war and natural resource exploitation abstract we build a theoretical framework that allows for endogenous conflict behaviour i e fighting efforts and for endogenous natural resource exploitation i e speed ownership and investments while depletion is spread in a balanced hotelling fashion during peace the presence of conflict creates incentives for rapacious extraction as this lowers the stakes of future contest this voracious extraction depresses total oil revenue especially if world oil demand is relatively elastic and the government s weapon advantage is weak some of these political distortions can be overcome by bribing rebels or by government investment in weapons the shadow of conflict can also make less efficient nationalized oil extraction more attractive than private extraction as insecure property rights create a holdup problem for the private firm and lead to a lower license fee furthermore the government fights less intensely than the rebels under private exploitation which leads to more government turnover without credible commitment to future fighting efforts private oil depletion is only lucrative if the government s non oil office rents are large and weaponry powerful which guarantees the government a stronger grip on office and makes the holdup problem less severe

power competition and the free trader vulgaris competition is taken for granted by neoclassical economics its cause is human nature and its functioning is the result of spontaneous interactions as such it is contrasted with power which is an unnatural restriction on human liberty by contrast marx discusses competition as a coercive mechanism historically competition develops with the development of market relations and what today appears as human nature is part of this process thus it is within competition and not outside of it that marx explains the coercive nature of capitalism his critique shows that competition and power appear to be antithetical because market relations are based on individual freedom however class relations are another essential aspect of capitalism by neglecting these relations neoclassical economists including those of a radical inspiration implicitly espouse the ruling class s viewpoint which they simply translate into rigorous mathematical terms in this sense they are the modern expression of what marx called the vulgar political economy

uncertain regulatory timing and market dynamics abstract using a dynamic model of capacity accumulation i examine the relationship between uncertainty about the timing of a new pigouvian tax and oligopolistic competition i find that for some market structures uncertainty about the timing of the regulatory change leads firms to increase investment these results stem from the nature of the uncertainty and its interaction with firms strategic incentive to engage in capacity races they dramatize the importance of accounting for initial conditions when forecasting firms reactions to anticipated regulatory changes in addition i find that more protracted uncertainty leads to greater welfare costs

option pricing and foreign investment under political risk abstract the paper analyses asset prices in a context of uncertainty over future government policy as current policy is maintained perceived risk abates thus leading to a gradual appreciation of asset prices and a gradual decrease in their conditional variance option values computed under this process have time series and the term structure of conditional volatility which in general are downward sloping in price series without a policy reversal implied volatility from option prices will exceed actual volatility with this wedge progressively disappearing this may be viewed as the volatility analogue of the peso premium for assets subject to large infrequent price drops

leaders followers and equity risk premiums in booms and busts abstract we study an investment problem in which two asymmetric firms face competition and the regime characterizing the economic condition follows a markov switching process we derive the value functions and investment thresholds of the leader and follower the option value of regime uncertainty is found to be quite important for the investment decision of firms we also show the relationship between the equity risk premium and the economic cycle that has not been done in previous studies which proxy economic conditions by the level of demand or other state variables

regulatory risk vertical integration and upstream investment abstract we investigate the impact of regulatory risk on vertical integration and upstream investment by a regulated firm that provides an essential input to downstream competitors regulatory risk reflects uncertainty about the regulator s commitment to a regulatory policy that promotes the regulated firm s noncontractible investment we show that when the regulator sets the regulatory policy after the vertical industry structure has been established some degree of regulatory risk is ex ante socially beneficial regulatory risk makes vertical integration profitable and stimulates high upstream investment at a lower social cost this occurs for moderate costs of high investment and firms small risk aversion our analysis sheds new light on some relevant empirical patterns in vertically related markets

a theory of credibility this paper presents models in which one agent must decide whether to trust another whose motives are uncertain reliability can only be communicated through actions in this context it pays for people to build a reputation based on reliable behaviour someone becomes credible by consistently providing accurate and valuable information or by performing useful services the theory provides a justification for long term arrangements without binding contracts it also describes those situations where it pays an agent to cash in on his reputation many decisions depend on trusting someone consumers must decide whether to believe advertisements banks need to judge the reliability of loan applicants and employers must decide how much responsibility to delegate to their employees this paper attempts to model situations that arise when someone is uncertain about whether to trust the people he deals with in this context reputations for reliability are valuable an agent becomes credible by consistently providing accurate valuable information or by always acting responsibly i analyse a series of simple abstract models of information transmission in the basic model there are two agents the sender s and the receiver r who are to play the game a known finite number of times at each stage both players learn the value of a parameter measuring the importance of that period s play of the game that is the value of making a correct decision and s obtains payoff relevant information s then sends a signal to r who makes a decision that affects the welfare of both players after both players learn the consequences of r s decision the process repeats at each stage r must decide what action to take in order to do that he must assess the credibility of s the difficulty arises because r is uncertain about s s preferences when play begins i model this by assuming that with positive probability s has identical preferences to r s is a friend and with positive probability s has completely opposed preferences to r s is an enemy this uncertainty creates a trade off for enemy senders at each stage providing honest information enhances s s reputation but only at the expense of foregoing an opportunity for immediate gain by duping r the possibility that s is a friend lends credibility to what he says but this credibility may also be exploited by an enemy s the principal equilibrium has the following form in the basic model where s has no control over the importance of a given play s typically conveys accurate information for the first several periods r raises the probability he places on s being friendly after receiving accurate information if he believes that an enemy would have lied to him with positive probability the more important the information the more likely an enemy will attempt to deceive r an enemy will eventually take advantage of r by misleading him when this happens the sender loses all opportunities for deception in the future i

an analysis of the optimal provision of public infrastructure a computational model using mexican data abstract we construct a intertemporal general equilibrium model and use it to examine infrastructure effects on mexican national income we consider three types of infrastructure electricity transportation and communications we then estimate production functions for the 16 major sectors of the economy in which sectoral output depends upon inputs of capital and labor as well as the stocks of the three types of infrastructure we then use these estimates to analyze the optimal level of government spending on the different types of infrastructure despite the fact that the estimated output elasticities with respect to public infrastructure are relatively high increased expenditure on infrastructure has rapidly decreasing benefits some benefits could be achieved by modest increases in capital expenditures although at the cost of significantly higher inflation and real interest rates indeed the increase in real interest rates causes the benefits of enhance infrastructure to be greatly reduced

general equilibrium effects of investment incentives in mexico mexico has experimented with several tax instruments designed to promote private capital formation among such initiatives were general and industry specific tax credits employment tax credits and corporate tax credits the authors examine relative efficacy of such instruments using a dynamic computable general equilibrium model they carry out model simulations using three equal yield investment incentive scenarios increases in investment tax credits increases in employment tax credits and an equivalent reduction in the corporate tax rate the authors present outlines of the tax policy environment with model details and they highlight alternate tax incentives regimes conclusions and summary results are provided by the authors

investment in technological innovations an option pricing approach abstract this paper develops a model of the optimal investment strategy for a firm confronted with a sequence of technological innovations we incorporate many of the most important characteristics of real world technology markets for example we permit innovations to be stochastic in their arrival times and their profitability we also incorporate learning so that firms adopting current innovations become better able to benefit from future innovations the model yields four distinct investment strategies the model is then used to predict actual firm policy these implications are discussed and compared with observed firm behavior

oil prices and rural migration the dutch disease goes south abstract we construct a two period general equilibrium model to evaluate policies affecting agricultural migration and exports the model is applied to mexico for the period 1986 1987 to obtain certain qualitative policy conclusions related to the dutch disease brought about by oil price increases dutch disease phenomena can be brought about both as the result of real exchange rate changes as well as price changes caused by migration out of agriculture in the short run it may be possible to use fiscal policy such as value added subsidies to agriculture to at least partially negate the effects of an oil price increase on agricultural exports jel f31 f41

green electricity investments environmental target and the optimal subsidy abstract we investigate the optimal investment decision in renewables under market demand uncertainty in the context of the italian strategy for renewable deployment under the eu policy the firm has to decide about the time and size of the investment we find that a higher subsidy level induces the firm to invest earlier with a smaller investment capacity this implies that a given environmental target cannot be reached by a too high too low subsidy level since this will cause the investment level to be too low too late we show that there exists an optimal intermediate subsidy level due to uncertain demand in some cases ensuring to reach the environmental target in time requires an additional conditional subsidy we propose a heuristic for policy makers stating when and how much subsidy to provide furthermore we find that in a more uncertain economic environment the subsidy adjustment to maintain the target level of investment results in the firm investing earlier which is opposite to the standard real options result

investing without credible inter period regulations a bargaining approach with application to investments in natural resources abstract a government s lack of credibility when promising future taxation and regulation of foreign direct investment is often regarded as an obstacle to foreign investment as shown in this paper the total lack of inter period credibility may not necessarily prevent investments from taking place both the government and the investor can benefit from negotiating a series of short lived agreements in which the investor obtains a share of the revenue generated from previous investments against the undertaking of making new investments this assumes that intra period agreements are respected by the parties

regime uncertainty and optimal investment timing abstract we construct a real options model in which a regime change is expected at a pre determined future time and study the effects of regime uncertainty on a firm s strategic investment decision taking into consideration the remaining time to the regime change and the probability of each regime state we show that just before the time of a regime change firms should act as if the worst case scenario was about to happen even if a good state is highly possible

investment with uncertain tax policy does random tax policy discourage investment we consider the impact of tax policy uncertainty on firm level and aggregate investment comparing investment behaviour when uncertainty is due to a shock following geometric brownian motion gbm versus when random discrete jumps in tax policy occur expectations of the likelihood of a tax policy switch have an important negative impact on the gain to delaying investment in the latter model and time to investment can fall with increasing tax policy uncertainty aggregate investment simulations indicate that capital formation is adversely affected by increases in uncertainty in the traditional gbm model but can be enhanced in the jump process model

strategic real options under asymmetric information abstract this paper studies the effect of private information on the capital allocation decisions of firms who operate under imperfect competition i analyze two interactive firms one with private information and the other without who must decide when to undertake an irreversible and uncertain investment decision traditional non strategic models of irreversible investment under uncertainty involve a single decision maker and result in an optimal period of delay before the investment is undertaken in a strategic setting firms must balance their desire to delay against competitive advantages from early investment i find that an equilibrium may not exist within the standard continuous framework when the private information is over revenues moreover when an equilibrium does exist the competitive pressures from the uninformed firm are weak this is in contrast to existing models with asymmetric information over costs where an equilibrium always exists and the competitive pressures remain strong hsu and lambrecht 2007 this work shows that the investment timing decision and thus the value of the private information is highly sensitive to the nature of incomplete information

investment under uncertainty and policy change in this paper the impact of a policy change on the investment behavior of the firm is studied in an incomplete information setting the policy change occurs when a stochastic process describing the state of the economic environment reaches a certain trigger the firm has incomplete information about the trigger and knows only its probability distribution consequently both the firm s conjecture concerning the trigger value as well as the precision of this conjecture serve as input parameters we derive the optimal investment rule maximizing the value of the firm and show that the impact of the trigger value uncertainty on the optimal investment threshold is non monotonic the threshold decreases with uncertainty for its low levels while the reverse is true if uncertainty is high furthermore we provide results concerning the valuation of the firm s investment opportunity and present some policy implications

the second theorem of the second best abstract this paper interprets many results from the literature on incentive compatibility and cost benefit analysis as illustrations of a second theorem of the second best the theorem states that if there exists any restriction on transactions required for first best efficiency then there is no presumption that a social welfare maximum entails equal marginal social utilities of income across individuals one reason is that incentive constraints shift with redistributions of wealth so that redistributions have an instrumental role in relaxing constraints that make the economy second best two examples relate such wealth effects to countervailing incentives and hostage taking

intertemporal output and employment effects of public infrastructure capital evidence from 12 oecd economies this paper utilises an intertemporal optimisation framework to study the effects of public infrastructure capital on output supply and input demands in 12 oecd countries we find that in all 12 countries i public capital has positive long run effects on both output supply and input demands ii its mean short run rates of return are fairly low while the corresponding long run rates are much higher but declining over time these findings underscore important under investment gaps in infrastructure during the 1970s and 1980s these gaps however narrowed down significantly in a few cases completely by the early 1990s

finite project life and uncertainty effects on investment abstract this paper revisits the important result of the real options approach to investment under uncertainty which states that increased uncertainty raises the value of waiting and thus decelerates investment typically in this literature projects are assumed to be perpetual however in today s economy firms face a fast changing technology environment implying that investment projects are usually considered to have a finite life the present paper studies investment projects with finite project life and we find that in contrast with the existing theory investments may be accelerated by increased uncertainty it is shown that this particularly happens at low levels of uncertainty and when project life is short

real options and preemption under incomplete information abstract this paper introduces incomplete information and preemption into an equilibrium model of firms facing real investment decisions the optimal investment strategy may lie anywhere between the zero npv trigger level and the optimal strategy of a monopolist depending on the distribution of competitors costs and the implied fear of preemption our model implies that the equity returns of firms which hold real options and are subject to preemption will contain jumps and positive skewness

the role of infrastructure in mexican economic reform this article estimates the relationship between the provision of public infrastructure and private output in sixteen sectors in mexico the sector specific cost functions depend on wages the cost of capital and the nominal values of the stocks of three types of infrastructure electricity transport and communications the article concludes that infrastructure in electricity and communications generally reduces the cost of sectoral production but transportation infrastructure tends to increase costs of sectoral production it appears that mexican public expenditure on electricity and communications has enhanced the productivity of private production but expenditure on transport may actually have had a detrimental effect on private output in addition although in general labor and infrastructure are substitutes in the case of electricity and communications infrastructure capital and infrastructure are complements in the case of transport infrastructure these conclusions are reversed copyright 1995 by oxford university press

on the effect of high energy prices on investment empirical analyses of firm behaviour typically assume that there is a stable relationship between investment on the one hand and changes in the relative prices of inputs output demand and other determinants on the other hand however because of the lumpy nature and irreversibility of investments and the presence of uncertainty about future economic developments a specific percentage change in relative prices and output demand may not always lead to the same percentage change in capital stocks that means that different regimes may exist in investment behaviour we test whether such regimes exist using high quality data on eight manufacturing industries in the netherlands three different regimes can be identified that are characterized by differences in the relative input price levels and we find that if relative prices take on extreme values the propensity to adjust the scale of production to changes in demand is very low

contested exchange political economy and modern economic theory university of california berkeley department o f economics berkeley c a l i f o r n i a working paper 8876 contested exchange political economy and modern economic theory samuel bowles and herbert gintis june 8 1988 key words c o n t e s t e d exchange p o l i t i c a l jel c l a s s i f i c a t i o n economy

financial markets and the political structure of the enterprise abstract this paper argues that competitive financial markets disfavor democratic enterprises even assuming such enterprises suffer no allocational deficiencies this conclusion follows from five assertions a the democratic enterprise requires access to credit markets b access to credit presupposes access to equity markets c the democratic firm s optimal risk level is lower than that desired by stockholders d the risk level assumed by the firm is costly to observe subject to inaccurate measurement and contractually unenforceable and e the incentives required to induce stockholder favorable risk behavior are more costly for democratic firms than for firms with stockholder accountable management

reputation in a model of monetary policy with incomplete information abstract previous models of rules versus discretion are extended to include uncertainty about the policymaker s type when people observe low inflation they raise the possibility that the policymaker is committed to low inflation type 1 this enhancement of reputation gives the uncommitted policymaker type 2 an incentive to masquerade as the committed type in the equilibrium the policymaker of type 1 delivers surprisingly low inflation with corresponding costs to the economy over an extended interval the type 2 person mimics this outcome for awhile but shifts eventually to high inflation this high inflation is surprising initially but subsequently becomes anticipated

green investment under time dependent subsidy retraction risk abstract driven by ambitious targets to reduce greenhouse gas emissions many countries have introduced support schemes to accelerate investments in renewable energy however in recent years experience showed that over time retraction of support schemes becomes more likely this has a severe effect on investment behaviour in this paper we study the effect of a potential subsidy retraction of a feed in tariff fit on investment in renewable energy capacity where we explicitly account for the fact that the likelihood of policy retraction may change over time we show that the range of fits for which it is optimal to invest immediately decreases the longer a subsidy has been in place if the fit offered is too small and or the subsidy has been installed too long ago it is optimal for the firm to wait with investment until the subsidy is eventually retracted and free market conditions prove to be profitable enough furthermore we show that whether a policy maker aiming at accelerating investment prefers investors to consider retraction risk to be time dependent or not depends on how much time has passed since the subsidy has been introduced at the moment the investor considers investment for the first time

the ontology of economic power in capitalism mainstream economics and marx mainstream economics conceives power to be incompatible with perfect competition this conception i argue derives from its deductivist method and the empirical realist ontology that it presupposes following marx i show that capitalism constantly reproduces asymmetrical constraints on classes of individuals independent of the market form my ontological argument is rooted in the philosophy of critical realism my conclusion is that the dichotomy power competition is ontologically untenable if capitalist relations necessarily involve power it is not simply because neoclassical competition does not exist in reality as radical mainstream economists suggest but rather because capitalism altogether is a system of power

investment under regime uncertainty impact of competition and preemption abstract in this study we analyze the investment timing problem and introduce a model of two firms competing for investment preemption each of which knows in advance the time at which the economic condition that will have an impact on the investment changes we qualitatively show how two firms strategically optimize their investment timing taking into account competition and preemption

optimal timing of technology adoption abstract in a dynamic programming framework this paper investigates the optimal timing of technology adoption by a competitive firm when technology choice is irreversible and the firm faces a stochastic innovation process with uncertainties about both the speed of the arrival and the degree of improvement of new technologies a numerical example illustrates how the optimal timing decision is affected by changes in parameter values reflecting market conditions the firm s initial technological attributes and the characteristics of the stochastic innovation process some of these effects turn out to be in sharp contrast to common intuition contrasting the optimal decision rule derived here with the rule obtained under the net present value shows that the former implies a slower pace of adoption than implied by the latter the optimal decision rule is generalized for the case of multiple technology switches and it is shown that for all the switching decisions except the last one the optimal rule satisfies the net present value criterion

the political feasibility of rural poverty reduction abstract policies oriented at the reduction of rural poverty will only be introduced if politically feasible computable general equilibrium and multimarket models have been widely used to measure the complex economic and welfare effects of these policies based on the body of theoretical and empirical knowledge on the determinants of influence by groups in civil society and on the role of the state in policy making an index of the political feasibility of policy outcomes is constructed use of this index with data from india and ecuador allows to identify a number of promising avenues to politically feasible reforms in particular by choosing policies that induce the emergence of supportive coalitions dominated by the nonpoor the general equilibrium effects and the leakages of antipoverty instruments are key in inducing emergence of these coalitions

investment under uncertainty the case of replacement investment decisions we analyze the determinants of replacement investment decisions in a contingent claims model with maintenance and operation cost uncertainty we find that the optimal time between replacements is increasing in the volatility of cost the purchase price of a new asset and the corporate tax rate and is decreasing in the systematic risk of cost the salvage value of the asset and the investment tax credit the optimal time between replacements can either increase or decrease with an increase in the depreciation rate extensions of the model to examine the effects of technological and tax policy uncertainty on replacement investment decisions give intuitive but striking results uncertainty about the arrival of a technological innovation that would decrease maintenance and operation cost results in a significant decrease in replacement investment uncertainty in a tax law change that would encourage investment decreases current investment and uncertainty in a tax law change that would discourage investment increases current investment

information revelation and strategic delay in a model of investment we model investment as an n player game with a pure informational externality each player s payoff depends only on his own action and the state of nature however because a player s action reveals his private information players wait to see what other players will do equilibrium is inefficient because delay is costly and information is imperfectly revealed we characterize the unique symmetric perfect bayesian equilibrium and study the robustness of delay which turns out to be sensitive to the reaction speed and the number of players we establish the following results i when the period length is very short the game ends very quickly and there is a form of herding or informational cascade which results in a collapse of investment ii as the period length increases the possibility of herding disappears iii as the number of players increases the rate of investment and the information flow are eventually independent of the number of players adding more players simply increases the number who delay iv in the limit the time profile of investment is extreme a period of low investment followed either by an investment surge or a collapse

inter capital relations and the network organisation redefining the work and employment nexus the blurring of organisational boundaries associated with networks of organisations suggests the need to reconsider how work and employment are shaped by shifting inter capital relations traditional theories of the internalised employment relationship understate its inter relationship with both the form of inter capitalist competition and the type of inter capitalist production relations also existing theories of inter organisational contracting do not adequately address how these are shaped by employment relations both within and between organisations an alternative approach provides a new perspective for considering forms of countervailing power to protect workers interests in a capitalist system continuously shifting from integrated to non integrated forms copyright 2005 oxford university press

integrating social conflict into economic theory the generalisation of coasian theorem to the power relationship amounts to depicting conflict as a bargaining process between conflictual parties that are simultaneously both partners and adversaries this perspective leads to different models of rational conflicts i e a threat of conflict without any real clash an alternative approach is developed by different models inspired by the public choice school which build upon the logic of coercive power within the framework of a self interested behaviour the integration of social conflicts in a narrowly defined individual cost benefit theoretical framework has resulted in reducing social conflict to real private but not social conflict in other words economic theory has considered social protesters either as potential or actual looters but rarely as a group of people struggling for a common cause integration of social conflict into economic theory will require i abandoning the ubiquitous market model when describing conflictual relationships ii accepting the logic of force or coercive power as a starting point and iii expanding the idea of interest to include encompassing including class interest

the value of green energy under regulation uncertainty abstract we examine investments in power generation projects under policy uncertainty when the investor has the choice between two alternative technologies a gas fired plant and a wind plant increased likelihood of subsidy withdrawal reduces the payoff from and postpones investments in the wind technology simultaneously it accelerates investments in gas thereby eliminating or further postponing investments in wind capacity we show that this substitution phenomenon can be of first order importance it can have a significant impact on the timing of investment the wind premium and the probability of investing in the wind technology our results provide new insights about the scope and impact of green energy regulation