high as the firm faces high operating leverage originating from r d fixed costs together with technological uncertainty during the trial phase risk is significantly lower and dominated by option risk to launch the product in the market while after the introduction of the product in the market risk is equivalent to the asset risk of the company our model is consistent with the view that positive excess returns of r d intensive firms are a compensation for risk based on this insight we derive several testable predictions

optimal firm growth under the threat of entry the paper studies the incumbent entrant problem in a fully dynamic setting we find that under an open loop information structure the incumbent anticipates entry by overinvesting whereas in the markov perfect equilibrium the incumbent slightly underinvests in the period before the entry the entry cost level where entry accommodation passes into entry deterrence is lower in the markov perfect equilibrium further we find that the incumbent s capital stock level needed to deter entry is hump shaped as a function of the entry time whereas the corresponding entry cost where the entrant is indifferent between entry and non entry is u shaped

aggregate economic fluctuations and regional convergence the finnish case 1988 95 this paper analyses the connection between aggregate economic fluctuations and regional productivity convergence in finland during the period 1988 95 markov chain transition matrices and mobility indices were used to examine the regional distribution of productivity the results indicated that high intra distribution mobility occurred during booms when regional convergence potential was also at its highest conversely recession years were characterized by much lower mobility and a more divergent regional pattern these findings bear important implications in terms of regional policy planning as it seems that poor regions do not manage to keep up with the rich ones during slumps whereas regional disparities diminish naturally during boom years

regional inequalities fiscal decentralization and government quality abstractregional inequalities fiscal decentralization and government quality regional studies there are theoretical arguments supporting the view that regional income inequalities the degree of fiscal decentralization and the quality of government are simultaneously determined this article argues that existing empirical work has failed to deal adequately with this possibility in light of this it applies a simultaneous equation model which accounts for the joint determination of these three variables to a panel of 23 organisation for economic co operation and development oecd countries the empirical evidence that emerges from the analysis suggests that a process of fiscal decentralization accompanied by measures to improve the quality of government would be an effective strategy for reducing regional inequalities

unemployment volatility and regional specialization in the european union ezcurra r unemployment volatility and regional specialization in the european union regional studies this paper examines the link between unemployment volatility and the sectoral composition of economic activity in the regions of the european union over the period 1980 2004 to that end different spatial econometric techniques are used that allow the investigation of the role played in this context by spatial effects and geographical spillovers the results show that unemployment volatility is positively related to regional specialization in the european union this finding does not depend on the use in the analysis of absolute or relative specialization measures ezcurra r l instabilite du chomage et la specialisaiton regionale dans l union europeenne regional studies cet article cherche a examiner le lien entre l instabilite du chomage et la structure sectorielle de l activite economique dans les regions de l union europeenne entre 1980 et 2004 dans ce but on emploie diverses techniques econome

searching for leviathan an empirical study in several papers and a recent book geoffrey brennan and james buchanan 1977 1978 1980 have put forth a striking and controversial view of the public sector drawing by analogy on the conventional theory of monopoly in the private sector they envision a monolithic government that systematically seeks to exploit its citizenry through the maximization of the tax revenues that it extracts from the economy from this perspective they develop a fiscal constitution whose central purpose is to constrain leviathan by limiting in various ways its access to tax and other fiscal instruments while the leviathan hypothesis has been the source of lively debate and a wide range of policy proposals it has not been the subject of much systematic empirical work or testing this is a matter of some importance since the policy implications of the leviathan view are disturbing to put it mildly in particular brennan and buchanan virtually stand on their heads many of the basic theorems in public finance for an efficient and equitable tax system if in fact the leviathan view is an inaccurate depiction of the functioning of the public sector the introduction of their policy proposals is likely to make a sorry mess of the fiscal system the leviathan model does however have some straightforward implications for observable fiscal behavior it is the purpose of this paper to examine one of these testable implications brennan and buchanan stress that fiscal decentralization is itself a powerful constraint on leviathan competition among governments in the context of the interjurisdictional mobility of persons in pursuit of fiscal gains can offer partial or possibly complete substitutes for explicit fiscal constraints on the taxing power 1980 p 184 such competition among governments in a federal system that places heavy reliance on local fiscal decisions will greatly limit the capacity of leviathan to channel resources into the public sector in short as indicated by the epigraph to this paper the leviathan model implies that other things equal the size of the public sector should vary inversely with the extent of fiscal decentralization 2

economic crisis and the regional and local economic effects of the welfare state the case of denmark hansen f and jensen butler c 1996 economic crisis and the regional and local economic effects of the welfare state the case of denmark reg studies 30 167 187 the paper presents an analysis of the regional and local economic role of the danish welfare state during a prolonged period of economic crisis the role of the welfare state in redistributing income between localities and regions is examined this being related to changing relations of power and responsibility between state and local government levels the analysis is presented within a theoretical context where different models of the welfare state are examined and related to the distributional questions finally the future of the scandinavian type of welfare state in europe is discussed together with the implications of future changes for geographical redistribution of income hansen f et jensen butler c 1996 crise economique et l impact economique regional et local de l etat providence cas d etude du danemark reg studies 30 167

capacity dynamics and endogenous asymmetries in firm size empirical evidence suggests that there are substantial and persistent differences in the sizes of firms in most industries we propose a dynamic model of capacity accumulation that is consistent with the observed facts the model highlights the mode of product market competition and the extent of investment reversibility as key determinants of the size distribution of firms in an industry in particular if firms compete in prices and the rate of depreciation is large then the industry moves toward an outcome with one dominant firm and one small firm industry dynamics in this case resemble a preemption race contrary to the usual intuition this preemption race becomes more brutal as investment becomes more reversible

pricing interest rate derivative securities this article shows that the one state variableinterest rate models of vasicek 1977 and cox ingersoll and ross 1985b can be extended sothat they are consistent with both the current termstructure of interest rates and either the currentvolatilities of all spot interest rates or the currentvolatilities of all forward interest rates theextended vasicek model is shown to be very tracta ble analytically the article compares option pricesobtained using the extended vasicek model withthose obtained using a number of other models