nonrenewable resources with switching costs abstract this paper considers a firm s decision to commence or to suspend extraction of a nonrenewable resource when there are start up or shut down costs for a given level of reserves the critical price that would cause an inactive mine to be opened exceeds the price that would induce an active mine to be closed as one would expect greater switching costs cause firms to be less inclined to change status this impact can be substantial even for modest switching costs possible implications of switching costs are considered including the potential for firms to abandon mines with economically valuable remaining reserves

the influence of private contractual failure on regulation the case of oil field unitization an analysis of the interdependence between regulation and private contractual failure reveals that the feasible range of regulation is restricted by the same forces that block private agreement the focus of the study is oil field unitization regulation in oklahoma texas and wyoming federal lands from 1948 through 1975 despite large potential gains from unitization private negotiations fail because of lease heterogeneities and information problems regarding lease value estimates in response the federal and state governments have adopted strikingly different policies to encourage unitization with different results only the federal government s regulations are effective because they surmount information problems texas has the least successful regulation the paper argues that the policy differences are due to the political influence of small firms that benefit from nonunitized production 25 references 2 tables

contractual responses to the common pool prorationing of crude oil production this paper examines bargaining among firms to mitigate rent dissipation following the major oil discoveries of 1926 35 because of high bargaining costs firms chose prorationing instead of consolidation and unitization and success varied the analysis also shows that prorationing took the form it did because concession such as per well quotas were required to draw in small operations and the quotas led to predictable responses regarding rent dissipation prorationing despite its costs controlled total field production and costs conserved natural reservoir energies and lengthened field life when private agreements failed the parties successfully appealed for state enforcement since similar heterogeneities influnce regulations elsewhere in the economy detailed analysis of bargaining among firms is essential for insight into the emergence of various institutional forms 33 references 3 tables

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

valuing managerial flexibility an application of real option theory to mining investments abstract the value of managerial flexibility is assessed using data on prices costs grades reserves ore extraction and metal output for a panel of canadian copper mines a real option model is estimated and solved for project and option values most empirical researchers i consider the initial investment decision but neglect flexible operation thereafter ii assume that price is stochastic but ignore cost and reserve uncertainty and iii model price as a nonstationary stochastic process the evolution of three state variables price cost and reserves is assessed here differences in assumptions compared to others are found to lead to large differences in estimated project and option values

dynamic taxation of non renewable natural resources under asymmetric information about reserves optimal regulation is developed for a case with type dependent dynamics in costs in exploiting nonrenewable natural resources a government faces the problem that extraction companies possess private information about the size of the reserves optimal contracts in a two period framework distort both the extent and the pace of depletion the regulatory optimum is implementable by a menu of tangent planes generated by license fees and royalties or by a corporate income tax system containing type dependent depletion allowances and tax exempted income levels if the terminal time is endogenized it is optimal also to distort the number of extraction periods

optimal investments using empirical dynamic programming with application to natural resources a number of problems arise when dynamic programming is applied to investment problems attempts have been made to circumvent these problems by using continuous time models where the state process is generated by a stochastic differential equation in this article the authors assume that the state process is described by a discrete markov time series model with empirically determined transition probabilities standard computer algorithms can then be used to obtain optimal policies they apply their methods to two examples in natural resources one of which has previously been analyzed by m j brennan and e s schwartz 1985 using continuous time models the authors show that the optimal policies depend critically on the specification of the state process and to a certain extent on the discretization level used in the markov approximation copyright 1989 by the university of chicago

limited attention and the role of the venture capitalist abstract this research analyzes the venture capitalist s incentives to maximize the profits of the entrepreneurs of ventures and the limited partners of a venture fund venture capital is a professionally managed pool of capital invested in equity linked private ventures entrepreneurs turn to venture capitalists for financing because high technology startup firms have low or negative cash flows which prevent them from borrowing or issuing equity in addition venture capitalists are actively involved in management of the venture to assure its success this solves the problem of startup firms that do not have the cash flows to hire management consultants venture capital contracts have three main characteristics 1 staging the commitment of capital and preserving the option to abandon 2 using compensation systems directly linked to value creation and 3 preserving ways to force management to distribute investment proceeds these characteristics address three fundamental problems 1 sorting the venture capital among the entrepreneurial ventures 2 providing incentives to motivate venture capitalists to maximize the value of the funded ventures and 3 providing incentives to motivate entrepreneurs to maximize the value of the ventures venture capitalists fund only about a dozen projects a year out of a thousand evaluated each project may receive several rounds of financing payoffs to vcs can be very high or be a complete loss the typical venture capital vc firm is organized as a limited partnership with the venture capitalists serving as general partners and the investors as limited partners general partner vcs act as agents for the limited partners in investing their funds vcs invest their human capital by placing their reputation on the line the goal is to begin to convert the investment into cash or marketable securities which are distributed to the partners vc management companies receive a management fee equal to a percentage usually 2 5 of the capital of each fund they also receive a percentage 15 30 of the profits of each fund called carried interest periodic reports are made by the vc firm to the limited partners usually these are only costs of managing the fund and so revenues are negative most contracts specify the percentage of time that the vc will devote to managing the fund the analysis of this research deals with the incentives of the vc who has limited attention to be allocated between improving current ventures and evaluating new ventures for possible funding the analysis shows that the vc as agent for both the entrepreneur and the general partners does not have the incentives required to maximize their profits the vc allocates attention among ventures and venture funds less frequently than required to maximize the entrepreneurs and limited partners profits however the vc does maximize the total profits of all ventures because the vc considers the opportunity cost of attention the vc s allocation of attention is efficient the implication of this result is that although the entrepreneurs and limited partners could be made better off with a different allocation of the vc s time this would be an inefficient use of the vc s time

attention allocation and input proportions abstract this paper presents an alternative to the standard microeconomic analysis of the effects of a change in relative input prices managers are portrayed as struggling to control costs because a rise in the price of a given input promotes operations intensive in that input in the managerial attention priority list it induces tighter control of such operations and thus a lower relative utilization of the input the deterministic model analyzed is akin to stochastic models studied by radner and rothschild

a simple auction mechanism for the optimal allocation of the commons efficient regulation of the commons requires information about the regulated firms that is rarely available to regulators e g cost of pollution abatement this paper proposes a simple mechanism that implements the first best for any number of firms a uniform price sealed bid auction of an endogenous number of transferable licenses with a fraction of the auction revenues given back to firms paybacks which rapidly decrease with the number of firms are such that truth telling is a dominant strategy regardless of whether firms behave non cooperatively or collusively the mechanism also provides firms with incentives to invest in socially optimal r d jel d44 d62 d82 q28 regulatory authorities generally find that part of the information they need for implementing an efficient regulation is in the hands of those who are to be regulated regulating externalities such as access to common resources e g clean air water streams fisheries etc is a good example environmental regulators for example know little about firms pollution abatement costs so without communicating with firms they would be unable to establish the efficient level of pollution a number of mechanisms have been proposed for inducing firms to reveal their private information but for different reasons

extracting information or resource the hotelling rule revisited under asymmetric information we characterize the optimal extraction path when a concessionaire has private information on the initial stock of resource under asymmetric information a virtual hotelling rule describes how the resource price evolves over time and how extraction costs are compounded with information costs along an optimal extraction path in sharp contrast with the case of complete information elds which are heterogeneous in terms of their initial stocks follow di erent extraction paths some resource might be left unexploited in the long run as a way to foster incentives the optimal contract may sometimes be implemented through royalties and license fees with a market of concessionaires asymmetric information leads to a virtual her ndahl principle and to a new form of heterogeneity across active concessionaires under asymmetric information the market price converges faster to its long run limit exhibiting more stability

a dynamic model of cleanup estimating sunk costs in oil and gas production the environmental remediation required to permanently decommission most industrial projects is an expensive irreversible investment real options literature shows that temporary closure has value under uncertainty however even if there is no intention to restart operations there is an incentive to label a closure as temporary to avoid having to remediate ongoing or future environmental externalities i estimate a dynamic discrete choice model of closure under price and quantity uncertainty to evaluate the likelihood of reactivation the model reveals that the option to temporarily close is being widely used to avoid environmental remediation of oil and gas wells in canada

limited entrepreneurial attention and economic development economic development depends on the allocation of entrepreneurial resources to efforts to discover new profit opportunities limited entrepreneurial attention is allocated between maintaining current activities and starting new activities this paper addresses the problem of allocating limited entrepreneurial attention in a variety of contexts the issues that are addressed are product improvement and new product development the choice of career as an innovative entrepreneur a managerial entrepreneur or a salaried employee the venture capitalist s attention to current and new ventures and funds the writing of internal contracts and market contracts and the supervising of current employees and hiring additional employees

selective intervention and internal hybrids interpreting and learning from the rise and decline of the oticon spaghetti organization infusing hierarchies with elements of market control has become a much used way of simultaneously increasing entrepreneurialism and motivation in firms however this paper argues that such internal hybrids particularly in their radical forms are inherently hard to successfully design and implement because of a fundamental incentive problem of establishing credible managerial commitments to not intervene in delegated decision making this theme is developed and illustrated using the case of the world leading hearing aids producer oticon in the beginning of the 1990s oticon became famous for its radical internal hybrid the spaghetti organization recent work has interpreted the spaghetti organization as a radical attempt to foster dynamic capabilities by organizational means neglecting however that about a decade later the spaghetti organization has given way to a more traditional matrix organization in contrast an organizational economics interpretation of oticon organizational changes is developed this lens suggests that a strong liability of the spaghetti organization was the above incentive problem frequent managerial meddling with delegated rights led to a severe loss of motivation and arguably caused the change to a more structured organization refutable implications are developed and the discussion is broadened to more general issues of economic organization

legitimating first organizing activities and the survival of new ventures abstract the process by which firm founders create new organizations is of considerable interest to evolutionary theorists and entrepreneurship researchers this article tracks the life histories of 223 swedish new ventures started between january and september 1998 by a random sample of firm founders we explore the effect of legitimating activities on the hazard of disbanding and the transition to other firm organizing activities during their first 30 months of life we find that undertaking activities to generate legitimacy reduces the hazard of venture disbanding and facilitates the transition to other organizing activities

who become serial and portfolio entrepreneurs serial entrepreneurs run multiple businesses in sequence while portfolio entrepreneurs run multiple businesses in parallel they differ from novice entrepreneurs who have so far operated only one venture the present paper is the first to model occupational choices between all three entrepreneurial types it goes on to discuss its theoretical predictions in the light of independent evidence about serial and portfolio entrepreneurship from the extant literature

planning for the market business planning before marketing and the continuation of organizing efforts abstract drawing on goal setting theory we argue that writing business plans before undertaking marketing activities should enhance the continuation of venture organizing efforts we examine 223 new venture organizing efforts initiated in the first 9 months of 1998 by a random sample of swedish entrepreneurs and show that those organizing efforts in which entrepreneurs completed business plans before talking to customers and beginning marketing or promotion had a lower hazard of termination than other organizing efforts

on money as a medium of exchange we analyze economies in which individuals specialize in consumption and production and meet randomly over time in a way that implies that trade must be bilateral and quid pro quo nash equilibria in trading strategies are characterized certain goods emerge endogenously as media of exchange or commodity money depending both on their intrinsic properties and on extrinsic beliefs there are also equilibria with genuine fiat currency circulating as the general medium of exchange we find that equilibria are not generally pareto optimal and that introducing fiat currency into a commodity money economy may unambiguously improve welfare velocity acceptability and liquidity are discussed

is lack of funds the main obstacle to growth ebrd s experience with small and medium sized businesses in central and eastern europe abstract small and medium sized enterprises smes potentially constitute the most dynamic firms in an emerging economy they are the ones most likely to move into areas of comparative advantage and high value added though they often face economic institutional and legal obstacles obstacles include limited access to working capital and long term credit legal and regulatory restrictions inadequate infrastructure high transaction costs and limited managerial and technical expertise despite the presence of multiple and often interrelated constraints however the widespread belief on which policies to support smes are based is that the lack of finance constitutes the main obstacle to the growth of smes enterprise survey work is the tool generally used to deepen our understanding of constraints affecting smes formation and growth the european bank for reconstruction and development ebrd is no exception in this respect during its early years it drew substantially on a set of enterprise surveys conducted by the world bank between 1991 and 1993 in hungary the czech and slovak federal republic csfr poland and russia investigating the obstacles faced by smes as the volume and geographical spread of its operations increased the ebrd felt the need to design and run its own surveys effectively addressing specific issues encountered in the context of its increasing lending and investment activity in central and eastern europe cee the findings of this analysis confirmed the belief that credit constraints constitute one of the main obstacles to growth of smes and encouraged the ebrd to tailor its financing instruments to the stage of transition of the country in question and the ability of the local financial system to assume key responsibilities this paper analyzes the way in which the ebrd strives to correct this capital market failure in the region in which it operates the fundamental principles on which ebrd policy is based are a preference for reaching the smes via local financial intermediaries a commercial approach to the provision of finance and finally a focus on development of the local financial system as a whole it is still too early to draw conclusions on ebrd activity in the field of smes financing based on other types of indicators than data on volume of signed commitments a large part of the loans is still in the grace period therefore investments are in an early phase and operation performance evaluation reports on this type of operations are still too few aggregate data on volume of ebrd financing through financial intermediaries paint an encouraging picture a 250 increase in the volume of such operations between 1994 and 1997 a nine fold increase in the number of subprojects between 1995 and 1997 and an ever widening geographical spread of activities and decreasing size of subprojects indicate that the experience of the ebrd in financing through financial intermediaries is on the whole positive financing provided to intermediaries is not necessarily always intended nor guaranteed to reach smes it is however guaranteed to create the appropriate financing channels which are necessary to ease the smes liquidity constraint this paper discusses the shortcomings of the financial system in the cee countries it outlines the ebrd policy to support smes and the various instruments employed so far and presents selected case studies to throw light on how good project design can help overcome difficult environments and lower the perception of risk connected to indigenous smes a summary of the findings of the survey work conducted by the ebrd in the region is also presented

on optimal extraction under asymmetric information over reclamation costs abstract polluting exhaustible resource extraction ends with costly reclamation and producers have better information about future reclamation costs than the regulator this paper analyzes optimal contract between the regulator and the mining firm in a two stage model in which extraction and pollution generation is followed by reclamation with asymmetric information over reclamation costs the contract consists of a pollution tax and a mechanism used for cost information revelation and it extracts all the profit from the highest cost type leaves profits for the more efficient types and dictates a reclamation effort that is lower than the complete information effort it is further shown that the optimal pollution tax under asymmetric information can be lower or higher than the tax under complete information in addition the exclusion of the most expensive types is analyzed the results can help to design policies that improve the existing ones by saving public funds by improving the state of the environment and by excluding those mining operations that do not produce net benefits for the society

option valuation of claims on real assets the case of offshore petroleum leases this paper extends financial option theory by developing a methodology for the valuation of claims on a real asset an offshore petroleum lease several theoretical and practical problems not present in applying option pricing theory to financial assets are addressed most importantly we show the necessity of combining option pricing techniques with a model of equilibrium in the market for the underlying asset petroleum reserves the advantages of this approach over conventional discounted cash flow techniques are emphasized the methodological development provides important insights for both company behavior and government policy promising empirical results are reported

innovation firm size and growth in a centralized organization the optimal innovation firm size and growth are derived for a centrally controlled firm in which only the entrepreneur evaluates and restores current projects or evaluates and adopts new projects current projects are subject to failure due to entry and possible obsolescence while new projects may not be successful the optimal allocation of attention implies bounds on firm size and that the rate of innovation depends not only on monopoly profits firm size and technological opportunity but also on the probability of obsolescence the effects of monopoly power and firm size on innovation also depend on the degree of obsolescence

a well based cost function and the economics of exhaustible resources the case of natural gas abstract a cost function for natural gas production is estimated using a pool of data from 29 wells statistically exact tests are performed for parameter stability across locations formations wells and producing firms costs are determined to be inversely related to remaining recoverable reserves and marginal costs of production are decreasing in all cases theoretical implications of these cost characteristics on optimal exhaustible resource extraction are analyzed although marginal cost is decreasing production effects on the resource stock imply that an interior production path may be optimal conditions under which production optimally occurs at the capacity bound are delineated and optimal interior production paths are characterized

look before you leap market opportunity identification in emerging technology firms entrepreneurs play a fundamental role in bringing new technologies to market because technologies are often configurable to serve a variety of different markets it is possible for entrepreneurs to identify multiple market opportunities prior to the first market entry of their emerging firms and if they elect to do so to therefore have a choice of which market to enter first the empirical results presented in this paper offer three new insights regarding this important early stage choice in new firm creation first they reveal that serial entrepreneurs have learned through prior start up experience to generate a choice set of alternative market opportunities before deciding which one to pursue in their new firm creation second the analysis indicates that entrepreneurs who identify a choice set of market opportunities prior to first entry derive performance benefits by doing so third the positive relationship between the number of market opportunities identified prior to first entry and new firm performance is nonlinear and subject to decreasing marginal return the research literature has yet to acknowledge the notion of multiple opportunity identification prior to entry and the related idea of selecting the most favorable market opportunity for the creation of a new technology firm

imagination and leadership the neglected dimension of an evolutionary theory of the firm abstract bounded rationality prevents humans from tracing all action plans that could in principle be imagined in the present paper individuals partly socially shaped cognitive frames explain which action plans do gain attention this provides the basis for a new entrepreneurial theory of the firm where business conceptions which underlie any entrepreneurial venture play a key role coordination and motivation of the firm members can be achieved and opportunism be held down if through cognitive leadership the entrepreneur succeeds in implementing and defending his own business conception as a tacit cognitive frame collectively shared within the firm

fossil fuels stock externalities and backstop technology the hotelling exhaustible resource model is extended to include stock pollution and nonpolluting backstop technology it is shown that an optimal energy consumption strategy typically includes a regime in which the two energy sources are consumed simultaneously along this regime fossil fuel consumption decreases and backstop consumption increases together fossil fuel and backstop consumption may form eleven optimal regime combinations a decrease in the backstop price decreases the initial level of optimal emission tax

on efficiency inducing taxation for a non renewable resource monopolist the problem of using taxes to induce a monopolist supplier of a non renewable resource to extract efficiently has been solved under the assumption that the government has perfect information about the monopolist s cost function and reserves and is able to precommit to an entire sequence of taxes over time we extend this literature by constructing an efficiency inducing tax mechanism that does not require the government to have any information about the cost function or reserves and which does not require it to precommit to a sequence of taxes over time

what is the essence of money ingham combines insights from two hitherto largely separate social science fields i e chartalist theories of money and weberian sociological theories on class struggle to produce a wide ranging and fascinating book with a splendidly original chapter 6 on the importance of establishing a constitutional monarchy in the uk for developing monetary institutions this review finds the chartalist analysis more compelling than the sociological emphasis on class struggle also ingham would dismiss many of the fundamental concepts of economics e g long run equilibrium neutrality of money natural rate of interest etc without providing any satisfactory alternative structure copyright 2005 oxford university press

optimal resource royalties with unknown and temporally independent extraction cost structures the authors study optimal nonrenewable resource royalty contracts when the extracting agent has private information on costs this is a dynamic incentive problem in which the repeated relationship between the principal and the agent is constrained by initial reserves commitment is limited to one period and costs are intertemporally independent compared with full information extraction information asymmetry shifts production to the future when the optimal contract requires exhaustion in two periods when exhaustion by all types in two periods is not warranted the effect on the terminal period is ambiguous and the output of even the lowest cost firm is always distorted copyright 1995 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

allocation of entrepreneurial attention abstract limited attention has been recognized by many economists as a scarce resource to be allocated among a given number of alternative uses however limited entrepreneurial attention is allocated between improving current operations and innovating new products which increases the number of current operations and perhaps the demands on the entrepreneur s attention the allocation of entrepreneurial attention thus endogenizes the number of uses to which attention can be allocated and the opportunity cost of attention this allocation has implications for the relationships between innovation firm size and monopoly profits between firm size and firm growth and the organization of the firm

a contribution to the pure theory of money abstract this article analyzes a general equilibrium model with search frictions and differentiated commodities because of the many differentiated commodities barter is difficult in that it requires a double coincidence of wants and this provides a medium of exchange role for fiat currency we prove the existence of equilibrium with valued fiat money and show it is robust to certain changes in the environment rate of return dominance liquidity and the welfare implications of fiat money are discussed

geology or economics testing models of irreversible investment using north sea oil data this paper tests the main implications of models of irreversible investment using data from operations in the oil fields in the north sea discrete time hazard regression models are used to ascertain the influence of economic variables the expected price of oil the variance of the price of oil and the level of reserves on the lag between the discovery of a field and the decision to develop the field we are able to control for heterogeneity in the data by incorporating variables which account for both the geological features of each field and individual operator characteristics the results indicate that the expected price of oil and the level of reserves are important in influencing the appraisal duration but that the variance of the oil price is not variables capturing the non economic features of the individual fields are also found to be significant factors affecting the appraisal lag copyright 1994 by royal economic society

extraction costs and the economics of nonrenewable resources the study questions the fundamental assumption of the standard aggregate exploration extraction model of nonrenewable resources that extraction costs and the level of reserves are inversely related it also raises questions about the model s conclusions regarding exploration incentives and the valuation of reserves an empirically tested disaggregate model is presented that suggests that exploration activity occurs from firms attempting to balance marginal extraction plus user costs at the intensive and extensive margins exploration is carried out until the marginal discovery cost of a deposit equals its present asset value and a u shaped price path is indicated

protecting the environment when costs and benefits are privately known in this survey i analyze different approaches for protecting the environment when stakeholders are privately informed about the costs and benefits of pollution reduction the presence of asymmetric information calls for some important departures from the textbook prescriptions of marketable permits and emission taxes for controlling pollution for instance it may no longer be optimal to equate the social marginal benefits to the marginal cost of cleanup in determining appropriate abatement levels i conclude this review with some suggestions for future research in this area

hotelling under pressure we show that oil production from existing wells in texas does not respond to oil prices while drilling activity and costs respond strongly to explain these facts we reformulate hotelling s class

heterogeneous firms and the organization of production firms in the same industry exhibit systematic differences in the organization of production and the structure of employment entrepreneurial ability is the specific scarce input that limits the size of a firm this input must be allocated to two activities coordinating production and monitoring workers able entrepreneurs can convert calendar time into larger supplies of coordinating effort that enable them to assemble large firms greater ability implies a higher shadow price of time which increases the implicit costs of monitoring a dispersion of entrepreneurial abilities generates an equilibrium size distribution of firms differences in monitoring costs affect the choice of worker productivities the design of products and the organization of production the monitoring cost hypothesis advanced in this paper goes a long way in explaining the equilibrium of an industry containing heterogeneous firms that differ in size and behavior

how social security and medicare affect retirement behavior in a world of incomplete markets this paper provides an empirical analysis of how the u s social security and medicare insurance system affect the labor supply of older males in the presence of incomplete markets for loans annuities and health insurance we estimate a detailed dynamic programming dp model of the joint labor supply and social security acceptance decision focusing on a sample of males in the low to middle income brackets whose only pension is social security the dp model delivers a rich set of predictions about the dynamics of retirement behavior and comparisons of actual vs predicted behavior show that the dp model is able to account for wide variety of phenomena observed in the data including the pronounced peaks in the distribution of retirement ages at 62 and 65 the ages of early and normal eligibility for social security benefits respectively we identify a significant fraction of health insurance constrained individuals who have no form of retiree health insurance other than medicare and who can only obtain fairly priced private health insurance via their employer s group health plan the combination of significant individual risk aversion and a long tailed pareto distribution of health care expenditures implies that there is a significant security value for these individuals to remain employed until they are eligible for medicare coverage at age 65 overall our model suggests that a number of heretofore puzzling aspects of retirement behavior can be viewed as artifacts of particular details of the social security rules whose incentive effects are especially strong for lower income individuals and those who do not have access to fairly priced loans annuities and health insurance