growth patterns of the european venture capital industry abstract although the european venture capital industry has become nearly as important as its american counterpart little research has been done to describe its nature and importance this study gives in the first place an overview of the importance of the venture capital industry in the major european countries thereafter we look for funding and investment patterns in the different european countries we hypothesize that there is a difference between countries in which the venture capital industry is just emerging and those where the venture capital industry is since long established the data are mainly but not solely taken from the yearly statistics of the european venture capital association evca and cover the period 1984 1989 the characteristics we look at are 1 the sources of the funds flowing into the industry broken down with respect to investor type and geographical location of the investor and 2 the investments broken down with respect to investment stage using the evca definitions of the different stages geographical location degree of syndication and industrial sector of the investee companies in europe as a whole the most important group of investors are the banks 28 the pension funds 17 and the insurance companies 12 banks dominate the swiss industry 48 corporate investors dominate the german swedish and portuguese industries whereas these are nearly completely absent in denmark 2 ireland 4 and the united kingdom 5 eighty percent of all venture capital funds are raised domestically 7 in another european country and the remaining 13 in a non european country almost half of the european investments 44 are made in the expansion stage management buy outs mbos account for another 36 only 14 is invested in seed or start up companies much less than the 30 in the u s half of the venture capital investments in the united kingdom are buy outs the highest start up investment activity takes place in austria and spain on average more than half 54 of the invested amount in europe is syndicated but only 6 internationally while 10 is invested internationally we also search for similarities and dissimilarities in the characteristics of the sources of funds and of the investments the hypothesis is that a growth pattern can be distinguished determining the maturity of the venture capital industry in a particular country the characteristics that we think would discriminate most among the different industry stages are the importance of government agencies pension funds and insurance companies sources of funds of start up later stages or mbo investments and the percentage of international and syndicated investments cluster analyses show that there is a growth pattern but it is less clear than expected characteristics of mature industries are a bigger size relative to the gross national product of the country the presence of pension funds and insurance companies as investors in the industry the syndication of the deals and the absence of the government as an investor in the 1980s investments in management buy outs are mainly done by the mature industries no pattern can be distinguished for the investments in early or later stages the major implication from this study is the fact that the european venture capital industry cannot be approached as a single undifferentiated industry each country has its own structures institutions and policies which make the venture capital industries in the different countries have unique characteristics moreover the european venture capital industry has different characteristics than the american industry this has to be taken into account when comparing both industries

the effect of time pressure on consumer choice deferral this article investigates the effect of time pressure on choice deferrai recent research suggests that the likelihood of deferral is contingent on the ease of making the selection decision which option to choose as well as the overali attractiveness of the selected alternative we focus on how time pressure systematically impacts choice deferral by increasing the use of noncompensato ry decision rules in the selection decision and by increasing the relative emphasis placed on the unique features in the deferral decision whether to choose consistent with the hypotheses we find over a series of five studies that time pressure 1 decreases choice deferral when choice involves high conflict but not when conflict is low 2 reduces the impact of shared features on choice deferral and 3 decreases choice deferral for sets with common bad and unique good features approach approach conflict but not for sets with common good and unique bad features avoidance avoidance conflict we further show that greater attention to the unique features is not a general property of decision making under time pressure but rather a consequence of the primacy of the selection decision over the deferral decision consistent with this premise time pressure did not decrease the relative attention paid to common features when the task was described as purely a deferral decision the theoretical and practical implications of the findings are discussed

trade offs in the investment decisons of european venture capitalists abstract previous studies of venture capital investment criteria which have tended to utilize traditional likert scaled survey methods have produced some general findings which indicate that the human factor is of utmost importance however virtually all of these studies have been undertaken with u s based venture capitalists in addition the studies have generally been exploratory and have assumed a single hierarchy of decision criteria in all cases and across all venture capitalists we do not accept that this is valid therefore our study tested this assumption by investigating the trade offs made by venture capitalists in europe thirty five investment criteria were identified from the literature and from experts in the field and a questionnaire was developed that required the venture capitalist to make 53 pairwise trade offs with multiple levels seventy three venture capitalists from across europe were interviewed and completed the questionnaire conjoint analysis was used to compute relative rankings and overall rankings were computed to provide some general insight into the overall importance of the various criteria after this cluster analysis was used to identify different decision groupings the trade offs were randomized in the questionnaire but for descriptive purposes fall into the following groupings financial product market strategic competitive fund management team management competence and deal all five management team criteria as opposed to management competence criteria were ranked among the first seven product market criteria appeared to be only moderately important and fund and deal criteria were at the bottom of the rankings overall we conclude that the venture capitalists interviewed would as a group prefer to select an opportunity that offers a good management team and reasonable financial and product market characteristics even if the opportunity does not meet the overall fund and deal requirements it appears quite logically that without the correct management team and a reasonable idea good financials are generally meaningless because they will never be achieved cluster analysis identified three groupings of venture capitalists those primarily concerned with investing nationally those who focus solely upon the deal and those mainstream investors who consistently and instinctively rank the five management team criteria at the top of their list however there was no evident country bias a conclusion that is sustained if the countries are grouped by physical proximity northern versus southern europe or by size of the local venture capital community a surrogate for experience moreover there was no relationship to the scale of the fund the typical round of financing or the apparent network the article concludes by outlining the implications of the study for venture capitalists entrepreneurs and the research community

disadvantageous collusion and government regulation abstract the semi collusion model indicates that when firms collude on outputs and compete on capacities cartel members may be worse off why do rational firms choose such kind of disadvantageous collusion in order to solve the puzzle this article uses taiwan s flour cartel case to investigate firms incentives and finds that government regulation seems to be the primary reason to create such a predicament

time preference and international lending and borrowing in an overlapping generations model two economies represented by diamond type overlapping generations models and differing only in their pure rates of time preference are joined together capital formation balance of payments behavior and welfare are compared under autarky and openness with a positive natural rate of growth the low time preference country runs a current account surplus in the steady state but not necessarily outside it if preexisting capital is not shiftable between countries integration in the world economy makes the high time preference country worse off in the short run the ranking of stationary utility levels under autarky and openness is ambiguous

a measurement error approach for modeling consumer risk preference von neumann morgenstern vn m utility theory is the dominant theoretical model of risk preference recently market researchers have adapted vn m theory to model consumer risk preference but most applications assess utility functions by asking just n questions to specify n parameters however any questioning format especially under market research conditions introduces measurement error this paper explores the implications of measurement error on the estimation of the unknown parameters in vn m utility functions and provides procedures to deal with measurement error we assume that the functional form of the utility function but not its parameters can be determined a priori through qualitative questioning we then model measurement error as if question format and other influences cause the consumer to choose the unknown risk parameter from a probability distribution and to make his decisions accordingly we provide procedures to estimate the unknown parameters when the measurement error is eith

domestic versus international capital mobility some empirical evidence this paper develops an empirical test to determine whether on average capital moves more easily between industries within a country or between coun tries within an industry the test is applied using cross section dat a on accounting rates of return to capital of u s multinational corp orations in 1966 and 1977 it is found that international capital mob ility was greater in the earlier period but domestic capital mobilit y tended to dominate in the later period these findings are of parti cular importance to the field of international economics since compe ting trade models use opposite assumptions as regards which type of c apital mobility is greater

monopoly wealth and international debt rents generated by long lasting government policies may be capitalized as assets with life cycle saving behavior these rents raise international indebtedness shifts in policy that affect their capitalized value generate correlated movements in the current account and the real exchange rate eliminating rent creating policies imposes a capital loss born entirely by generations currently alive while the benefit of removing a distortion is shared between those alive and unborn generations reform may therefore reduce the expected welfare of everyone alive with monopoly in the provision of nontraded goods there may be multiple pareto ranked equilibria copyright 1989 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

the association between venture capitalists selection and value adding behavior evidence from early stage high tech venture capitalists building upon self efficacy and collective effort theories we study the association between the selection behavior of venture capitalists and their involvement in value adding activities we argue that investors who prioritize different characteristics of a business proposal during selection will be more or less confident of their own abilities and the abilities of entrepreneurial teams to effectively add value to portfolio companies and hence will be more or less involved in providing value adding activities in order to test this claim we use a stratified sample comprising 68 european early stage high tech venture capitalists results show that venture capitalists who focus on entrepreneurial team characteristics or financial criteria during selection are less involved in value adding activities compared to their peers who focus on technological criteria we discuss these findings from a theoretical and practical perspective

government as fund of fund and vc fund sponsors effect on employment in portfolio companies governments around the world have set up fund of fund programs to increase the supply of venture capital financing to young growth oriented firms in these programs a government fund of fund acts as limited partner in a venture capital fund the venture capital investment process is hereby delegated to external investors which were selected by the government fund of fund we investigate employment growth in 108 portfolio companies that benefited from the arkimedes fund of fund in flanders accounting for the heterogeneity in the types of venture capital investors managing hybrid funds and the associated goal diversity and resource endowments we find that portfolio companies backed by hybrid independent venture capital funds show greater employment growth than those backed by hybrid captive or hybrid government venture capital funds this finding is relevant because it indicates that the financial objectives of hybrid independent venture capital funds are highly compatible with the government s objective of employment growth as providing companies with superior monitoring and value adding services with the objective of realizing a successful exit creates employment in the process

international capital mobility net versus gross stocks and flows abstract feldstein and horioka 1980 observed that net capital flows have been small in relation to domestic saving and investment flows for oecd countries in the post war period which they interpreted as evidence of low capital mobility this paper argues that the correlation between gross domestic and international financial flows can be a better indicator of capital mobilitythan net capital flows contrary to the conventional wisdom among international economists gross flows have been small in relation to gross domestic asset creation for oecd countries although by this measure the degree of capital mobility increased in the 1980s

profit distribution and compensation structures in publicly and privately funded hybrid venture capital funds abstract policy makers have become increasingly concerned at the lack of risk capital available to new and early stage entrepreneurial ventures as a public response to a perceived market failure several governments have set up programs to channel equity finance to capital constrained but high potential young enterprises critically government support is often directed through the agency of private venture capital funds we examine the profit distribution and compensation structures used in these hybrid public private funds we appraise government policy makers ability to use these structures to improve the expected returns in market failure areas in order to attract private sector investors and professional managers to participate in these funds the results derived from our simulation study suggest that such asymmetric profit sharing models can only resolve relatively modest market failures unless the programs also manage to attract highly competent investors who are able to produce above average gross returns in market failure areas

venture capital the regions and public policy the united kingdom since the post 2000 technology crash mason c and pierrakis y venture capital the regions and public policy the united kingdom since the post 2000 technology crash regional studies the geography of venture capital in the united kingdom has been shaped since the year 2000 by a significant increase in public sector venture capital funds venture capital investments are now less concentrated in the south east however investment activity in the midlands and north is dominated by the public sector deal sizes in these regions are small venture capital measured by the total amount invested remains over concentrated in london and the south east where private sector investors continue to dominate this paper concludes by questioning whether this increased dependence of northern regions on public sector venture capital matters mason c and pierrakis y 2000 2000

the current account in the macroeconomic adjustment process macroeconomic adjustments to changes in the economic environment are to a large extent conditioned by the intertemporal choices of economic agents when agents face an intertemporal budget constraint a decision to alter current indebtedness implies changes in future consumption possibilities and will be based on expectations of the entire future path of key variables and not only current variables a formal model to show how today s current account is a function of both current and future economic variables is presented the determination of the current account under classical assumptions of market clearing and continuous full employment is emphasized

on dynamic efficiency in a growth model with increasing returns abstract the production externality at the heart of the knowledge based growth literature reverses the standard analysis of efficient capital accumulation if the competitive equilibrium involves underinvestment relative to the social optimum moving to the social optimum requires sacrifice by some in the standard decreasing returns case but requires no such sacrifice when there are knowledge spillovers

fiscal incidence in an overlapping generations model with a fixed asset abstract we analyze a model of overlapping generations with a fixed factor land malleable capital and labor we consider the dynamic effects of various fiscal policies including taxes on rent wages and creation of public debt on capital accumulation land prices and intergenerational welfare minimal assumptions uniqueness and stability imply that a land tax may initially raise land values but the upper bound is less than one half of the tax revenues assuming homothetic utility the ratio between the long run capital responses to a land tax and to a lump sum transfer of equivalent revenue from the young to the old depends solely on the share of labor

the founding rate of venture capital firms in three european countries 1970 1990 abstract in this article the sectorial and environmental forces that facilitate or inhibit the creation of venture capital companies are studied in the three european countries where the industry is most developed the united kingdom france and the netherlands the focus is on the start up phase of the industry the period from 1970 1990 the founding of firms can be studied on four different levels entrepreneurial organizational population and macroeconomic in this study a population approach is taken this implies that we do not attempt to explain any single founding but rather the aggregate number of foundings that occur in an industry in a certain period in a certain country according to the organizational ecology theory the population density i e the total number of organizations in a population is the major environmental factor that affects the founding rate through two processes initially when the density is low each founding eases new foundings because the simple prevalence of a form tends to give it legitimacy thereby spurring imitations the training ground for qualified personnel grows and the supporting networks are widened and strengthened the legitimation process does not grow forever once enough organizations of a certain kind exist legitimation attains a ceiling as the number of organizations increases the second process becomes dominant the competition for resources raw material personnel customers capital grows leading to a negative relationship between the density and the founding rate everything else being equal thus the founding rate declines as the number of organizations increases once a threshold is reached the major hypothesis that is tested here is that the population density has an inverted u shaped effect on the founding rate of venture capital organizations in addition the effect that the venture capital firms of the three countries have on each other is studied two populations are said to interact when the populations affect each other s growth rate but the interaction need not be symmetrical the second hypothesis tested in this study is that populations in different countries have a positive effect on each other and not a competitive effect because the legitimating effect does not halt at geographical borders yet the competition for resources capital people deals among geographically different populations is limited in this industry this study is valuable because until now the existing ecological studies focus on long established industries testing the theory in a young industry that emerged only in the seventies in europe has merits in its own right because the technological progress after the second world war has altered the organizational environment tremendously the communication and transportation revolutions may have especially influenced the way in which organizations interact with each other and with the environment the venture capital firms are furthermore special in the way they are organized with the dual structure of management company and investment fund s if the theory holds in this young industry important additional evidence will be given that the theory is truly applicable to populations of all types in any time period and in any society carroll 1988 p 18 finally this study extends the theory by giving evidence on how industries in different countries may interact upon each other we show empirically that the major factor that influences the overall founding rate in each of the three countries is the density of the industry i e the number of organizations that already exist in the industry this confirms the population ecology theory when the density is low adding a new organization to the industry raises the probability of a subsequent founding when the density is high the contrary is true the institutional changes considered here such as the establishment of tax transparent legal entities or state guarantees against losses in the netherlands and the establishment of secondary stock markets do not significantly influence the founding rate in any of the three countries moreover the dutch foundings are positively influenced by the british density and the french foundings by the dutch density the british foundings are on the contrary negatively influenced by the dutch density the competitive effects between the netherlands and the u k are thus more important than initially thought the relationship between the density and the founding rate is the strongest most consistent and most significant relationship found in this study thus the number of organizations that already exist in an industry is very important in explaining the founding of organizations apart from for example the personality of the entrepreneur or from the networks in which he or she is involved this indicates that when trying to explain the founding of organizations the industry structure and more specifically the number of organizations that exist at the moment of the founding cannot be ignored

welfare gains from capital inflows under import quotas abstract the presence of tariffs was assumed in the literature which examined the effect of additional foreign investment on the welfare of the host country in the small country setting however this paper analyzes the case of import quotas and shows that additional inflows of foreign capital improve the host country s welfare when import quotas are kept constant

trade offs in energy and environmental policy abstract the energy sector is undeniably undergoing a critical period faced with multiple challenges whether economic political or technological these challenges are related to the requirements set on the sector to meet a wide range of social demands associated with the three traditional dimensions of a sustainable energy system i e environmental sustainability security of energy supply and economic sustainability in particular the environmental pillar has gained ground after the paris agreement which has reinforced the requirement of a low carbon transformation of the sector a main challenge is to balance trade offs among competing goals when designing energy and environmental policies although making the energy sector greener is a common aspiration of governments and many countries are indeed being successful in this regard the success comes at a price in terms of the other non environmental dimensions of a sustainable energy system the aim of this special issue is to look in detail on some of the most pressing environmental challenges faced by the energy sector as well as the trade offs involved in reaching a greener energy system

aggregate spending and the terms of trade is there a laursen metzler effect this paper investigates the spending and current account effects of terms of trade shifts in a model where households maximize utility over an infinite planning period in the framework developed here an economy specialized in production must experience a fall in aggregate spending and a current surplus as a result of an unanticipated permanent worsening in its terms of trade the paper s model thus provides a setting in which the current account deficit predicted by laursen and metzier harberger and others fails to materialize

the incidence of a tax on pure rent the old reason for the old answer the purpose of this note is to clarify the formal identities linking the problems analyzed by barro 1974 feldstein 1977 and calvo kotlikoff and rodriguez 1979 henceforth ckr and to reaffirm the traditional proposition that in both the short run and the long run a tax on pure rent is never shifted provided one adopts the traditional procedure in tax theory of analyzing the incidence of a compensated tax any uncompensated tax is equivalent to a compensated tax together with a lump sum redistribution of income and there is really nothing surprising about the fact that lump sum redistributions of income may alter relative prices as the literature on the transfer problem in international trade theory demonstrates actually situations can be found e g gorman 1953 barro 1974 calvo et al 1979 p 874 n 7 in which lump sum redistributions of income do not affect relative prices even when they do the incidence effect is often small relative to the size of the redistribution the analyses of ckr and feldstein give the impression that the classical proposition on the incidence of a tax on pure rent does not apply in a dynamic economy as feldstein points out the classical proposition that a tax on pure rent is unshifted requires that the supplies of nonland factors of production are unaltered by the introduction of the tax on land rents this static assumption of fixed factor supplies is inappropriate to the analysis of tax incidence in a dynamic economy in which the supply of capital reflects the economic choice between consumption and saving calvo et al 1979 p 869

large is beautiful the welfare effect of technology transfer reconsidered abstract this paper demonstrates that a technology transfer via foreign owned firms always reduces the host country s national income if the new technology is localized in the atkinson stiglitz sense at a capital labor ratio higher than prevails locally although developing countries can mitigate this negative impact of technology transfer by restricting the activities of foreign firms we argue that complete capital market liberalization yields even higher national income

complexity effects in choice experiment based models abstract many firms rely on choice experiment based models to evaluate future marketing actions under various market conditions this research investigates choice complexity i e number of alternatives number of attributes and utility similarity between the most attractive alternatives and individual differences in decision time as key factors that affect the predictive performance of models based on choice experiments both within and between complexity conditions the results show that complexity and individual decision time not only affect the error in consumer choice models but also consumers decision strategy and systematic utilities the authors introduce a complexity adjusted mixed logit cam logit model to capture the various influences of complexity in choice experiment based models they illustrate the consequences of complexity on choice behavior with market share predictions of the cam logit model for different complexity conditions

new technology based firms in europe market penetration public venture capital and timing of investment we investigate the effect of public puvc and private prvc venture capital funds on the sales growth of 6513 european new technology based firms ntbfs during the period from 1992 to 2009 our results show that puvc backed ntbfs underperform with respect to prvc backed ones and do not grow more than non venture capital backed companies the impact of puvc is still not statistically significant even though it is positive when puvc funds target young ntbfs the only notable exception suggesting a positive and statistically significant impact for puvcs is when puvc funds cofinance with prvc funds and both target young firms

public versus private venture capital seeding or crowding out a pan european analysis abstract this paper analyzes the relationship between public and private sources of venture capital in europe and the development of the industry controlling for characteristics of the legal systems in 15 european countries over the period 1990 1996 large public participation is correlated with smaller vc industries but analyses do not support the view that public venture capitalists are acting to seed the industry or that are they crowd out private funds on the contrary public involvement seems to cause greater amounts of money to be invested in the industry as a whole we argue that the effects of public intervention whatever the motives are real and probably result from demonstrating sanctioning the social merit of venture capital and from signaling an enduring commitment to it

the incidence of a tax on pure rent in a small open economy this paper analyzes the effects of a land rent tax on capital formation and foreign investment in a life cycle small open economy with endogenous labor leisure choices the consequences of land taxation critically depend on how the tax proceeds are used by the government a land tax depresses capital formation crowds out foreign investment and increases national wealth and consumption when the land tax revenues are distributed as lump sum payments if the proceeds from land taxation are used to finance unproductive government expenditure the land tax will be neutral in its effects on the capital stock nonhuman wealth and labor when the tax revenues are used to reduce labor taxes the land rent tax spurs nonhuman wealth accumulation and ambiguously affects the capital stock and labor

foreign owned land while foreign investment augments the capital stock it also affects land prices if it causes land values to rise then the resulting capital gain benefits current landowners but the perma nent effect can be to reduce welfare other things equal more crowde d countries have higher land prices and lower steady state welfare b ut their net foreign indebtedness depends on technology savings beha vior and the interest rate even when it does not affect the domesti c capital stock a land tax raises steady state welfare copyright 1988 by american economic association

international capital mobility shadow prices and the cost of protection this paper studies the welfare losses from tariff protection in a small open economy when some factors are internationally mobile our principal result is that international fictor mobility must raise the cost of protection more specifically the welfare loss resulting from a uniform increase in tariffs in a competitive small open economy is greater when tariff induced international factor movements take place than when factors are internationally immobile by contrast an exogen1ous inflow of factors in the presence of tariffs may increase or reduce the welfare loss associated with protection depending on whether or not the protected commodities use the foreign owned factors intensively relative to domestically owned factors these results are proven for a very general specification of the economy s technology in particular no restrictions are placed on the degree of vertical integration in production on the sectors into which factors are internationally mobile or on the number of goods and factors our main result holds whether or not an increase in tariff rates leads the economy to specialise in addition we show how our results relate to earlier work on immiserising capital inflows and on negative shadow prices for factors of production thus synthesizing a number of recent results within a common framework the paper is organised as follows in section 2 we explain our framework and derive expressions for the welfare effects of tariffs when all factors are domestically owned and when some factors are foreign owned but not internationally

macroeconomic dynamics in a multi country economy a dynamic optimization approach using a multicountry model with perfect foresight dynamic optimization by infinitely lived households the authors analyze the dynamics of macroeconomic nonmonetary and monetary variables the authors show that the most patient country initially accumulates foreign debt but eventually decumulates this debt and becomes a creditor it monotonically increases its consumption and experiences monotonic price and exchange rate appreciation the moderately patient country initially accumulates foreign assets but eventually decumulates them and becomes a debtor its consumption also follows a humped path the least patient country monotonically decumulates foreign assets lowers its consumption and experiences rising inflation and exchange rate depreciation copyright 1992 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

should land and capital be taxed at a uniform rate if jurisdictions are allowed to tax land and capital separately they tax only land because capital taxation distorts the allocation of mobile capital to exploit absentee owners however jurisdictions tax land beyond the efficient level as absentee ownership increases throughout the economy land taxation results in greater inefficiency to alleviate the inefficiency of overtaxing land the higher level government intervenes to require jurisdictions to tax both capital and land at a uniform rate because the desire to attract capital lowers the tax rate uniform taxation of land and capital or property taxation thus may be more efficient than separate taxation jel classification h21 h71 est ce que la terre et le capital devraient etre taxes d une maniere uniforme si on permettait aux diverses juridictions de taxer capital et terre separement elles taxeraient seulement la terre parce que la fiscalite imposee au capital cree des distorsions dans l allocation du capital mobile mais pour exploiter les proprietaires absents les diverses juridictions imposent un fardeau fiscal sur la terre qui va au dela de ce que l efficacite commande a proportion que la propriete absente se developpe dans l economie la fiscalite imposee a la terre devient source de plus en plus grande inefficacite pour reduire cette inefficacite attribuable a la sur taxation de la terre le niveau senior de gouvernement intervient pour forcer les juridictions juniors a taxer capital et terre au meme taux parce que le desir d attirer le capital reduit le taux de taxation il se peut donc que la taxation uniforme de la terre et du capital ou de la taxation sur la propriete soit plus efficace que des taux d imposition differents

directly unproductive profit seeking dup activities this paper propses directly unproductive profit seeking dup activities as a general concept that embraces a wide range of recently analyzed economic activities including the subset of rent seeking activities considered by krueger it then proceeds to provide a synthesis and generalization of the welfare theoretic analysis of such activities by developing a fourfold categorization of cases depending on the levels of distortions before and after the dup activity thus a unification and overview of the subject are achieved

the implications of knowledge based growth for the optimality of open capital markets this paper re examines the view that opening capital markets must have long run benefits the analysis shows that the desirability of opening a country s capital markets depends on the nature of the technology assumed models of knowledge based growth predict that changes that alter the economy s level of production will also affect the economy s growth rate and hence the welfare of future generations standard neoclassical growth models imply no such effects on growth or welfare if production does involve an important element of learning by doing inference from the standard models may be seriously misleading in particular opening capital markets does not necessarily improve welfare for the nation or for the world as a whole

international factor movements commodity trade and commercial policy in a specific factor model two events in the decade of the 1970s had a major impact on world trade and factor movements the collapse of the bretton woods fixed exchange rate system and opec s success in raising petroleum prices the enormous current account surplus accruing to some of the opec members was successfully recycled by the international capital markets to among others the oil importing developing countries in addition the vastly increased tempo of investment in the capital rich labour poor opec members in west asia attracted migration of labour skilled as well as unskilled to these countries from some of the oil importing developing countries the remittances from these workers in turn eased the problem of the labourexporting countries in adjusting to the increased cost of oil imports thus both borrowing from private capital markets and export of labour became very important elements in cushioning the oil shock for a number of countries the post opec movements of labour and financial capital while dramatic are only the more recent instances of a phenomenon of much greater antiquity the seventeenth and eighteenth centuries saw vast migration of people out of europe though these movements were the result of conquests and colonization rather than movements from one sovereign state into another but the nineteenth century particularly the latter half saw migration of the latter kind from europe to countries of north and south america as well as capital investment by residents of europe in these

taxation of economic rents economic rents have long been identified as an efficient tax base in addition the recent literature documents that rent income is highly concentrated and that rents are quickly increasing rent taxation thus seems attractive for reasons of both efficiency and equity nevertheless rent taxation remains a marginal topic in research and policy making in a systematic review of the neoclassical literature on different rent types we find that some types of rents reflect inefficiencies and should thus be minimized while others reward investments and should be supported in line with social welfare what remains for taxation are land rents one of the few true scarcity rents land rents have significant potential to improve the efficiency of the tax system we then begin to develop a comprehensive theory of land rent taxation by identifying relevant efficiency and equity effects the interaction of many of these effects remains unexplored which might explain policymakers hesitation in using land taxes to date

a techno economic analysis of eu renewable electricity policy pathways in 2030 the aim of this paper is to assess several pathways of a harmonised european policy framework for supporting renewable electricity res e in a 2030 horizon according to different criteria the pathways combine two main dimensions degrees of harmonisation and instruments and design elements a quantitative model based analysis with the green x model is provided the results of the simulations show that there are small differences between the evaluated cases regarding effectiveness all the policy pathways score similarly with respect to res e deployment i e with different degrees of harmonisation and whether using a feed in tariff a feed in premium a quota system with banding or a quota without banding scheme in contrast the policy costs clearly differ across the pathways but the differences can mostly be attributed to the instruments rather than to the degrees of harmonisation this is also the case with other criteria static and dynamic efficiency and the socioeconomic and environmental benefits in terms of co2 emissions and fossil fuels avoided both the degree of harmonisation and the choice of instrument influence the distribution of support costs across countries finally our findings suggest that keeping strengthened national support leads to similar results to other policy pathways

domestic saving and international capital movements in the long run and the short run the evidence and analysis in this paper support the earlier findings of feldstein and horioka 1980 that sustained increases in domestic savings rates induce approximately equal increases in domestic rates of investment new estimates for the post opec period 1974 79 imply that each extra dollar of domestic saving increases domestic investment by approximately 85 cents in a sample of 17 oecd countries an explicit analysis of the problems of identification and simultaneous equations bias suggests that the regression estimates are more relevant as a guide to the long run response of international capital flows than to their short run behavior coefficient estimates based on annual variations in savings and investment are subject to potentially severe simultaneous equations bias that is not present when annual observations are averaged over a decade or more and the regression is estimated with a cross country sample of these averages a portfolio model of international capital allocation that is presented in the paper indicates that the short run change in the rate of net foreign investment in response to a sustained increase in domestic saving is likely to be substantially greater than the ultimate steady state response this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item

international investment and the positive theory of international trade abstract consider a small open economy with a ricardo viner heckscher ohlin technology in period 1 2 period 1 labor is used to produce period 1 consumption goods or period 2 capital goods given international borrowing at fixed interest rates factor price equalization holds short run output and trade patterns are determined by period 1 capital endowments long run outcomes reverse the rybczynski and heckscher ohlin relationships a country with relatively large current capital labor ratios has a low long run capital labor ratio and relative output of the relatively capital intensive good and therefore imports this good a permanent tariff contracts the protected sector in the short run

crowding out the role of state companies and the dynamics of industrial competitiveness in india this article examines growth patterns of government companies in india whether their presence has crowded out private entrepreneurial activity and whether there has been a decline in the competitiveness of india s industry measured as relative productive efficiency for a 45 year period from 1957 1958 to 2001 2002 there was a significant growth in the number of government companies in india that effectively crowded out the entry and growth of private enterprise this took place from the mid to late 1950s to the late 1980s and early 1990s correspondingly the amount of private equity capital invested in firms declined until the late 1980s and early 1990s when there was an upsurge of private investment activity another feature was that a small number of government companies absorbed most of the corporate sector equity investment in india the growth in the share of government companies in india that crowded out the entry and growth of private enterprises has had a significantly negative effect on india s industrial competitiveness after the introduction of reforms in 1991 there has been a significant crowding in by private enterprises displacing the government companies from their key position as holders of a very large portion of equity capital and also reversing the trend in the decline of competitiveness of indian industry as a whole copyright 2009 oxford university press

factors that determine the reputation of private equity managers in developing markets abstract this paper analyzes the relationship between investors and private equity managers in order to identify the factors that affect the latter s reputation since there are no individual references about their past returns in developing private equity markets the reputation of such players is thought to be linked to their capacity for obtaining new funds results provide evidence of the volume of investments recorded in the past the ratio of portfolio companies to investment manager the percentage of divestments carried out through initial public offerings and trade sales the membership of the national private equity association and the size of funds under management as characteristics of the highest importance in raising funds

retrospectives the origins of the representative agent this paper examines alfred marshall s invention of the representative firm marshall first used the representative firm in order to describe an industry supply curve for an industry with heterogeneous firms despite marshall s limited use of the notion the representative agent was extensively criticized as an ephemeral useless construct that was unable to account for economic growth and that ignored important heterogeneities the criticisms succeeded in banishing the representative agent from economics these initial criticisms are also shown to apply to modern uses of the representative agent as well

what lures cross border venture capital inflows the change in the business model of venture capitalists from investing locally towards investing across borders started to intensify in the late 1990s according to a dataset of european and north american countries we find that countries with higher expected growth and higher lagged stock market returns receive larger net cross border venture capital inflows thus portfolio companies located in high growth and high return countries receive more venture capital from foreign venture capitalists than these countries venture capitalists invest in foreign portfolio companies also countries with lower stock market capitalizations as well as those with poor tax and legal environments for venture capital intermediation exhibit larger net cross border inflows these findings offer important insights for policy makers since cross border venture capital inflows partly compensate for potential limits in the domestic venture capital supply

renewable energy policies in europe converging or diverging abstract nations today are urgently challenged with achieving a significant increase in the deployment of renewable energies in europe that need has given rise to a debate about the most effective and efficient support strategy whilst the different interests debate whether full european harmonisation or strengthening of national support policies for electricity from renewable energy sources res e is the best way forward individual national support schemes are rapidly evolving this study investigates how the eu member states have applied support policy types over the last decade by identifying predominant developments in the application of feed in tariffs premiums tradeable green certificates tax incentives investment grants and financing support for specific technologies wind biomass pv this study shows that europe is currently experiencing certain tendencies towards a bottom up convergence of how national policy makers design res e policy supports while some outliers remain the policy supports of most countries become more similar in the policy types applied dominance of feed in tariffs and in their scope of implementation differentiation for installation sizes and stacking of multiple instruments these trends in national decision making which show tendencies of convergence could make an eu driven top down harmonisation of support either dispensable or at least depending on the agreement less controversial

international factor mobility and national advantage abstract in this paper we prove rigorously v k ramaswami s proposition that in bilateral trade between two countries sharing the same technology represented by a strictly concave production function with positive marginal productivities of capital and labor the policy active country can gain more by importing monopsonistically the relatively scarce factor than by placing monopolistic restrictions on the export of the relatively abundant one we show that what matters is not the location but the constraints within which maximization takes place hence the monopsonistic results can be replicated by appropriate export arrangements the analysis is extended to consider the welfare implications to the policy passive country

advantageous semi collusion the textbook view that cartels increase industry profits and lower consumer welfare ignores the effects of competition in other activities a revisionist view shows that when cartel members compete in other activities i e when they semi collude the cartel members may be worse off and consumers better off using a two stage model in which the non production activity is r d and is subject to technological spillovers we show that both the traditional and revisionist views can be wrong that consumers and producers can both be made worse off or both better off by a semi collusive production cartel

international risk sharing and economic growth international risk sharing which diversifies away income risk will reduce saving with constant relative risk aversion if growth arises from the external effects of human capital accumulation then reducing saving will reduce growth welfare also may fall with risk sharing because endogenous growth with external effects of capital accumulation typically implies a competitive equilibrium growth rate already less than the optimal growth rate we demonstrate these results in a standard representative agent economy diversifying away rate of return risk also will reduce saving and growth rates if relative risk aversion exceeds one but this diversification always increases welfare this paper studies the effects of international risk sharing portfolio diversification in a world economy in which growth rates of income are endogenous growth is based upon the spillover effects of human capital accumulation as in lucas 1988 and romer 1986 there are positive economy wide spillovers of human capital intensity on individual labour productivity in section 2 we construct a multi country growth model with an infinitely lived representative agent in each country each country faces income risk but there is no aggregate uncertainty at the world level we focus on two market structures in the first structure there are no markets which allow for international diversification of country specific income risk in the second structure there are complete international markets for risksharing with no aggregate world uncertainty this completeness allows full diversification of country specific risk the paper has two central results first growth rates in all countries are lower in the equilibrium with full diversification second in this same structure welfare of each country may be lower than in an equilibrium without risk sharing the reasoning is as follows with external effects of capital accumulation the compet

fiscal deficits international trade and welfare abstract the effects of fiscal deficits on welfare interest rates and the balance of payments are examined in an open economy overlapping generations model a deficit reduces welfare of the current old and the domestic unborn the foreign unborn gain while the current foreign young may gain or lose long term interest rates rise but the current short rate may rise or fall the home country s current account may be positive or negative in the period of the deficit but will be negative in the subsequent period anticipated future deficits decrease current welfare and decrease short term interest rates but increase long rates

skills or networks success and fundraising determinants in a low performing venture capital market abstract this paper provides a novel interpretation of the factors leading to low performance in venture capital vc markets by using human and social capital perspectives we investigate the relationship between the professional experience and education of vc firm managers and i the success of their portfolio firms on one hand and ii their fundraising activity on the other our study focuses on the french vc market the french business environment is characterized by tight links between businesses and the state and by powerful elite networks while the vc industry has been dominated by government funding and incentives since the global financial crisis we evidence a positive relationship between task specific human capital variables and the exit success of vc backed firms however unlike the research from the us market we find no support for the claim that success determinants impact fundraising activity instead we substantiate the importance of higher social networks for raising larger funds in markets with strong networks

harmonization of renewable electricity feed in laws in the european union this paper focuses on the harmonization of feed in laws in the european union as a support mechanism for the promotion of renewable electricity in particular it proposes a methodology for harmonization based on a feed in law with a modular and transparent premium for renewable electricity producers this premium considers technology costs some grid services political incentives and national priorities the proposed approach includes flexibility mechanisms to update and revise premiums to avoid windfall profits for producers and to share technology innovation benefits with electricity consumers while maintaining incentives for innovation our approach is based on the review of the main features of the german and spanish feed in laws and takes into account other necessary considerations for harmonization such as grid access funding definitions and standards ownership of rights derived from renewables and exceptions for small non commercial producers and energy intensive industries

does governmental venture capital spur invention and innovation evidence from young european biotech companies this paper explores whether and how governmental venture capital investors gvcs spur invention and innovation in young biotech companies in europe to gauge invention we focus on the simple patent stock at the company level while innovation is proxied by the citation weighted patent stock our findings indicate that gvcs as stand alone investors have no impact on invention and innovation however gvcs boost the impact of independent venture capital investors ivcs on both invention and innovation we conclude that gvcs are an ineffective substitute but an effective complement of ivcs we also distinguish between technology oriented gvcs tvcs and development oriented gvcs dvcs we find that dvcs are better at increasing firm s inventions and that tvcs combined with ivcs support innovations

on the international capital ownership pattern at the turn of the twenty first century abstract this paper studies the trends of current accounts and accompanying capital movements from a growth theoretic perspective and to predict the credit debt structure among major industrialized countries the united states japan and west germany at the turn of the twenty first century the past movements of national saving and investment support the habitat view by feldstein and horioka that the supply of savings create investment where it is generated rapid increases in the united states foreign debt may imply however the relevance of the traditional view that capital moves so as to equate its rate of returns the simulation exercises shows that the ratio of external debt to capital stock in the united states will rise to 30 40 over the long run in absence of the recovery of its saving ratio to the historical standard in the 1970s

the capital gap for small technology companies public venture capital to the rescue in this paper we analyze effectiveness of public intervention for fostering private venture capital market in spain we use a sample obtained from venturexpert database consisting of 755 investments made by 83 spanish public and private venture capitalists that closed at least one fund between 1997 and 2008 we compare the investments undertaken by private and public investors before and after public venture capital programs were started we found that spanish venture capital market has rapidly developed in the last 10 years and that this development coincides with the establishment of public policies for encouraging technology entrepreneurship we also found that other factors such as previous experience of investors and size have also contributed to fostering more high risk investments these results may encourage governments in other countries to start or keep working to promote private venture capital investments

tariffs foreign capital and national welfare with sector specific factors abstract this paper examines the effect on national welfare of an endogenously determined inflow of foreign capital in the context of a well known model with sector specific inputs both for the case of unrestricted international trade and investment and in the presence of a tariff the second best problem of the optimal tax on foreign investment for a given tariff level is also investigated by application of the concept of shadow prices for primary factors in distorted open economies the results obtained are then related to analogous propositions derived previously for the standard heckscher ohlin model

housing and endogenous long term growth abstract in this paper we develop an endogenous growth model where housing plays a role as a consumption and an investment good for households as an input to production and as a production sector we show that the long term endogenous growth rate for the economy while not affected by housing related preference parameters depends critically on housing related production parameters the key modeling assumption is that housing and other assets in the economy are not perfect substitutes with this we can show that the endogenous long term growth rate depends on the relative price of housing and other types of capital accordingly the effects of productivity shocks on growth can be understood through their effects on the relative asset price and the corresponding changes in capital intensity we show that productivity shocks to the three sectors of production manufacturing construction and educational and training activities have positive effects on long term growth for reasonable parameter values however the responsiveness of the long term growth rate to shocks in construction is greater than responsiveness to shocks in manufacturing

a dynamic specific factors model of international trade in a dynamic economy land and capital serve not only as factors of production but as assets which individuals use to transfer income from working periods to retirement changes in the terms of trade and in the endowments of fixed factors do not necessarily have the same effects on factor prices and on the composition of output as they do in a static framework changes in these variables affect both total savings and the amount of savings that is diverted toward investment in capital results derived from the traditional specific factors model are more likely to emerge when the sector using land as a factor of production has a higher labor share than the sector using capital in this case the land using sector dominates factor markets more than asset markets once the roles for land and capital as assets are recognized the possibility of natural resource booms that reduce steady state welfare arises at the same time an increase in population can raise steady state welfare

national debt savings and real interest rates in a neoclassical model with endogenous labour supply and knowledge based growth in this paper the interest rate effect of government deficit financing in neoclassical model with endogenous labour supply and knowledge based growth is examined it is shown that government deficits do not raise interest rates if consumption and leisure are good substitutes and there is a large spillover effect in knowledge creation jel classification e13 e60 h60 dette nationale epargnes et taux d interet reels dans un modele neo classique ou la croissance est fondcle sur la connaissance et l offre de travail endogmne ce memoire examine les effets sur le taux d interet du financement d un deficit gouvernemental dans un modele neo classique ou la croissance est fondee sur la connaissance et l offre de travail endogene on montre que les d6ficits gouvernementaux ne font pas croitre les taux d interet si la consommation et le loisir sont des biens substituts et qu il y a des effets extemes importants qui decoulent de la production de la connaissance

the welfare effects of rent saving and rent seeking this paper uses an overlapping generations framework to model the allocation of import licences of intermediate goods according to firm capacity it shows that this method of allocation encourages rent seeking and also thereby improves welfare compared with a method that does not allow rent seeking a o kreuger 1975 1974 and j n bhagwati and p desai 1970 describe how turkey and india have allocated imports on the basis of firm capacity which led to rent seeking through overexpansion of capacity j n bhagwati and t n srinivasan 1980 first recognized the possibility that rent seeking may actually improve welfare in the presence of a distortion as it does in this paper

international capital mobility and commercial policy in an economic region abstract if two small countries are linked by capital movements then at low tariff levels any increase in capital flows induced by the commercial policy of either country will harm that country and benefit the other country while at low levels of international investment a tariff increase always harms the country levying the tariff nevertheless an increase in one country s tariff could benefit both countries by alleviating regional distortions in factor allocation if the countries liberalize factor movements within a customs union then conflicts must arise in choosing the level of the common external tariff

financial liberalisations in latin america in the 1990s a reassessment this paper studies the experience of latin america latam with financial liberalisation in the 1990s the rush towards financial liberalisations in the early 1990s was associated with expectations that external financing would alleviate the scarcity of saving in latam thereby increasing investment and growth yet the data and several case studies suggest that the gains from external financing are overrated the bottleneck inhibiting economic growth is less the scarcity of saving and more the scarcity of good governance a possible interpretation for these findings is that in countries where private savings and investments were taxed in an arbitrary and unpredictable way the credibility of a new regime could not be assumed or imposed instead credibility must be acquired as an outcome of a learning process consequently increasing the saving and investment rates tends to be a time consuming process this also suggests that greater political instability and polarisation would induce consumers to be more cautious in increasing their saving and investment rates following a reform hence reaching a sustained take off in latin america is a harder task to accomplish than in asia

economic effects of land taxes in an inflationary economy abstract we investigate the incidence of land taxes using a monetary overlapping generations model the real price of land may be raised with a land tax even when the elasticity of saving with respect to the interest rate is positive we may have the crowding out case which is induced by the substitution from capital and land to money the capital loss suffered by older generations holding land during the transition to a land tax may be partially offset by a gain in money balances as inflation abates

cost effects of international trade in meeting eu renewable electricity targets abstract the european market for renewable electricity received a major stimulus from the adoption of the directive on the promotion of renewable electricity the directive specifies the indicative targets for electricity supply from renewable energy sources res e to be reached in european union eu member states in the year 2010 it also requires member states to certify the origin of their renewable electricity production this article presents a first eu wide quantitative evaluation of the effects of meeting the targets using an eu wide system for tradable green certificates tgc we calculate the equilibrium price of green certificates and identify which countries are likely to export or import certificates cost advantages of participating in such an eu wide trading scheme are determined for each of the member states moreover we identify which choice of technologies results in meeting targets at least costs results are obtained from a model that quantifies the effects of achieving the res e targets in the eu with and without trade the article provides a brief insight in this model as well as the methodology that was used to specify cost potential curves for renewable electricity in each of the 15 eu member states model calculations show that within the eu wide tgc system the total production costs of the last option needed to satisfy the overall eu res e target equals 9 2 eurocent kwh assuming that the production price of electricity on the european power market would equal 3 eurocent kwh in the year 2010 the indicative green certificate price equals 6 2 eurocent kwh we conclude that implementation of an eu wide tgc system is a cost efficient way of stimulating renewable electricity supply

the policy implications of the different interpretations of the cost effectiveness of renewable electricity support abstract the cost effectiveness of support for renewable electricity is a main criterion to assess the success of policy instruments together with effectiveness the costs of support are also a source of significant concern for governments all over the world however significant confusion exists in the literature on the cost effectiveness of public support for renewable electricity while some authors define the concept of cost effectiveness as that which complies with the equimarginality principle many others including documents from relevant organisations european commission international energy agency intergovernmental panel on climate change define it as the lowest costs of support generally equating it with the minimisation of consumer costs the aim of this paper is to clarify the differences between both approaches and their policy implications regarding the choice of instruments and design elements it is shown that they partly overlap and that their policy implications clearly differ leading to very different policy prescriptions while the former favours technology neutral instruments and design elements the minimisation of consumer costs approach favours instruments and design elements which adjust support levels to the costs of the technologies

the investment strategies of publicly sponsored venture capital funds abstract this paper investigates the effects of public ownership on the investment strategy of hybrid vc funds we exploit a unique dataset containing data for all of the venture capital funds in europe that received financial support from the european investment fund eif during the years 1998 2007 the dataset includes 179 vc funds that invested in 2482 companies we find that the level of public ownership shows a weak negative correlation with the likelihood of observing a write off and that a higher public share is associated with a longer duration for the investment the latter effect is more relevant for those investments that generate intermediate financial returns the results are robust to the introduction of controls at the target firm level and for financial market conditions

financing technology based small firms in europe what do we know this paper reviews the evidence on financing technology based small firms tbsfs in europe european tbsfs finance new investments by relying primarily on internal funds due to capital market failures induced by asymmetric information european venture capital has caught up with us venture capital but this is mainly because of the growth in uk venture investments it is unclear whether european venture capital has been able to certify the quality and enhance the growth of funded companies compared with the nasdaq there is little development of trading in high tech stocks in europe the so called new markets established in the 1990s collapsed in the wake of the internet bubble crash public venture capital and research and development r d tax incentives seem to have positively affected high tech firms

is free trade passe abstract if there were an economist s creed it would surely contain the affirmations i understand the principle of comparative advantage and i advocate free trade yet the case for free trade is currently more in doubt than at any time since the 1817 publication of ricardo s principles of political economy and this is due to changes that have recently taken place in the theory of international trade while new developments in international trade theory may not yet be familiar to the profession at large they have been substantial and radical in the last ten years the traditional constant returns perfect competition models of international trade have been supplemented and to some extent supplanted by a new breed of models that emphasizes increasing returns and imperfect competition these new models call into doubt the extent to which actual trade can be explained by comparative advantage they also open the possibility that government intervention in trade via import restrictions export subsidies

optimal conflict in preference assessment conflict arises indecision making when the choice alternatives present strong advantages and disadvantages over one another that is when the trade offs involved are large conflict affects human response to choice in particular it increases decision difficulty and response unreliability on the other hand larger trade offs i e higher conflict reveal more information about an individual s preferences and mitigate the influence of measurement unreliability on preference model estimation this suggests somewhat counterintuitively that there may exist some optimal level of conflict for efficient measurement of preferences how to determine this level this issue is examined from behavioral and analytical angles we outline a general analysis of the interaction between trade off size and modeling accuracy and demonstrate its application on a simple example the kind of analysis developed here can be conveniently implemented in a computer spreadsheet and would be especially valuable when large amounts of preference data are to be collected as in consumer preference studies experimental research and contingent valuation surveys

a theoretical analysis of optimal financing strategies for different types of capital constrained entrepreneurs in this paper we compare two alternative financing strategies that capital constrained entrepreneurs can adopt they can either wait until they raised enough money to complete their project the more conservative strategy or use limited resources to achieve some intermediate milestone before contacting large outside investors such as venture capitalists the more adventurous strategy we examine how the choice of financing strategy is affected by entrepreneurial types life style serial and pure profit maximizing entrepreneur we show that specific entrepreneurial characteristics may ultimately affect the shape of firms as they may pursue different strategies to achieve similar goals the paper generates a number of empirical predictions on security design the interplay between angel and venture capital finance and the professionalization of the venture capital market c 2006 elsevier inc all rights reserved

on the welfare cost of permanent inflation most work on inflation and welfare relies on some variant of the optimal tax framework by the straightforward application of the static optimal tax literature helpman and sadka 1979 attempt to present sufficient conditions under which the optimal rate of inflation is positive in a second best world though they do not discuss the level of optimal inflation as stressed by siegel 1978 in the static problem there is an infinite set of tax rates that minimize welfare costs and hence a value of optimal inflation cannot be determined all we can say is that friedman s optimum quantity of money rule is generally not optimal in a second best world in an intertemporal framework however an optimal inflation rate can be determined summers 1981 presents an explicit expression for the optimal rate of inflation under ad hoc formulations of savings behavior in general the optimal rate of inflation will be determined implicitly by a combination of references and technology the difficulty in saying anything explicit about the optimal rate of inflation is now generally recognized an alternative approach is to explore the welfare cost of inflation more systematically if the welfare cost of inflationary finance is relatively small compared with other distortionary taxes the optimal rate of inflation may well be high the welfare effects are examined by starting with the expenditure function and comparing the

on the choice between capital and labour mobility trade theorists since the pioneering work of kemp 1966 have considered the question of national advantage from international factor mobility by considering only one factor to be so mobile kemp analyzed elegantly the question of optimal policies in 2 x 2 x 2 model and showed that since monopoly power could exist in both the goods and factor markets in consequence of international capital mobility the optimal policy intervention would generally involve two policy instruments tariffs cum subsidies on goods and duties cum subsidies on international capital flows jones 1967 subsequently extended kemp s argument to the secondbest context by examining the optimal level of one of these instruments when the other was arbitrarily set at zero elsewhere in this issue brecher 1983 shows in an elegant and original contribution that the jones policy problem is in fact a third best rather than a second best problem as generally believed and that if only one of the tariff and capital mobility taxes cumsubsidies can be used it is generally possible to improve welfare further by admitting an altogether different domestic policy instrument namely a production or consumption tax cum subsidy as the case may be the research of bhagwati was supported by the german marshall fund grant no l 34015 the problem analyzed in the paper was posed in bhagwati 1979 and an early ingenious and neglected analysis in ramaswami 1968 was noted by bhagwati we have profited greatly from these contributions also from reading webb 1970 ramaswami 1970 and a recent paper of calvo and wellisz 1983 on this problem this result is in consonance with the results of bhagwati ramaswami and srinivasan 1969 for the case without international capital mobility but the consonance is intuitive only after the result was established for the case with international capital mobility