investment financing decisions and tax policy mists have analyzed the effects of taxes on capital spending most studies assume that firms respond to prices set in centralized securities markets such as market interest rates of tobin s q and firms undertake all profitable investment projects firms choose the mix or finance among internal funds debt and new equity independently the availability of finance does not limit investment the implications for tax policy are clear the marginal tax rate on returns from a new project matters for investment not the firm s average tax burden on returns from its investments in place for firms that face imperfect markets for

banking deregulation and industry structure evidence from the french banking reforms of 1985 we investigate how the deregulation of the french banking industry in the 1980s affected the real behavior of firms and the structure and dynamics of product markets following deregulation banks are less willing to bail out poorly performing firms and firms in the more bank dependent sectors are more likely to undertake restructuring activities at the industry level we observe an increase in asset and job reallocation an improvement in allocative efficiency across firms and a decline in concentration overall these findings support the view that a more efficient banking sector helps foster a schumpeterian process of creative destruction many economies around the world are characterized by heavily regulated bank

the speed of the invisible hand abstract very little attention has been devoted to incorporating dynamic elements into empirical models of market structure and performance consequently there has been little progress in settling the issue of whether the market structure profits relationship is more than just a temporary phenomenon in this study an estimation equation is developed which allows for incomplete adjustment of past profits from expected future profits where expected profits depends on present and expected future changes in market structure the model is estimated pooling panel data across industries the findings indicate that adjustment to abnormal profits is relatively quick market share adjustments are non instantaneous and that inclusion of industry specific effects is important the results suggest that previous studies are susceptible to specification bias from omitted variables

labour s shares and profitability crisis in the u s recent experience and post war trends extends work on u s rate of profit by t e weisskopf 1979 firstly the author finds by extending weisskopf s data into the early 1980s that continued downward pressure on profitability i s explained by capacity utilization in contrast to weisskopf s explanation of rising labor share secondly it is found that ri sing labor share in the post war period is largely composed of r ising levels of supplemental fringe benefits and is in the earl y part of the period also explained by rising nonproduction lab or costs production worker wage share falls secularly and this may be explained particularly in the 1960s by rising price mar k ups on direct cost copyright 1987 by oxford university press

comparisons between small business data base useem and bureau of labor statistics bls employment data 1978 1986 the bls versus useem comparison generally points out some major classification differences in the data sets particularly in the classification and growth of larger establishments useem and bls data generally agree as to the direction of employment growth over the 1978 to 1986 period differences occur in 7 of the 63 comparisons of employment growth but bls attributes a greater proportion of growth to larger reporting units useem to smaller establishments bls and useem data have concurring positive or negative growth rates for all size classes in the construction wholesale trade services and finance insurance and real estate industries

rationalizable conjectural equilibrium between nash and rationalizability abstract static equilibria can be viewed as steady states of recurring play of a game such steady states in which players do not perfectly observe the actions of others need not be nash equilibria this paper suggests a static solution concept rationalizable conjectural equilibrium that corresponds to such steady states to present it the basic model of a normal form game is enriched by specifying the signals that players get about others actions the solution is a profile of actions such that each player s action is optimal given that it is common knowledge that all players maximize utility given their signals journal of economic literature classification number c72

finance and competition we investigate the role of financial constraints for product market competition in a general equilibrium model where firms may differ in terms of own wealth and or efficiency we find that in general the amelioration of financial constraints increases competition it lowers the lerner index of markups in financially dependent sectors even when other standard concentration indexes indicate otherwise our analysis implies that disruptions in financial markets such as the recent financial crisis may have adverse effects on competition in product markets a cost that has not been identified before does the existence of financial constraints hinder product market competition in financially dependent sectors do such constraints matter for the number and size of firms as well as for concentration indexes and markups in these markets there is a strong presumption based on the notion that financial constraints act as a barrier to entry expansion in financially dependent activities that a more developed financial system is conducive to greater product market competition surprisingly though there is no theory linking asset market development to competition and things are not better on the empirical front the empirical literature is quite meagre rajan and zingales 2003 and haber 2000 studied the effects of financial development and cetorelli and strahan 2006 and bertrand et al 2007 studied the effects of changes in the degree of competition in the banking sector on various measures of market structure and performance rajan and zingales find that financial development increases the number of firms while it has an ambiguous effect on average firm size in financially dependent industries haber compares the cotton industries in brazil and mexico during 1880 1930 a period of financial liberalisation and argues that concentration indexes decreased in particular in brazil the country that underwent the most effective financial market reform cetorelli and strahan study how market structure in non financial sectors was affected by the increase in competition lower bank concentration and looser statelevel restrictions following deregulation in state banking in the us they find that the number of firms increased average size number of employees per establishment and concentration decreased and the share of establishments in the smallest size group also increased similarly bertrand et al examine the effects of lower state intervention deregulation in the french banking industry on performance and competition in financially dependent sectors they find an increase in firm entry and exit rates and also a reduction in the level of product market concentration the theoretical literature on finance and product market competition is quite extensive but at the same time quite narrow in scope it has two key features first it is

non additive beliefs and strategic equilibria abstract this paper studies n player games where players beliefs about their opponents behaviour are modelled as non additive probabilities the concept of an equilibrium under uncertainty which is introduced in this paper extends the equilibrium notion of dow and werlang 1994 j econom theory 64 305 324 to n player games in strategic form existence of such an equilibrium is demonstrated under usual conditions for low degrees of ambiguity equilibria under uncertainty approximate nash equilibria at the other extreme with a low degree of confidence maximin equilibria appear finally robustness against a lack of confidence may be viewed as a refinement for nash equilibria journal of economic literature classification numbers c72 d81

profitability and profit sharing claims that profit sharing is a purely distributive wealth confiscation scheme without incentive effects due to free rider problems are based on neglect of cooperation and interaction in the workforce when these activities are difficult to monitor directly group incentives such as profit sharing can increase efficiency and maintain a superior nashequilibrium with strictly individual optimization with simultaneous wls tobit estimates we find here strong effects of profit sharing and worker ownership shares on residual owners return on capital in medium sized metal working firms in west germany complementing earlier results on productivity

sources procedures and microeconomic effects of innovation fabio arcangeli paul david frank engelman christopher freeman massimo moggi richard nelson luigi orsenigo nathan rosenberg michele salvati g n von tunzelman two anonymous referees and the participants at the meeting of the committee on distribution growth and technical progress of the italian national research council cnr rome november 16 1985 have helped with various redraftings a particularly grateful acknowledgment is for the insightful and patient help of moses abramovitz this work has been undertaken at the science policy research unit spru university of sussex as part of the research program of the designated research centre sponsored by the economic and social research council esrc earlier support to the research that led to this paper by the italian national research council cnr is also gratefully acknowledged the statistical research has been undertaken with the assistance of stephano brioschi ilaria fornari and giovannu prennushi

interpreting econometric evidence the behaviour of consumers expenditure in the uk abstract the dynamic models of consumers expenditure proposed by davidson et al 1978 and hendry and von ungern sternberg 1979 are re appraised in the light of hall s 1978 analysis of the empirical implications of the life cycle permanent income hypothesis in particular that the series for consumption should obey a random walk apart from trend in an attempt to reconcile the conflicting findings monte carlo experiments are used to demonstrate that if the davidson et al model were actually correct the hall model would appear to give a good description of the data and would probably not be rejected all the models are re estimated with new data for the uk and these data do reject a modified random walk specification in conclusion we discuss the issue of income exogeneity and comment on questions of model selection and interpretation

firm size efficiency and employment revisited a review article whether small business can help countries compete as many american commentators believe or whether increasing firm size is required for success in global markets as much european policy assumes is still a question under intense debate while the terms of the debate have been persuasively challenged by howard 1990 who argues that the real issue isn t size it s industrial organization p 88 the popular american view of small business has been most comprehensively challenged by brown hamilton and medoff 1990 however we find that both their analysis and evidence are flawed in a number of important respects to be developed next and then we shall go back to the broader issues raised by howard 1990 best 1990 loveman and sengenberger 1991 and earlier by fitzroy 1989 and 1990 brown hamilton and medoff henceforth bhm start by disputing the growing importance of small firm employment found by many writers they find stable or declining small business employment shares in the u s however sengenberger loveman and piore 1990 find growing small business shares in many countries in recent years including a rise of 7 5 in manufacturing employment by u s firms with less than 100 employees from 1980 86 compared to a decline of 10 8 in firms with over 500 workers howard p 90 bhm devote much space to the evidence that large employers seem to pay substantially higher wages and fringe benefits even after controlling for the higher levels of education training and

a reestimation of the evans jovanovic entrepreneurial choice model abstract the evans jovanovic finding that entrepreneurial ability and wealth are negatively correlated is puzzling we show that this may result from a downward bias in their wealth data using less biased wealth data we find a positive correlation which is theoretically more justifiable

cooperation productivity and profit sharing firm specific assets generate an ex post bargaining problem over surplus division and rational workers may collude to obtain a surplus share in nonpecuniary form through restriction of effort conversely profit sharing should motivate cooperation to increase productivity when work organization facilitates interaction and horizontal monitoring since productive effort yields positive externalities to workers under contractual surplus sharing in simultaneous tobit estimates we find a strong influence of profit sharing on factor productivity in a sample of medium sized metalworking capitalist firms in west germany proxies for human capital and organizational factors were included

employment entrepreneurship and 1992 microeconomic policy and european problems this essay has covered several areas which are not usually regarded as closely interrelated policy conclusions have been discussed briefly at various points and will now be developed more fully in this final section as evidence for the interrelatedness of such disparate fields as corporate finance and employment policy we start from the observation that many large firms are relatively inefficient particularly at product innovation and flexible organization and employment policies in part because top managerial compensation depends mainly on size this creates an incentive for excessive growth and empire building rather than payment to shareholders of the free cash flow which cannot be profitably invested internally more appropriate incentives for top management would increase dividend payments and hence the flow of funds into the capital market available for financing new start ups and small firms as venture capital even in the u s the cost of obtaining external capital often constrains small firms to invest only their internal cash flow fazzari et al 1988

anticompetitive financial contracting the design of financial claims this paper presents the first model where entry deterrence takes place through financial rather than product market channels in standard models of the interaction between product and financial markets a firm s use of financial instruments deters entry by affecting product market behavior whereas in our model entry deterrence occurs by affecting the credit market behavior of investors towards entrant firms we find that in order to deter entry the claims held on incumbent firms should be sufficiently risky i e equity in contrast to the standard branderlewis 1986 result that debt deters entry the model sheds light on the policy debate on the separation of banking as to whether banks should be permitted to hold equity in firms it also provides an explanation for why venture capitalists hold automatically convertible securities in start up firms

learning and self confirming long run biases abstract we consider an ambiguity averse sophisticated decision maker facing a recurrent decision problem where information is generated endogenously in this context we study self confirming actions as the outcome of a process of active experimentation we provide inter alia a learning foundation for self confirming equilibrium with model uncertainty battigalli et al 2015 and we analyze the impact of changes in ambiguity attitudes on convergence to self confirming equilibria we identify conditions under which the set of self confirming equilibrium actions is invariant to changes in ambiguity attitudes and yet ambiguity aversion may affect the dynamics indeed we argue that ambiguity aversion tends to stifle experimentation increasing the likelihood that the decision maker gets stuck into suboptimal certainty traps

entrepreneurial strategy and the presence of small firms a model is presented hypothesizing that the level of small firm presence in any given industry emanates from the exogenous stock of entrepreneurial talent a stochastic element of managerial and entrepreneurial talent entry deterrence and the entrepreneurial strategy deployed by small firms using data newly released by the u s small business administration the hypothesis is tested for a sample of 247 four digit standard industrial classification industries spanning the entire spectrum of firm sizes we find that consistently for all the measures of small firm size and for all of the time periods used the existence of entry deterrence and reliance upon innovative strategy explains a significant proportion of the variation in the presence of small firms

preferences dependent learning in the centipede game the persistence of mistrust abstract a candidate explanation for the persistence of heterogeneous behavior in a sequential social dilemma played many times is the existence of heterogeneous preferences preferences dependent conjectures about opponents behavior are an additional source of heterogeneity by behaving differently different preference types acquire different information thus when observing only outcomes of own past interactions heterogeneous and possibly wrong conjectures about opponents strategies may endogenously arise and persist in a centipede game experiment played for forty rounds we manipulate the type of ex post information and the method of play we find that when the game is played in its reduced normal form and subjects have only access to personal statistics heterogeneity of behavior across preference types persists in the long run in this case behavior resembles a self confirming equilibrium selfish subjects take at earlier nodes due to an unjustified lack of trust when subjects have also access to public statistics heterogeneity disappears selfish subjects tend to pass more often and play moves towards bayes nash equilibrium

emergence of entrepreneurs following exogenous technological change this paper explains how after an exogenous technological change occurs entrepreneurs displace incumbents who were ex ante capable of exploiting any innovations that resulted from the change the model initially considers classical economic assumptions in the context of process innovations and then its robustness to uncertainty bounded rationality firm asymmetry and product innovations are discussed the model is preliminarily tested against industry trends using both results from an analysis of the information technology sector and from the literature the paper does not suffer from the inconsistency of explaining how capable incumbents are displaced by resorting to characterizations of incumbents as incapable due to some inefficiency the paper models incumbents as efficient yet rationally choosing in some instances to be displaced copyright 1999 john wiley sons ltd

causes of increased competition in the u s economy 1939 1980 examines the sources of increased competition in the united states u s between 1939 to 1980 in this paper authors consider the review of related literature trends and patterns of competitive structure in the u s economy influence of antirust actions on competition

profit entry and changes in concentration abstract the simultaneity between profit entry and changes in concentration is examined the sample includes 481 observations on 4 digit industries over the years 1972 1977 and 1977 1982 results show that profits respond positively to entry barriers and initial concentration net entry responds positively to initial profits and responds negatively to entry barriers concentration moves toward its steady state level but the rate of adjustment is very slow the competitive process left on its own does not seem to move quickly toward equilibrium

cournot competition and green innovation an inverted u relationship we examine the relationship between competition and innovation in an industry where production is polluting and r d aims to reduce emissions green innovation we present an n firm oligopoly where firms compete in quantities and decide their investment in green r d when environmental taxation is exogenous aggregate r d investment always increases with the number of firms in the industry next we analyse the case where the emission tax is set endogenously by a regulator committed or time consistent with the aim to maximise social welfare we show that an inverted u relationship exists between aggregate r d and industry size under reasonable conditions and is driven by the presence of r d spillovers

market structure and cyclical fluctuations in u s manufacturing the relevance of imperfect competition for models of economic fluctuations has received increased attention from researchers in both macroeconomics and industrial organization the authors outline a new methodology for estimating industry markups of price over marginal cost and the influence of market structure on cyclical movements in total factor productivity measures of industry concentration import competition and unionization are important for explaining markups in some industry groups much of the estimated markup of price over marginal cost is accounted for by noncapital fixed costs finally the authors show that their estimated margins fluctuate substantially over the cycle in particular markups are countercyclical especially in concentrated durable goods industries copyright 1988 by mit press

estimating distributed lags in short panels with an application to the specification of depreciation patterns and capital stock constructs this paper considers the problem of estimating distributed lags in short panels though the n time series contained in a panel may allow for relatively precise estimates of identified lag coefficients identification requires restrictions on the contribution of the unobserved pre sample x s to the current values of y and the shortness of panels focuses attention on this matter we investigate two such restrictions the first constrains the relationship between the presample and insample x s while the second constrains the lag distribution itself an example which investigates empirically how to construct capital stocks for the analysis of rates of return closes the paper

small firms in economic theory this is the fourth of a series of critical survey articles the aim of the series is to report on recent developments to provide an assessment of alternative approaches and to suggest lines of future inquiry it is intended that the articles will be accessible not only to other academic researchers but also to students and others more practically involved in the economy future survey articles will include warren samuels on institutional economics and philip arestis on post keynesian

advertising quality and sales this paper investigates claims that firm specific effects in advertising sales models can be attributed to a positive correlation between advertising and product quality using a standard koyck transformation on an unbalanced panel dataset of uk firms the implied long lasting effects of advertising disappear when firm specific effects are taken into account this conclusion is robust to various econometric approaches however when the firm specific effects are retrieved they are found to correlate strongly with mean advertising there is no discernible link between the firm specific effects and whether a firm perceives quality to be an important form of competition in its market the results give no support to the idea that advertising affects sales through associated product quality they are consistent with the persistence of advertising within firms over time

the role of small firms in the industrial development and transformation of czechoslovakia this article presents an analysis of the role of small firms in the formation and reform of the czechoslovak manufacturing sector it attempts to give an understanding of the industrial structure formed under the past regime within the framework of the mass production paradigm as manufacturing productivity gradually declined over the past 25 years and small firms have been virtually eliminated systemic preference has been given to the development of large monopolies consequently a monolithic coalition structure of enterprise managers state bureaucrats and political nomenklatura has arisen and continues to present itself as a serious hindrance to economic transformation while small firms have the potential to play a critical role in the democratic marketization of czechoslovakia current government preoccupation with the rapid privatization of the state sector risks damaging the development of a balanced distribution of firm size and in turn the revitalization of the society

innovation and the evolution of market structure this paper examines the association between innovation and the evolution of market structure a dynamic model of market concentration is applied to seventy three u k industries 1970 79 and the results are found to be consistent with the hypothesis that innovation is deconcentrating the results reported here and those contained in earlier work combine to suggest that innovation and changes in market concentration interact in a relatively rapid mutually reinforcing but rather weak spiral of increased innovation and decreasing concentration copyright 1990 by blackwell publishing ltd

the dynamics of market structure abstract in this paper changes in market concentration are modelled in terms of long run steady state levels and the adjustment towards them both the speed of adjustment and the long run levels of concentration are allowed to vary across industries non linear three stage least squares estimates for allowing for the endogeneity of profits and advertising for 184 u s industries 1963 1967 suggest that both the speed of adjustment and the levels of concentration in the long run are largely determined by minimum efficient scale

are policymakers ambiguity averse we investigate the ambiguity preferences of a unique sample of real life policymakers at the paris un climate conference cop21 we find that policymakers are generally ambiguity averse using a simple design we are moreover able to show that these preferences are not necessarily due to an irrational behaviour but rather to intrinsic preferences over unknown probabilities exploring the heterogeneity within our sample we also show that the country of origin and the degree of quantitative sophistication affect policymakers attitudes towards compound risk but not towards ambiguity robustness results are obtained in a lab experiment with a sample of university students

carrots and sticks pay supervision and turnover the efficiency wage model ewm has been advanced as an explanation for large and persistent wage differentials the shirking version of the ewm assumes a trade off between self supervision and external supervision the turnover version assumes turnover is costly to the firm variation across firms in the cost of monitoring shirking or turnover then is hypothesized to account for wage variations across firms for homogeneous workers using a new sample of firm data this paper presents empirical evidence of the trade off of wage premiums for supervisory intensity and turnover little evidence is found to support either version of the ewm

credit markets and the control of capital traditional discussions of the role of capital markets have identified a number of distinct functions which they perforrn they allocate scarce capital among competing users and uses l and they provide signals to guide managers in making their investment decisions 2 in this lecture i wish to focus on a rather different function of the capital market what i shall refer to as the control of capital 3 conventional theory treats the typical firrn in an anthropomorphic manner it acts as a single rational individual doing what it is supposed to be doing maximizing stock market value that may have been well and good in those nostalgic bygone days of small firrns each run tightly by their owners who were single mindedly pursuing their lust for wealth but today a majority of production occurs in large corporations in which no shareholder owns more than a small fraction of the shares in which the separation of ownership and control that frank knight was so concerned with in his writings some sixty five years ago has become a reality those

concentration product variety and entry for merger evidence from new product introductions in the u s food industry competing theories in industrial organization predict that more concentrated industries will lead to a smaller and more efficient variety of products or alternately a larger and less efficient array of products this paper presents an empirical study of these competing implications that estimates the impact of market concentration on new product introductions in a panel of nine food processing industries over 1983 to 2004 controlling for industry level unobservables using fixed effects and endogeneity of industry market structure we find that industry concentration promotes the introduction of new products preliminary evidence also suggests that new product introductions spur subsequent food industry mergers both conclusions are consistent with the entry for merger theory of product variety wherein small firms introduce new products in anticipation of profitable future mergers with concentrated firms

the development and use of machine tools in historical perspective abstract improvements and diffusion of machine tools have had a major impact on productivity in manufacturing industry since the industrial revolution the impact has been both direct and indirect the direct impact consists of rising labor productivity through the use of faster more accurate more mechanized machines and of the higher capital productivity through higher operating rates greater reliability and higher utilization rates the indirect impact arises as the use of new or improved machine tools has necessitated or facilitated organizational changes affecting both labor capital raw materials and energy the magnitude of these impacts has varied over the years with the areas of application as new production methods have made possible entirely new products or lowered the cost of existing products sufficiently to create new markets the first part of the paper contains a review of the historical development of machine tool technology since the industrial revolution paying particular attention to the role of interaction between producers and users of machine tools the second part focuses on the way in which recent development differs from that in earlier periods in particular it is found that the major changes in machine tool technology from the so called american system of manufactures in the early 19th century to the development of detroit automation in the 1950s have tended to improve mass production methods by contrast the development of numerical control beginning in 1948 has opened up the possibility of extending industrial production methods and automation to areas previously characterized more by handicraft methods even though this technology is not yet fully utilized it is clear that the economics of industrial production has been revolutionized by the cost reduction of small scale production relative to large scale and the degree of flexibility offered by the technology the third section of the paper deals with the present development trends particularly discussing the increasing importance of flexibility and the shifting emphasis from development of individual pieces of machinery to integration and control of entire manufacturing processes i a through the use of industrial robots the reasons for the need for greater flexibility in manufacturing are also identified

the challenge of high unemployment it is argued that policymakers macroeconomists and microeconomists should all take high unemployment more seriously the shortcomings of existing theories of unemployment are discussed and a new definition of involuntary unemployment is proposed a model is sketched in which falling aggregate demand leads to keynesian unemployment because labor is heterogeneous and relative wages matter microeconomic theory is criticized for assuming away unemployment and in the process radically changing the answers to some basic questions in trade theory and public finance finally some speculative explanations are offered for the low unemployment now found in states like new jersey and massachusetts this abstract was borrowed from another version of this item

the relation between price and marginal cost in u s industry an examination of data on output and labor input reveals that some u s industries have marginal cost well below price the conclusion rests on the finding that cyclical variations in labor input are small compared with variations in output in booms firms produce substantially more output and sell it for a price that exceeds the costs of the added inputs the paper documents the disparity between price and marginal cost where marginal cost is estimated from annual variations in cost it considers a variety of explanations of the findings that are consistent with competition but none is found to be completely plausible

the evolution of manufacturing technology and its impact on industrial structure an international study this paper shows that plant and firm size in manufacturing and especially in engineering industry in several western industrial countries has declined since the early 1970s two hypotheses explaining the decline are advanced one is de glomeration or specialization the divestiture of non core businesses in order to free up scarce resources particularly management time to defend and nurture core business activities the second hypothesis is that the emergence of new computer based technology has improved the quality and productivity of small and medium scale production relative to standardized mass production techniques which dominated previously

payoff information and self confirming equilibrium abstract in a self confirming equilibrium each player correctly forecasts the actions that opponents will take along the equilibrium path but may be mistaken about the way that opponents would respond to deviations this paper develops a refinement of self confirming equilibrium in which players use information about opponents payoffs in forming beliefs about the way that opponents play off of the equilibrium path we show that this concept is robust to payoff uncertainty we also discuss its relationship to other concepts and show that it is closely related to assuming almost common certainty of payoffs in an epistemic model with independent beliefs journal of economic literature classification numbers c72 d84

self confirming equilibrium rium path of play thus if a self confirming equilibrium occurs repeatedly no player ever observes play that contradicts his beliefs even though beliefs about play at off path information sets need not be correct we characterize the ways in which self confirming equilibria and nash equilibria can differ and provide conditions under which self con firming equilibria correspond to standard solution concepts nash equilibrium and its refinements describe a situation in which i each player s strategy is a best response to his beliefs about the play of his opponents and ii each player s beliefs about the opponents play are exactly correct we propose a new equilibrium concept self confirming equilibrium that weakens condition ii by requiring only that players beliefs are correct along the equilibrium path of play thus each player may have incorrect beliefs about how his opponents would play in contingencies that do not arise when play follows the equilibrium and moreover the beliefs of different players may be wrong in different ways the concept of self confirming equilibrium is motivated by the idea that noncooperative equilibria should be interpreted as the outcome of a learning process in which players revise their beliefs using their observations of previous play suppose that each time the game is played the players observe the actions chosen by their opponents but that players do not observe the actions their opponents would have played at the information sets that were not reached along the path of play then if a self confirming equilibrium occurs repeatedly no player ever observes play that contradicts his beliefs so the equilibrium is self confirming in the weak sense of not being inconsistent with the evidence by analogy with the literature on the bandit problem e g rothschild 1974 one might expect that a non nash self confirming equilibrium can be the outcome of plausible learning processes this point was made by fudenberg and

currents and sub currents in innovation flows explaining innovativeness using new product announcements the creation of new knowledge is a haphazard process not every sector in an economy is equally involved the effect of industry structure on innovativeness has been a focus of attention for a long time by both academics and policymakers in a much quoted article using unique data new product announcements acs and audretsch acs z j audretsch d b 1988 innovation in large and small firms an empirical analysis american economic review 78 4 678 690 identified several characteristics of industry structure and their effects on innovativeness by analyzing a new and more consciously compiled database we re examine their original claims our results largely support their findings industry concentration and degree of unionization for instance hamper innovation skilled labor promotes it our findings diverge in one significant respect from theirs we suggest that the large firms do not contribute more to an industry s innovativeness than small firms at the industry level we find strong support for the schumpeter mark i perspective of creative destruction by small firms rather than creative accumulation by large firms in addition we show that less dedicated innovators prove more susceptible to firm external industry factors than more committed innovators an unfavorable competitive environment decreases the likelihood that less successful innovators will announce new products c 2008 elsevier b v all rights reserved

on the incidence of profit and equity sharing theory and an application to the high tech sector abstract profit and equity sharing benefit some firms through improvements in innovation production quality retention of key employees and specific human capital formation the analysis predicts high share contract incidence in the high tech sector a hypothesis supported by survey data collected from small and large high tech firms however externalities associated with this sector s market entry mechanism imply that the optimal level of profit and equity sharing may not have been achieved

promoting entrepreneurship in eastern europe the past decade has seen a revival of entrepreneurship in the modern industrial economies characterized by a wave of enterprise restructuring and of new developments in business and technology in this paper we argue that market transitions of the post socialist economies of eastern europe cannot be successful without similar entrepreneurial restructuring to address the massive structural distortions that still plague the post reform economies the governments of the region must promote entrepreneurship through policies that 1 make use of all possible sources of entrepreneurship including in particular the former state and social sectors and 2 establish a macroeconomic environment and property rights framework conducive to entrepreneurship a successful promotion strategy will need to operate on several fronts by 1 redirecting entrepreneurial activities into legal productive activities 2 increasing the supply and effectiveness of entrepreneurs 3 developing markets for complementary inputs and 4 increasing the demand for entrepreneurship an unsuccessful approach we argue will be one that regards the pre reform small private sector as the only source of entrepreneurship and as the only arena for its productive use

selfcon rming equilibrium and model uncertainty we propose to bring together two conceptually complementary ideas 1 selfcon rming equilibrium sce at rest points of learning dynamics in a game played recurrently agents best respond to con rmed beliefs i e beliefs consistent with the evidence they accumulated and 2 ambiguity aversion agents other things being equal prefer to bet on events with known rather than unknown probabilities and more generally distinguish objective from subjective uncertainty a behavioral trait captured by their ambiguity attitudes using as a workhorse the smooth ambiguity model of klibano marinacci and mukerji 2005 we provide a de nition of smooth sce which generalizes the traditional concept of fudenberg and levine 1993a b here called bayesian sce and admits waldean maxmin sce as a limit case we show that the set of equilibria expands as ambiguity aversion increases the intuition is simple by playing the same strategy in

strategic uncertainty and equilibrium selection in discontinuous games abstract we introduce the new concept of prudent equilibrium to model strategic uncertainty and prove it exists in large classes of discontinuous games when the game is better reply secure we show that prudent equilibrium refines nash equilibrium in contrast with the current literature we don t use probabilities to model players strategies and beliefs about other players strategies we provide examples first price auctions location game nash demand game etc where prudent equilibrium concept removes most non intuitive solutions of the game

nash equilibrium under knightian uncertainty breaking down backward induction abstract we define nash equilibrium for two person normal form games in the presence of knightian uncertainty using the formalization of schmeidler and gilboa we show that nash equilibrium exists for any degree of uncertainty aversion that maxmin behaviour can occur even when it is not rationalizable in the usual sense and that backward induction breaks down in the twice repeated prisoners dilemma we relate these results to the literature on cooperation in the finitely repeated prisoners dilemma and the literature on epistemological conditions underlying nash equilibrium the knowledge notion implicit in this model of equilibrium does not display logical omniscience journal of economic literature classification numbers c72 d81

subjective games and equilibria applying the concepts of nash bayesian and correlated equilibria to the analysis of strategic interaction requires that players possess objective knowledge of the game and opponents strategies such knowledge is often not available the proposed notions of subjective games and of subjective nash and correlated equilibria replace essential but unavailable objective knowledge by subjective assessments when playing a subjective game repeatedly subjective optimizers converge to a subjective equilibrium we apply this approach to some well known examples including single and multi person multi arm bandit games and repeated cournot oligopoly games journal of economic literature classification numbers c73 and c83

a new methodology linking concentration dynamics to current and steady state profits examining korean industrial policy during take off abstract we model the dynamics of industrial structure and market power using korean manufacturing data during the take off period 1978 82 structure conduct performance scp methodologies have been criticized for using accounting data and because a few superior firms may have greater shares and greater profits both are argued to present possible spurious correlations between concentration and profits this paper follows earlier work which shows that market structure responds to observed accounting profits as if these were accurate indices of real profits and not as if leading firms are perceived to have unmatchable advantages the methodological contribution of this model is a new latent variable for steady state profits derived from the speed of structural adjustment long run profits are identified by the hypothesis that structural adjustment will be more rapid when industries are farther from steady state levels we analyze the long run profits latent variable finding strong support for this hypothesis the speed of adjustment is greater for positive and negative deviations from steady state structure we show that the profits and structural adjustment relationship is non monotone the scp criticisms above are based on spurious correlations which are monotone in profits and structure positing spurious correlations which are at the same time monotone in structure and non monotone in structural adjustment seems less plausible than accepting the scp results which are consistent with both our analysis also is new in that it is the first direct econometric analysis of korean industrial policy during its take off years we note that in korea unlike elsewhere industrial policy was hypothesized to lead to concentration and market power in the popular press and by professional economists ours is the first direct econometric analysis of this hypothesis and we find it supported

firm size efficiency and employment a review article s j s book contains much careful and interesting discussion of small firm employment data and related issues and will be read by all workers in the field however it also contains too much detailed quantification and international comparison of doubtful relevance at least for most economists and misses much background material of direct importance for evaluating the role of small firms as a result the authors seriously under estimate the contribution of small business to both employment and efficiency of modern economies as well as the importance of policy to correct the traditional and still pervasive bias towards large organizations

optimism and pessimism in games this paper considers the impact of ambiguity in strategic situations it extends the earlier literature by allowing for optimistic responses to ambiguity ambiguity is modelled by ceu preferences we propose a new solution concept for players who may express ambiguitypreference then we study comparative statics of changes in ambiguity attitude in games with strategic complements this gives a precise statement of the impact of ambiguity on economic behaviour

concentration unionism and labor earnings a sample selection approach using a simultaneous equations model of wages and union membership the elasticity of the wage with respect to market concentration is estimated to be approximately 0 2 the estimate uses a large data set and extensive controls to measure concentration s direct effect on the wage an indirect effect through unionization and a feedback effect the indirect effect represents the majority of concentration s effect copyright 1988 by mit press

economic implications of 3d printing market structure models in light of additive manufacturing revisited abstract additive manufacturing am colloquially known as 3d printing is currently being promoted as the spark of a new industrial revolution the technology allows one to make customized products without incurring any cost penalties in manufacturing as neither tools nor molds are required moreover am enables the production of complex and integrated functional designs in a one step process thereby also potentially reducing the need for assembly work in this article we discuss the impact of am technology at both firm and industry level our intention is to discern how market structures will be affected from an operations management perspective based on an analysis of established economic models we first identify the economic and technological characteristics of am and distill four key principles relevant to manufacturers at firm level we then critically assess the effects of am at industry level by analyzing the validity of earlier assumptions in the models when these four principles apply in so doing we derive a set of seven propositions which provide impetus for future research in particular we propose that in a monopoly the adoption of am allows a firm to increase profits by capturing consumer surplus when flexibly producing customized products meanwhile in competitive markets competition is spurred as am may lower barriers to market entry and offers the ability to serve multiple markets at once this should ultimately result in lower prices for consumers

behavioral equilibrium in economies with adverse selection i propose a new solution concept behavioral equilibrium to study environments with players who are naive in the sense that they fail to account for the informational content of other players actions a behavioral equilibrium requires that i players have no incentives to deviate given their beliefs about the consequences of deviating ii these beliefs are consistent with the information obtained from the actual equilibrium play of all players and iii when processing this information naive players fail to account for the correlation between other players actions and their own payouncertainty i apply the framework to certain adverse selection settings and show that contrary to the received literature the adverse selection problem is exacerbated when naive players fail to account for selection more generally the main distinguishing feature of the framework is that in equilibrium beliefs about both fundamentals and strategies are jointly restricted consequently whether a bias may arise or not is determined endogenously in equilibrium jel c72 d82 a large literature presents evidence that psychological and cognitive biases aect people s be havior this evidence raises some questions what are the eects of these biases and can they persist at all in economic settings where people strategically interact with each other and have the opportunity to learn from their experience 1 in this paper i introduce a game theoretic equilibrium framework to study these questions in the context of a particular bias people s failure to take into account the informational content of other people s actions i apply the framework to a class of games that arises naturally in adverse selection settings and then show that the adverse selection

unemployment labor relations and unit labor costs in his seminal 1943 paper on the political business cycle michal kalecki 1971 argued that industrial leaders feared full employment because the economic insecurity created by unemployment was necessary to keep wages low and maintain work intensity and discipline on the shop floor on the basis of this reasoning kalecki concluded that governments would not use demand management policies to achieve permanent full employment in terms of current macroeconomic debates kalecki had sketched the outlines of a theory of the neutral or natural rate of unemployment based on the importance of disciplinary unemployment as a regulator of unit labor costs kalecki s pessimism about the prospects for full employment was premised in part on a view of firms in which the threat of dismissal was the central motivational device used by employers and employees had only a tenuous connection to employers this assumption may have been appropriate when analyzing labor markets in the united states during the 1930 s since that time however the spread of unions implicit employment contracts and large bureaucratically organized enterprises has resulted in a modern u s labor market in which many workers enjoy long job tenure and in which many firms do not appear to rely on dismissal threats as their primary motivational strategy see david gordon richard edwards and michael reich 1982 sanford jacoby 1983 and my forthcoming paper from this perspective it is reasonable to ask whether the presence of long term employment relations alters the regulatory role played by unemployment this paper examines the effect that unemployment and long term employment relations exert on the determination of unit labor costs the central empirical findings can be briefly summarized first as suggested by kalecki movements towards full employment increase the rate of growth of wages and reduce the rate of growth of labor productivity second where long term employment relations are prevalent the effect of unemployment on both wage and labor productivity growth is diminished

irrationality and ambiguity in extensive games abstract based on a model where deviations from equilibrium play are assumed to identify irrational players who are characterized by ambiguous set valued strategies this paper introduces an equilibrium notion for extensive games with ambiguity averse players that yields a precise interpretation for the counterfactual reasoning usually associated with backward induction the resulting equilibria are always nash equilibria but may not satisfy the conditions required for various refinements of nash equilibrium including those for subgame perfection existence of such equilibria is proved for all two player games and for n player games with perfect information