a dynamic analysis of licensing the boomerang effect and grant back clauses this article develops an incomplete contract model of the licensing relationship to analyze the dynamic effects of licensing on r d competition in the innovation market and to examine the rationale for often observed grant back clauses of particular concern are how the consideration of future competition distorts the licensing relationship and how the grant back clause can mitigate this distortion i also evaluate the validity of the casual antitrust argument that grant back clauses may adversely affect competition because they reduce the licensee s incentive to engage in r d and thereby limit rivalry in innovation markets

labour demand and job to job movement the relationship between labour demand and job to job movement is investigated both theoretically and empirically at the macro level it concentrates on the role of the employment regime hiring do nothing or firing and the hiring and firing costs the exact upper bounds of the marginal hiring costs of an employed worker are derived for which job mobility between two firms yields a positive aggregate relationship between job to job movement and employment the relationship is estimated as a cointegration model for the netherlands it appears that the inclusion of the job to job mobility rate may provide a substantial improvement of the estimated labour demand equation

investor protection and equity markets we present a simple model of an entrepreneur going public in an environment with poor legal protection of outside shareholders the model incorporates elements of becker s j political econ 106 1968 172 crime and punishment framework into a corporate finance environment of jensen and meckling j financial econ 3 1976 305 we examine the entrepreneur s decision and the market equilibrium the model is consistent with a number of empirical regularities concerning the relation between investor protection and corporate finance it also sheds light on the patterns of capital flows between rich and poor countries and on the politics of reform of investor protection r 2002 elsevier science b v all rights reserved

labor protection laws and bank loan contracting abstractthis paper examines the impact of labor regulations that restrict firms flexibility to adjust labor resources on the cost of corporate bank loans using within country variation in employment protection legislation across 25 countries i find that increases in employment protection lead to higher loan spreads tighter nonprice loan contract terms and more diffuse loan ownership structure the effects of labor regulations are greater in industries with a higher rate of labor turnover and among borrowers with a higher probability of default these results suggest that rigidities imposed by labor regulations have a significant impact on firms cost of capital

irreversible investment and endogenous financing abstract we evaluate the effects of corporate taxation on firms investment and financing choices we focus on how the asymmetry of the corporate tax imperfect loss carry overs endogenous financing with credit constraints and different degrees of investment irreversibility affect both incremental investment and entry decisions we find that as long as capital can be financed with debt at the margin the tax distortions on the marginal investment decision are small this is particularly so if the technology is flexible in contrast the tax distortions on the entry decision are substantial the ability of firms to carry over their losses and choose their financial structure endogenously are important for reducing both types of distortions

incorporating option values into the economic evaluation of health care technologies abstract despite uncertainty being intrinsic to economic evaluation of health care existing techniques for handling uncertainty remain underdeveloped compared to the formal techniques commonly applied in the business sector this paper develops an alternative approach to handling uncertainty in economic evaluation based on option pricing techniques the presence of uncertainty and the degree of irreversibility of a decision make it clear that some flexibility in the timing of a decision is often a desirable characteristic with an economic value we demonstrate how option pricing techniques can be applied to the decision rules for economic evaluation in health care the key determinants of an option value are the presence and type of uncertainty the ability to defer a decision and the irreversibility of the decision the relative significance of each of these for a particular economic evaluation will depend on the particular characteristics of the technology under consideration

licensing and innovation a comment according to chang et al 2013 social welfare under licensing is lower than under no licensing if the r d efficiency is high we show that this result is not correct as when r d efficiency is high social welfare is higher under licensing than under no licensing

bankruptcy risk and optimal capital structure this study finds shortcomings in empirical tests of the capital structure irrelevance hypothesis the alternative hypothesis is that firms choose value maximizing mixes of debt and equity on account of bankruptcy costs and the tax deductibility of interest payments based upon the cross sectional implications of the tax shelter bankruptcy cost hypothesis an alternative test of the irrelevance hypothesis is performed the test examines the relationship between failure rates and leverage ratios for 36 lines of business the results are inconsistent with the irrelevance hypothesis in their landmark paper modigliani and miller 26 demonstrate that under certain assumptions the market value of a firm is independent of its capital structure these assumptions include the absence of taxes transactions costs and bankruptcy costs recently miller 24 has argued that the introduction of corporate and personal taxes does not alter the capital structure irrelevance result in the absence of bankruptcy costs 1 the inclusion of bankruptcy costs generally considered in conjunction with the tax deductibility of interest payments has led others to conclude that capital structure will affect the value of the firm 2 in this case value maximizing firms may choose optimal capital structures consisting of both debt and equity there have been numerous attempts to discriminate empirically between the miller irrelevance mi hypothesis and the tax shelter bankruptcy cost ts bc hypothesis several are discussed in section i of this paper there it is argued that studies attempting to measure directly the effect of changes in capital structure on firm values are subject to serious complications and are unable to discriminate between the mi and ts bc hypotheses other studies focus on cross sectional implications of the mi and ts bc hypotheses the cross sectional tests are based on the assertion that bankruptcy costs may tend to induce firms with greater business risk to include less debt in their capital structures whereas the mi hypothesis does not predict such a relationship unfortunately the existence of positive bankruptcy costs is not sufficient to ensure that the ts bc hypothesis will predict the inverse relation

the irrelevance of inference a decision making approach to the stochastic evaluation of health care technologies the literature which considers the statistical properties of cost effectiveness analysis has focused on estimating the sampling distribution of either an incremental cost effectiveness ratio or incremental net benefit for classical inference however it is argued here that rules of inference are arbitrary and entirely irrelevant to the decisions which clinical and economic evaluations claim to inform decisions should be based only on the mean net benefits irrespective of whether differences are statistically significant or fall outside a bayesian range of equivalence failure to make decisions in this way by accepting the arbitrary rules of inference will impose costs which can be measured in terms of resources or health benefits forgone the distribution of net benefit is only relevant to deciding whether more information is required a framework for decision making and establishing the value of additional information is presented which is consistent with the decision rules in cea this framework can distinguish the simultaneous but conceptually separate steps of deciding which alternatives should be chosen given existing information from the question of whether more information should be acquired it also ensures that the type of information acquired is driven by the objectives of the health care system is consistent with the budget constraint on service provision and that research is designed efficiently

how do competitive pressures affect incentives to innovate when there is a market for inventions competition and intellectual property ip protections are complements in stimulating innovation when ip is appropriable a market for inventions forms and competitive pressures increase incentives to innovate competition among producers the demand side of the market for inventions and competition among inventors the supply side of the market for inventions create incentives to innovate when ip is not fully appropriable markets for inventions are limited and competitive pressures can decrease incentives to innovate firms vertically integrate r d and production and share technology to appropriate the returns to ip this implies that antitrust policy and ip protections are complements

law enforcement and firm financing theory and evidence this paper investigates the economic effects on firms policies of differences in law enforcement we find that in judicial districts where trials are longer bank financing is more costly and firms are smaller however we do not find any significant relation between law enforcement and firms leverage ratio we rationalize our results within a two region dynamic general equilibrium model with asymmetric information and collateralized credit contracts we find that a stronger enforcement of creditors rights not only improves credit conditions partial equilibrium effect but also fosters individual capital accumulation general equilibrium effect in line with this theoretical prediction we find a positive relation between individual savings and quality of legal enforcement

investment timing with incomplete information and multiple means of learning we consider a firm that can use one of several costly learning modes to dynamically reduce uncertainty about the unknown value of a project each learning mode incurs cost at a particular rate and provides information of a particular quality in addition to dynamic decisions about its learning mode the firm must decide when to stop learning and either invest or abandon the project using a continuous time bayesian framework and assuming a binary prior distribution for the project s unknown value we solve both the discounted and undiscounted versions of this problem in the undiscounted case the optimal learning policy is to choose the mode that has the smallest cost per signal quality when the discount rate is strictly positive we prove that an optimal learning and investment policy can be summarized by a small number of critical values and the firm only uses learning modes that lie on a certain convex envelope in cost rate versus signal quality space we extend our analysis to consider a firm that

weaker jobs weaker innovation exploring the effects of temporary employment on new products this work explores the relationship between temporary employment and product innovation focusing on five major european economies france germany italy spain and the netherlands observed betwee

an empirical test of the asymmetric models on innovative activity who invests more into r d the incumbent or the challenger the theoretical discussion concerning the question whether the incumbent or the potential entrant invests more into r d has attracted considerable interest this paper reports the results of an empirical study on this question using data of about 3500 german firms over the years 1992 to 1995 the survey explicitly asks the firms for their motives to undertake innovative activity it is thus possible to take account of intended not just completed market entry it turns out that the challenger invests more into r d in order to enter a new market than the incumbent thus the patent racing model by reinganum and others seems to characterize innovative activity more accurately than the competing auction model of gilbert and newbery we use a heteroscedastic tobit as well as a tobit model with selectivity in order to deal with the econometric problems of double censoring

an explanation of the changes in the proportion of temporary workers in spain in this paper a theoretical model is developed to identify the main determinants of the proportion of temporary workers at firms the outcomes show that the proportion of temporary workers has a counter cyclical behaviour it grows during the slump period up to 1995 and falls during the subsequent recovery however given the effect of the general economic cycle firms that raise their sales or improve their market dynamism index tend to increase their proportion of temporary workers this proportion also rises when the average labour cost decreases firm size increases and the knowledge capital stock diminishes

adjustment costs uncertainty and the level of activity what is the effect of adjustment costs on economic activity this is an important question that is still debated either at the political or the academic level we consider a simple model where basically two effects come into play adjustment costs decrease current activity but may help maintain future activity we examine their relative strength first in a model with uncertain prices and then in a model with demand uncertainty newsboy problem

preemptive patenting and the persistence of monopoly reply stephen salant takes issue with a single paragraph of our 1982 paper section iic p 518 and then claims that our conclusions result either from faulty logic or from our implicit assumption that a market fails to operate we respond by showing that our conclusions are logically consistent and that salant s argument is flawed by its incompleteness the preemptive patenting results hold whenever equally efficient firms compete with nonzero transaction costs a point which is not contested by salant and whenever any cost disadvantage experienced by the incumbent is less than the transaction costs incurred in the process of bargaining for production rights furthermore we will show that if the incumbent s cost disadvantage exceeds transaction costs then the preemption result hinges on the relative transaction costs in the markets for r d outputs and inputs the conditions derived by salant are erroneous and indeed irrelevant to the incentives for preemption salant mounts his main argument on the assumption that transaction costs are zero but fails to realize the full implications of this counterfactual assumption ronald coase told us many years ago that bargaining in the absence of transaction costs broadly interpreted will eliminate cost inefficiencies and yield a pareto optimal allocation by selecting excerpts from two different papers and then providing his own emphasis salant constructs the impression that our results contradict the coase argument we feel this creative journalism is an inaccurate representation of our conclusions the implications for preemptive patenting depend on transaction costs as salant shows for any finite transaction cost an equally efficient monopolist can preempt competitors subject to the technological and strategic assumptions in our model salant argues that if a monopolist is less efficient than a rival and if the cost penalty exceeds transaction costs then the rival firm will preempt the monopolist as it stands this conclusion is false it is arbitrary to restrict bargaining as salant does to a single market or group of markets if firms can negotiate in the patent market they can also negotiate in markets for inputs to the r d process assuming as we had explicitly done no diseconomies that are solely due to management technological inefficiency must be the result of inferior r d inputs these inputs can be bargained for as well

competition and cooperation in corporate governance the effects of labor institutions on blockholder effectiveness in 23 european countries we provide an analysis of the costs and benefits of blockholding in europe where it is a dominant but certainly not universal corporate governance strategy for shareholders of publicly listed firms we find that the effectiveness of blockholding is conditioned by the specific labor institutions that distinguish european countries from the rest of the world and that these institutional effects involve both competition and cooperation between blockholders and collective labor interests we also find that relational blockholders are better able to cope with or benefit from these institutional effects than arm s length blockholders empirically we use advanced meta analytic methods on a total sample of 748 569 firm year observations derived from 162 studies covering 23 european countries

acquisition of project specific assets with bayesian updating we study the impact of learning on the optimal policy and the time to decision in an infinite horizon bayesian sequential decision model with two irreversible alternatives exit and expansion in our model a firm undertakes a small scale pilot project to learn via bayesian updating about the project s profitability which is known to be in one of two possible states the firm continuously observes the project s cumulative profit but the true state of the profitability is not immediately revealed because of the inherent noise in the profit stream the firm bases its exit or expansion decision on the posterior probability distribution of the profitability the optimal policy is characterized by a pair of thresholds for the posterior probability we find that the time to decision does not necessarily have a monotonic relation with the arrival rate of new information

pre emptive patenting joint ventures and the persistence of oligopoly abstract gilbert and newbery 1982 have examined pre emptive patenting and the persistence of monopoly the present paper considers pre emptive patenting when there are several incumbent firms rather than just one it is shown why the incumbent oligopolists behaving non cooperatively might fail to deter entry this suggests that a joint venture in r and d might be a useful entry deterring device insofar as it pools the incumbents incentives to prevent entry this is indeed the case for small innovations but for large innovations the formation of a joint venture weakens the incumbents incentive to innovate by removing the competitive stimulus between them

experimentation in markets we present a model of entry and exit with bayesian learning and price competition a new product of initially unknown quality is introduced in the market and purchases of the product yield information on its true quality we assume that the performance of the new product is publicly observable as agents learn from the experiments of others informational externalities arise we determine the markov perfect equilibrium prices and allocations in a single market the combination of the informational externalities among the buyers and the strategic pricing by the sellers results in excessive experimentation if the new product is launched in many distinct markets the path of sales converges to the efficient path in the limit as the number of markets grows in multi agent learning situations informational externalities may reduce the number of experiments undertaken below the socially efficient level as buyers choose among new experience goods or firms decide whether to adopt a new technology the availability of information from others decisions gives rise to a free rider problem rather than perform a costly experiment herself a buyer may opt to wait and see how the market evaluates the new product in this paper we develop a simple market model of experimentation and analyse the informational effects in a model with buyers and sellers in contrast to the one sided experimentation problems we find that equilibrium experimentation often exceeds the pareto optimal level in two sided models the first model we consider is a dynamic duopoly in continuous time with homogeneous buyers two firms with differentiated products engage in price competition over time one product has a known value while the other is new and its true value is initially uncertain to all the parties in the model the value of the product is determined by the quality of the match between consumer preferences and product characteristics additional information is acquired only through repeat purchases in each period buyers observe a noisy signal of the true value of the product we assume that all signals are publicly observable and that all uncertainty is about a common value component with this assumption all buyers and sellers condition their behaviour on the same information and we can abstract from individual differences in past observations this is justified in economic situations where public data on other buyers choices is available and informative for example when choosing among providers of communication or transportation services such as mail delivery firms or airlines it is reasonable to rely on consumer reports and other published data in addition to one s private experience we also show that our model has an alternative interpretation as one where a flow of buyers make a once and

invest or exit optimal decisions in the face of a declining profit stream even in the face of deteriorating and highly volatile demand firms often invest in rather than discard aging technologies to study this phenomenon we model the firm s profit stream as a brownian motion with negative drift at each point in time the firm can continue operations or it can stop and exit the project in addition there is a one time option to make an investment that boosts the project s profit rate using stochastic analysis we show that the optimal policy always exists and that it is characterized by three thresholds there are investment and exit thresholds before investment and there is a threshold for exit after investment we also effect a comparative statics analysis of the thresholds with respect to the drift and the volatility of the brownian motion when the profit boost upon investment is sufficiently large we find a novel result the investment threshold decreases in volatility

the role of shocks and institutions in the rise of european unemployment the aggregate evidence two key facts about european unemployment must be explained the rise in unemployment since the 1960s and the heterogeneity of individual country experiences while adverse shocks can potentially explain much of the rise in unemployment there is insufficient heterogeneity in these shocks to explain cross country differences alternatively while explanations focusing on labour market institutions explain current heterogeneity well many of these institutions pre date the rise in unemployment based on a panel of institutions and shocks for 20 oecd nations since 1960 we find that the interaction between shocks and institutions is crucial to explaining both stylised facts

licensing in the theory of innovation this article analyzes licensing in a noncooperative r d game we ask two questions what are the incentives for licensing a production technology and what is the impact of licensing on the pattern of innovation and the consequent evolution of industry costs and market structure the gainsfrom trading information through licensing contracts are achieved through the replacement of inefficient production techniques the ex post incentive and the elimination of inefficient research expenditures the ex ante incentive in a duopoly the availability of licensing encourages research when the firms initial production technologies are close in costs and discourages research when initial costs are asymmetric

are institutional rigidities at the root of european unemployment the netherlands experienced employment growth higher than that in the us and achieved an unemployment rate of less than 3 but germany s unemployment rate remained at high levels a widely held view regards a distorted incentive structure in welfare states as the root of the european unemployment problem but welfare state institutions in the netherlands are more generous than the german ones therefore differences in the incentive structures between the two economies cannot explain the differences in employment success the reasons for this seem instead to be rooted in coordinated monetary wage and fiscal policies in the netherlands while these are incompatible policies in germany copyright 2003 oxford university press

labor turnover costs and average labor demand labor turnover costs may or may not decrease average employment in a partial equilibrium model of labor demand depending on the form of the revenue function on the rates of discount and of labor attrition and on the relative size of hiring and firing costs if discount and attrition rates are strictly positive firing costs may well increase average employment even when hiring costs reduce it

is job insecurity on the rise evidence from canadian perception data this paper examines the unexplored issue of worker insecurity perception in canada specifically we explore for changes in worker perceptions of job security using canadian gallup data for the 1977 2006 period we find that the high levels of perceived insecurity of the early to mid 1990s were only cyclical in nature not evidence of structural change we also explore for differences across socio economic groups and find that university educated workers full time workers and white collar workers all felt relatively more secure about present and future job prospects interestingly union members tend to be more concerned about job security than non union ce memoire examine le probleme inexplore de la perception de la precarite de l emploi au canada specifiquement on explore les changements dans les perceptions de precarite d emploi des travailleurs a l aide de donnees gallup pour la periode 1977 2006 il appert que les hauts niveaux de precarite percue du debut au milieu des annees 90 etaient de nature cyclique et non pas le resultat d un changement structurel on examine aussi les differences entre groupes socio economiques et on decouvre que les travailleurs avec une formation universitaire les travailleurs a temps plein et les collets blancs se sentaient relativement plus en securite quant aux perspectives d emploi presentes et futures il est interessant de noter que les travailleurs syndiques sont davantage inquiets quant a la precarite de l emploi que les non syndiques

strategic innovation and technology adoption in an evolving industry abstract we introduce a racing model with multiple product generations product innovation spin outs and licensing industry conditions and innovation characteristics affect who wins the race and who markets the resulting product small firms market their innovations when they pioneer a new generation or improve quality in a young generation and license their innovations in mature generations if old generation leaders ever market improvements in young generation goods they do so early on leadership in mature generations persists tests on the rigid disk drive industry 1977 1997 provide empirical support the results have implications for antitrust policies and policies governing employee non compete agreements

deterrence by market sharing a strategic incentive for licensing the potential of an incumbent firm to retain its dominant position in a market is a focal point of the modem theory of industrial organization a recent literature examines this issue for markets in which challengers threaten an incumbent s position by engaging in research for a new technology richard gilbert and david newbery 1982 show that an incumbent firm with a firstmover advantage will preempt potential entrants by inventing a new technology slightly earlier than would its rivals in a stochastic r d therefore its introduction does not alter the decision to research when the pre innovation market is characterized by an incumbent and potential entrants stephen salant 1984 shows that licensing ex post to innovation can alter the research decision as anticipation of the returns from future licensing encourages research by the entrant as a counterpoint to the salant result i find that licensing ex ante to research may discourage further research by the entrant indeed this strategic incentive for licensing may be so strong as to persuade the incumbent as well as the entrant to terminate research activity to isolate this incentive for licensing from the one discussed by salant a simple model is constructed in which licensing of future technologies is not desirable anecdotal evidence suggests that the strategic incentive does lead innovators in some markets to license their technologies examples of this information sharing are prevalent in markets where technological change is rapid in the 1940 s standard oil of new jersey discovered a process for synthetic rubber it traded patent rights on this process for a synthetic oil production process discovered by farben a german rubber company in both the synthetic oil and synthetic rubber markets rival companies were department of economics scarsborough college university of toronto toronto ontario canada m5s lal i thank jon cohen and ron saunders for discussions that inspired this paper i am also grateful to yehuda kotowitz andy mclennan jennifer reinganum ralph winter myma wooders two anonymous referees and seminar participants at the university of toronto for helpful comments on earlier drafts

the economics of health system design there has been much rhetoric in global health about the need to consider the health sector as a system defined by the world health organization as all the activities whose primary purpose is to improve health the need to adopt a system wide perspective arises from the complexity of the processes for delivering effective health services and the important interdependencies between elements of the health system however there have hitherto been very few contributions from an economic perspective that explicitly address these issues this paper argues that an economic paradigm of constrained optimization adapted to the systemic nature of the health sector could provide an analytical and practical approach to policy makers in assessing their health systems and deriving solutions the paper therefore discusses the objectives of the health system the factors that constrain optimization and the decision variables in the form of policy levers economic approaches that could contribute to the associated research agenda include institutional economics micro simulation and option pricing theory the important feature of such methods is that they offer the possibility of developing tractable methods for addressing the complexity and interconnectedness of the health system

cost effectiveness utility analyses do current decision rules lead us to where we want to be despite the growing literature on economic evaluation of health care programmes little attention has been paid to the theoretical foundations of cost effectiveness and cost utility analyses and the validity of the decision rules adopted as methods of achieving the stated goals we show that although applications of the techniques can be used to pursue some managerial objectives in the context of highly constrained environments such applications are inconsistent with both welfare economic objectives and the interpretations of the findings of these applications alternative strategies are identified as potential and practical methods for pursuing welfare economic objectives

courts and banks effects of judicial enforcement on credit markets the cost of enforcing contracts is a key determinant of market performance we document this point with reference to the credit market in a model of opportunistic debtors and inefficient courts according to the model improvements in judicial efficiency should reduce credit constraints and increase lending with an ambiguous effect on interest rates that depends on banking competition and on the type of judicial reform these predictions are supported by panel data on italian provinces in provinces with longer trials or large backlogs of pending trials credit is less widely available

firing costs employment fluctuations and average employment an examination of germany west germany s employment promotion act of 1985 facilitated the use of fixed term contracts and increased the number of dismissals above which the employer is required to establish a social plan involving severance payments i assess the effect of this reduction in firing costs on movements in employment using monthly data on a panel of detailed manufacturing industries for 1977 92 i also examine the effect of introducing flexible hours of work in certain industries beginning in 1985 i find that employment adjustment was unaffected by the lower firing costs but slowed by the greater working hours flexibility

asymmetric valuations and the role of collateral in loan agreements loan contracts with provision for collateral are of two general types in one the collateral may be an existing asset of the borrowing firm which is pledged to a lender in the event of default in this case collateral does not increase the assets that the borrower would lose if there is default since all the borrower s assets are attachable therefore the expected marginal cost to the borrower of providing an additional unit of collateral includes principally transactions costs associated with the collateral l this describes the usual type of commercial loan arrangement with the collateral being either equipment real estate accounts receivable or inventories in the other type of loan contract the collateral is an additional asset that is given up by the borrower if there is default that is in addition to the usual assets that are available to its lenders the borrower assigns as collateral to a creditor an asset that would normally not be legally attachable this arrangement is more common in small business loans that are secured by a personal asset e g a house of the entrepreneur likewise debt issued by a legally separate subsidiary may be secured by an asset of the parent firrn in these cases the expected marginal cost to the borrower the owner manager of the small firm or the parent corporation in the latter example of providing an additional unit of collateral

which firms buy licenses market positions and license expenditures this paper presents the empirical results of a comparison of technology licensing expenditures of german companies in order to test implications of the gilbert and newbery 1982 model aside from standard control variables the motives for innovation expenditures are also taken into account we differentiate between firms intending to secure their present position in the market incumbents and those intending to enter a new market challengers in line with the prediction of the gilbert and newbery model we find that incumbents show higher expenditures for technology licenses than potential entrants

law finance and firm growth we investigate how differences in legal and financial systems affect firms use of external financing to fund growth we show that in countries whose legal systems score high on an efficiency index a greater proportion of firms use long term external financing an active though not necessarily large stock market and a large banking sector are also associated with externally financed firm growth the increased reliance on external financing occurs in part because established firms in countries with well functioning institutions have lower profit rates government subsidies to industry do not increase the proportion of firms relying on external financing the corporate finance literature suggests that market imperfections caused by conflicts of interest and informational asymmetries between corporate insiders and investors constrain firms in their ability to fund investment projects the magnitude of these imperfections depends in part on the effectiveness of the legal and financial systems because these systems differ across countries the literature implies that there should exist systematic cross country differences in firms ability to obtain external capital to finance investment in this paper we examine whether the underdevelopment of legal and financial systems does prevent firms in some countries from investing in potentially profitable growth opportunities in particular we focus on the use of long term debt or external equity to fund growth see our earlier work demirgut kunt and maksimovic 1996a which compares firms financial structures in developed and developing countries and finds the greatest difference to be in the provision of long term credit we estimate a financial planning model to obtain the maximum growth rate that each firm in our thirty country sample could attain without access to long term financing we then compare these predicted growth rates to growth rates realized by firms in countries with differing degrees of development in their legal and financial systems our approach enables us to identify specific characteristics of the legal and financial systems that are associated with long term financing of firm growth thus we provide a micro level test of the hypoth

employment protection and industry innovation we examine the impact of the strictness of employment protection legislation epl on innovation intensity to this purpose we use a panel of annual data from organisation for economic co operation and development countries and analyze the variation of innovation intensity within country between industries our estimates indicate that stricter epl led to significantly lower innovation intensity in industries with higher job layoff propensity our findings are robust to additional industry covariates and other labor market institutions that may affect innovation performance and industry job layoff propensity

estimating unemployment inflows outflows and long term unemployment in britain using the cointegration approach a model is estimated of flows into and out of unemployment using the johansen multivariate cointegration approach and uk data for the period 1974q4 to 1993q3 two long run equilibrium relationships are obtained covering the outflow rate and unemployment duration which include variables such as the replacement ratio structural change and output a unique feature of the model is that it allows the inflow rate to determine the outflow rate and vice versa this is argued to be important given the common european stylized fact that inflows and outflows are both countercyclical and strongly correlated thus if firms and workers are heterogeneous hiring and firing is contemporaneous necessitating the type of model estimated here some interesting results include the finding that output is not important in determining the outflow rate and that the speed of adjustment of the outflow rate to changes in its underlying equilibrium is slow in contrast the proportion of long term unemployed is positively re

costly sequential experimentation and project valuation with an application to health technology assessment we study the optimal investment abandonment decision for a project where costly sequential experimentation provides information about its true profitability we derive the optimal decision rule by appropriately extending the bayesian framework of sequential hypothesis testing the optimal decision time takes the form of the first exit time of a particular inaction region we find that increased noise in the observations lowers the value of the project and that the effect on the expected time at which a decision is taken is ambiguous delays in observations affect both project value and the inaction region the model is illustrated with a health technology assessment application using data on standard versus robot assisted laporascopic prostatectomy

employment protection and labor productivity abstract current theoretical predictions of how employment protection affects firm productivity are ambiguous in this paper i study the effect of employment protection rules on labor productivity using swedish register data a reform of employment protection rules in 2001 enabled small firms with fewer than eleven employees to exempt two workers from the seniority rules i treat this reform as a natural experiment my results indicate that increased labor market flexibility increases labor productivity this increase is explained by total factor productivity and capital intensity rather than the educational level of workers

optimal experimentation in a changing environment this paper studies optimal experimentation by a monopolist who faces an unknown demand curve subject to random changes and who maximizes profits over an infinite horizon in continuous time we show that there are two qualitatively very different regimes determined by the discount rate and the intensities of demand curve switching and the dependence of the optimal policy on these parameters is discontinuous one regime is characterized by extreme experimentation and good tracking of the prevailing demand curve the other by moderate experimentation and poor tracking moreover in the latter regime the agent eventually becomes trapped into taking actions in a strict subset of the feasible set

the regulation of labor author s botero juan djankov simeon la porta rafael lopez de silanes florencio shleifer andrei abstract we investigate the regulation of labor markets through employment collective relations and social security laws in 85 countries we find that the political power of the left is associated with more stringent labor regulations and more generous social security systems and that socialist french and scandinavian legal origin countries have sharply higher levels of labor regulation than do common law countries however the effects of legal origins are larger and explain more of the variation in regulations than those of politics heavier regulation of labor is associated with lower labor force participation and higher unemployment especially of the young these results are most naturally consistent with legal theories according to which countries have pervasive regulaory styles inherited from the transplantation of legal systems

growth of business services a supply side hypothesis this paper aims to explain why and how the service sector may grow faster than manufacturing it develops a two sector closed economy model having a manufacturing sector and a service sector accumulation of human capital serves as the basis of growth the analysis focuses on business services while household services are also considered it is argued that differences in returns to scale between the two sectors and employment frictions in manufacturing explain why the growth rate of the service sector may be higher the model also features that within the service sector the business services sub sector may grow faster than household services resume croissance dans les services aux entreprises une hypothese ancree du cote de l offre ce texte vise a expliquer pourquoi et comment le secteur des services peut croitre plus vite que le secteur manufacturier on developpe un modele d economie fermee a deux secteurs un secteur manufacturier et un secteur des services l accumulation du capital humain est a la base de la croissance l analyse met l accent sur les services aux entreprises mais considere aussi les services domestiques on suggere que les differences entre secteurs dans les rendements a l echelle et les frictions dans l emploi dans le secteur manufacturier expliquent pourquoi le taux de croissance du secteur des services peut etre plus eleve le modele suggere aussi qu a l interieur du secteur des services le sous secteur des services aux entreprises peut croitre plus vite que le sous secteur des services domestiques

preemptive patenting and the persistence of monopoly this article takes a different tack and inquires whether institutions such as the patent system create opportunities for firms with monopoly power to maintain their monopoly power the results apply to other situations such as brand identification spatial location and capacity expansion which share the characteristic that early or preemptive actions may lower the returns to potential competitors

job security provisions and employment european countries have enacted various job security provisions over the last 30 years employers are required to pay workers on separation or to give advance notice of termination in anything less than a perfectly functioning market there are effects of the provisions on employment incumbents are more likely to retain their jobs but new workers are less likely to be hired an examination of the european data suggests that severance pay requirements reduce employment

temporary jobs institutions and wage inequality within education groups in central eastern europe summary in this paper we investigate the drivers of wage inequality within education groups in central eastern european countries by employing eu silc microdata before 2007 and after 2012 the crisis our main focus is on the variability of temporary permanent workers wage gap and on the role of institutions labor market deregulation union density and wage coordination in shaping the gap across education groups and along the wage distribution results obtained by means of ols and quantile regression methods confirm that holding a temporary position corresponds to a statistically significant negative wage gap with respect to permanent jobs especially for low paid jobs and tertiary educated workers the impact of institutional settings on the wage gap varies remarkably across education groups and wage levels and strongly depends on the macroeconomic conditions labor market deregulation and weaker minimum wage provisions reduce the wage gap this could be related to the fact the these institutional features reduce the duality on the labor market triggering a downward convergence of permanent wages toward the lowest level of the temporary employed especially in the context of labor reallocation and declining wages typical of recession stronger wage setting institutions on the contrary seem to reinforce duality in the labor market although to different extents depending on the group of workers and on the part of the wage distribution concerned

does average size matter court enforcement business demography and firm growth previous literature finds that the quality of judicial enforcement has a positive impact on average firm size but it has not disentangled its effect on the growth of incumbent firms from that on business demography this distinction is crucial as entrants are generally smaller than incumbents but both high entry rates and high firm growth are associated with better economic performance this paper fills this gap finding that judicial efficacy fosters the growth of incumbents and promotes entry in spain the paper also shows for the first time that the specific type of judicial procedure that companies face in case of a conflict rather than the overall functioning of courts is the relevant matter specifically judicial efficacy at the declaratory stage when a debt is verified by a judge has a positive impact on both firm growth and entry while it has no impact at the execution stage when the judge requires its payment

information acquisition and the adoption of new technology the profitability of a new technology is rarely known with certainty at its announcement date consequently prior to making an adoption decision it behooves the firm considering the adoption of this innovation to reduce the level of uncertainty associated with its profitability the firm accomplishes this by sequentially gathering information updating its prior estimate of profitability in a bayesian manner quantifying the uncertainty regarding the innovation permits application of dynamic programming techniques criteria are derived which tell the firm when to stop collecting information and make the adoption decision it will be shown that it is optimal for the firm to continue to collect information until its estimate of profitability crosses one of two thresholds upon crossing the upper threshold the firm adopts the technology whereas the firm rejects the technology if the lower threshold is crossed the model predicts that even the manager who behaves optimally will occasionally adopt unprofitable technologies and reject profitable ones

watchfully waiting medical intervention as an optimal investment decision abstract watchfully waiting involves monitoring a patient s health state over time and deciding whether to undertake a medical intervention or to postpone it and continue observing the patient in this paper we consider the timing of medical intervention as an optimal stopping problem the development of the patient s health state in the absence of intervention follows a stochastic process geometric brownian motion spontaneous recovery occurs in case the absorbing state of good health is reached we determine optimal threshold values for initiating the intervention and derive comparative statics results with respect to the model parameters in particular an increase in the degree of uncertainty over the patient s development in most cases makes waiting more attractive however this may not hold if the patient s health state has a tendency to improve the model can be extended to allow for risk aversion and for sudden poisson type shocks to the patient s health state

long term risk management of nuclear waste a real options approach in this paper we investigate the optimal timing for deep geological disposal of nuclear waste our model is based on the real options approach to investment under uncertainty in this context the problem is similar to the optimal exercise policy for a perpetual american spread option the potential usefulness of such a model for actual decision making on a sensitive issue is illustrated by some numerical simulations

impact of bayesian learning and externalities on strategic investment we investigate the interplay between learning effects and externalities in the problem of competitive investments with uncertain returns we examine a game theoretic duopoly investment model in which i a firm can learn about the profitability of the investment by observing the performance of the first mover and ii externalities exist between the investments of two firms we find a region of a war of attrition between the two firms in which the interplay between externalities and learning gives rise to counterintuitive effects on investment strategies and payoffs in particular we find that contrary to the conventional war of attrition where an increase in benefits for the follower generally delays the first move an increase in the rate of learning which tends to benefit the follower can hasten the first investment this paper was accepted by james smith decision analysis

welfare improving employment protection this paper derives new results on the welfare effects of employment protection using data from 17 oecd countries we show that there exists an inverse u shape relationship between employment protection and economic growth using a simple theoretical model with non contractible specific investments we show that over some range increasing employment protection does indeed raise welfare we also show that the optimal level of employment protection depends on other labour market features such as the bargaining power of workers and the existence of wage rigidities like the minimum wage

technology licensing r d and welfare this paper sets up a three stage r d technology licensing and output oligopoly game in which only one of the firms undertakes a cost reducing r d and may license the developed technology to the others by means of a two part tariff i e a per unit royalty and an upfront fee contract it is found with surprise that if the licensor firm s r d efficiency is high the availability of licensing subdues the firm s r d incentive leading to a lower social welfare level this result implies that a government has to be cautious when encouraging technology licensing among firms

practical implications of game theoretic models of r and d the purpose of this paper is to survey recent game theoretic models of research and development and to ask whether they yield practical implications or testable hypotheses the papers i will be discussing have been written or published within the past five years they have a good deal in common relying upon similar assumptions and building upon each other because of this the literature surveyed here may seem narrow and some relevant work has probably been inadvertently omitted i apologize for these omissions for want of space i will not discuss the normative conclusions of this literature

a pareto improving minimum wage this paper shows that a graduated minimum wage in contrast to a constant minimum wage can provide a strict pareto improvement over what can be achieved with an optimal income tax the reason is that a graduated minimum wage requires high productivity workers to work more to earn the same income as low productivity workers which makes it more difficult for the former to mimic the latter in effect a graduated minimum wage allows the low productivity workers to benefit from second degree price discrimination which increases their income

institutions and firms adjustments measuring the impact of courts delays on job flows and productivity abstractnot only is labor market rigidity the result of legislative provisions but it is determined by the institutional framework at large we argue that courts delays in settling labor disputes affect the strictness of employment protection legislation by increasing the expected firing costs we exploit the variation in the length of labor trials across italian judicial districts and the fact that the italian legislation regarding firing prescribes different firing regimes for firms above the 15 employee threshold and provide evidence on the impact of courts delays on job reallocation and firms productivity we show that in judicial districts with longer trials the rate of job turnover is significantly lower this occurs through lower rates of job destruction and to a lesser extent job creation we also find a detrimental impact of courts delays on the labor productivity of firms above the 15 employee threshold the effect is stronger in sectors with higher flexibility requirements

licensing to enhance demand for new technologies this article presents a model in which licensing competitors expands demand for a new proprietary product and therefore may be a profit maximizing strategy for the licensor even when licensing increases industry cost in the model buyers care about price and quality sellers can contract on price but not on quality and a single supplier has monopoly power licensing induces quality competition and allows the supplying firms to make a quality commitment that would not be credible for a single firm as a result licensing increases industry demand and may generate an increase in industry revenue sufficient to offset any increase in industry cost some of the characteristics of the model are informed by observations in the semiconductor industry

investor protection optimal incentives and economic growth does investor protection foster economic growth to assess the widely held affirmative view we introduce investor protection into a standard overlapping generations model of capital accumulation better investor protection implies better risk sharing because of entrepreneurs risk aversion this results in a larger demand for capital this is the demand effect a second effect the supply effect follows from general equilibrium restrictions better protection i e higher demand increases the interest rate and lowers the income of entrepreneurs decreasing current savings and next period s supply of capital the supply effect is stronger the tighter are the restrictions on capital flows our model thus predicts that the positive effect of investor protection on growth is stronger for countries with lower restrictions cross country data provide support for this prediction as does the detailed examination of the growth experiences of south korea and india