irreversible investment with regime shifts under the real options approach to investment under uncertainty agents formulate optimal policies under the assumption that firms growth prospects do not vary over time this paper proposes and solves a model of investment decisions in which the growth rate and volatility of the decision variable shift between different states at random times a value maximizing investment policy is derived such that in each regime the firm s investment policy is optimal and recognizes the possibility of a regime shift under this policy investment is intermittent and increases with marginal q moreover investment typically is very small but in some states the capital stock jumps implications for marginal q and the user cost of capital are also examined

patenting in the shadow of competitors this article empirically examines the patenting behavior of new biotechnology firms that have different litigation costs i show that firms with high litigation costs are less likely to patent in subclasses with many other awards particularly those of firms with low litigation costs this pattern is consistent with the literature on costly litigation which suggests that firms that have high litigation costs will take greater precautions to avoid litigation these results are robust to a variety of control variables and modifications that seek to test alternative explanations

the changing technology of technological change general and abstract knowledge and the division of innovative labour abstract in the past most innovations have resulted from empiricist procedures the outcome of each trial yielding knowledge that could not be readily extended to other contexts while trial and error may remain the primary engine of innovation developments in many scientific disciplines along with progress in computational capabilities and instrumentation are encouraging a new approach to industrial research instead of relying purely on trial and error the attempt is also to understand the principles governing the behaviour of objects and structures the result is that relevant information whatever its source can now be cast in frameworks and categories that are more universal the greater universality makes it possible for the innovation process to be organised in new ways firms can specialise and focus upon producing new knowledge and the locus of innovation may be spread across both users and producers more generally the use of general and abstract knowledge in innovation opens up the possibility for a division of labour in inventive activity the division of innovative labour the implications for public policy especially that on intellectual property rights are discussed

product market competition and the impact of price uncertainty on investment some evidence from us manufacturing industries the authors estimate the impact of price uncertainty on investment using a panel of u s manufacturing industries pooling the data for all industries uncertainty has no impact on current investment however for industries that have low levels of seller concentration and thus are likely to be highly competitive the estimated impact is negative and statistically significant while for industries with high levels of seller concentration the impact is always small and not significantly different from zero the finding of a negative relationship between investment and price uncertainty in competitive industries is broadly consistent with models that incorporate irreversibility of capital investment copyright 1996 by blackwell publishing ltd

income distribution political instability and investment abstract this paper successfully tests on a sample of 71 countries for the period 1960 85 the following hypotheses income inequality by fuelling social discontent increases sociopolitical instability the latter by creating uncertainty in the politico economic environment reduces investment as a consequence income inequality and investment are inversely related since investment is a primary engine of growth this paper identifies a channel for an inverse relationship between income inequality and growth we measure socio political instability with indices which capture the occurrence of more or less violent phenomena of political unrest and we test our hypotheses by estimating a two equation model in which the endogenous variables are investment and an index of socio political instability our results are robust to sensitivity analysis on the specification of the model and the measure of political instability and are unchanged when the model is estimated using robust regression techniques

the u s patent system in transition policy innovation and the innovation process abstract this paper surveys the major changes in patent policy and practice that have occured in the last two decades in the u s and reviews the existing analyses by the economists that attempt to measure the impacts these changes have had on the processes of technological change it also reviews the broader theoretical and empirical literature that bears on the expected effects of changes in patent policy despite the significance of the policy changes and the wide availability of detailed data relating to patenting robust conclusions regarding the empirical consequences for technological innovation of changes in patent policy are few possible reasons for these limited results are discussed and possible avenues for future research are suggested

how effective are fiscal incentives for r d a review of the evidence this paper surveys the econometric evidence on the effectiveness of fiscal incentives for r d we describe the effects of tax systems in oecd countries on the user cost of r d the current position changes over time and across different firms in different countries we describe and criticize the methodologies used to evaluate the effect of the tax system on

leaders followers and equity risk premiums in booms and busts abstract we study an investment problem in which two asymmetric firms face competition and the regime characterizing the economic condition follows a markov switching process we derive the value functions and investment thresholds of the leader and follower the option value of regime uncertainty is found to be quite important for the investment decision of firms we also show the relationship between the equity risk premium and the economic cycle that has not been done in previous studies which proxy economic conditions by the level of demand or other state variables

competition and irreversible investments abstract incumbent monopolists frequently claim that the introduction of competition will reduce future profits and therefore delay future investments in this paper we show that not only is this not generally true but in the oligopolistic industry model of dixit and pindyck investment under uncertainty 1994 this is never the case we extend this result to situations in which investments have positive externalities and situations in which the monopolist has multiple investment opportunities

a dynamic duopoly investment game without commitment under uncertain market expansion abstract we model capacity building investments in a homogeneous product duopoly facing uncertain demand growth capacity building is achieved through the addition of production units that are durable and lumpy and whose cost is irreversible while building their capacity over time firms compete a la cournot in the product market given their installed capacity there is no exogenous order of moves no commitment regarding future decisions and no finite horizon we investigate markov perfect equilibrium mpe paths of the investment game which may include episodes during which firms invest at different times a preemption pattern and episodes in which firms invest simultaneously a tacit collusion pattern these episodes may alternate and are typically several when firms have yet to invest in capacity the sole pattern that is mpe compatible is a preemption episode firms invest at different times but have equal value the first such investment may occur earlier and therefore be riskier than socially optimal when both firms hold capacity tacit collusion episodes may be mpe compatible firms invest simultaneously at a postponed time hence holding back production in the meantime thereby generating an investment wave in the industry such investment episodes are more likely with higher demand volatility faster market growth and lower cost of capital discount rate

is public r d a complement or substitute for private r d a review of the econometric evidence is public r d spending complementary and thus additional to private r d spending or does it substitute for and tend to crowd out private r d conflicting answers are given to this question we survey the body of available econometric evidence accumulated over the past 35 years a framework for analysis of the problem is developed to help organize and summarize the findings of econometric studies based on time series and cross section data from various levels of aggregation laboratory firm industry country the findings overall are ambivalent and the existing literature as a whole is subject to the criticism that the nature of the experiment s that the investigators envisage is not adequately specified we conclude by offering suggestions for improving future empirical research on this issue

the relation between chinese economic development and energy consumption in the different periods since the 1980s chinese economy grew rapidly with the rapid economic growth chinese energy consumption sharply increased the relation between chinese energy consumption and economic growth is focused on and many researchers have studied this issue by applying the methods such as granger causality test however the results just reveal the relation in a very long period in this paper the history of chinese economy is divided into four periods and the relation between chinese energy consumption and economic growth is examined by applying grey incidence analysis which is one of the most important methods of grey system theory which can be applied to solve the problems with small samples the results show that the relations in different periods are not the same the degree of grey incidences between total energy consumption and values added of secondary industry is larger and the degree of grey incidences between gdp and consumption of coal is larger too and the policy implications of these results are explained

regime uncertainty and optimal investment timing abstract we construct a real options model in which a regime change is expected at a pre determined future time and study the effects of regime uncertainty on a firm s strategic investment decision taking into consideration the remaining time to the regime change and the probability of each regime state we show that just before the time of a regime change firms should act as if the worst case scenario was about to happen even if a good state is highly possible

carbon trading in the policy mix the kyoto protocol is stimulating the development of emissions trading schemes at the national and international levels these are being introduced alongside existing policy instruments such as carbon taxes and negotiated agreements leading to complex problems of policy interaction but the topic of policy interaction remains under researched this paper aims to improve understanding of such interactions by examining the conditions under which a cap and trade scheme for carbon dioxide emissions may usefully coexist with carbon energy taxes support mechanisms for renewable electricity and policies to promote energy efficiency the paper argues that each of these instrument combinations may be acceptable provided they contribute to either improving the static or dynamic efficiency of the trading scheme or delivering other valued policy objectives but since the coexisting instruments may raise overall abatement costs while contributing nothing further to emission reductions the objectives and trade offs within the policy mix must be explicit

investment with uncertain tax policy does random tax policy discourage investment we consider the impact of tax policy uncertainty on firm level and aggregate investment comparing investment behaviour when uncertainty is due to a shock following geometric brownian motion gbm versus when random discrete jumps in tax policy occur expectations of the likelihood of a tax policy switch have an important negative impact on the gain to delaying investment in the latter model and time to investment can fall with increasing tax policy uncertainty aggregate investment simulations indicate that capital formation is adversely affected by increases in uncertainty in the traditional gbm model but can be enhanced in the jump process model

the assessment technology policy current research and problems in science and technology policy are reviewed trends in innovative activity in the g 7 economies during the past two decades are summarized and the economic rationale for policy in this area given policy tools currently in use in many countries include tax credits and subsidies the intellectual property system and competition policy ongoing areas of current controversy are the interaction of intellectual property and competition policies environmental and innovation policy standard setting in industries characterized by network externalities and the privatization of scientific research and its consequences copyright 2002 oxford university press

investment under uncertainty and policy change in this paper the impact of a policy change on the investment behavior of the firm is studied in an incomplete information setting the policy change occurs when a stochastic process describing the state of the economic environment reaches a certain trigger the firm has incomplete information about the trigger and knows only its probability distribution consequently both the firm s conjecture concerning the trigger value as well as the precision of this conjecture serve as input parameters we derive the optimal investment rule maximizing the value of the firm and show that the impact of the trigger value uncertainty on the optimal investment threshold is non monotonic the threshold decreases with uncertainty for its low levels while the reverse is true if uncertainty is high furthermore we provide results concerning the valuation of the firm s investment opportunity and present some policy implications

innovation strategies as a source of persistent innovation an important topic in the recent literature on firms innovation is the question of whether and to what extent firms which innovate once have a higher probability of innovating again in subsequent periods this phenomenon is called the persistence of innovation although the literature has established that innovation persistence is indeed important from an empirical point of view relatively little attention has been paid to identifying the reasons why this is the case in this article we contribute to the literature by proposing that differences in innovation strategies across firms are an important driving force behind innovation persistence we analyses this issue using a panel database constructed from r d and community innovation surveys in norway empirical measures of five innovation strategies are identified by means of an inductive method ad hoc supplier based market driven r d intensive and science based a dynamic random effects probit model is used to estimate whether and to what extent these innovation strategies are a source of persistent innovation the results support the idea that the differences in innovation strategies across firms are an important determinant of the firms probability to repeatedly innovate more concretely we found that firms pursuing the strategies market driven r d intensive and science based were more likely to be persistent innovators we also distinguish the effects of strategy differences on the persistence of product and process innovation in all firms and within high tech versus low tech firms

a dynamic model of open source vs proprietary r d abstract we propose a dynamic model in which firms compete to produce sequential and cumulative innovations and in which the more firms do research in one sector the more likely it is that one of them innovates firms choose research effort and whether to patent innovations or to use an open source license like the general public license we show that i patents generate a larger stationary reward but foreclose research within a sector and that ii open source generates a smaller stationary reward but allows everyone to use the technology and therefore by attracting firms to the sector it induces a faster pace of innovation we characterize all the equilibria of the model and show that in equilibrium an open source sector appears only after a proprietary sector we also find conditions under which the model has a unique equilibrium in which a proprietary and an open source sector coexist and compete in the short run but the open source sector dominates the industry in the long run we use our model to study whether patents are inefficient and to explain firms behavior in the software and the biomedical industry

how do patent laws influence innovation evidence from nineteenth century world fairs studies of innovation have focused on the effects of patent laws on the number of innovations but have ignored effects on the direction of technological change this paper introduces a new dataset of close to fifteen thousand innovations at the crystal palace world s fair in 1851 and at the centennial exhibition in 1876 to examine the effects of patent laws on the direction of innovation the paper tests the following argument if innovative activity is motivated by expected profits and if the effectiveness of patent protection varies across industries then innovation in countries without patent laws should focus on industries where alternative mechanisms to protect intellectual property are effective analyses of exhibition data for 12 countries in 1851 and 10 countries in 1876 indicate that inventors in countries without patent laws focused on a small set of industries where patents were less important while innovation in countries with patent laws appears to be much more diversified these findings suggest that patents help to determine the direction of technical change and that the adoption of patent laws in countries without such laws may alter existing patterns of comparative advantage across countries jel d2 k11 l51 no 014

impacts of urbanization and industrialization on energy consumption co2 emissions does the level of development matter urbanization and industrialization have significant impacts on energy consumption and co2 emissions but their relationship varies at different stages of economic development taking cognizance of heterogeneity and the ratchet effect this paper adopts the stochastic impacts by regression on population affluence and technology stirpat framework as a starting point and re estimates the relationship using different panel date models the main results are obtained by dynamic panel threshold regression models which divide a balanced panel dataset of 73 countries over the period of 1971 2010 into four groups according to their annual income levels the key results are 1 in the low income group urbanization decreases energy consumption but increases co2 emissions 2 in the middle low income and high income groups industrialization decreases energy consumption but increases co2 emissions while urbanization significantly increases both energy consumption and co2 emissions 3 for the middle high income group urbanization does not significantly affect energy consumption but does hinder the growth of emissions while industrialization was found to have an insignificant impact on energy consumption and co2 emissions 4 from the population perspective it produces positive effects on energy consumption and also increases emissions except for the high income group these novel methodology and findings reveal that different development strategies of urbanization and industrialization should be pursued depending on the levels of income in a bid to conserve energy and reduce emissions

investment uncertainty and pre emption this paper examines irreversible investment in a project with uncertain returns when there is an advantage to being the first to invest and externalities to investing when others also do so we show that the possibility of pre emption can have significant qualitative and quantitative effects on the relationship between uncertainty and investment in a single agent real options model the trigger threshold for investment increases without bound as uncertainty grows in contrast the investment trigger of a leader faced with pre emption is bounded above as uncertainty increases in fact we show that under certain parameter values greater uncertainty can lead the leader to invest earlier these findings reinforce the importance of extending real options analysis to include strategic interactions between players applications to industry situations are also discussed

option exercise games an application to the equilibrium investment strategies of firms under the standard real options approach to investment under uncertainty agents formulate optimal exercise strategies in isolation and ignore competitive interactions however in many real world asset markets exercise strategies cannot be determined separately but must be formed as part of a strategic equilibrium this article provides a tractable approach for deriving equilibrium investment strategies in a continuous time cournot nash framework the impact of competition on exercise strategies is dramatic for example while standard real options models emphasize that a valuable option to wait leads firms to invest only at large positive net present values the impact of competition drastically erodes the value of the option to wait and leads to investment at very near the zero net present value threshold copyright 2002 oxford university press

the patent paradox revisited an empirical study of patenting in the u s semiconductor industry 1979 1995 we examine the patenting behavior of firms in an industry characterized by rapid technological change and cumulative innovation recent survey evidence suggests that semiconductor firms do not rely heavily on patents to appropriate returns to r d yet the propensity of semiconductor firms to patent has risen dramatically since the mid1980s we explore this apparent paradox by conducting interviews with industry representatives and analyzing the patenting behavior of 95 u s semiconductor firms during 1979 1995 the results suggest that the 1980s strengthening of u s patent rights spawned patent portfolio races among capital intensive firms but it also facilitated entry by specialized design firms

energy consumption and economic growth in turkey during the past two decades the turkish economy has undergone a transformation from agricultural to industrial enhanced by rapid urbanization especially after 1982 turkey s gross national production has grown at an average annual rate of 5 since 1983 ranking it at the top of the oecd countries although the growth pattern has been uneven economic growth in recent years has been associated with the privatization of public enterprises turkey s energy demand has risen rapidly as a result of social and economic development the country s energy consumption has grown considerably since the beginning of the 1980s the turkish government encourages foreign and turkish private sector investors to implement the energy projects and is currently working on a new investment model for the construction of new generation plants to create the additional capacity needed the turkish energy sector with its current size of 30 billion us dollars and projected size of 55 billion us dollars by 2015 as well as the fundamental restructuring process it has been going through since 2001 attracts both local and foreign investors the sector needs an investment amount of approximately 130 billion us dollars by 2020 the aim of the present paper is to investigate the increasing of turkish energy demand with the growth of the economy and utilization of domestic energy sources and the case of investments and imports in turkey during the past two decades

investment in oligopoly under uncertainty the accordion effect this paper studies investments in new markets where more than two anticipated identical competitors are present in case of three firms an accordion effect is detected an exogenous demand shock results in a change of the wedge between investment thresholds of the first and second investor that is qualitatively different from the change of the wedge between the second and third investment threshold furthermore it turns out that in the three firm case the investment timing of the first investor lies in between the one and the two firm case these results are numerically extended to the n firm case

investment under regime uncertainty impact of competition and preemption abstract in this study we analyze the investment timing problem and introduce a model of two firms competing for investment preemption each of which knows in advance the time at which the economic condition that will have an impact on the investment changes we qualitatively show how two firms strategically optimize their investment timing taking into account competition and preemption

global inspection games abstract in the tax evasion game a typical example of inspection game audits are costly and audit probabilities are determined by the tax agency based on the tax returns submitted by taxpayers we find that if taxpayers incomes are correlated e g when they are subject to a common shock the optimal audit probability for low declarations is an increasing function of the average declaration as the latter is an informative signal of the realized level of income since a taxpayer s optimal declaration is an increasing function of the probability of an audit the optimal auditing rule creates incentives for taxpayers to coordinate their declarations the resulting coordination game features multiplicity of equilibria and thus strategic uncertainty about the equilibrium that will be selected when we add a source of fundamental uncertainty about the type of agency taxpayers face the situation can be realistically modeled as a global game further and unlike the coordination game before it yields a unique and usually interior equilibrium which is consistent with empirical evidence and supported by the data collected in a computerized experiment the model can be applied to other inspection games of economic interest such as the regulation of industries and the allocation of welfare benefits among others

novelty and disclosure in patent law the stringency of the novelty requirement in patent law affects the pace of innovation because it affects the amount of technical information that is disclosed among firms it also affects ex ante profitability of research we compare weak and strong novelty requirements from the standpoint of social efficiency we ask how our answer depends on the rule that determines which firm gets a patent when two firms have patents pending on the same technology the possible rules are first to invent which applies in the u s and first to file which applies everywhere else

the value of u s patents by owner and patent characteristics abstract this paper uses renewal data to estimate the value of u s patents controlling for patent and owner characteristics estimates of u s patent value are substantially larger than estimates for european patents however the ratio of u s patent value to r d for firms is only about 3 contrary to a common assertion patents issued to small patentees are much less valuable than those issued to large corporations litigated patents are more valuable as are highly cited patents however patent citations explain little variance in value suggesting limits to their use as a measure of patent quality

the effectiveness of r d subsidies a meta regression analysis of the evaluation literature widespread and increasing public subsidy for research and development r d has given rise to a large and growing number of evaluation studies while economic theory identifies market failures that justify public support theory also suggests reasons why returns might be disappointing similarly the empirical literature investigated 52 micro level studies published since 2000 on either input or output r d reports a wide range of findings the lack of conclusiveness both of theory and of the evaluation literature motivate this meta regression analysis mra this study contributes to policy debate by identifying a representative subsidy effect after controlling for publication selection bias and for a wide range of sample and study heterogeneities mra findings reject crowding out of private investment by public subsidy but reveal no evidence of substantial additionality in addition among the research practices explaining the heterogeneous effects reported in this literature those related to the treatment of unobservable firm heterogeneity are particularly important

preemption contests between groups we consider a preemption game between competing groups firms lobbying individually for their groups interests provide an empirical example among symmetric groups the first firm to take action bears an unobserved cost and wins the prize on behalf of its group in equilibrium the firm with the lowest cost takes action but with delay more competition and a smaller ratio of costs to benefits reduce delay firms in larger groups wait longer but group action can occur earlier as the probability of a low cost firm is higher asymmetries in group size or strength of externalities also matter