network externalities technological progress and the competition of market contracts abstract network externalities are used to describe the fact that many modern products become more valuable the more users adopt products of the same technology where network externalities and technological progress exist the various kinds of inefficiencies discussed in the recent literature can be explained by different types of contracts the main categories analysed are simple market contracts update contracts and service contracts it is shown that these types of contract emerge endogenously from the incentive structure of profit maximizing firms competition between these contracts may substantially reduce inefficient allocations caused by network externalities

building competitive advantage innovation and corporate governance in european construction this paper explores the relationship between corporate governance and innovation this is examined through detailed interviews with the largest contractors in five european countries the ability to undertake research and development in production technologies by contractors differs widely across different countries this may be explained by the extent to which strategic control is in the hands of those who have the incentives and abilities to allocate resources to uncertain and irreversible investments in innovation this is influenced by particular features of firm ownership organisational and management structure internal mechanisms to diffuse knowledge and links to external sources of knowledge

in search of insights into the generation of techno economic trends micro and macro constituencies in the microprocessor industry abstract in the field of technology policy few challenges are more intriguing than understanding the nature of technical and market trends this paper deals with this problem by using the sociotechnical constituencies approach in order to integrate the treatment of micro macro issues from product to industry the case study is that of the microprocessor industry where at present a risc reduced instruction set computer technology is emerging in a field where a powerful and far from exhausted cisc complex instruction set computer technology tends to occupy almost every segment of the market the analysis reveals how emerging product constituencies do implement pro active trend creating strategies in order to establish themselves as industrial trends and by so doing they simultaneously re define the existing content of the macro industrial level the study also reveals the important role of the nature and maturity of microprocessor technology in conditioning the constituency building strategies implemented by different players microprocessor technology is specifically characterised as an architectural codified knowledge component with indirect network externalities and weak appropriability regime finally the paper also highlights the potential risks of both fragmentation and complete proprietary control of technology in technological processes involving strongly competitive situations

meta paradigm change and the theory of the firm many seemingly unrelated debates on the theory of the firm are in fact part of a single deeper transformation of the social sciences as the foundational assumptions of 20th century social science have slowly been shown by science to be false new sub paradigms have emerged which cumulatively drop i theoretical assumptions about markets to explain firms ii epistemological assumptions about knowledge to explain diversity and iii metaphysical assumptions about causality to explain technical change debates occur across each of these levels

a large scale mapping of territorial development dynamics in latin america summary this paper summarizes a study of changes in per capita income monetary poverty and income distribution in 9 045 subnational administrative units of nine latin american countries between the mid 1990s and mid 2000s the results largely support spatial convergence of mean household incomes although the estimates indicate it has been slow territorial inequality is found to be persistent and reduces the pro poor effect of local income growth although national context specific the estimates also indicate that territorial development dynamics are influenced by the structural features of the territories in view of the evidence territorial development policies in latin america seem well warranted

forms of trust and conditions for their stability of the three principal approaches to trust we decided to investigate in greater detail the one in which trust is regarded as a belief that the individuals involved hold about a relationship trust was defined as a delegatory relationship based on anticipation of the delegatee s behaviour we reached four main conclusions first the solution to the problem posed by the indeterminacy of trust lies in the differentiation and hierarchisation of the various forms of trust contractual organisational and tacit on the basis of their degree of irreversibility and stability second contractual trust is unstable because it comes up against the problem of guarantees of individual intentions this leads to the third conclusion rational evaluation by individuals cannot by itself establish trust which is based on collective beliefs practices and rules fourth we identified two conditions for the stability of trust the creation of irreversibilities through adherence to a rule and the creation of a confidence interval within which different interpretations of contradictory individual strategies are tolerated thus the viability of the various forms of trust depends on the ability of institutions and organisations to create rules that are likely when applied to produce an interval in which tolerance of mutual intentions is the norm these analyses of trust hence highlight the role of time and period of time in the notion of trust

a percolation based model explaining delayed takeoff in new product diffusion a model of new product diffusion is proposed in which a site percolation dynamics represents socially driven diffusion of knowledge about the product s characteristics in a population of consumers a consumer buys the new product if her valuation of it formed after her witnessing the product in use among her friends or neighbors is not below the price of the product announced in a given period our model attributes the empirical finding of a delayed takeoff of a new product to a drift of the percolation dynamics from a nonpercolating regime to a percolating regime this drift is caused by learning effects lowering the price of the product or by network effects increasing its individual valuations by consumers both with an increasing number of buyers

installed base and compatibility innovation product preannouncements and predation a good is often more valuable to any user the more others use compatible goods the authors show that this effect may inhibit innovation if an installed base exists and transition to a new standard must be gradual early adopters bear a disproportionate share of transient incompatibility costs this can produce excess inertia the installed base however is stranded if the new standard is adopted this may create excess momentum these dynamic effects have strategic implications temporary price cutting can permanently prevent entry and product preannouncements can be critical in innovation these strategic actions have ambiguous welfare effects

hedonic price indexes for spreadsheets and an empirical test for network externalities in this article i first estimate hedonic price equations for computer spreadsheet programs and then use the analysis to empirically test whether network externalities exist in this industry the study shows that consumers are willing to pay a significant premium for spreadsheets that are compatible with the lotus platform and for spreadsheets that offer links to external databases and a similar premium for spreadsheets that offer local area network externalities finally the quality adjusted real price of computer spreadsheets declined by approximately 15 per year from 1986 to 1991

market structure and the timing of technology adoption with network externalities abstract the paper shows that in the presence of network externalities consumers adopt conventional technologies too early the waiting option for a newly emerging technology is not exercised enough this problem is aggravated when the new technology is provided by a single producer with market power because any positive value created via waiting by current consumers will be ex post appropriated by the monopolist therefore the monopolist s power to extract surplus operates against his own interests in this dynamic setting the paper also shows how the producer of a new technology can partially overcome the problem of too little waiting by using licensing as a commitment device

second order sustainability conditions for the development of sustainable innovations in a dynamic environment abstract in particular radical innovations can be important means to achieving improved sustainability due to the existence of path dependency and lock in however the transition from one technological trajectory to another more sustainable one is often impeded by significant barriers fortunately these barriers are by their nature subject to substantial changes in time so it makes sense to carefully distinguish between periods of stability showing high barriers in which the given trajectory can hardly be left and periods of instability characterized by low barriers where a new trajectory can be reached more easily the latter distinction matters since sustainable innovations often rely on governmental regulation and the economic burden arising from this regulation will be much lower in periods of instability moreover due to the complexity and dynamics of change in their respective environments innovations are generally associated with fundamental uncertainty such that it becomes impossible to predict the degree of sustainability yielded by specific innovations in the longer run under these circumstances it is essential to facilitate the change between trajectories and to allow for the possibility to select between a variety of alternative trajectories within a process of trial and error sustainability as viewed from this evolutionary perspective is therefore better understood as the general capability to adapt that is to readily change from less to more sustainable technological trajectories since the latter kind of sustainability determines the conditions under which the former kind i e sustainability related to a specific technology can be achieved the two kinds are respectively called second order and first order sustainability finally a series of determinants and corresponding indicators from the techno economic political and socio cultural sphere is identified which after proper measurement and weighting allow for making an assessment whether and when the incumbent industry is sufficiently destabilized and the political system rendered sufficiently favorable to the new more sustainable technology such that a transition to the preferred trajectory is possible without too much effort

credit markets in northern nigeria credit as insurance in a rural economy this article addresses the issues of imcomplete markets and imperfect information in the context of credit markets in rural northern nigeria in much recent theoretical literature the problems of moral hazard and adverse selection are assumed to be decisive for the organization of agrarian institutions in contrast it is found that in the four villages surveyed credit transactions take advantage of the free flow of information within rural communities information asymmetries between borrower and lender are unimportant and their institutional consequences the use of collateral and interlinked contracts are absent credit transactions play a direct role in pooling risk between households through the use of contracts in which the repayment owed by the borrower depends on the realization of random production shocks by both the borrower and the lender

dynamic competition with network externalities why history matters we consider dynamic competition among platforms in a market with network exter nalities a platform that dominated the market in the previous period becomes focal in the current period in that agents play the equilibrium in which they adopt the focal platform whenever such equilibrium exists yet when faced with higher quality competition can a low quality platform remain focal in the finite horizon case the unique equilibrium is efficient for patient platforms with an infinite time horizon however there are multiple equilibria where either the lowor high quality platform dominates if qualities are stochastic the platform with a better average quality wins with a higher probability even when its realized quality is lower and this probability increases as platforms become more patient hence social welfare may decline as platforms become more forward looking

privatization in eastern europe irreversibility and critical mass effects abstract this paper proposes a model to shed light on two important policy features of privatization in central and eastern europe the idea of a necessary critical mass of privatization on one hand and the great difficulties encountered in the actual privatization process on the other the model incorporates a positive externality related to the size of the private sector multiple equilibria may arise for political and economic reasons policies of free distribution are analysed with the model they may eliminate the danger of policy reversals due to excess unemployment but may at the same time increase the relative cost of restructuring leading in some cases to pareto inferior outcomes

waves in consumption with interdependence among consumers this paper presents a model to analyze the development of consumption patterns when there are social interactions among consumers in particular a consumer in this model recognizes three reference groups a peer group of similar consumers with whom the consumer wishes to share consumption activities a distinction group from which the consumer wishes to distinguish him or herself and an aspiration group to which the consumer does not belong but wishes that he she did and with whom the consumer would like to share consumption activities the interplay of aspiration and distinction can lead to waves in consumption these can happen when for example the avant garde consumption of up market pioneers is copied by other types of consumer as the latter aspire to emulate the former the former in turn seek to distinguish themselves from these unwelcome companions by varying their consumption in consequence a particular consumption activity may start up market an then gradually proceed down the social spectrum more complex patterns with continuing cycles in consumption can also be found the paper argues that this model is not only applicable to the consumption behaviour of an elite or would be elite but is relevant in a wide range of consumption settings

the economic lives of the poor in what turned out to be a rhetorical master move the 1990 world development report from the world bank defined the extremely poor people of the world as those who are currently living on no more than 1 per day per person measured at the 1985 purchasing power parity ppp exchange rate in 1993 the poverty line was updated to 1 08 per person per day at the 1993 ppp exchange rate which is the line we use in this paper poverty lines have always existed indeed 1 per day was chosen in part because of its proximity to the poverty lines used by many poor countries 1 however the 1 a day poverty line has come to dominate the conversations about poverty to a remarkable extent

competing technologies the learning curve and rational expectations abstract the problem of choice between several variants of a technology subject to dynamic learning economies is examined in a rational expectations model with overlapping adopters it is shown that even with rational expectations the long term market outcome depends sensitively on the pattern of early chance events and that only one variant of the technology will come to dominate the market in the long run this variant need not be the one which is socially optimal or most promising technically

technological clusters with a knowledge based principle evidence from a delphi investigation in the french case of the life sciences abstract recent works in the theory of technical change show the effect of irreversibility and lock in on the diffusion and creation of innovation processes which are able to stop the development of a generic technology therefore industrial policies play a major role in selecting and supporting the innovative process the purpose of this paper is to prove the possibility to derive a typology of future innovations in terms of generic technology from a delphi type technology survey thus it is possible to get a better understanding of the industrial dynamics and to design an interesting tool for industrial policies or for firm strategies as far as they aim at developing stable technological trajectories this is applied to the french case of the life sciences the paper suggests interesting explanatory trajectories in order to fight against diseases such as cancer alzheimer or schizophrenia

light emitting diodes and the lighting revolution the emergence of a solid state lighting industry emergence of new industries from evolving technologies is critical to the global economy yet has been relatively understudied due to the paucity of available data this study draws lessons on industry emergence by analyzing how a solid state lighting ssl industry grew out of light emitting diode led technologies that evolved for half a century with participation by tens of thousands of researchers in universities national laboratories and firms using data on publications patents and firms combined with business history we trace the evolution of ssl through a succession of market niches at times a few researchers with unorthodox research approaches made breakthroughs that greatly advanced particular technology trajectories and pushed led research in unexpected directions a succession of led market niches advanced the technology and provided profits to incentivize continuing research while reducing cost and improving efficacy of leds innovating firms developed a thicket of patents and captured substantial profit but were embroiled in extensive litigation that was ultimately resolved through cross licensing a major new generation of lighting products is now disrupting the traditional lighting industry although the leading incumbent lighting firms all invested early and heavily in ssl the industry s future leadership is uncertain

gifts as economic signals and social symbols gift giving has often puzzled economists especially because efficient gifts like cash or giving exactly what a person asks for seem crass or inappropriate it is shown in a formal game theoretic model that gifts serve as signals of a person s intentions about future investment in a relationship and inefficient gifts can be better signals other explanations for the inefficiency of gift giving are advanced and some stylized facts about gift giving practices are described many of which are consistent with the signaling view of gifts

poverty in african households the limits of survey and census representations african poverty statistics depend on household level measurements from survey data making the definition of household of critical importance detailed case studies from tanzania and burkina faso explore 1 understandings of household membership and ambiguities and 2 how well survey definitions capture households as economic units and the implications for household size and responses to and mitigation of poverty we develop an analytic framework of open and closed households open households cope with poverty using flexibility movement and extra household networks but are poorly represented by survey data closed households are likely to be better described by survey data

platform selection in the lab abstract emerging literature explores experimental platform selection games these games converge rapidly on the superior platform under a wide range of conditions we replicate the remarkable results of hossain and morgan 2009 in which such a game tips almost perfectly to the superior platform next we show that platform coordination fails when seemingly innocent increases in out of equilibrium payoffs are introduced the inflated payoffs keep the best reply structure unchanged and do not influence players security levels our design allows control for the explanatory force of risk dominance we find that equilibrium selection theory is unable to account for coordination failure while observed behavior is consistent with non rational learning furthermore and contrary to the literature we find that efficiency suffers when an inferior platform is granted initial monopoly

tortoises and hares choice among technologies of unknown merit recent work in the area of competing technologies and increasing returns has largely been concerned with the effectiveness of the market in delivering optimal outcomes the existence of inefficient market outcomes suggests that there might be a place for intervention in the technology choice process this paper develops a model of sequential choice in which the choice process is subject to centralized control the model is used to show that intervention can increase the expected present value of the technology adoption process it remains however that one technology and not necessarily the best will come to dominate the market copyright 1991 by royal economic society

innovation processes in large technical systems market liberalization as a driver for radical change abstract electricity supply is a large technical system which exhibits strong path dependencies and high barriers for radical innovations recent market liberalization however has initiated a fundamental restructuring the paper analyzes how liberalization has altered innovation processes in the field of electricity supply we examine three radical innovations under monopoly conditions and contrast the findings with the results from a survey on the innovation behavior of electric utilities in liberalized markets we argue that the selection environment for innovations has changed in various respects in our sample new options open to innovation activities have emerged at the level of the firm and utility strategies turn out to be more heterogeneous this may be interpreted as an increase in the variety of search processes which may lead to a mid term decrease of path dependencies

leading bureaucracies to the tipping point an alternative model of multiple stable equilibrium levels of corruption we present a novel model of corruption dynamics in the form of a nonlinear optimal dynamic control problem it has a tipping point but one whose origins and character are distinct from that in the classic schelling 1978 model the decision maker choosing a level of corruption is the chief or some other kind of authority figure who presides over a bureaucracy whose state of corruption is influenced by the authority figure s actions and whose state in turn influences the pay off for the authority figure the policy interpretation is somewhat more optimistic than in other tipping models and there are some surprising implications notably that reforming the bureaucracy may be of limited value if the bureaucracy takes its cues from a corrupt leader

persistence of power elites and institutions we construct a model to study the implications of changes in political insti tutions for economic institutions a change in political institutions alters the distribution of de jure political power but creates incentives for investments in de facto political power to partially or even fully offset change in de jure power the model can imply a pattern of captured democracy whereby a democratic regime may survive but choose economic institutions favoring an elite the model provides conditions under which economic or policy outcomes will be invariant to changes in political institutions and economic institutions them selves will persist over time jel d02 d72 the domination of an organized minority over the unor ganized majority is inevitable the power of any minority is irresistible as against each single individual in the majority who stands alone before the totality of the organized minor ity at the same time the minority is organized for the very reason that it is a minority

institutional reform and technological practice the case of electricity this article proposes a framework for categorizing possible interrelations between technological and institutional change and applies this framework to the case of the restructuring of the electricity sector it is argued that there is a need for coherence between institutions and technological practice so as to safeguard the satisfactory functioning of electricity infrastructure the identification of possible incoherences between institutions and technological practice allows for a better understanding of the potential drivers for change and the evolutionary processes of which they may be part this article attempts to elaborate the nature of this co evolution in somewhat more detail using specific levels of analysis that are exemplified in a four level model in the case of the restructuring of the electricity sector the institutional framework has changed from a public utility oriented towards a market oriented system however the technological practice remained unchanged a system oriented approach that relies on centralized planning control and operation this discrepancy between institutions and technological practice leads to significant frictions in the functioning of the electricity sector but it also offers opportunities for innovation in order to make liberalization a success it might be necessary to stimulate certain technical developments i e distributed generation and intelligent networks

biodiversity conservation in a dynamic world may lead to inefficiencies due to lock in effects and path dependence abstract although biodiversity is generally diminishing in some areas its conservation is expanding however the exact path of this expansion is uncertain this can lead to problems of path dependence and lock in effects path dependence describes situations where history strongly influences present decisions and lock in effects refer to situations where an earlier decision provides strong incentives to follow a particular path even if more efficient alternatives are available later on we develop a conceptual ecological economic model to investigate which ecological and economic parameters favour the appearance of efficiency losses in biodiversity conservation due to path dependence and lock in effects in a dynamic two period two region model generally we find that efficiency losses occur if there are signals that guide the first period budget into a region that later turns out to be suboptimal if both time periods had been considered right from the beginning to illustrate the conservation relevance of our findings we present potential efficiency losses through path dependence in the hypothetical case of applying offsets to conserving the endangered maculinea teleius butterfly near the city of landau in germany

technology adoption in the presence of network externalities we analyze technology adoption in industries where network externalities are significant the pattern of adoption depends on whether technologies are sponsored a sponsor is an entity that has property rights to the technology and hence is willing to make investments to promote it key findings include the following 1 compatibility tends to be undersupplied by the market but excessive standardization can occur 2 in the absence of sponsors the technology superior today has a strategic advantage and is likely to dominate the market 3 when one of two rival technologies is sponsored that technology has a strategic advantage and may be adopted even if it is inferior 4 when two competing technologies both are sponsored the technology that will be superior tomorrow has a strategic advantage

do household definitions matter in survey design results from a randomized survey experiment in mali abstract household definitions used in multi topic household surveys vary between surveys but have potentially significant implications for household composition production and poverty statistics standard definitions of the household usually include some intersection of keywords relating to residency requirements common food consumption and intermingling of income or production decisions despite best practices intending to standardize the definition of the household it is unclear which types of definitions or which intersections of keywords in a definition result in different household compositions this paper conducts a randomized survey experiment of four different household definitions in mali to examine the implications for household level statistics this approach permits analysis of the trade offs between alternative definition types we find that additional keywords in definitions increase rather than decrease household size and significantly alters household composition definitions emphasizing common consumption or joint production increase estimates of the levels of household assets and consumption statistics but not on per adult equivalency asset and consumption statistics relative to open ended definitions of the household in contrast definition type did not affect production statistics in levels though we observe significant differences in per adult equivalency terms our findings suggest that variations in household definition have implications for measuring household welfare and production

property rights and the role of the state evidence from the horn of africa this study applies extant theories of property rights change to three land tenure systems in imperial ethiopia two of the areas underwent changes in property rights after experiencing changes in the value of land one did not a data set of litigation over land rights is used in conjunction with case studies to understand the mechanisms motivating or impeding property rights change amendments to the role of the state are suggested and two conclusions are reached 1 that movement towards greater specificity of land rights did not always occur and 2 the changes in property rights that occurred were imposed from above rather than occurring endogenously where property rights changes did not occur they appear to have been blocked by the state which was more concerned with political survival than with revenue maximisation

is demand pulled innovation equally important in different groups of firms previous empirical literature has tested the demand pull hypothesis and found that innovation may be driven by output using a balanced panel of 216 italian manufacturing firms 1995 2000 and checking for the path dependent nature of r d we find a role of sales in inducing r d however the demand pull effect plays a varying role for different sub samples of firms exporting firms liquidity constrained firms not subsidised firms and those not heading a group seem to be sensitive to sales in deciding r d these results have been obtained using a least squares dummy variable corrected estimator a recent panel data technique suitable for small samples

adaptation as information restriction the hot stove effect individuals and social systems are often portrayed as risk averse and resistant to change such propensities are characteristically attributed to individual organizational and cultural traits such as risk aversion uncertainty avoidance discounting and an unwillingness to change this paper explores an alternative interpretation of such phenomena we show how the reproduction of successful actions inherent in adaptive processes such as learning and competitive selection and reproduction results in a bias against alternatives that initially may appear to be worse than they actually are in particular learning and selection are biased against both risky and novel alternatives because the biases are products of the tendency to reproduce success that is inherent in the sequential sampling of adaptation they are reduced whenever the reproduction of success is attenuated in particular when adaptation is slowed made imprecise or recalled less reliably the propensity to engage in risky and new activities is increased these protections against the error of rejecting potentially good alternatives on inadequate experiential evidence are costly however they increase the likelihood of persisting with alternatives that are poor in the long run as well as in the short run

gender agricultural production and the theory of the household virtually all models of the household assume that the allocation of resources is pareto efficient within many african households agricultural production occurs on many plots controlled by different members of the household pareto efficiency implies that factors should be allocated efficiently across these plots i find in contrast that plots controlled by women are farmed much less intensively than similar plots within the household controlled by men the estimates imply that about 6 percent of output is lost because of inefficient factor allocation within the household the paper suggests a new approach to modeling intrahousehold allocation consistent with the empirical results

economic performance through time prize lecture to the memory of alfred nobel december 9 1993 this abstract was borrowed from another version of this item

the valuation of complex derivatives by major investment firms empirical evidence this article examines the auction of a portfolio of collateralized mortgage obligations cmos to major broker dealers and institutional investors the unique data set allows us to analyze a number of important empirical questions related to the valuation of cmos by the bidders and the elasticity of demand for the securities the results reveal that the valuations differ substantially implying a significant elasticity of demand this article is designed to shed light on two related questions first it extends the work of bagwell 1991 1992 brown and ryngaert 1990 and bradley desai and kim 1988 among others on shareholder heterogeneity and the elasticity of the demand for financial assets to date the empirical research on investor heterogeneity has focused on common stock this article supplements previous work by examining an auction of another class of securities complex collateralized mortgage obligations cmos to major securities dealers and institutional investors second it provides perspective on fixed income valuation models in the spirit of cox ingersoll and ross 1985 and black derman and toy 1990 virtually all of these models even those that specify relatively complex interest rate processes assume homogeneous beliefs this implies that within the constraints imposed by estimation error sophisticated investors should place equal values on fixed income securities bagwell observes that investors can be heterogeneous along several dimensions first heterogeneity can be induced by tax rules to the extent that different investors are taxed in different ways their demand for securities will be affected second transaction costs can cause heterogeneity by driving a wedge between buyers sellers and owners of a security third investors can differ in their assessments of the value of a security either because they possess different information or because they analyze that information in different ways fourth investors can face different nontradeable risks and thus can have different assessments of the value of a security depending on how it interacts with these risks finally it has been suggested by lee shleifer and thaler 1991 among others that investors may differ for idio

a dynamic it adoption model for the soho market pc generational decisions with technological expectations thesmall office home office soho professionals comprise the fastest growing segment in the labor force today typically being a one person business based at home soho owners mostly rely on office information technology to single handedly run their entire operation despite the segment s ostensibly growing dependence and influence on the information technology it industry still very little is known about the dynamics between soho and it products with the purpose of addressing this void we investigate the soho professionals adoption patterns of multigenerational it products accordingly we develop and empirically estimate an individual soho levelinitial andrepeat purchase logit model that captures the procurement patterns for successive generations of technological products namely the pc category specifically we find that soho professionals procurement choices are influenced by a number of salient dimensions i e income performance price interpurchase time network externalities furthermore some soho owners are found to have a preference for a future expected generation over a currently available one which is explained via their business dispositions i e technology orientation result orientation search orientation toward accepting technological incertitude

theorizing path dependence a review of positive feedback mechanisms in technology markets regional clusters and organizations the concept of path dependence has often been criticized as vague and only narrowly applicable although we can find some very refined definitions of the concept we also find a wide range of empirical phenomena being described as path dependent we argue that more detailed accounts of the positive feedback mechanisms that form paths can take path dependence beyond this state of being overdetermined but under specified reviewing three well described cases of path dependent dynamics in technology markets regional clustering and organizations we define a core set of positive feedback mechanisms that constitute path dependence at different analysis levels and clarify the relationship between positive feedback and increasing returns we show that path dependent processes that is processes driven by positive feedback that veer toward rigidity or lock in can be but do not have to be found under many labels including structural inertia coevolution or institutional persistence we conclude that a precise definition of path dependence does not need to be at odds with the concept s widespread use in understanding organizational and industrial development processes copyright 2013 the author 2012 published by oxford university press on behalf of associazione icc all rights reserved oxford university press

inefficient standard adoption inertia and momentum revisited i introduction since the establishment of the theory of network effects economists have been concerned with the question of whether a market with network effects will tend to settle on the socially optimal standard it has been postulated that markets may exhibit excess inertia once a technological standard is in place a new superior standard may not displace it because of installed base effects alternatively markets may exhibit excess momentum consumers may adopt a new standard too quickly ignoring the stranding effect they are having on previous users similar issues arise in the adoption of language and social norms the literature has investigated various conditions under which one of these inefficiencies arises such inefficiencies are of particular concern for open technologies such as the qwerty and dvorak keyboards 1 the situation is somewhat different when individual firms own standards in that case a simple argument seems to indicate that there is no possibility that an inefficient standard will persist if a new standard is superior in any objective sense there are gains to be made from switching to it once the standard has been adopted the firm can appropriate these gains therefore the firm has incentive to lower the initial price enough to induce adoption of the standard the preceding argument is made in liebowitz and margolis 1999 and repeated in spulber 2002 spulber expresses a general skepticism about the likelihood of inefficiencies when property rights are defined and markets exist critics might claim that previous models that imply inefficient standard adoption are unrealistic in some way and that if such models were modified slightly the inefficiency would disappear i reconsider the issue of inefficient standard adoption using a parsimonious yet compelling model assuming only that there are successive generations of finitely lived consumers that preferences are heterogeneous and that there are network effects among users adoption decisions can be inefficient this is true even if consumers can coordinate efficiently within a generation and a firm can act as a coordinating device across generations the model presented here generates some of the same results found in other papers collectively but in a more general setting and with more robust results if there is an established standard and a superior alternative emerges no single generation of consumers will be willing to switch to the new standard if the switching cost the loss of network benefit from breaking with past users is too high it may be that the benefits to future generations of consumers are large enough that from a social standpoint it would be efficient for one generation to adopt the new standard even if it is privately optimal for that generation to retain the old standard on the other hand the current generation considers only its own switching cost and not the cost it imposes on the previous generation leading to potential overadoption of new technology even for proprietary standards it is not clear that the incentive of the firm to induce adoption matches the social incentive in particular if consumer preferences are heterogeneous the firm will not be able to price in such a way to extract all of the additional surplus gained from the new standard on the other hand the firm will be able to appropriate some of the surplus generated by the network effect itself which is present for any standard and thus does not affect the social incentive to change standards it is not possible to address this issue with a two period model as in some of the previous literature see for example choi 1994 choi and thum 1998 katz and shapiro 1986 if a new technology is introduced in the second period but then the game ends the welfare of future generations of consumers is neglected 2 this article also differs from previous infinite horizon models of technology adoption

demand dynamics with socially evolving preferences in this work we first identify a few stylized facts concerning microconsumption acts second building on them we develop a simple model of boundedly rational consumers who endogenously evolve their preferences via both innovation and social imitation third we explore some statistical properties of the demand patterns generated by the model which despite its simplicity are surprisingly in line with the empirical evidence these results we suggest bring encouraging support to microfoundations of demand theory based on cognitive and behavioral foundations more in tune with the psychological and sociological evidence based on heterogeneous agents who are much less rational and much more social than in standard theory and who collectively discover along the way what they like within a growing universe of available commodities

induced adoption and externalities in the regional diffusion of information technology antonelli c 1990 induced adoption and externalities in the regional diffusion of information technology reg studies 24 31 40 information technology can be considered as a set of complex radical innovations which continues to evolve and has a major impact both within the plant and the office in such a context its regional diffusion is likely to be determined by relevant externalities together with the effects of a wage induced process of localized technological change and adoption data on the territorial distribution of fax machines and modems show that the levels of diffusion of information technology in italy is highly uneven favouring central regions endowed with higher levels of fixed and human capital and consequently income the econometric analysis confirms that diffusion levels of both fax and modems across provinces are significantly associated with the level of wages as is to be expected from the induced adoption hypothesis and from the existence of external factors such as the presence

power steering the canadian automotive industry the 1965 canada usa auto pact and political exchange abstract in the 1965 canada usa auto pact the automotive companies were required to maintain specified levels of assembly activity in canada this restriction and subsequent events such as the correlation of a shift in employment to canada and the widening of pay disparities between american and canadian workers the concentration of research in the united states despite canadian fiscal incentives and the differences in the rescue packages offered to chrysler by the two governments cannot be explained by conventional economic theory the paper demonstrates that they can be explained as mutually advantageous accommodations to different evaluations of political outputs reflecting endowments and domestic economic interests

sectoral systems of innovation and production the concept sectoral system of innovation and production provides a multidimensional integrated and dynamic view of sectors it is proposed that a sectoral system is a set of products and the set of agents carrying out market and non market interactions for the creation production and sale of those products a sectoral systems has a specific knowledge base technologies inputs and demand agents are individuals and organizations at various levels of aggregation they interact through processes of communication exchange co operation competition and command and these interactions are shaped by institutions a sectoral system undergoes change and transformation through the co evolution of its various elements 2002 elsevier science b v all rights reserved

social capital and the linkages of high tech companies to the military defense system is there a signaling mechanism this study investigates linkages of new israeli high tech companies to the military and defense system we examine the impact of social capital signaling and learning spillovers on resource acquisition in terms of investments and the financial performance of companies with and without linkages social capital signaling and learning spillovers are examined as they impact individual and organizational resource acquisition and performance of 200 new israeli high tech companies the study contributes to the existing literature of entrepreneurship by suggesting the relevance of knowledge spillovers signaling theory and social capital to the context of the interface between defense and civilian spheres

optimal dynamic law enforcement abstract in this paper we present an intertemporal extension of becker s journal of political economy 76 1968 169 static economic approach to crime and punishment for a dynamic supply of offenders we determine the optimal dynamic trade off between damages caused by offenders law enforcement expenditures and cost of imprisonment by using pontryagin s maximum principle we obtain interesting insight into the dynamical structure of optimal law enforcement policies it is found that inherently multiple steady states are generated which can be saddle points unstable points and boundary solutions as in other non linear control models there exists a threshold a so called skiba point which makes the optimal enforcement policy dependent on the initial conditions it turns out that above the skiba point the optimal trade off between social costs implies a steady state with a high level of offences while below the threshold the optimal law enforcement should eradicate crime

the economics of convention c onventions regulate much of economic and social life yet they have received surprisingly little attention from economists by a convention we mean a pattern of behavior that is customary expected and self enforcing everyone conforms everyone expects others to conform and everyone has good reason to conform because conforming is in each person s best interest when everyone else plans to conform lewis 1969 familiar examples include following rules of the road adhering to conventional codes of dress and using words with their conventional meanings conventions with direct economic implications include species of money and credit industrial and technological standards accounting rules and forms of economic contracts indeed it would scarcely be an exaggeration to say that almost all economic and social institutions are governed to some extent by convention the main feature of a convention is that out of a host of conceivable choices only one is actually used this fact also explains why conventions are needed they resolve problems of indeterminacy in interactions that have multiple equilibria indeed from a formal point of view we may define a convention as an equilibrium that everyone expects in interactions that have more than one equilibrium the economic significance of conventions is that they reduce transaction costs imagine the inconvenience if whenever two vehicles approached one another the important exceptions are sugden 1986 and ullman margalit 1977 the interested reader might also refer to the symposium on social norms that appeared in the fall 1989 issue of this journal with articles by sugden 1989 and elster 1989

the two faces of market support how deployment policies affect technological exploration and exploitation in the solar photovoltaic industry the recent years have seen a strong rise in policies aiming to increase the diffusion of clean energy technologies while there is general agreement that such deployment policies have been very effective in bringing technologies to the market it is less understood how these policies affect technological innovation to shed more light on this important question we conducted comparative case studies with a global sample of 9 firms producing solar photovoltaic pv modules complemented by in depth interviews with 16 leading pv industry experts we propose that on the one hand policy induced market growth serves as an important catalyst for innovative activity as it raises the absolute level of firm investments in technological exploration on the other hand however deployment policies create an incentive for firms pursuing more mature technologies to shift their balance between exploitation and exploration toward exploitation firms focusing on less mature technologies cannot tap the potentials of exploitative learning to the same extent as those with more mature technologies therefore stimulating strong market growth may raise the barrier to market entry for less mature technologies we conclude that when designing deployment policies great care should be taken to avoid adverse effects on technological diversity and a premature lock in into more established technologies

bad eggs learning by doing and the choice of technology we model long run economic development through technology adoption under scientific uncertainty about environmental effects there are four possible long run equilibria in a socially planned economy high growth adopt rapidly but abandon damaging technologies once revealed ddt cfcs cautious brake the introduction of new technologies to avoid mistakes genetically modified organisms no growth halt technological progress to preserve secondary knowledge and collapse adopt rapidly without ever abandoning damaging technologies in the base parameterization a short sighted social planner chooses the cautious strategy a far sighted planner chooses the high growth strategy unless damages are irreversible in which case the cautious strategy again dominates regulatory options in the market economy are investigated pollution taxes do not affect the firm s level of precaution if they can only be applied after the adopting firm has reaped the benefits however they do encourage the abandonment of damaging technologies liability rules do affect precaution but may lead to excessive caution or even a no growth trap

measuring the return on household enterprise what matters most for whom return on assets roa from household enterprise is crucial for understanding the well being and productivity of households in developing economies yet the definition and measurement of household enterprise roa remain inconsistent or unclear we illustrate potential measurement problems with examples from various actual surveys we then take advantage of a detailed integrated household survey to perform a robustness analysis acting as if we had gathered less data than was actually the case to see what matters and for whom the three issues that matter most for accurate measurement of household enterprise roa are the choice of accrual versus cash basis of income the treatment of household s own labor in enterprise income and the treatment of non factor income also this sensitivity matters most for a relatively poor region dominated by crop cultivation relative to a richer region with non farm enterprises though the choice between accrued income and cash income matters less when the frequency of the data declines there remains high sensitivity in longer term and annualized data we conclude the paper by providing recommendations on how to improve the survey questionnaires for more accurate measurement in field research

regional worlds from related variety in regional diversification to strategic coupling in global production networks this annual lecture paper bridges two influential but parallel literature strands on evolutionary economic geography eeg and global production networks gpn it argues that both strands are prem

optimal patenting and licensing of financial innovations recent court decisions starting with the state street decision in 1998 allow business methods to be patentable and now give financial institutions the option to seek patent protection for financial innovations this new patentability paradigm and the heterogeneity of characteristics associated with financial innovations pose an immediate decision problem for senior management what to patent we present a parsimonious decision framework that answers this question we show that for innovations with certain characteristics it is optimal not to patent even if the option of patenting and licensing is available our model emphasizes the role of embedded real options that arise from certain types of financial innovations the model provides an explanation of observed patenting behavior of financial institutions and the success of a wide class of innovations including swaps credit derivatives and pricing algorithms

optimal control of interacting systems with dnss property the case of illicit drug use abstract in this paper we generalize a one dimensional optimal control problem with dnss property to a two dimensional optimal control problem this is done by taking the direct product of the model with itself i e we combine two similar system dynamics under a joint objective functional that is separable in both states and controls this framework can be applied to the construction of various optimal control problems such as optimal marketing of related products optimal growth of separate but interacting economies or optimal control of two related capital stocks we study such a system for a particular case drawn from the domain of drug control the main result of this paper is that in this domain even a modest amount of interaction can sometimes make a very big difference hence drawing conclusions by simplifying the real world into two independent one dimensional models may be problematic methodologically the combination of two systems with dnss property leads to a fascinating series of situations with multiple optimal steady states and associated threshold behavior these instances reflect some important recent developments in optimal dynamic control theory

flexibility of household structure child fostering decisions in burkina faso using data i collected in africa this paper examines a household s decision to adjust its size through child fostering an institution where biological parents temporarily send children to live with other families households experiencing negative idiosyncratic income shocks child gender imbalances located further from primary schools or with more good quality network members fewer subsistence farmers and unmarried individuals and more educated members are significantly more likely to send a child results reject an overall symmetric fostering model across senders and receivers but evidence of symmetry is found when the test is restricted to exogenous income shocks and gender imbalances

technical change growth and trade new departures in institutional economics this article analyses the main theoretical and policy issues emerging from the literature on the evolutionary institutional economics of technical change the four distinguishing characteristics of which are that technology is often proprietary in nature only a part of knowledge is codifiable in handbooks blueprints patents and so on there are fundamental variations in the above two points across different technological fields and the evolution of knowledge is highly path dependent