where do markets come from production markets have two sides producers are a fully connected clique transacting with buyers as a separate but aggregated clique each producer is a distinctive firm with a distinctive product each side continually monitors reactions of the other through the medium of a joint social construction the schedule of terms of trade each producer is guided in choice of volume by the tangible outcomes of other producers not by speculation on hypothetical reactions of buyers to its actions each producer acts purely on self interest based on observed actions of all others summarized through a feedback process the summary is the terms of trade schedule which reduces to constant price only in limiting cases the market emerges as a structure of roles with a differentiated niche for each firm explicit formulae both for firms and for market aggregates are obtained by comparative statics methods for one family of assumptions about cost structures and about buyers evaluations of differentiated products not just any set of firms can sustain terms of trade with any set of buyers there prove to be three main kinds of markets and three sorts of market failure within a parameter space that is specified in detail one sort of market paradox has a madison avenue flavor another is more conventional grind and a third crowded is a new form not included in any existing theory of markets current american industrial markets are drawn on for 20 illustrations of which three are presented in some detail inequality in firms market shares measured by gini coefficients is discussed

on the efficiency of law a public choice perspective economists have not yet developed a comprehensive theoretical framework incorporating transaction cost economics within a public choice perspective for predicting when there will be an efficiency problem with the law transaction cost reasoning and the rent seeking insight have not been applied systematically in a dynamic institutional context to evaluate when the law will be used to increase or not minimize problems of bounded rationality and opportunism this paper takes a first step at identifying and remedying this deficiency the paper first provides a critical review of relevant theoretical contributions made by becker 1983 1985 posner 1977 priest 1977 rubin 1977 1982 williamson 1975 1985 and others we then show how analysis of the efficiency of law can be synthesized into a broader whole by incorporating transaction cost economics more fully into existing understanding of rentseeking in the political realm thus within the public choice paradigm this paper develops a deeper transaction cost analysis of the efficiency of law building on prior research by the authors crew and rowley 1988a 1988b twight 1983 1988 the paper identifies variables that position legal rules on a spectrum that ranges from those that are predominantly transaction cost

political liberty and social development an empirical investigation liberty is not only economic it is political whether the economic system promotes social development is one question whether the political system promotes social development is another question the empirical investigations indicate that for the world political liberty has a small though significant relationship with the level of social development

new venture teams assessment of learning assistance from venture capital firms abstract prior research examining whether venture capital firms vcs add value to the ventures in their portfolios by advising their new venture teams nvts has led to inconclusive results whereas most prior studies have assumed that nvts value vc assistance this study tests for the possibility that they differentially value two different types of vc assistance business management and operational we collected data by surveying 837 firms identified in the venture capital journal that had received financing from venture capital firms only firms that received first round financing were included in our analysis which reduced our sample size to 205 firms our central finding is that systematic differences exist among nvts in their evaluation of learning assistance from vcs even though vcs can chose their own level of involvement with an nvt successfully improving venture performance through nonfinancial assistance at least partially depends upon the extent to which the nvt values vc input our results indicate that nvts with more industry experience and longer team tenure in the current venture are negatively related to both business management advice and operational assistance offered by their vcs however when an nvt has previously worked together and when its primary experience is from another industry it tends to welcome business management advice from its vc one interpretation of this finding is that an advanced level of operational specialization already exists in such a team which reinforces established operating patterns changing established operating patterns could make it more costly to adopt vc input on operational issues however business management advice may be more welcome because the nvt is still learning how to compete in a new industry these findings add to the growing literature that suggests that vcs play a particularly important role in entrepreneurial ventures when they pursue the development of new technologies ehrlich et al 1994 sapienza 1992 however business management advice is not highly valued by nvts that pursue more technical innovations these findings in combination with those of sapienza and amason 1993 suggest that conflict in the vc nvt relationship may be the greatest when the parties attempt to resolve critical differences which ironically appear to be the ones where the nvt could derive the greatest benefit from listening to its vc finally current firm performance is not related to the nvt s evaluation of vc assistance although cross sectional measures of performance have obvious limitations particularly with new ventures these results indicate that the nvt evaluation of vc assistance is not driven by short term performance past research has shown that vcs vary widely in their preferred level of involvement with the managers of firms in their portfolio some vcs prefer a laissez faire approach whereas others think that they must be more involved if they are to ultimately receive high rewards the central finding from this study is that significant differences exist among nvts in their evaluation of business management and operational assistance for vcs that are more involved these findings suggest that the optimal level of involvement is also partially contingent upon the nvts openness to learning ignoring the contingent nature of the vc nvt relationship vcs could reduce their influence as a tool to improve firm performance and to ensure the ultimate survival of the venture

why democracies produce efficient results by applying the standard tools of microeconomic analysis i argue that democratic markets work as well as economic markets in particular i show that previous work has greatly exaggerated the existence of principal agent and informational problems in electoral markets and has drawn incorrect conclusions

the constitution of economic policy one of the most exciting intellectual moments of my career was my 1984 discovery of knut wicksell s unknown and untranslated dissertation finanztheoretische untersuchungen buried in the dusty stacks of chicago s old harper library only the immediate post dissertation leisure of an academic novice allowed for the browsing that produced my own dramatic example of learning by serendipity wicksell s new principle of justice in taxation gave me a tremendous surge of self confidence wicksell who was an established figure in the history of economic ideas challenged the orthodoxy of public finance theory along lines that were congenial with my own developing stream of critical consciousness from that moment in chicago i took on the determination to make wicksell s contribution known to a wider audience and i commenced immediately a translation effort that took some time and considerable help from elizabeth henderson before final publication this abstract was borrowed from another version of this item

electoral politics interest groups and the size of government electoral politics interest groups and the size of government i introduction interest groups have been considered main actors in the political drama for some time now by political scientists as in bentley 1908 schattschneider 1935 and truman 1951 and more recently by economist also such as olson 1965 and stigler 1975 despite the widespread consensus on their importance there have been few formal attempts to analyze their impact on public policies thus borooah and van der ploeg 1983 90 were moved to declare that theory based on the importance of different interest groups is badly needed in economics an important exception is becker s 1983 1985 analysis of interest group competition becker draws insights about the nature of the trade offs that occur when interest groups compete for political influence but becker consciously avoids incorporating into his model political institutions such as voting voting rules and candidates 1983 391 4 1985 330 rather he assumes that the political process operates as a veil through which the underlying strengths and demands of various interest groups are revealed this paper takes a different tack but one complementary to becker s approach the analysis is based on an explicit model of the political process that includes interest groups in the model interest group influence is a potential supply of votes for which parties or candidates compete each party seeks a winning coalition of voters and thus engages in implicit logrolling tullock 1959 572 an equilibrium exists in the competition for the support of interest groups and the nature of the equilibrium electoral platforms is identified below embodied in the characterization of the equilibria is a set of parameters that can be said to measure the strengths of the various interest groups and which enable one to identify how candidates change their policy positions in response to a change in the strength of an interest group it is therefore possible to analyze simultaneously the existence of an electoral equilibrium its nature including its normative properties and changes in equilibrium due to shifts in the balance of forces between competing groups 1 in contrast to becker 1983 1985 these analytical features are not assumed outright rather they are based on an underlying model of elections the theoretical underpinnings for this model are discussed in section ii interest groups are often alleged to be responsible in part for recent increases in the size of government in western democracies 2 therefore in sections iii and iv a model of the political process is used to study the impact of an increase in the influence of a particular interest group on government size in the simple models of the public sector considered here increasing group influence per se does not cause the size of the government to increase but an increase in the government s size does result when i there are constraints on the government s ability to change tax shares in response to a shift in group power or ii there is a publicly provided good which benefits one untaxed group and that group s sole concern with government policy is to maximize the amount of the good that it gets the paper concludes by considering some of the normative implications of the results ii interest groups in the electoral process there are two sets of actors in the model parties and interest groups and two sets of relationships which must be analyzed the relationships between interest groups and the parties and the relationship between the parties themselves with respect to the first question this paper investigates the determinants of each interest group s influence on the platforms proposed by the parties with respect to the second it explores whether the competition for votes between the parties produces an equilibrium and if so what its properties are

the economics of small business finance the roles of private equity and debt markets in the financial growth cycle abstract this article examines the economics of financing small business in private equity and debt markets firms are viewed through a financial growth cycle paradigm in which different capital structures are optimal at different points in the cycle we show the sources of small business finance and how capital structure varies with firm size and age the interconnectedness of small firm finance is discussed along with the impact of the macroeconomic environment we also analyze a number of research and policy issues review the literature and suggest topics for future research

asymmetric selection among organizations we discuss the creation of organizations and their survival as distinct selection processes and consider the significance of their divergence in particular to understand the implications of entrepreneurial booms we propose the possibility of asymmetric selection where entry selection and exit selection differ from each other in strength an observed increase in founding rates hence may reveal a decline in the selection threshold for entry implying lower average fitness among boom time entrants when such an expansion occurs organizations born during these periods of heightened entry should suffer higher failure rates if the fitness threshold required for survival remains stable or becomes more stringent we also discuss other processes that might educe founding waves and explain the different implications of these accounts for our empirical model estimates of the model support our theory of asymmetric selection in two out of three markets using a comprehensive dataset describing organizations in the us computer industry copyright 2003 oxford university press

the outlook for us oil dependence abstract oil dependence is defined as a dynamic problem of short and long run market power the potential monopoly power of an oil cartel depends on its market share and the elasticities of oil supply and demand while the economic vulnerability of oil consuming states depends most directly on the quantity of oil imported and the oil cost share of gross domestic product gdp of these factors only the market share of the organization of petroleum exporting countries opec cartel and the rate of growth of world oil demand are clearly different than they were 25 years ago opec still holds the majority of world oil and in the future will regain market share a hypothetical 2 year supply reduction in 2005 2006 similar in size to those of 1973 1974 or 1979 1980 illustrates the potential benefits to opec and harm to the us economy of a future oil price shock opec s revenues are estimated to increase by roughly 0 7 trillion while the us economy loses about 0 5 trillion strategic petroleum reserves seem ineffective against a determined multi year supply curtailment increasing the market s price responsiveness by improving the technologies of oil supply and oil demand can greatly reduce the costs of oil dependence each element of this interpretation of the oil dependence problem is well supported by previous studies this paper s contribution is to unite these elements into a coherent explanation and to point out the enormously important implications for energy policy

tools of the trade the socio technology of arbitrage in a wall street trading room to analyze the organization of trading in the era of quantitative finance we conduct an ethnography of arbitrage the trading strategy that best exemplifies finance in the wake of the quantitative revolution in contrast to value and momentum investing we argue arbitrage involves an art of association the construction of comparability across different assets in place of essential or relational characteristics the peculiar valuation that takes place in arbitrage is based on an operation that makes something the measure of something else associating securities to each other the process of recognizing opportunities and the practices of making novel associations are shaped by the specific socio spatial and socio technical configurations of the trading room calculation is distributed across persons and instruments as the trading room organizes interaction among diverse principles of valuation

economists as the subject of economic inquiry friedman s argument is a point of departure he offers a standard view of invention among economists in effect creativity whether in economics or elsewhere in the economy is pushed outside the domain of economics it is a black box about which we know little and which is not subject to explanation by conventional economic analysis we observe such activities as entrepreneurship and creative insight but we balk at attempting to explain them

dynamic demand and optimal opec pricing an empirical investigation abstract the demand for energy and in particular the demand for oil is very sluggish given this dynamic description of demand a monopoly or a dominant cartel may either apply a volatile or a stable price policy in order to maximize profits in particular earlier works of fromholzer and wirl derive that the shape of the equilibrium demand function determines whether a price is stable or volatile more precisely a concave demand relation induces a smooth and a convex relation leads to a volatile strategy this theory is empirically tested for the demand for opec oil

the renewable fuel standard in competitive equilibrium market and welfare effects we construct a tractable multi market equilibrium model designed to evaluate alternative biofuel policies the model integrates the u s agricultural sector with the energy sector and it explicitly considers both u s ethanol and biodiesel production the model provides a structural representation of the renewable fuel standard rfs policies and it uses the arbitrage conditions defining the core value of renewable identification number prices to identify the relevant competitive equilibrium conditions the model is parameterized based on elasticities and technical coefficients from the literature to represent observed 2015 data the model is simulated to analyze alternative scenarios including repeal of the rfs projected 2022 rfs mandates and optimal second best mandates the results confirm that the current rfs program considerably benefits the agriculture sector but also leads to overall welfare gains for the united states mostly via beneficial terms of trade effects implementation of projected 2022 mandates which would require further expansion of biodiesel production would lead to a considerable welfare loss relative to 2015 mandate levels constrained second best optimal mandates would entail more corn based ethanol and less biodiesel than currently mandated

how optimal distinctiveness affects new ventures failure risk a contingency perspective abstract in this article we apply the concept of optimal distinctiveness to test whether category spanning has a nonlinear effect on new ventures risk to fail we argue that by being optimally distinct i e by attaining a level of category spanning that allows new ventures to benefit from balancing the competing needs of conformity with and differentiation from competitors new ventures can improve their survival chances in addition we argue that the relevance of optimal distinctiveness varies with a venture s age and a category s density we tested our hypotheses using data from 1668 metal bands that were founded in the united kingdom between 1967 and 2005 the results indicate that optimal distinctiveness is relevant to new ventures failure risk moreover we show that venture age attenuates the relevance of optimal distinctiveness whereas category density strengthens that factor s relevance

world oil market or mayhem the world oil market is regarded by many as a puzzle why are oil prices so volatile what is opec and what does opec do where are oil prices headed in the long run is peak oil a genuine concern why did oil prices spike in the summer of 2008 and what role did speculators play any attempt to answer these questions must be informed and disciplined by economics such is the purpose of this essay to illuminate recent developments in the world oil market from the perspective of economic theory

the structure of the investment networks of venture capital firms abstract venture capital firms are linked together in a network by their joint investments in portfolio companies through connections in that network they exchange resources with one another the most important of those resources are the opportunity to invest in a portfolio company good investment prospects are always scarce the spreading of financial risk and the sharing of knowledge all venture capitalists operate in very uncertain environments none more so than the one confronting high innovative venture capitalists hivcs 1 that specialize in investing in high innovative technology companies the most uncertain of all their investments is a high technology start up with nothing more than a product in the head of the founder there is uncertainty about the talent of the entrepreneur the market need for the product the development of a saleable product the raising of second round financing for working capital and expansion the manufacturing of the product competitors responses and government policies such as capital gains tax and erisa rules to name some of the major components it is a formidable list indeed it is hard to name a segment of any other industry that bears more uncertainty than hivcs a venture capital firm copes with uncertainty by gathering information this research shows that the amount of coinvesting by a firm depends on the degree of uncertainty it faces the greater the uncertainty the greater the degree of coinvesting by examining how venture capital firms were connected by their joint investments it was found that the top 21 hivcs comprise a tightly coupled network and of that group none is more tightly bound than the nine hivcs located in california in contrast the group of top 21 firms that invest mainly in low innovative technology companies livcs is more loosely bound hivcs are more tightly bound together because they shoulder more uncertainty and therefore have a greater need to share information with one another the practical implications of this study are as follows venture capitalists it is vital to be well connected to other venture capital firms they are important sources of information and investment opportunities for hivcs the california group is central in the network so links to them are valuable communications in a tightly coupled system are swift so it is likely that information is disseminated very quickly among members of the group it probably facilitates the setting of a market rate for venture capital a disadvantage of a tightly bound system is that information flowing among the members has a redundancy and sameness about it so to ensure a supply of fresh information members should have as many links as possible to other organizations and individuals besides venture capitalists entrepreneurs when entrepreneurs submit a proposal for funding to venture capital firms they can assume that news will spread fast to other firms thus they should not use a bird shot approach rather they should select their targets with rifle precision the proposal should be submitted to a few firms that are known to specialize in the type of product or service that the entrepreneur is planning to make entrepreneurs should be concerned about more than the price of the deal when the top 61 firms invest in a portfolio company they bring information contacts and deep pockets to the companies in which they invest those factors are significant in nurturing a growing company policy makers the networks of hivcs and uvcs are quite different the hivcs cluster around oases of high technology entrepreneurship in the northeast and california whereas the livcs are more evenly spread throughout the u s a hivcs are located almost exclusively in the so called bi coastal regions of prosperity this study found cliques among the venture capital firms but it found no evidence that the top 61 firms exclude other venture capital firms from their coinvestments of first rounds of capital more research is needed before conclusions can be drawn about the power and influence of the top firms researchers in a recent article granovetter 1985 suggests that if we are to explain economic behavior we must understand the networks in which transactions are embedded this research shows that the networks formed by the syndicated coinvestments of venture capital firms may help us to explain their behavior a general model for coinvestment networks that is developed in this article is applicable to analysis of syndicated coinvestments not only of venture capital firms but of investors and lenders in general

the persistence of lenient market categories research across disciplines presumes that market categories will have strong boundaries categories without well defined boundaries typically are not useful and so are expected to fade away we suggest many contexts contain lenient market categories or less constraining market categories that persist and become important we argue that this fact can be explained by looking at market categories from the producer perspective lenient market categories have more flexibility and allow for a wider range of fit as a result we expect to see high rates of entry into lenient categories at the same time lenient market categories have drawbacks they do not clearly convey what an organization does and do not identify specific sets of potential consumers this means organizations are more likely to exit when entry rates are higher than exit rates lenient market categories will endure over time we also predict that organizations exiting lenient categories will enter other lenient categories further fueling the persistence of such categories finally this trend is exaggerated when influential external agents favor leniency we find support for these ideas in a longitudinal analysis of organizational entry into and exit from market categories in the software industry

hedging your bets explaining executives market labeling strategies in nanotechnology executives use market labels to position their firms within market categories yet this activity has been given scarce attention in the extant literature that widely assumes that market labels are simple prescribed classification brackets that accurately represent firms characteristics by examining how and why executives use the nanotechnology label we uncover three strategies claiming disassociating and hedging comparing these strategies to firms technological capabilities we find that capabilities alone do not explain executives label use instead the data show that these strategies are driven by executives aspiration to symbolically influence their firms market categorization in particular executives perception of the label s ambiguity their avoidance of perceived credibility gaps and their assessment of the label s signaling value shape their labeling strategies in contrast to extant research which suggests that executives should aim for coherence we find that many executives hedge their affiliation with a nascent market label thus our study shows that in ambiguous contexts noncommitment to a market category may be a particularly prevalent strategy

the new institutional economics and its applicability to development abstract the several remarkable developments in the social sciences which have come to be known as the new institutional economics nie have not yet been fully exploited for analyzing the determinants and effects of institutional change in the context of development this paper identifies two important components of the nie and illustrates both a potential complementarities between them and b their applicability to various problems and policies in the long term development of developing countries

assessing the contribution to innovation of private equity investors a study on european buyouts abstract the paper provides an empirical analysis of the patenting activity of a sample of western european manufacturing firms undergoing a buyout between 1998 and 2004 a panel data design is used to test whether the characteristics of the deal and of private equity pe firms can affect acquired companies subsequent innovation effort as measured by the number of patents granted by the epo results support the view that the innovation activity of portfolio firms is affected by different types of investors pursuing different objectives and differing in their risk propensity expected returns and investment policies the characteristics of lead investors size stage specialization geographical location and of the deal amount invested presence of multiple investors are also investigated and are found to differently affect the post buyout innovation activity of sample firms

measuring energy security can the united states achieve oil independence stochastic simulation of the direct economic costs of oil dependence in an uncertain future is proposed as a useful metric of oil dependence the market failure from which these costs arise is imperfect competition in the world oil market chiefly as a consequence of the use of market power by the organization of the petroleum exporting countries opec cartel oil dependence costs can be substantial it is estimated that oil dependence costs to the us economy in 2008 will exceed 500 billion other costs such as military expenditures or foreign policy constraints are deemed to be largely derivative of the actual or potential economic costs of oil dependence the use of quantifiable economic costs as a security metric leads to a measurable definition of oil independence or oil security which can be used to test the ability of specific policies to achieve oil independence in an uncertain future

determinants of required return in venture capital investments a five country study abstract using two complementary theoretical perspectives we develop hypotheses regarding the determinants of the return required by venture capitalists and test them on a sample of over 200 venture capital companies vccs located in five countries consistent with resource based theory we find that early stage specialists require a significantly higher return than other vccs when investing in later stage ventures consistent with financial theory we find that acquisition buyout specialists require a significantly lower return than other vccs when investing in expansion companies furthermore in comparison to specialists highly stage diversified vccs require a significantly higher return for early stage investments independent vccs require a higher rate of return than captive or public vccs in general higher required returns are associated with vccs who provide more intensity of involvement have shorter expected holding period of the investment and being located in the us or uk in comparison to those in france belgium and the netherlands

the role of the intellectual in economic development a constitutional perspective abstract depending on the nature of the commitment that is implicit in the constitution of a society the rules may either rigidly reinforce existing institutions or allow for an efficient process of institutional innovation we argue that intellectuals are a reflection of the constitutional backdrop against which they operate and consequently professional intellectual activity will either enhance efficiency by reducing the costs of political exchange or entrench inefficient structures we present empirical evidence to show that intellectuals have a systematically different impact on economic performance in different types of societies

beyond categorization new directions for theory development about entrepreneurial internationalization categorizations emphasizing the earliness of internationalization have long been a cornerstone of international entrepreneurship research here we contend that the prominence of categories has not been commensurate with theory development associated with them we draw on categorization theory to explain why earliness based categories are persistent and argue that a greater focus on notions related to opportunity can open new avenues of research about the entrepreneurial internationalization of business we propose and discuss three directions for opportunity based research on entrepreneurial internationalization involving context dynamics and variety

an asian route to capitalism religious economy and the origins of self transforming growth in japan modern capitalism is a self transforming dynamic that proliferates market niches new products and techniques the industrial revolution could take place only in the context of preexisting agricultural capitalism that in turn required a breakout from the obstacles constituted by agrarian coercive societies organizational conditions necessary for self sustaining capitalist growth included markets not only for commodities but for all factors of production land labor and capital combined under control of entrepreneurs motivated by an economic ethic of future oriented calculation and investment weber was mistaken in holding that the capitalist breakthrough occurred only in christian europe the author proposes a neo weberian model in which the initial breakout from agrarian coercive obstacles took place within the enclave of religious organizations with monasteries acting as the first entrepreneurs the model is illustrated by the case of buddhism in late medieval japan the leading sector of monastic capitalism spread into the surrounding economy through religious movements of mass proselytization which narrowed the gap between clergy and laity confiscation of buddhist property at the transition to the tokugawa period transferred the capitalist dynamic to the secular economy of an agricultural mass market opening the way for a distinctive japanese path through the industrial revolution

u s oil dependence 2014 is energy independence in sight abstract the importance of reducing u s oil dependence may have changed in light of developments in the world oil market over the past two decades since 2005 increased domestic production and decreased oil use have cut u s import dependence in half the direct costs of oil dependence to the u s economy are estimated under four u s energy information administration scenarios to 2040 the key premises of the analysis are that the primary oil market failure is the use of market power by opec and that u s economic vulnerability is a result of the quantity of oil consumed the lack of readily available economical substitutes and the quantity of oil imported monte carlo simulations of future oil market conditions indicate that the costs of u s oil dependence are likely to increase in constant dollars but decrease relative to u s gross domestic product unless oil resources are larger than estimated by the u s energy information administration reducing oil dependence therefore remains a valuable goal for u s energy policy and an important co benefit of mitigating greenhouse gas emissions

financial intermediaries ownership structure and monitored finance evidence from japan this paper introduces new and unique data from 127 japanese private equity funds that enable a first ever direct comparison of individual owner manager structures versus financial intermediation structures in terms of the governance provided to investee companies through private equity funds the data indicate individual owner manager structures financial disintermediation give rise to much smaller portfolios of entrepreneurial firms and more advice to entrepreneurs across the scope of different financial intermediation structures including banks life insurance companies securities firms corporations and government bodies there are further differences in the provision of governance and value added advice provided to investees the data further indicate us affiliated funds in japan are more likely to have smaller portfolios and provide more advice to entrepreneurial companies possibly due to a greater skill set in providing advice to facilitate the development of small entrepreneurial firms

a note on opec market power and oil prices a static model of opec as a cartel with a fringe group of competitive producers is used to define short and long run monopoly price curves as a function of opec s market share a static model is used on the grounds that oil as adelman has argued is not a depletable resource in the sense of the hotelling theory but is more like a normal good that can be produced with application of labour capital resources and technology a rational cartel will choose prices that lie between the two curves the shapes of the curves depend on the world price elasticity of demand for oil and on the supply response rate of competitive oil producers as opec s market share increases the distances between the two curves increase rapidly this could lead to an unstable market since any price between the two curves would be obtainable in the short run in the long run prices above the long run price curve will result in a loss of market share for the cartel except in a growing market reducing the cartel s market power future work will extend the model to consider dynamic pricing strategies as a function of the cartel s discount rate and world market response rate

specialization versus diversification as a venture capital investment strategy abstract much important work has informed us of rates of return earned by venture capitalists the importance of venture capitalists to the going public process and the criteria venture capitalists use to evaluate deals this paper seeks to add to the literature by testing hypotheses based upon both the finance and strategic management literature regarding certain venture capitalist investment practices venture capitalists seek to control or manage risk driscoll 1974 macmillan siegel and subbanarasimha 1985 financing structure and investment strategy provide several means for venture capitalists to do this tools available to the venture capitalist include portfolio diversification to spread risk across different industries firms or hot cold ipo markets to minimize unsystematic or investment specific risk information sharing networking and specialization can also be used to control unsystematic risk several hypotheses are developed from these conflicting perspectives data used to test the hypotheses are derived from responses to a survey of venture capitalists three hundred surveys were mailed to venture capitalists 98 or 32 7 returned usable responses portfolio diversification is a well known means to control risk exposure by reducing unsystematic or specific risks however bygrave 1987 1988 as well as financial intermediation theorists argues that maintaining a high degree of specialization is useful for controlling risk as well as for gaining access to networks information and deal flow from other venture investors the analyses of this paper build upon bygrave s work we construct more rigorous tests to resolve the conflict between the diversification and information sharing hypotheses our hypothesis tests were usually resolved in favor of the information sharing view for example venture capitalists in the sample that were heavily involved in seed round financing were diversified across fewer numbers of firms and industries further evidence in favor of information sharing is seen in investment patterns across different financing stages diversification would imply maintaining a portfolio of investments across the different investment stages the information sharing specialization view would argue that it is best to stay focused on a single stage or several connected stages the empirical evidence from the sample once again favors the specialization perspective this research provides information of use to venture capitalists as they seek information on how best to control risk to entrepreneurs as they learn of the factors venture capitalists consider in determining their investment strategy and to academicians as such studies provide insight to general industry practice and thus help to form the basis of classroom discussion and future research endeavors

world oil demand s shift toward faster growing and less price responsive products and regions abstract using data for 1971 2008 we estimate the effects of changes in price and income on world oil demand disaggregated by product transport oil fuel oil residual and heating oil and other oil for six groups of countries most of the demand reductions since 1973 74 were due to fuel switching away from fuel oil especially in the oecd in addition the collapse of the former soviet union fsu reduced their oil consumption substantially demand for transport and other oil was much less price responsive and has grown almost as rapidly as income especially outside the oecd and fsu world oil demand has shifted toward products and regions that are faster growing and less price responsive in contrast to projections to 2030 of declining per capita demand for the world as a whole by the u s department of energy doe international energy agency iea and opec we project modest growth our projections for total world demand in 2030 are at least 20 higher than projections by those three institutions using similar assumptions about income growth and oil prices because we project rest of world growth that is consistent with historical patterns in contrast to the dramatic slowdowns which they project

opec behavior a test of alternative hypotheses since interpretations of past and future oil price patterns depends on the model chosen the author tests and compares alternative theories of opec as a first step in validating the choice on any one model the results show that among opec countries the partial market sharing cartel model is the only model not rejected by at least some of the 11 members and gives the best explanation of production in comparison with 11 non opec countries the competitive model could not be rejected for 10 of the 11 non opec producers this raises the question of why if opec is a cartel friedman s predictions have not come true and introduces new questions for future research 19 references 3 tables

logistic growth curve modeling of us energy production and consumption abstract this research used four parameter multi cycle logistic growth curve models on us energy information agency annual data from 1949 to 2015 to produce fixed condition forecasts of us energy production and consumption to 2040 these models and forecasts were used to assess the ability of us energy production sources to meet demand to anticipate production and technology challenges and to make general policy recommendations the logistic fixed condition forecasts indicated the ongoing increases in total us energy production dominated by crude oil and natural gas production will likely peak in 2017 at 95 0 quadrillion quad btu then rapidly decrease through 2040 at 36 2 quad btu while total us energy consumption indicated an ongoing plateau at 98 1 quad btu new growth cycles not evident in the 2015 data will certainly occur mitigating the decline in energy production before 2040 however without adequate foresight and preemptive action it is possible that new production growth would not be adequate to reverse the decline given historical growth trends therefore in addition to continued increases in energy efficiency reductions in use and implementation of carbon management technologies direct effort towards the sustainable development of substantial new growth cycles in all energy production sources through adequate investment of resources should be a priority of the us energy industry policy makers and the public alike

charting the territory recombination as a source of uncertainty for potential entrants in this paper we conceptualize categories as regions of a cognitive map that structure the market and guide the investment decisions of potential entrants i e of new and established organizations we advance that as a category appears altered via incumbents acts of recombination potential entrants face market specific uncertainty and are discouraged to invest in that category these negative effects of recombination on market entries are however mitigated at increasing values of category status we test our arguments in the market for electronic music the analyses of product and organizational entries in music styles between 1978 and 2011 lend support to our arguments

an explanation for public provision of schooling the importance of indoctrination this article was completed while i was a national fellow at the hoover institution and represents the unpublished theory and cross country empirical sections from my 1984 university of california los angeles dissertation armen alchian harold demsetz gertrud fremling david friedman robert hansen ben klein ed lazear russell roberts finis welch e g west an unusually helpful anonymous referee from this journal and the participants in seminars at auburn university the university of california at los angeles and at davis california state university at hayward and northridge the hoover institution george mason university the university of houston southern methodist university the u s department of education texas a m university and the 1987 public choice meetings in tucson arizona provided valuable discussions i would like to thank maury pearl for very helpful research assistance any remaining errors are of course my responsibility

some hypotheses about risk in venture capital investing abstract venture capital investing differs in important respects from investment decisions involving the securities of fortune 500 companies or decisions to purchase established companies which are generally made in accord with widely recognized financial models investing in new ventures involves a high level of uncertainty as well as a high risk of failure venture capital investing is characterized by high variability in the outcomes of new ventures and in the performance of venture capital portfolios venture capital investing decisions are complicated by a general lack of quantifiable financial and market data for early stage ventures and investment decisions remain hostage to unanticipated competitors market shifts and financial cycles some observers have suggested that venture capital investment decisions are primarily subjective assessments while the question of risk in venture capital investing has been addressed on an ad hoc basis in several empirical studies there has been little effort to develop a theoretical framework of risk perceptions and risk reduction strategies despite differences in investor experience investment preferences and tolerance for risk venture capital managers share many common perceptions of the risks involved in investing in new ventures and the distribution of those risks over the venture capital funded phase of development venture capital managers also utilize many common behaviors and strategies in adapting to these risks these perceptions and reactions to risk in investing and strategies for controlling risk can in theory be used to construct a behavioral framework that can predict how venture capital managers will behave in choosing between various investment opportunities in order to minimize risk and to maximize potential returns in an attempt to begin to identify various elements of such a behavioral framework of venture capital reactions to risk the authors have drawn upon psychological risk theory of decision making under uncertainty including classic expected utility theory later modifications to that theory by kahneman and tversky 1979 and coombs and huang s 1970 portfolio approach to risk that are applicable to venture capital investing these expected behaviors to risk have been used in conjunction with empirical studies of venture capital investment and portfolio outcomes distributions of investments within portfolios and venture capitalist perceptions of risk to propose nine hypotheses about how venture capital managers behave in making investment decisions these hypotheses include differences in variation and magnitude of returns for early stage versus later stage ventures explanations of how risk distributions change over the stagewise development of new ventures differences in the behavior of aggressive versus conservative investors in screening investment prospects and strategies utilizing a lower ideal level of risk to reduce the chances of achieving negative or sub normal final portfolio returns

determinants of opec production implications for opec behavior we estimate models that identify the economic and organizational determinants of crude oil production by individual opec nations to clarify the interpretation of econometric results we model production with specifications that resolve the statistical ordering of variables and estimate models with techniques that can cope with stochastic trends in the time series we also analyze the short run dynamics for asymmetries that may carry important insights about opec behavior results indicate that quotas are an important determinant of production and their effects generally are symmetric which implies that opec is an organization that influences production and ultimately prices real prices generally have a positive effect on production and the size of this effect may depend on spare capacity which implies that opec behaviors also embody competitive elements finally all nations other than saudi arabia show some form of production sharing behavior which may imply that opec shares mismatches between the call for opec production and opec quotas

on the positive role of financial intermediation in allocation of venture capital in a market with imperfect information this paper develops a theory of financial intermediation that highlights the contribution of intermediaries as informed agents in a market with imperfect information we consider a venture capital market where the entrepreneurs select the qualities of projects and their perquisite consumptions about which the investors are imperfectly informed it is shown that when all investors have positive search costs the entrepreneurs are induced to offer the unacceptable inferior projects lemons only and the investors will not enter the venture capital market but put their funds in other low return investments an undesirable allocation of resources beginning with an initial undesirable situation the financial intermediaries may evolve as informed agents that induce a pareto preferred allocation leading the investors to a higher welfare state we focus our analysis on the existence of intermediation equilibra when the market for intermediation services is competitive the distribution of returns on projects the fees charged by intermediaries and the fraction of institutional holdings are all endogenous in equilibrium it is shown that i there cannot be a competitive intermediation equilibrium with very high institutional holdings and ii in other cases multiple equilibra may exist but the one with the highest institutional holdings dominates the others in a pareto sense

oil demand shocks reconsidered a cointegrated vector autoregression abstract we reconsider the conclusions about the importance of oil demand shocks and the unimportance of supply shocks reported by kilian 2009 we investigate whether the proxy for worldwide real economic activity dry bulk maritime freight costs represents anything more than transportation costs by analyzing the relation between these costs and oil prices the meaning of this variable is critical because transportation costs appear on both sides of the equations estimated by kilian directly as dry bulk maritime freight costs and as part of the measure for oil prices we also investigate the effects of representing oil supply with an aggregate of opec and non opec production because they likely use different criteria to chose output finally we investigate kilian s use of the first difference of supply while the other variables in his model are represented as levels the results suggest that opec and nonopec nations use different criteria to set output and that reductions increases in opec production raise lower oil prices the elements of the cointegrating relations their loadings and impulse response functions suggest that the positive relation between dry bulk maritime freight costs and oil prices simply represents the effect of higher oil prices on transportation costs sensitivity analyses suggest that these differences are caused by including transportation costs in the measure of oil prices aggregating opec and non opec productions and using a very long lag length to estimate the var together these results suggest that conclusions about the importance of demand shocks and the unimportance of supply shocks are not robust to alternative specifications that are consistent with many empirical findings about the world oil market

the impact of institutional sources of capital upon the minority oriented venture capital industry venture capital vc funds specializing in investing equity capital in minority owned businesses have grown rapidly over the past decade fueled by the willingness of major institutional investors to support this traditionally neglected niche we investigate impacts of public pension funds upon the minority vc sector these funds providing over half of all capital invested in minority vcs selectively invest seeking to fund only those vcs likely to generate high returns although they attempt to pick the winners our findings indicate that they have failed to do so the influence of public pension funds upon the minority vcs is nonetheless real skewing investing away from traditional practices and toward those of the venture capital mainstream in the process minority vcs funded by pension fund money invest in high tech fields more than other minority oriented vc funds do further they are less likely to fund minority owned small firms focusing increasingly upon firms owned by nonminority whites neither of these trends has resulted in increased returns rather diverting minority oriented vcs away from their traditional mission of investing in minority firms operating in a broad range of industries has resulted in lower returns over the years studied

venture capital investment in minority business this study analyzes the performance of mature investments made by venture capital vc funds that specialize in financing minority business enterprises we explore the hypothesis that vcs focusing on investing in minority businesses earn attractive returns because this market niche is underserved minority vc funds collectively earned yields on their realized investments that were estimated to be broadly equivalent to those of the mainstream vc industry however these yields vary greatly from fund to fund vc fund traits that predict high yields on individual investments are identified by estimating multivariate regressions explaining net investment returns copyright c 2008 the ohio state university

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

evaluating u s oil security and import reliance abstract we examine the literature that considers the consequences of u s reliance on imported oil we take an approach that covers many ideas about the costs arising from u s reliance on imported oil and we identify which of those ideas have broad support in the economics literature and which ideas have only limited support we also quantify the costs of u s reliance on imported oil using two approaches one is fairly narrow conforms to the economics view of externalities and yields small cost estimates the other is relatively expansive is favored by some policy analysts and yields much larger cost estimates we estimate these costs as expected u s economic losses over a time horizon from 2010 through 2035 while taking into account world oil market conditions market power probable oil supply disruptions and the oil market response to those supply disruptions

the role of investment efficiency in the industry life cycle this article studies a dynamic model of an industry life cycle based on increasing returns in the cost of growth whereby large firms can grow more easily when there are strong increasing returns in the adjustment cost function the model exhibits multiple rest points and firms do not necessarily all end up in the same state the model generates typical life cycle stages including a shakeout the likelihood of survival is positively correlated with the entering size an implication that fits empirical findings that exiting firms are small not only just prior to exit but also at the time of entry the model also explains newer findings on the evolution of moments an increase in the skewness and the spread of firm size distribution before the shakeout and a decline in these with the start of the shakeout copyright 2010 the author 2009 published by oxford university press on behalf of associazione icc all rights reserved oxford university press

assessing the u s oil security premium abstract world oil supply disruptions lead to u s economic losses increased oil consumption increases the vulnerability of the economy to oil supply disruptions but it matters where the additional oil is produced increased production from stable producers can dampen future oil price shocks whereas increased production from unstable producers can exacerbate future oil price shocks because oil is fungible u s pricing and import policies can differentiate only between domestic and imported oil rather than between stable and unstable sources the economic losses associated with oil supply disruptions gdp losses and some transfers abroad are externalities that can be quantified as oil security premiums we estimate these premiums by taking into account projected world oil market conditions probable oil supply disruptions the market response to oil supply disruptions and the resulting u s economic losses