getting big too fast strategic dynamics with increasing returns and bounded rationality neoclassical models of strategic behavior have yielded many insights into competitive behavior despite the fact that they often rely on a number of assumptions including instantaneous market clearing and perfect foresight that have been called into question by a broad range of research researchers generally argue that these assumptions are good enough to predict an industry s probable equilibria and that disequilibrium adjustments and bounded rationality have limited competitive implications here we focus on the case of strategy in the presence of increasing returns to highlight how relaxing these two assumptions can lead to outcomes quite different from those predicted by standard neoclassical models prior research suggests that in the presence of increasing returns tight appropriability and accommodating rivals in some circumstances early entrants can achieve sustained competitive advantage by pursuing get big fast gbf strategies rapidly expanding capacity and cutting prices to gain market share advantage and exploit positive feedbacks faster than their rivals using a simulation of the duopoly case we show that when the industry moves slowly compared to capacity adjustment delays boundedly rational firms find their way to the equilibria predicted by conventional models however when market dynamics are rapid relative to capacity adjustment forecasting errors lead to excess capacity overwhelming the advantage conferred by increasing returns our results highlight the risks of ignoring the role of disequilibrium dynamics and bounded rationality in shaping competitive outcomes and demonstrate how both can be incorporated into strategic analysis to form a dynamic behavioral game theory amenable to rigorous analysis

growth paths and survival chances an application of gambler s ruin theory this paper links new firm survival with growth with a focus on the patterns in firms growth paths we theorise a gambler s ruin framework by arguing that new firm performance is best modelled as a random walk process but that survival is nonrandom and depends primarily on the stock of accumulated resources a firm s resources are either there when the business begins or are generated by successful periods wins the empirical section tracks over six years the sales and survival non survival of 6247 uk start ups which all began trading in the same quarter of 2004 we do not find strong evidence in favour of a taxonomy of growth paths because we observe that every possible growth path seems to occur with roughly equal probability however we observe that growth paths influence subsequent survival controlling for lagged size we observe that longer lags of growth and even start up size have significant effects on survival

housing choices and uncertainty the impact of stochastic events abstract in our model a household recognizes that family size is stochastic when making its tenure and housing consumption decisions it also recognizes that initial choices constrain later behavior because they affect the amount of savings simulations of the model show that housing consumption and the duration of stay in a residence are sensitive to whether the realization of the stochastic event is the expected value based on this observation we suggest that empirical housing studies should include both the expected and realized values of stochastic explanatory variables we find few behavioral responses to changes in the variance of an uncertain event even though increased uncertainty is passed through to after tax income and the user cost of owning a notable exception is that if a household knows that a change in an influential variable will occur but it does not know the direction of change it is more likely to rent initially

stochastic convenience yield and the pricing of oil contingent claims this paper develops and empirically tests a two factor model for pricing financial and real assets contingent on the price of oil the factors are the spot price of oil and the instantaneous convenience yield the parameters of the model are estimated using weekly oil futures contract prices from january 1984 to november 1988 and the model s performance is assessed out of sample by valuing futures contracts over the period november 1988 to may 1989 finally the model is applied to determine the present values of one barrel of oil deliverable in one to ten years time

evaluating natural resource investments notwithstanding impressive advances in the theory of finance over the past 2 decades practical procedures for capital budgeting have evolved only slowly the standard technique which has remained unchanged in essentials since it was originally proposed see dean 1951 bierman and smidt 1960 derives from a simple adaptation of the fisher 1907 model of valuation under certainty under this technique expected cash flows from an investment project are discounted at a rate deemed appropriate to their risk and the resulting present value is compared with the cost of the project this standard textbook technique reflects modern theoretical developments only insofar as estimates of the discount rate may be obtained from crude application of single period asset pricing theory but see brennan 1973 bogue and roll 1974 turnbull 1977 constantinides 1978 the inadequacy of this approach to capital budgeting is widely acknowledged although not widely discussed its obvious deficiency is its the evaluation of mining and other natural resource projects is made particularly difficult by the high degree of uncertainty attaching to output prices it is shown that the techniques of continuous time arbitrage and stochastic control theory may be used not only to value such projects but also to determine the optimal policies for developing managing and abandoning them the approach may be adapted to a wide variety of contexts outside the natural resource sector where uncertainty about future project revenues is a paramount concern

currency swaps hedging and the exchange of collateral abstract a model of currency swaps is developed where swaps provide superior hedging capabilities under the swap two parties in effect lease assets that they own to one another for use as collateral creating supewrior loan collateral matching this superior matching is reflected in lower borrowing costs to both agents creating a dominant borrowing and hedging method the swap contract is self enforcing due to a mutual double bonding arrangement where each side has an interest in the continuation of the exchange relationship jel g2 f3

persistence survival and growth a closer look at 20 years of fast growing firms in austria for survival persistence and growth hifs show a much higher persistence than hgfs the average growth rate after the high growth episode is quite modest for both hifs and hgfs policy implications of the ndings are discussed

critical number policies for inventory models with periodic data we consider an infinite horizon in problem with stochastic demands where the data vary periodically karlin karlin s 1960a dynamic inventory policy with varying stochastic demands management sci 6 231 258 karlin s 1960b optimal policy for dynamic inventory process with stochastic demands subject to seasonal variations j siam8 611 629 shows that a periodic critical number policy is optimal and presents an algorithm for computing the critical numbers assuming discounted costs here we develop an alternative conceptually simpler approach to these problems the results include a proof of the optimality of such policies for the average cost case and a qualitative description of the behavior of the optimal policy as smoothing fluctuations in the data

are high growth firms one hit wonders evidence from sweden most firms do not grow and a small number of high growth firms seem to create most new jobs these firms have therefore received increasing attention among policymakers the question is whether high growth tends to persist we investigate this question using firm level data from sweden during 1997 2008 we find that high growth firms had declining growth rates in the previous 3 year period and their probability of repeating high growth rates was very low thus these are essentially one hit wonders and it is doubtful whether policymakers can improve economic outcomes by targeting them

variable risk preferences in new firm growth and survival we outline and test a decision making theory of new venture growth and survival building upon research in entrepreneurship and decision making under risk we hypothesize that entrepreneurs attention to survival and aspiration reference points changes based on venture age experience based learning size differences in decision complexity and performance decision domain examining a panel of 14 760 new ventures in the professional services sector our findings show how risk preferences change as a venture ages and increases in size this approach offers a more nuanced view of decision making under risk and provides a theoretical explanation for the common patterns of new ventures probability of exit and growth diminishing with age and size

the future price of houses mortgage market conditions and the returns to homeownership the purpose of this paper is to provide a simple framework in which to analyze the impact of a perfectly anticipated increase in the future selling price of houses on current house purchase decisions in the presence of capital market imperfections since implicitly it is the after tax selling price of houses that is considered this analysis is equivalent to one of a decrease in the capital gains tax on houses at retirement in this paper assumptions about homeownership mortgage markets and liquidity constraints are added to a life cycle model of asset accumulation taking the date of house purchase as exogenous it is shown that the impact of an exogenous increase in the expected future price of houses depends on current mortgage market conditions the future price of houses relative to the current price and the ratio of liquid assets to future labor income as well as preferences also a simple model of a market for houses is presented to analyze the impact of an increase in the expected future price of houses on the current market clearing price the mortgage market and the redistribution of the housing stock to consumers according to their wealth and liquidity characteristics in the life cycle model as exposited by franco modigliani and robert brumberg an increase in consumption in one period requires a decrease in consumption in another period when owner occupied housing is added to the model the tradeoff between consumption in different periods becomes more complex purchasing a larger house entails an increase in the consumption of housing services and an increase in assets held in the form of a house but a decrease in either nonhousing consumption or the holdings of an alternative asset or both the response of the consumer to price or income changes is also limited by financial market constraints capital market imperfections have been introduced into the life cycle model by a number of authors see for example lester thurow thayer watkins thomas russell clark wiseman and christopher pissarides and several authors have explicitly considered the impact of capital market imperfections on the house purchase decision see william dolde and james tobin william poole donald lessard and modigliani and dolde most similar to this study although developed independently roland artle and p varaiya s paper includes the theoretical incorporation of the house purchase decision into a life cycle model they consider the problem of choosing the date of house purchase while treating the level of consumption of housing services as exogenous in the life cycle model in this paper the consumer chooses the size of house to purchase at an exogenous date to use the life cycle model in the framework of a market of houses it is assumed that the stock of houses and the prices of all other goods including the rate of return on the alternative asset are fixed all consumers are identical except perhaps for initial wealth as noted by irving fisher p 325 in a world of perfect foresight and perfect markets the rates of return on all assets are equated in equilibrium if markets are perfect with the stock of houses and other prices fixed the present price of houses will rise by an amount equal to the present value of an exogenous increase in a future price of houses when mortgage market imperfections are introduced this relationship no longer holds and a future price increase may result in a redistribution of the current stock assistant professor of economics university of michigan this paper is an extension of a chapter of my doctoral thesis at the university of wisconsin madison the helpful comments of donald d hester charles a wilson hal varian and george borts are gratefully acknowledged

the value of operational flexibility in the presence of input and output price uncertainties with oil refining applications refining is indispensable to almost every natural resource based commodity industry it involves a series of complex processes that transform inputs with a wide range of quality characteristics into refined finished products sold to end markets in this paper we take the perspective of a profit maximizing refiner that considers upgrading its existing simple refinery to include intermediate conversion flexibility i e the capability of converting heavy intermediate components to light ones we present a stylized two stage stochastic programming model of a petroleum refinery to investigate the value drivers of conversion flexibility and the impact of input and output market conditions on its economic potential conversion flexibility adds value to refineries by either transforming a nonprofitable situation into a profitable one referred to as purchase benefit or improving profitability of an already profitable situation referred to as unit revenue benefit in a real data calibrated numerical study w

informal credit markets in india informal financial markets those which are not regulated or monitored by the banking authorities account for much of business credit in developing countries these unregulated informal credit markets icm are important both in their own right as part of each country s financial system and because of their reciprocal relations with growing enterprises and the regulated financial sector in order to study the operations of some of these markets in detail in urban commercial settings we conducted an extended survey of some of the informal credit markets of india 2 based in some cases on centuries of operation these markets proved to be important in the functioning of the contemporary economy indigenous style bankers belonging to particular ethnic communities and castes formerly provided the full range of banking services to their clients 3 with the rise of modern western style banking the indigenous bankers either have transformed themselves to serve sectors such as wholesale trade not well served by the modern sector or provide services which the modern bankers cannot provide though any estimate is very approximate it seems that informal credit markets account for as much as 20 of commercial credit outstanding in the various markets surveyed we began by surveying the gujeratis some of whom still practice their traditional form of full service banking in their homeland of gujerat and adjoining bombay the shikarpuris or multanis originally full service bankers in sind who now provide commercial credit in various other centers the chettiars in south india the rastogis in uttar pradesh and the marwaris especially in eastern india 4 but our surveys revealed that a wide range of ethnic groups were now involved in informal credit markets and the more meaningful differentiations

optimal policies for multiechelon inventory problems with markov modulated demand this paper considers a multistage serial inventory system with markov modulated demand random demand arises at stage 1 stage 1 orders from stage 2 etc and stage n orders from an outside supplier with unlimited stock the demand distribution in each period is determined by the current state of an exogenous markov chain excess demand is backlogged linear holding costs are incurred at every stage and linear backorder costs are incurred at stage 1 the ordering costs are also linear the objective is to minimize the long run average costs in the system the paper shows that the optimal policy is an echelon base stock policy with state dependent order up to levels an efficient algorithm is also provided for determining the optimal base stock levels the results can be extended to serial systems in which there is a fixed ordering cost at stage n and to assembly systems with linear ordering costs

testing a theoretical model of mortgage demand on uk data mortgage demand is a poorly understood and under researched aspect of the financial behaviour of households this paper tests empirically the basic results of brueckner s model of mortgage demand on uk mortgage market data the choice of mortgage instrument is used to identify impatient debt maximizers and patient borrowers who borrow at intermediate levels thus the research confirms the conditions under which households will use the largest possible mortgage and the circumstances under which savings are invested in the property a unique contribution of the work is the estimation of mortgage demand equations corrected for endogenous housing demand for a single housing finance system where borrowers face different opportunity costs of equity in their owner occupied property allowing a purer test of the theoretical model

an economic analysis of interest rate swaps interest rate swaps a financial innovation in recent years are based upon the principle of comparative advantage an interest rate swap is a useful tool for active liability management and for hedging against interest rate risk the purpose of this paper is to provide a simple economic analysis of interest rate swaps alternative uses of and the appropriate valuation procedure for interest rate swaps are described the significant increase in both the levels and the volatilities of market interest rates since the late 70 s has resulted in substantially higher interest rate risks faced by business firms and financial institutions the problem and consequences of interest rate risk exposure are particularly serious for firms in which the duration of assets does not match the duration of the liabilities for instance most financial institutions and many corporations financed long term fixed rate assets with short term floating rate liabilities such firms lose when the shortterm interest rates in the market rise unexpectedly because for given fixed rates of return on their assets the short term interest costs that they have to pay rise with the market interest rates conversely these firms gain from an unexpected decline in short term market interest rates in recent years the introduction and the development of new financial products in the capital markets such as interest rate futures interest rate options and interest rate swaps represent logical responses to the increased need to reduce firms exposure to interest rate risk

inventories under joint production an empirical analysis of petroleum refining this study examines the determinants of inventory investment under joint production we simultaneously estimate a set of optimal sales relations variable input demands and a set of euler equations for capital and inventories of raw materials work in process and final products in the petroleum refining industry the euler conditions provide a model for the convenience yield discussed in the returns to storage literature the cost savings from holding inventories and expected changes in marginal production costs are important components of the convenience yield we also find significant cost and stock interactions that may affect short run price and inventory dynamics in petroleum product markets

an intertemporal general equilibrium model of asset prices this paper develops a continuous time general equilibrium model of a simple but complete economy and uses it to examine the behavior of asset prices in this model asset prices and their stochastic properties are determined endogenously one principal result is a partial differential equation which asset prices must satisfy the solution of this equation gives the equilibrium price of any asset in terms of the underlying real variables in the economy in this paper we develop a general equilibrium asset pricing model for use in applied research an important feature of the model is its integration of real and financial markets among other things the model endogenously determines the stochastic process followed by the equilibrium price of any financial asset and shows how this process depends on the underlying real variables the model is fully consistent with rational expectations and maximizing behavior on the part of all agents our framework is general enough to include many of the fundamental forces affecting asset markets yet it is tractable enough to be specialized easily to produce specific testable results furthermore the model can be extended in a number of straightforward ways consequently it is well suited to a wide variety of applications for example in a companion paper cox ingersoll and ross 7 we use the model to develop a theory of the term structure of interest rates many studies have been concerned with various aspects of asset pricing under uncertainty the most relevant to our work are the important papers on intertemporal asset pricing by merton 19 and lucas 16 working in a continuous time framework merton derives a relationship among the equilibrium expected rates of return on assets he shows that when investment opportunities are changing randomly over time this relationship will include effects which have no analogue in a static one period model lucas considers an economy with homogeneous individuals and a single consumption good which is produced by a number of processes the random output of these processes is exogenously determined and perishable assets are defined as claims to all or a part of the output of a process and the equilibrium determines the asset prices our theory draws on some elements of both of these papers like merton we formulate our model in continuous time and make full use of the analytical tractability that this affords the economic structure of our model is somewhat similar to that of lucas however we include both endogenous production and

whom do high growth firms hire we study employment and new hires among high growth firms hgfs in the swedish knowledge intensive sectors 1999 2002 using matched employer employee data we find that hgfs are more likely to emp

a structural model of the demand for owner occupied housing abstract the goal of the analysis in this paper is to estimate a structural model of the demand for owner occupied housing in our framework the buyer selects the value of the house the size of the mortgage and the length of stay in the house we estimate a housing demand equation which includes both the length of stay and the loan to value ratio as endogenous variables one empirical result of interest is that the income elasticity of demand for housing found in the structural housing demand equation is much larger than the value estimated in the reduced form we also point out some occasions when it is important to distinguish between a reduced form and a structural model of housing choices

cross hedging foreign currency risk abstract this paper provides empirical evidence on the effectiveness of cross hedging to reduce foreign exchange risk simple cross hedges for currencies with and without futures contracts multiple cross hedges portfolio hedges and commodity cross hedges are examined cross hedges are found to be less effective than traditional similar asset hedges in some instances inter temporal instability causes hedged positions to be riskier than unhedged ones although on the whole cross hedging is shown to be a useful risk reduction technique

short term variations and long term dynamics in commodity prices in this article we develop a two factor model of commodity prices that allows meanreversion in short term prices and uncertainty in the equilibrium level to which prices revert although these two factors are not directly observable they may be estimated from spot and futures prices intuitively movements in prices for long maturity futures contracts provide information about the equilibrium price level and differences between the prices for the short and long term contracts provide information about short term variations in prices we show that although this model does not explicitly consider changes in convenience yields over time this short term long term model is equivalent to the stochastic convenience yield model developed in gibson and schwartz 1990 we estimate the parameters of the model using prices for oil futures contracts and apply the model to some hypothetical oil linked assets to demonstrate its use and some of its advantages over the gibson schwartz model

hedging the risks from writing foreign currency options abstract this paper considers the ways in which banks and other financial institutions can hedge their risks when they write non exchange traded foreign currency options key factors affecting the performance of delta hedging are identified and hedging schemes involving the use of exchange traded options are analyzed the schemes are tested using both simulated data and data from trades on the philadelphia exchange between february 1983 and september 1984

integrated optimization of procurement processing and trade of commodities we consider the integrated optimization problem of procurement processing and trade of commodities in a multiperiod setting motivated by the operations of a prominent commodity processing firm we model a firm that procures an input commodity and has processing capacity to convert the input into a processed commodity the processed commodity is sold using forward contracts while the input itself can be traded at the end of the horizon we solve this problem optimally and derive closed form expressions for the marginal value of input and output inventory we find that the optimal procurement and processing decisions are governed by price dependent inventory thresholds we use commodity markets data for the soybean complex to conduct numerical studies and find that approximating the joint price processes of multiple output commodities using a single composite output product and using the approximate price process to determine procurement and processing decisions is near optimal compared to a myopic spread option based heuristic the optimization based dynamic programming policy provides significant benefits under conditions of tight processing capacities and high price volatilities finally we propose an approximation procedure to compute heuristic policies and an upper bound to compare the heuristic against when commodity prices follow multifactor processes

an econometric analysis of choice of mortgage design in the united kingdom the research seks to better understand the choice of mortgage design by households in the united kingdom family expenditures survey data is used to test the various hypotheses on the determinants of the choice between an endowment and a repayment mortgage a bivariate probit model with sample selection is estimated to detect any likely selectivity bias arising out of tenure choice the theoretical modelling reflects the behaviour of liquidity constrained households comparing comparative periodic mortgage costs and households concerned with the oppurtunity cost of equity in a property actual choices appear to reflect the impact of nominal interest rates income and cash flow considerations there is little direct evidence that the choice of mortgage repayment vehicle is motivated by portfolio design there is some tentative evidence of supply side pressure on endowment mortgage take up

a theory of the early growth of the firm economic enterprise consists in the matching of resources and opportunities to create value growth processes of the new enterprise are here explored in a systems model inspired by penrose a sequence of phases in the early life of the firm reflects growth processes and problems solutions giving rise to new problems firms must access mobilize and deploy resources before they can generate resources for growth subsequent phases in which growth reinforcement and growth reversal forces content are not universal but are set in motion in an important minority of firms the major job creators beyond the early phases critical problems facing the firm are more diverse the growth of the firm is related to the building of the competence needed to respond to changing industrial opportunities copyright 1998 by oxford university press

whom do new firms hire using the matched employer employee data set for denmark and information on the founders of new firms we analyze the hiring choices of all new firms that entered from 2003 to 2010 we develop a theoretical model in which the quality of a firm s employees determines its average cost a firm s productivity is based on its pre entry experience and persistent shocks and over time firms learn about their productivity the model predicts that more productive firms are larger and hire more talented employees which gives rise to various predictions about how pre entry experience firm growth rates and firm size influence the wages firms pay to their early hires we find that beginning with the time of entry larger firms consistently pay higher wages to their new hires these are firms with greater survival prospects at the time of entry based on the pre entry backgrounds of their founders and that grow at greater rates over time both of which are predictive of the wages paid to new hires from the time of entry onward our findings suggest workers are allocated to firms according to their abilities which can give rise to enduring firm capabilities

housing appreciation mortgage interest rates and homeowner mobility abstract this paper presents a model of the optimal timing of tradeup which considers consumption and investment motives of homeownership households determine the optimal timing of trading up so as to maximize their intertemporal utility of both housing and nonhousing consumption first we consider current homeowners who already own a house and expect that they trade up to a more valuable house at some point in the future housing appreciation tends to induce an earlier optimal timing of trading up moreover housing appreciation makes current homeowners better off in terms of welfare however current homeowners suffer from a rise in mortgage interest rates second we consider first time home buyers who have decided to buy a house and expect to trade up to a more valuable house in the future their initial housing consumption is determined by an initial downpayment constraint in this case the effect of housing appreciation on the optimal timing of trading up is ambiguous and unlike current homeowners first time home buyers suffer from housing appreciation moreover as current homeowners first time home buyers suffer from a rise in mortgage interest rates most of the theoretical analytic results are ambiguous accordingly we perform numerical simulations based on the theoretical model in order to determine the most likely comparative effects for a stylized set of parameters as is apparent the model captures the recent observations on homewner mobility and suggests that macroeconomic variables such as housing appreciation and mortgage interest rates effect the optimal timing of trading up and homeowner s welfare nevertheless the model in this paper has several shortcomings which should be the subject of future research first transaction costs are ignored if transaction costs are incorporated the lock in effect from a rise in mortgage interest rates is well explained however the general analysis above is not altered in any essential way second multiple moves are not considered in this model therefore we concentrate on the timing of one tradeup as opposed to the timing and frequency of trading up in a different vein it would be interesting to test empirically the importance of the effects of macroeconomic variables on trading up by using microdata

new firm survival new results using a hazard function a limitation of audretsch s 1991 study of new firm survival was the level of aggregation to industries this precluded linking establishment specific characteristics such as organizational structure and size to post entry performance the purpose of this paper is to relate the post entry performance of individual establishments not only to their technological and market structure environments but also to establishment specific characteristics we do this by estimating a hazard duration function for more than 12 000 individual establishments in u s manufacturing started in 1976 by tracking their subsequent performance over a ten year period we conclude that establishment specific characteristics which audretsch was not able to capture in his earlier study play an important role in shaping the exposure to risk confronting new establishments copyright 1995 by mit press

what happens to gazelles the importance of dynamic management strategy the starting point of this study is gibrat s law which is contrasted with strategic management this logic is subsequently applied to a group of remarkably dynamic high growth firms gazelles strategic management theory emphasises the importance of firms adjusting strategies in response to changes in the external environment in our study it is used to explain several key empirical findings using a novel british data set containing information on more than 100 gazelles these findings help explain 1 why gibrat s law of random firm growth processes does not generally hold 2 which strategy and environmental variables have a predictable influence on firm performance and 3 why routine application of best practice strategies is unlikely to foster firm growth in a changing economic environment in so doing this paper contributes to the large body of literature on small firm growth

choice of mortgage instrument liquidity constraints and the demand for housing debt in the uk the research uses microdata to estimate reduced form mortgage demand equations based on truncated regressions dissagregated by choice of mortgage instrument the choice is between a standard annuity mortgage and a balloon type mortgage the endowment the estimates are used to indicate the differential impact of credit market rationing and financial liberalization on households the results indicate significant variations in mortgage demand by choice of mortgage instrument econometric testing demonstrates that the choice between an endowment and a repayment mortgage can be used as an exogenous indicator of liquidity and portfolio positions and different user costs of owner occupation

regional differences in mortgage demand and mortgage instrument choice in the uk koblyakova a hutchison n and tiwari p regional differences in mortgage demand and mortgage instrument choice in the uk regional studies this paper presents empirical evidence of regional variations in mortgage choice decisions within the uk s mortgage sector utilizing british household panel survey bhps data for the years 2001 2007 and 2008 the paper suggests that a household s decision to choose a variable rate mortgage is more likely to occur in areas with lower incomes and affordability rates such as northern england scotland and wales since variable rate mortgages are more sensitive to income and monetary policy shocks the disproportional distribution of variable contracts within the mortgage sector may have a differential impact on the regions

a good riddance spin offs and the technological performance of parent firms how do spin offs new ventures created by former employees of an incumbent firm affect the technological performance of their parents conventional wisdom holds that spin offs hurt parent firms the parent loses key staff routines are disrupted and performance declines although having some basis in fact we think the negative effects are overstated we argue that spin offs can enable parent firms to realign with their environment thereby avoiding the oncoming obsolescence arising from the combination of organizational inertia and environmental drift using data from the hard disk drive industry we find evidence that although the main effect of having a spin off on a parent firm s technological performance is positive the overall impact of a spin off depends upon the technological sophistication of the spin off and the time since the spin off occurred indeed parent firms of technologically sophisticated successful spin offs initially suffer poorer technological performance but over time they outperform firms that had no spin offs both effects are amplified to the extent that the spin off is more successful which we attribute to both increased environmental realignment and the positive signal that successful spin offs transmit to the broader labor market about the parent organization s reputation as an incubator of entrepreneurs and a desirable place to work

price relationships in the petroleum market an analysis of crude oil and refined product prices in this paper the relationships between crude oil and refined product prices are investigated in a multivariate framework this allows us to test several partly competing assumptions of earlier studies in particular we find that the crude oil price is weakly exogenous and that the spread is constant in some but not all relationships moreover the multivariate analysis shows that the link between crude oil prices and several refined product prices implies market integration for these refined products this is an example of supply driven market integration and producers will change the output mix in response to price changes

collateral guaranties and rural credit in developing countries evidence from asia abstract the paper reviews the theory of the impact of loan collateral and in particular land collateral in institutional and non institutional rural credit markets evidence from three asian developing countries is presented showing extensive use of land collateral among institutional lenders in countries where such collateral is legal the use of land collateral is more common than other forms of security except in places where legal inhibitions on mortgaging agricultural land exist non institutional lenders are less inclined to use land collateral however lenders who do not have links to borrowers in matters other than finance are more likely to use loan securities estimates of instutional credit supply and demand in rural thailand confirm that the pledging of land collateral affects the supply of credit more than group guaranty it is also shown that larger farmers are more likely to utilize land collateral the conclusion is that land collateral is preferred by institutional lenders as it reduces creditworthiness assessment costs attempts to ban or limit collateral use by decree are motivated by equity cinsiderations but they will cause loss of efficiency simplification of ownership verification and other policies reducing the transaction cost of collateral pledging will mitigate the negative equity implications of collateral

optimality of zero inventory policies for unreliable manufacturing systems we show that there are ranges of parameter values describing an unreliable manufacturing system for which zero inventory policies are exactly optimal even when there is uncertainty in manufacturing capacity this result may be initially surprising since it runs counter to the argument that inventories are buffers against uncertainty and therefore one must strive to maintain a strictly positive inventory as long as there is any uncertainty however there is a deeper reason why this argument does not hold and why a zero inventory policy can be optimal even in the presence of uncertainty this provable optimality reinforces the case for zero inventory policies which is currently made on the separate grounds that it enforces a healthy discipline on the entire manufacturing process

multiechelon procurement and distribution policies for traded commodities we consider a firm that procures and distributes a commodity from spot and forward markets under randomly fluctuating prices the commodity is distributed downstream to a set of nonhomogeneous retailers to satisfy random demand we formulate a model that allows one to compute approximate but near optimal procurement and distribution policies for this system and we explore the value of the commodity s market in providing managers with a additional flexibility in procurement and b information on price dynamics generated through the trading of futures contracts our results indicate that the presence of the commodity market and the information that it conveys may lead to significant reductions in inventory related costs however to obtain these benefits both the spot procurement flexibility and the term structure of prices generated by the commodity market must be incorporated in the formulation of the operating policy managerial insights on the procurement strategy as a function of variability in prices and demand are also discussed this paper was accepted by john birge focused issue editor

competitive storage and commodity price dynamics by buying cheap and selling dear risk neutral commodity speculators can smooth commodity prices and induce serial dependence in price even when none would exist under a simple process of supply and demand commodity prices are variable and strongly positively correlated from one year to the next the variability is often explained by supply factors and the autocorrelation by the activities of speculators we show that this explanation is not consistent with the evidence speculation can substantially increase autocorrelation for prices that are weakly autocorrelated in its absence but not to the high levels that are observed in the data

optimal control and equilibrium behavior of production inventory systems the relationship between commodity inventory and short term price variations has received considerable attention but the understanding has been limited to single stage cross sectional relation in this paper we aim to deepen our understanding of the inventory price relationship in two dimensions across time and across production stages we first examine an individual firm controlling production and two stages of inventory under uncertain input and output prices and operating costs we next establish and characterize the rational expectations equilibrium for an economy in which competitive production firms link a raw material market and a finished goods market with uncertain and price sensitive supply and demand we characterize the dynamics of inventory market price and gross margin based on theoretical analysis simulation and empirical evidence from the petroleum industry we find that inventory fluctuations lag behind price variations and the length of the lags depend on how far the inventory is from the source of the supply or demand shocks we also find that shocks are both dampened and delayed when propagating through the production stages and that shocks have a prolonged effect on inventories and prices at both stages

land ownership security and farm investment reply we agree with many of the general points included in the comment by roth barrows carter and kanel rbck but we disagree with rbck on the applicability of their general points to the specific case of thailand which was the topic of our may 1987 article 1 we agree that title does not necessarily imply land ownership security however in the areas of thailand which we have studied the possession or lack of title captures the essence of the difference in ownership security between squatters and legally settled farmers because a there are no other major systematic differences between the squatters and nonsquatters and b practically all of the onsquatters have title to at least part of their legally possessed land and none of the squatters have or can have title to their encroached state land other factors which may affect individual perceptions of ownership security and mentioned by rbck e g wealth land quality market access were incorporated in our econometric work these variables do not vary systematically between squatters and nonsquatters in our study areas our definition of ownership security includes the right to use land as collateral thereby obtaining better access to credit in rbck s terminology this is a broader definition of tenure security the apparent dominance of credit advantages associated with the possession of title in our study areas which we pointed out p 320 is thus compatible with this definition of ownership security because title properly summarizes the difference between squatters and nonsquatters in our case study the presentation in fo which implies a straightforward link between title and ownership security is warranted for the thai case we argue further that there are sufficient cases worldwide where lack of title impairs ownership security broadly defined thus our case is interesting in a general context the qualifications in rbck notwithstanding the characterization of the credit market in rbck is apparently based on the model described by carter this is not a general model of credit supply because it introduces limiting behavioral assumptions one particular specification in that model renders it unsuitable for our discussion it is assumed there that loan amount is fixed a priori i e it is not a decision variable for the lender the model does not deal explicitly with the determination of the aggregate supply of credit to agriculture the statement in rbck that the pledging of collateral only determines a potential borrower s place in the queue of borrowers depends on the above assumption of the carter model the more general case where loan amount is one of the lender s decision variables e g barro plaut yields the result that the amount of credit offered to an individual borrower increases with the value of the collateral especially when the interest rate is fixed furthermore it is not reasonable to assume that the aggregate supply of credit to agriculture is given and will not be affected by the acquisition and offering of collateral assets titled land by a large group of potential borrowers the more general case which underlies our discussion is that the amount of credit an individual will get when providing collateral will be higher than that which he or she will get when not providing collateral 2 furthermore when more farmers provide collateral more credit in the aggregate will be supplied to agriculture either by shifts from other sectors and or through the generation of additional loanable funds it is true that we estimate the impact of titles using a cross sectional approach we have stated elsewhere feder et al p 193 that the applicability of cross sectional numerical results in the aggregate assumes that newly titled farmers receive the same amount of credit as presently titled farmers in fo p 320 we stated clearly that an increased supply of institutional credit to agriculture is required to realize the productivity gains from titling squatters we point out in feder et al pp 200 203 that a market induced increase in the aggregate supply of credit to agriculture is likely because it is observed that a majority of commercial bank loans to farmers in thailand were backed by collateral this may need to be accompanied by policy induced credit shifts given existing government interventions in the credit market the assertions in rbck that no change will occur in the aggregate supply of credit following titling and that the aggregate impact of titles on investment was small are based on an gershon feder is a senior economist at the world bank tongroj onchan is an associate professor of agricultural economics at kasetsart university bangkok thailand in an empirical journal article one focuses on specifics only limited space is available for elaboration on the various qualifications and generalizations which cover all possible scenarios we have provided a more detailed and general discussion in a book manuscript which is available to interested readers feder et al 2 this proposition is supported by the empirical findings in feder et al where the credit supply function estimated from a sample of borrowers is shown to be positively and significantly dependent on the provision of collateral

on the existence of persistently outperforming firms this study analyses persistence in growth rates for a data set of manufacturing firms of all sizes previous quantile autoregressions of firm growth rates show that extreme growth events are likely to be negatively correlated over time thus questioning the existence of persistent outperformers by supplementing the quantile regression analyses with transition probability matrices our study shows that bouncing firms coexist with persistent outperformers this result is shown to be robust for all size classes as well as for the exclusion of firms who experienced acquisitions or spin offs

competition under industry stock driven prevailing market price environmental consequences and the effect of uncertainty abstract we address competition between several firms that cause pollution when producing fully substitutable products these firms comprise the industry and each individual firm charges for its products the market price determined by the difference between cumulative market supply and demand i e by the industry s stock we find that although the greater the number of firms competing for the same primary market the lower the market price and the higher the industry inventory surplus the reduction in price at market equilibrium is insufficient to stimulate greater aggregate sales that is greater competition does not necessarily induce higher industry output and pollution furthermore we show that commitment production pollution strategies compared to contingent strategies do not necessarily result in lower pollution especially when the number of competing firms is not high market uncertainty is low and proportional pollution taxation is high

behavioural and material determinants of production relations in agriculture in this essay we develop a framework for analysing the major institutions governing the production and exchange of output and the primary factors of production in rural areas the analysis incorporates general considerations of risk and information constraints jointly with the principal material attributes of agriculture and of agricultural production factors the framework is used to analyse barriers to the existence of the major intertemporal and factor markets it is applied specifically to land scarce environments for which it provides an internally consistent explanation for many of the well documented institutional features of such settings in addition the analysis provides new implications for among other phenomena the inter relationships among ownership holdings operational scale family size and factor productivity for the scarcity of animal rental markets and use of animals as collateral for the renting out of land by small landowners and for the existence of plantations for certain crops

the political economy of productivity thai agricultural development 1880 1975 the economic history of thailand between 1880 and 1975 contrasts sharply with the development experiences of other third world countries between the opening of trade in 1850 and 1941 when war halted economic activity thailand became a major exporter of rice in the world market although conditions for further growth seemed highly favourable thailand s rapid integration into the world economy failed to improve living standards and rice yields actually declined in examining the causes of the underdevelopment of thai agriculture over the last 100 years feeny introduces supply and demand models of technical and institutional change to analyse why the rice export boom did not result in more development this book much of which is based on primary research in the thai national archives is one of the few quantitative economic histories of a less developed country

stumblers and stars in the management of rapid growth this article examines the problems of managing a rapid growth firm we contend that instead of being a time for entrepreneurial celebration and relief a period of over 50 growth is a time for wariness and some very difficult decisions such firms face a fragile transition they are beyond being intimate cohesive entrepreneurial ventures but they have not yet become secure stable entities not only are they in flux but these firms are often disoriented by the pace at which change is occurring firms such as atari cray research cullinet osborne computers people express and rolm recently have faced or now face these challenges with very different degrees of success this article presents observations drawn from several sources a study of thirty rapid growth firms which we have underway literature and press accounts of rapid growth and our consulting and discussions with executives in such firms while far from definitive the article reports several themes that are very pronounced in the situations we have studied these themes are of two types 1 recurring challenges and traps faced by rapid growth companies and 2 characteristics af firms which seem to avoid or surmount these traps these are the four fundamental challenges that we see confronting rapid growth firms 1 1 instant size these firms double and triple in size very quickly this in turn creates problems of disaffection inadequate skills and inadequate systems 2 2 a sense of infallibility by virtue of their success to date rapid growth firms often view their strategies and behaviors as infallible the unfortunate irony is that they become convinced of their wisdom while the environment is turbulent and large competitors are entering 3 3 internal turmoil as a social organism a firm growing at 50 per year is under great strain there is a stream of new faces people who do not know each other and who do not know the company decision making suffers turf battles abound and people burn out 4 4 extraordinary resource needs rapid growth firms are typically cash starved instead of abundance they often face a bare bones existence each of these challenges calls for its own solutions but we have observed some overarching themes in firms that have successfully traversed a period of rapid growth the chief executive is able to envision and anticipate the firm as a larger entity the team needed for tomorrow is hired and developed today the original core vision of the firm is constantly and zealously reinforced new big company processes are introduced gradually as supplements to rather than replacements for existing approaches hierarchy is minimized employees hold a financial stake in the firm beyond developing these themes for success the article concludes with a brief discussion of the effectiveness of owner founders in rapid growth situations

uncertainty and the convenience yield in crude oil price backwardations abstract this study examines why firms hold stocks of crude oil particularly during price backwardations when spot prices exceed prices for forward delivery using a stochastic control model this paper shows that the equilibrium value of inventories contains the conventional hotelling principle the convenience yield from the classical theory of storage and an option value related to price uncertainty our empirical results suggest that a convenience yield and risk premium are important elements of crude oil price backwardations

the theory of collateral abstract this paper develops a model of the loan market noting interrelationships between size of loan collateral arrangements interest rate maturity and repayment schedule collateral quality is explored

equilibrium credit rationing of small farm agriculture it is often argued that externally imposed contractual restrictions lead to inequitable credit rationing this paper argues that unrestricted laissez faire markets may also inequitably ration credit a formal model which grants borrowers autonomy in credit application and use demonstrates that adverse incentive and selection effects may cause banks to endogenously impose interest rate restrictions and ration small farms out of the credit market consequently liberalization of financial markets may be insufficient to guarantee small farms access to credit

early employment expansion and long run survival examining employee turnover as a context factor abstract we investigate under which circumstances early employment growth translates into greater long run survival drawing on penrose s growth theory we suggest that the relationship between early employment growth and long run survival is conditional on employee turnover we argue that higher employee turnover reduces joint experience in the firm and disrupts the development and eventual exploitation of the firm s productive opportunity set thereby reducing long term utilization of early employment expansion these arguments suggest that the firm s ability to realize long term benefits of early employment growth is contingent upon low employee turnover following this initial expansion using the danish integrated database for labor market research we show that only when employee turnover is low will early employment growth lead to higher survival in the long run