a distributional theory of government growth this article presents a closed form solution for time consistent taxation and public spending in a dynamic game between government and median voter extending meltzer and richard s static analysis of government size the article offers a theory of growth of government at low stages of economic development the median voter identified as a relatively poor worker prefers to have no or only small redistributive taxation in order to foster savings through this channel he expects improvements of his labor productivity and wage at higher stages of development however when capital is relatively abundant and prospects of further labor productivity gains through capital accumulation are smaller the incentive to tax and redistribute income rises yet in line with previous work on growth and infrastructure spending the median voter prefers a constant share of productive public spending at all times hence government growth is solely driven by an expanding welfare state

on the electrification of road transport learning rates and price forecasts for hybrid electric and battery electric vehicles abstract hybrid electric vehicles hevs and battery electric vehicles bevs are currently more expensive than conventional passenger cars but may become cheaper due to technological learning here we obtain insight into the prospects of future price decline by establishing ex post learning rates for hevs and ex ante price forecasts for hevs and bevs since 1997 hevs have shown a robust decline in their price and price differential at learning rates of 7 2 and 23 5 respectively by 2010 hevs were only 31 22 2010 kw 1 more expensive than conventional cars mass produced bevs are currently introduced into the market at prices of 479 171 2010 kw 1 which is 285 213 2010 kw 1 and 316 209 2010 kw 1 more expensive than hevs and conventional cars our forecast suggests that price breakeven with these vehicles may only be achieved by 2026 and 2032 when 50 and 80 million bevs respectively would have been produced worldwide we estimate that bevs may require until then global learning investments of 100 150 billion which is less than the global subsidies for fossil fuel consumption paid in 2009 these findings suggest that hevs including plug in hevs could become the dominant vehicle technology in the next two decades while bevs may require long term policy support

technological discontinuities and the challenge for incumbent firms destruction disruption or creative accumulation the creative destruction of existing industries as a consequence of discontinuous technological change is a central theme in the literature on industrial innovation and technological development established competence based and market based explanations of this phenomenon argue that incumbents are seriously challenged only by competence destroying or disruptive innovations which make their existing knowledge base or business models obsolete and leave them vulnerable to attacks from new entrants this paper challenges these arguments with detailed empirical analyses of the automotive and gas turbine industries we demonstrate that these explanations overestimate the ability of new entrants to destroy and disrupt established industries and underestimate the capacity of incumbents to perceive the potential of new technologies and integrate them with existing capabilities moreover we show how intense competition in the wake of technological discontinuities driven entirely by incumbents may instead result in late industry shakeouts we develop and extend the notion of creative accumulation as a way of conceptualizing the innovating capacity of the incumbents that appear to master such turbulence specifically we argue that creative accumulation requires firms to handle a triple challenge of simultaneously a fine tuning and evolving existing technologies at a rapid pace b acquiring and developing new technologies and resources and c integrating novel and existing knowledge into superior products and solutions

hotel outsourcing under asset specificity the good the bad and the ugly abstract this paper presents three case studies developed to investigate outsourcing outcomes in the tunisian hotel industry the paper applies a transaction cost economics tce logic to examine potential contracting problems stemming from hotel outsourcing under asset specificity conditions working within the tradition of post positivism we find case study evidence of significant falsification value regarding tce propositions on the performance consequences of unilateral and bilateral relation specific investments and their holdup potential our insights have important practical implications for the management of hotel outsourcing relationships characterized by high asset specificity

explaining the attacker s advantage technological paradigms organizational dynamics and the value network abstract understanding when entrants might have an advantage over an industry s incumbent firms in developing and adopting new technologies is a question which several scholars have explained in terms of technological capabilities or organizational dynamics this paper proposes that the value network the context within which a firm competes and solves customers problems is an important factor affecting whether incumbent or entrant firms will most successfully innovate in a study of technology development in the disk drive industry the authors found that incumbents led the industry in developing and adopting new technologies of every sort identified by earlier scholars at component and architectural levels competency enhancing and competency destroying incremental and radical as long as the technology addressed customers needs within the value network in which the incumbents competed entrants led in developing and adopting technologies which addressed user needs in different emerging value networks it is in these innovations which disrupted established trajectories of technological progress in established markets that attackers proved to have an advantage the rate of improvement in product performance which technologists provide may exceed the rate of improvement demanded in established markets this mismatch between trajectories enables firms entering emerging value networks subsequently to attack the industry s established markets as well

technological regimes and schumpeterian patterns of innovation this paper proposes that the specific pattern of innovative activities in an industry can be explained as the outcome of different technological learning regimes a technological regime is defined by the particular combination of technological opportunities appropriability of innovations cumulativeness of technical advances and properties of the knowledge base building upon the distinction between schumpeter mark i and schumpeter mark ii industries this paper provides empirical estimates of the relationships between indicators of the schumpeterian patterns of innovation concentration of innovative activities stability in the hierarchy of innovators and importance of new innovators and indicators of the variables defining technological regimes

remaking the uk s energy technology innovation system from the margins to the mainstream the uk energy technology innovation system etis has undergone wholesale remaking in recent years in terms of its aims funding and organisation we analyse this process and distinguish between three phases since 2000 new beginnings momentum building and urgency and review within an international trend to etis rebuilding uk experience has been distinctive from a low starting base in the early 2000s to system remaking under a strong decarbonisation policy imperative in the late 2000s to multiple and contested drivers in the early 2010s public funding levels have been erratic with a rapid increase and a more recent decline the private business sector has played a leading role in this remaking and as this influence has grown the role and style of energy innovation has shifted from long term niches to the shorter term mainstream the uk etis suffers from persistent problems fragmentation low transparency and weak links to the research evidence base

the enactment of socio technical transition pathways a reformulated typology and a comparative multi level analysis of the german and uk low carbon electricity transitions 1990 2014 abstract this paper aims to make two contributions to the sustainability transitions literature in particular the geels and schot 2007 res policy 36 3 399 transition pathways typology first it reformulates and differentiates the typology through the lens of endogenous enactment identifying the main patterns for actors formal institutions and technologies second it suggests that transitions may shift between pathways depending on struggles over technology deployment and institutions both contributions are demonstrated with a comparative analysis of unfolding low carbon electricity transitions in germany and the uk between 1990 2014 the analysis shows that germany is on a substitution pathway enacted by new entrants deploying small scale renewable electricity technologies rets while the uk is on a transformation pathway enacted by incumbent actors deploying large scale rets further analysis shows that the german transition has recently shifted from a stretch and transform substitution pathway to a fit and conform pathway because of a fightback from utilities and altered institutions it also shows that the uk transition moved from moderate to substantial incumbent reorientation as government policies became stronger recent policy changes however substantially downscaled uk renewables support which is likely to shift the transition back to weaker reorientation

sectoral patterns of technical change towards a taxonomy and a theory abstract the purpose of the paper is to describe and explain sectoral patterns of technical change as revealed by data on about 2000 significant innovations in britain since 1945 most technological knowledge turns out not to be information that is generally applicable and easily reproducible but specific to firms and applications cumulative in development and varied amongst sectors in source and direction innovating firms principally in electronics and chemicals are relatively big and they develop innovations over a wide range of specific product groups within their principal sector but relatively few outside firms principally in mechanical and instrument engineering are relatively small and specialised and they exist in symbiosis with large firms in scale intensive sectors like metal manufacture and vehicles who make a significant contribution to their own process technology in textile firms on the other hand most process innovations come from suppliers these characteristics and variations can be classified in a three part taxonomy based on firms 1 supplier dominated 2 production intensive 3 science based they can be explained by sources of technology requirements of users and possibilities for appropriation this explanation has implications for our understanding of the sources and directions of technical change firms diversification behaviour the dynamic relationship between technology and industrial structure and the formation of technological skills and advantages at the level of the firm the region and the country

incumbent entry into new market niches the role of experience and managerial choice in the creation of dynamic capabilities increasingly technological innovation creates markets for new products and services to survive firms must respond to these new markets how do firms develop the capabilities necessary to succeed in such changing conditions some suggest that experience with previous entry builds such capabilities others suggest that capabilities arise from experience producing and selling to existing markets the role of managers is also debated some argue that experience with existing markets causes managers to miss entry opportunities others argue that managers enter new markets when their firm possesses the experience needed to compete effectively in this paper we explore these issues by investigating entry patterns in the disk drive industry we investigate the effect of experience in existing markets and experience with previous market entry we find that experience in previous markets increased the probability that a firm would enter a new market we show that this experience had greater value if the firm entered the new market we infer that managers chose to enter these markets to obtain this increase in value

redistributive taxation in a simple perfect foresight model abstract we investigate the redistributive potential of capital taxation in an intertemporal maximizing model of capital formation first even unanticipated redistributive capital taxation is severely limited in its effectiveness since it depresses wages second under any convergent redistributive tax policy which maximizes a paretian social objective the capital income tax will converge to zero independent of the factor supply elasticities these results are independent of workers holdings of capital

the impact of environmental policy instruments on innovation a review of energy and automotive industry studies various types of policy instruments have been implemented to reduce local and global emissions but the impact on innovation of different instruments has received less attention this paper reviews empirical studies of the innovation impact of four main types of policy instruments in two high emitting sectors the conclusions are threefold 1 policy plays a key role for the development and diffusion of environmental innovation in the studied sectors 2 different types of instruments promote different types of innovations general economic instruments has primarily encouraged incremental innovation general regulatory instruments has enforced improvements based on modular innovation and technology specific instruments appears to have been needed to support the development and deployment of radically new technologies 3 all types of policy instruments face challenges in design and implementation understanding the selection impact of the chosen instruments implementing increasing stringency levels committing to an appropriate scale and safeguarding policy stability

time consistent redistribution if the government cares more about workers than about capitalists and taxes capital income to finance redistribution to workers how are inequality and capital accumulation affected in the long run assuming that the government cannot commit to future taxes a time consistent equilibrium a differentiable subgame perfect markov equilibrium is characterized in this equilibrium the current government in part uses the tax via capital accumulation to manipulate future governments into setting lower taxes the equilibrium has substantially lower taxes on capital income than 100 even though workers do not save and even though the weight on capitalists in government utility is negligible

the myth of the biotech revolution an assessment of technological clinical and organisational change abstract this paper argues that despite being widely promoted by academics and consultants the empirical evidence does not support the existence of a biotech revolution nor does the data support the widely held expectations that biotechnology is having a revolutionary impact on healthcare or economic development the revolutionary model is therefore a misleading basis for policy making as it over estimates the speed and extent of any changes in productivity or the quality of therapeutics instead the evidence suggests biotechnology is following a well established incremental pattern of technological change and creative accumulation that builds upon rather than disrupts previous drug development heuristics

creative destruction or mere niche support innovation policy mixes for sustainability transitions recently there has been an increasing interest in policy mixes in innovation studies while it has long been acknowledged that the stimulation of innovation and technological change involves different types of policy instruments how such instruments form policy mixes has only recently become of interest we argue that an area in which policy mixes are particularly important is the field of sustainability transitions transitions imply not only the development of disruptive innovations but also of policies aiming for wider change in socio technical systems we propose that ideally policy mixes for transitions include elements of creative destruction involving both policies aiming for the creation of new and for destabilising the old we develop a novel analytical framework including the two policy mix dimensions creation and destruction by broadening the technological innovation system functions approach and specifically by expanding the concept of motors of innovation to motors of creative destruction we test this framework by analysing low energy policy mixes in finland and the uk we find that both countries have diverse policy mixes to support energy efficiency and reduce energy demand with instruments to cover all functions on the creation side despite the demonstrated need for such policies unsurprisingly destabilising functions are addressed by fewer policies but there are empirical examples of such policies in both countries the concept of motors of creative destruction is introduced to expand innovation and technology policy debates to go beyond policy mixes consisting of technology push and demand pull instruments and to consider a wider range of policy instruments combined in a suitable mix which may contribute to sustainability transitions

transition pathways revisited established firms as multi level actors in the heavy vehicle industry abstract the multi level perspective on sustainability transitions positions established firms incumbents as defenders of existing technologies at the regime level by contrast it positions new entrants at the niche level as promoters of new technologies this paper challenges the positioning of firms as actors on either regime or niche levels based on a comparative analysis of technology strategies in the heavy vehicle industry the paper shows that established firms are active at both levels developing several technology alternatives simultaneously this means that incumbents technology strategies determine important parts of the required niche regime interactions the paper also shows how incumbents may pursue contrasting technology strategies while some adopt a dualistic approach keeping regime and niche level activities technologically and commercially separate others develop integrated strategies where niche activities are leveraged to impact upon the regime level the cases studied illustrate how the success of such integrated strategies depends on the emergence of bridging policies bridging policies are relevant both for linking early niche markets to broader regime level markets and for supporting further technological advancements of niche markets

on the coexistence of positive and negative externalities in the inter powertrain relationships abstract the green knowledge based economy has complicated the dynamical knowledge interactions in the multi technology sector of transportation that involves a constellation of interrelated powertrain technologies including the internal combustion engine hybrid and battery electric vehicles icev bev and hev based on the biological ecology perspective and the technological innovation system tis framework we explore the dynamical inter powertrain relationships in terms of knowledge diffusion over 1985 2016 we measure their knowledge diffusion by extracting patents and publications forward citations from the scopus and derwent databases respectively quantifying by the lotka volterra l v equations our results show that powertrains support and inhibit their knowledge diffusion growth by projecting positive and negative externalities which are carried through the tis co dynamics our results reveal these externalities are manifested in a mix of biological relationship modes such as symbiosis parasitism commensalism and amensalism we therefore challenge the assumed pure competition between icev and bev or their predator prey relationships with hev by elaborating on the notions of creative destruction and creative accumulation our research contributes to the innovation systems literature by accommodating knowledge diffusion co dynamics as an extension to the tis framework making it more outward oriented moreover the co existence of positive and negative externalities builds up a multi cross path interactions view that extends the conventional single path view in the path dependency literature our research drives insightful knowledge for strategising and policy making in regard with investing in new disruptive technologies sustaining the incumbent technology or hybridising them as a transitionary or stationary solution towards sustainable mobility transition

knowledge stocks knowledge flows and innovation evidence from matched patents and innovation panel data successful innovation depends on knowledge technological strategic and market related in this paper we explore the role and interaction of firms existing knowledge stocks and current knowledge flows in shaping innovation success the paper contributes to our understanding of the determinants of firms innovation outputs and provides new information on the relationship between knowledge stocks as measured by patents and innovation output indicators our analysis uses innovation panel data relating to plants internal knowledge creation external knowledge search and innovation outputs firm level patent data is matched with this plant level innovation panel data to provide a measure of firms knowledge stock two substantive conclusions follow first existing knowledge stocks have weak negative rather than positive impacts on firms innovation outputs reflecting potential core rigidities or negative path dependencies rather than the accumulation of competitive advantages second knowledge flows derived from internal investment and external search dominate the effect of existing knowledge stocks on innovation performance both results emphasize the importance of firms knowledge search strategies our results also re emphasize the potential issues which arise when using patents as a measure of innovation

income and wealth heterogeneity in the macroeconomy how do movements in the distribution of income and wealth affect the macroeconomy we analyze this question using a calibrated version of the stochastic growth model with partially uninsurable idiosyncratic risk and movements in aggregate productivity our main finding is that in the stationary stochastic equilibrium the behavior of the macroeconomic aggregates can be almost perfectly described using only the mean of the wealth distribution this result is robust to substantial changes in both parameter values and model specification our benchmark model whose only difference from the representative agent framework is the existence of uninsurable idiosyncratic risk displays far less cross sectional dispersion and skewness in wealth than u s data however an extension that relies on a small amount of heterogeneity in thrift does succeed in replicating the key features of the wealth data furthermore this extension features aggregate time series that depart significantly from permanent income behavior

customer power strategic investment and the failure of leading firms why might firms be regarded as astutely managed at one point yet subsequently lose their positions of industry leadership when faced with technological change we present a model grounded in a study of the world disk drive industry that charts the process through which the demands of a firm s customers shape the allocation of resources in technological innovation a model that links theories of resource dependence and resource allocation we show that established firms led the industry in developing technologies of every sort even radical ones whenever the technologies addressed existing customers needs the same firms failed to develop simpler technologies that initially were only useful in emerging markets because impetus coalesces behind and resources are allocated to programs targeting powerful customers projects targeted at technologies for which no customers yet exist languish for lack of impetus and resources because the rate of technical progress can exceed the performance demanded in a market technologies which initially can only be used in emerging markets later can invade mainstream ones carrying entrant firms to victory over established companies

strategic niche management from a business perspective taking cleaner vehicle technologies from prototype to series production strategic niche management has been outlined as a policy approach to assist development and diffusion of cleaner new technologies based on a case study describing the efforts of a leading actor in the heavy vehicle industry to develop and commercially introduce hybrid electric vehicles this paper discusses strategic niche management from the perspective of the manufacturing firm in particular the paper analyses experiences from extensive field tests executed in london tests which involved a number of different manufacturers hybrid systems and vehicles the scale of this technological niche added confidence and credibility to the technology and helped opening up an important niche market which was supported by an extensive subsidy scheme the analysis shows how the field tests and the subsidies jointly functioned as bridging policies that facilitated an important step in the market formation process the analysis further points at a critical tension between niches and the volume oriented business of a major vehicle manufacturer showing how investments in new technology need to be warranted in market trends and projections of future sales and production volumes to become accepted within a vehicle manufacturer s organization

consumption savings decisions with quasi geometric discounting we study the consumption savings problem of an infinitely lived rational consumer who has time inconsistent preferences in the form of quasi geometric discounting the consumer operates a weakly concave production function and must simply divide current resources into current consumption and savings there is no uncertainty a solution to the consumer s problem is a subgame perfect equilibrium of a dynamic game between the consumer s successive selves we show that this game has a continuum of equilibria in stationary markov strategies not only is the stationary point of the consumer s asset holdings indeterminate but each stationary point has a continuum of dynamic paths converging to it the savings policy rules underlying these dynamic paths are step functions

on the size of u s government political economy in the neoclassical growth model we study a dynamic version of meltzer and richard s median voter model of the size of government taxes are proportional to total income and they are redistributed as equal lump sum transfers voting takes place periodically over time and each consumer votes for the tax rate that maximizes his equilibrium utility we calibrate the model to u s data key elements in the calibration are the income and wealth distribution and the parameters governing the leisure and consumption choices the total size of transfers predicted by our political economy model is quite close to the size of transfers in the data

median voter equilibria in the neoclassical growth model under aggregation we study a dynamic version of meltzer and richard s median voter model where agents differ in wealth taxes are proportional to income and are redistributed as equal lump sum transfers voting occurs every period and each consumer votes for the tax that maximizes his welfare we characterize time consistent markov perfect equilibria twofold first restricting utility classes we show that the economy s aggregate state is mean and median wealth second we derive the median voter s first order condition interpreting it as a tradeoff between distortions and net wealth transfers our method for solving the steady state relies on a polynomial expansion around the steady state

the distributional consequences of tax reforms under capital skill complementarity this paper analyses wage inequality and the welfare effects of changes in capital and labour income tax rates for different types of agents to achieve this we develop a model that allows for capital skill complementarity given non uniform distributions of asset holdings and labour skills we find that capital tax reductions lead to the highest aggregate welfare gains but are skill biased and thus increase inequality however our analysis also shows that the inequality effects of capital tax reductions are lower over the transition period compared with the long run

the hygienic transition from cesspools to sewer systems 1840 1930 the dynamics of regime transformation this article addresses the topic of transition and system change and proposes endogenous regime transformation as alternative transition path to technological substitution using sociological and institutional insights the dynamics of regime transformation are conceptualised two characteristics are pressure from outsider groups and adjustments in cognitions norms and formal rules enacted by regime insiders the transformation perspective is illustrated with a historical case study the hygienic transition from cesspools to integrated sewer systems in the netherlands the case study is used to make additions to the transformation perspective particularly with regard to tactical and strategic games

patterns of innovation and organizational demography in emerging sustainable fields an analysis of the chemical sector this paper examines the patterns of environmental innovation in the chemical sector and focuses in particular on detecting whether the rise of sustainable chemistry technologies sct has stimulated the emergence of new organizations this question is important to assess the extent to which sct are sustaining the technological advantage of industry incumbents or are creating opportunities for new firms aspiring to develop radically new environmental innovations we found that sct still represent a relatively low proportion of chemical technologies and that they have not stimulated in a significant way the emergence of new firms however the importance of new firms has grown in the last 20 years and their technologies seem to have a higher potential of radicalness than incumbents technologies this indicates that although incumbents advantage remains strong a small group of young firms has started to weaken such advantage moreover the important role played by research organizations in generating sct may signal that technological opportunities are expanding and that some governments in particular the us government are committed to develop sct these results suggest that if supported by effective policies technological ferment in the field which at the present appears still limited has a potential of growth

optimal taxation of capital income in general equilibrium with infinite lives this paper analyzes the optimal tax on capital income in general equilibrium models of the second best agents have infinite lives and utility functions which are extensions from the koopmans form the population is heterogeneous the important property of the models is the equality between the social and the private discount rates in the long run i find that the optimal tax rate is zero in the long run for a special case of additively separable utility functions i then determine the tax rates along the dynamic path and conditions that are sufficient for the local stability of the steady state

factor shares and savings in endogenous growth in models of steady investment driven growth an individual s propensity to save depends on how much of his income is drawn from accumulated factors of production capital rather than from nonaccumulated factors when agents are heterogeneous in this respect growth oriented policies have distributional consequences and in the absence of lump sum redistribution their implementation faces political constraints if the median voter is capital poor relative to the economy s representative agent political interactions tend to slow down growth when policy acts on capital s income share and tend to accelerate it when investment subsidies are the policy instrument of choice copyright 1993 by american economic association

schumpeterian patterns of innovation are technology specific this paper examines the patterns of innovative activities at the technological and country levels using patent data for 49 technological classes in six countries usa japan germany france united kingdom and italy it is shown that the patterns of innovative activities differ systematically across technological classes but are remarkably similar across countries for each technological class in particular two groups of technological classes are identified schumpeter mark i and schumpeter mark ii in these two groups innovative activities are structured and organized in different ways the first represents a widening pattern concentration of innovative activities is low innovators are of small economic size stability in the ranking of innovators is low and entry of new innovators is high the second represents a deepening pattern concentration of innovative activities is higher than in the first group innovators are of larger economic size stability in the ranking of innovators is greater and entry is lower the former group comprises mechanical technologies and traditional sectors while the latter includes chemicals and electronics this result suggests that technology related factors such as technological regimes defined in terms of conditions of opportunity appropriability cumulativeness and properties of the knowledge base play a major role in determining the specific pattern of innovative activities of a technological class across countries within these constraints country specific factors introduce differences across countries in the pattern of innovative activities for a specific technological class finally the relationships between the specific features of the patterns of innovative activities and international technological specialization are examined technological advantages appear in general to be linked to higher degrees of asymmetries among innovators higher stability of the ranking of innovators smaller economic size of the innovating firms and lower entry rates of new innovators these relationships however are different in the two groups of technological classes in schumpeter mark i widening technological classes international technological specialization is associated with relatively higher degrees of asymmetries among innovators and entry of new innovators as well as smaller firm size while in schumpeter ii deepening technological classes international technological specialization is linked to the existence of a stable but competitive core of persistent innovators

productivity growth persistence firm strategies size and system properties this paper investigates the dynamics of productivity in a large sample of italian manufacturing firms focusing on the determinants of firm level persistence in time of high total factor productivity tfp growth rates relative to the corresponding sectoral distributions in particular we assess the impact of both the internal characteristics of companies including size and management strategies and external systemic conditions including business cycles and regional innovation performance in order to disentangle the effects of the mix of internal and systemic factors in shaping firm level persistence we implement both transition probability matrices and dynamic probit models results reveal the presence of significant persistence in tfp growth rates such persistence turns out to be path dependent since it is shaped by a number of complementary and contingent factors that locally affect the dynamics of the process

the persistence of innovative activities abstract this paper examines the persistence of innovative activities at the firm level in a comparative perspective a new data set is used composed of six panel data one for each of the following countries france germany italy uk japan and the usa for each country we use data on patent applications to the european patent office in the period 1978 1993 by 1200 1400 manufacturing firms using a transition probability matrix tpm approach we find evidence for the existence of persistence in innovative activities although it is not very high in the aggregate and it declines as time goes by however both great innovators and non innovators have a high probability to remain in their state and persistent innovators originate a disproportionate share of innovative activities in this sense persistence in innovative activities is quite strong these tendencies apply to all countries considered here although clear country specific properties are observed moreover there is heterogeneity also across industrial and size classification intersectoral differences are invariant across countries suggesting that persistence is at least partly a technology specific variable persistence tends to increase with firm size but the relationship between firms size and persistence is strongly country specific and it is not a simple one

cyclical and noncyclical redistributive taxation consider the optimal time path of a tax on capital income the proceeds of which are transferred to labor in a lump sum it is known from earlier open loop formulations that if the optimal rate of tax converges to a point it converges to zero implying that in the long run a tax on capital income can do nothing for social welfare it is now shown that the optimal rate of tax need not converge to zero and in the case of feedback formulations that it may converge to a positive or negative number or to a limit cycle copyright 1993 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

why hold ups occur the self enforcing range of contractual relationships one of my most enjoyable intellectual experiences was working with armen alchian on the klein crawford and alchian 1978 hold up paper in this paper i extend the basic framework presented in that paper pointing out what i now consider to be its shortcomings and providing insights into the nature of hold ups and the form of contracts chosen by transactors to avoid hold ups the major analytical extension entails combining hold up analysis with my work on private enforcement because private enforcement capital is limited and written contract terms are necessarily imperfect transactors must optimally combine court enforced written terms together with privately enforced unwritten terms to define what i call the self enforcing range of their contractual relationship hold ups occur when unanticipated events place the contractual relationship outside the self enforcing range this probabilistic framework where transactors enter contractual relationships knowing that a hold up may take place but believing that the expected gains from trade outweigh the expected rent dissipating costs associated with the hold up risk is shown to have important implications for understanding the structure of contracts adopted by transactors in the marketplace i why do hold ups occur i begin with a simple example that illustrates the basic economic forces involved in a hold up assume that a builder constructs a house on a piece of land the builder does not own but rather only leases short term after the initial land lease expires the landowner could hold up the builder by raising the land rent to reflect the costs of moving the house to another lot this example illustrates all the hold up factors emphasized in klein crawford and alchian a the builder has made an investment that is highly specific to a particular piece of land and b the landowner has taken advantage of the incompleteness of the contract that governs the relationship in particular the fact that the lease does not cover future years to c expropriate the quasi rents on the builder s specific investment the obvious question is why anything like this would ever occur that is why would someone be so naive as to build a house on land for which they had only a short term lease our primary goal in klein crawford and alchian was not to explain the existence of hold ups but rather the institutions adopted by transactors to avoid hold ups for example we would expect that builders anticipating a potential hold up problem would decide to purchase the land or at least to sign a long term ground lease before starting construction however we do present some examples in the paper of hold ups that actually occurred the implicit reason we give for the occurrence of these hold ups is transactor ignorance apparently transactors are not always smart enough to choose the contractual arrangement that would eliminate the hold up problem oliver williamson provides a similar but much more explicit answer to the question of why hold ups occur when defining opportunism he states by opportunism i mean self interest seeking with guile this includes but is scarcely limited to more blatant forms such as lying stealing and cheating opportunism more often involves subtle forms of deceit more generally opportunism refers to the incomplete or distorted disclosure of information especially to calculated efforts to mislead distort obfuscate or otherwise confuse 1 for example the hold up may have occurred in our illustrative house construction example because the landowner deceived the builder with a low up front land rental price and vague promises about the future relying on the ability of one transactor to take advantage of the naivete or ignorance of another transactor is a highly unsatisfactory way to explain the incidence of hold ups simple examples of deception such as a builder constructing a house on land that is only rented short term rarely if ever occur

optimal redistributive capital taxation in a neoclassical growth model abstract this paper provides a counterexample to the simplest version of the redistribution models considered by judd 1985 in which the government chooses an optimal distortionary tax on capitalists to finance a lump sum payment to workers i show that the steady state optimal tax on capital income is generally non zero when the capitalists utility is logarithmic and the government faces a balanced budget constraint with log utility agents optimal decisions depend solely on the current rate of return not any future rates of return or tax rates this feature of the economy effectively deprives the government of a useful policy instrument because promises about future tax rates can no longer influence current allocations when combined with a lack of other suitable policy instruments such as government bonds the result is an inability to decentralize the allocations that are consistent with a zero limiting capital tax i show that the standard approach to solving the dynamic optimal tax problem yields the wrong answer in this knife edge case because it fails to properly enforce the constraints associated with the competitive equilibrium specifically the standard approach lets in an additional policy instrument through the back door

investigating a neglected part of schumpeter s creative army what drives new to the market innovation in micro enterprises schumpeterian arguments related to creative destruction place small entrepreneurial firms at the centre of the innovation process the exclusion of micro enterprises with less than 10 employees from most innovation surveys means however that we know relatively little about innovation among this group of firms here using new survey data on a thousand micro enterprises we explore the determinants of new to the market innovation the basis for the schumpeterian creative destruction cd process our results provide strong support for the interactive nature of micro enterprise innovation and suggest the potential value of a model of interactive creative destruction icd contrary to some other recent evidence market based and supplier based collaboration both prove important for new to the market innovation our results suggest the importance of micro enterprises as sources of new to the market innovation and the potential value of including such firms in future innovation studies