anticipating regret why fewer options may be better we study preferences over menus which can be represented as if the agent selects an alternative from a menu and experiences regret if her choice is ex post inferior since regret arises from comparisons between the alternative selected and the other available alternatives our axioms reflect the agent s desire to limit her options we prove that our representation is essentially unique we also introduce two measures of comparative regret attitudes and relate them to our representation finally we explore the formal connection between the present work and the literature on temptation

the birth of a new industry entry by start ups and the drivers of firm growth the case of encryption software the paper analyses the birth of the encryption software industry esi a new niche in the software industry using a chandlerian perspective this work reports the main facts about fir entry and growth with a particular focus on start up strategies and actions since scale economies do not play a major role in esi the paper investigates the different sources of fir competitive advantages this work shows that innovation and product differentiation along with investments in co specialised assets are variables strongly correlated to young fir probability to survive and grow in doing so we have collected highly detailed information on product introduction us patents granted worldwide alliances and biographical data of fir founders 2004 elsevier b v all rights reserved jel classificatio m13 l86 o32

firm growth size age and behavior in japanese manufacturing this paper investigates the relationship between firm growth and firm size firm age and firm behavior such as r d activity and subcontracting based on the data of nearly 14 000 japanese manufacturing firms the stylized facts that firm size and age have a negative effect on firm growth are confirmed in the case of japanese manufacturing firms also a firm s survivability rises with its size and age r d expenditure per employee has a significant positive effect on firm growth which justifies the argument made by hall 1987 although subcontracting to only one company has no significant effect on firm growth it has a significant positive effect on a firm s survivability in addition subcon tracting firms depending on only one company as a customer are subject to no significant age effects this possibly suggests that the age effect itself has some relation to the extent of the trade network

risk attitude under two alternative theories of choice under risk abstract anticipated utility theory and prospect theory have been proposed as descriptive models of choice under uncertainty this paper examines the concept of risk attitude under these two theories and considers the relationship between risk attitude under von neumann morgenstern expected utility theory and risk attitude under these alternative theories a risk premium analysis is conducted and risk premia are partitioned to characterize the complex nature of risk attitude under these theories comparative risk aversion across individuals is also considered

testing gibrat s law for small young and innovating firms this article analyses whether small young and innovating firms have experienced a greater employment growth than other spanish firms over the period 1990 2000 the study draws upon a sample of 1272 manufacturing firms in which only 967 of the firms survived for the entire ten year period the analyses test gibrat s law both by least squares and by utilizing the procedure proposed by heckman in which a probit survival equation is first estimated to correct for sample selection bias two estimators correcting for selection bias are utilized one that incorporates the inverse mill s ratio and the other that employs maximum likelihood methods all the results reject gibrat s law and support the proposition that small firms have grown larger additionally the results show that old firms grow less than young ones and innovating activity both process and product is a strong positive factor in the firm s survival and its employment growth

a comparison of regret based and utility based discrete choice modelling an empirical illustration with hospital bed choice there is some concern that the unobserved preference heterogeneity in random utility maximization theory based discrete choice experiment modelling is an important source of error variability the

the influence of age on smes growth determinants empirical evidence this paper seeks to investigate whether age is a fundamental characteristic of the relationships between determinants and growth the empirical evidence obtained allows us to conclude that 1 age and size are restrictive factors of the growth of young smes but they are not important for the growth of old smes 2 cash flow and debt are of greater relative importance for growth in young smes than for growth in old smes 3 rd 4 interest on debt is of greater relative importance for diminished growth in young smes than for diminished growth in old smes and 5 r d intensity in situations of financial deficit is of greater relative importance for diminished growth in young smes than for diminished growth in old smes but only in context of high tech smes

preference anomalies preference elicitation and the discovered preference hypothesis there is wide ranging evidence much of it deriving from economics experiments of anomalies in behaviour that challenge standard preference theories this paper explores the implications of these anomalies for preference elicitation methods because methods that are used to inform public policy such as contingent valuation are based on standard preference theories their validity may be called into question by the anomaly data however on a new interpretation these anomalies do not contradict standard theory but are errors in stated preference that can be expected to disappear as people become more experienced in relevant decision environments we explore the evidence for this interpretation and what implications follow for preference elicitation methodology

on the relationship between firm size and export intensity export marketing literature supports the view that firm size is positively related to export intensity although the empirical findings have been mixed a number of theoretical arguments are used to support this proposition i e international marketing economies of scale limited managerial and financial resources of small firms decisionmaker s risk perception based on a large survey of the italian manufacturing industry the article falsifies the proposition and challenges some widely held assumptions in export marketing literature

firm growth and liquidity constraints a dynamic analysis using a large unbalanced panel data set of portuguese manufacturing firms surviving over the period from 1990 to 2001 the purpose of this paper is to examine whether liquidity constraints faced by business firms affect firm growth we use a gmm system to estimate a dynamic panel data model of firm growth that incorporates cash flow as a measure of liquidity constraints and persistence of growth the model is estimated for all size classes including micro firms our findings reveal that smaller and younger firms have higher growth cash flow sensitivities than larger and more mature firms this is consistent with the suggestion that financial constraints on firm growth may be relatively more severe for small and young firms nevertheless the same finding can be interpreted in a different way if we consider the more recent literature which interpret the higher investment cash flow sensitivity of younger and smaller firm in absence of financial market imperfection as the outcome of these firms reaction to the fact that realisation of their cash flows reveals them the direction to go in presence of uncertainty of their growth prospect besides firms that were small and young at the beginning of the sample period exhibited more persistent growth than those that were large and old finally these results have significant policy implications

are there non linearities between sme growth and its determinants a quantile approach this article uses quantile regressions to study the relationship between the growth of portuguese small and medium enterprises smes and its determinants to control a sample selection bias we use a two step estimation in the first stage we verified that past growth size age rd ii debt and rd iii age is a restrictive factor of portuguese sme growth only when there is an increase in size and iv cash flow although a determinant promoting portuguese sme growth regardless of the level of growth takes on greater importance when there is a reduction in size copyright 2010 the author 2010 published by oxford university press on behalf of associazione icc all rights reserved oxford university press

impossibility of collusion under imperfect monitoring with flexible production we show that it is impossible to achieve collusion in a duopoly when 1 goods are homogenous and firms compete in quantities 2 new imperfect information arrives continuously without sudden events and 3 firms are able to respond to this new information quickly the result holds even if we allow for asymmetric equilibria or monetary transfers the intuition is that the flexibility to respond to new information quickly unravels any collusive scheme and that signals about the aggregate behavior only cannot be used effectively to provide individual incentives via transfers our result applies both to a simple stationary model and a more complicated one with prices following a mean reverting markov process

optimal cartel pricing in the presence of an antitrust authority the dynamic behavior of a price fixing cartel is explored when it is concerned about creating suspicions that a cartel has formed consistent with preceding static theories the cartel s steady state price is decreasing in the damage multiple and the probability of detection however contrary to those theories it is independent of the level of fixed fines it is also shown that the cartel prices higher when a more competitive benchmark price is used in calculating damages

is the growth of small firms constrained by internal finance this paper examines the long standing theory that the growth of small firms is often constrained by the quantity of internal finance under plausible assumptions when financing constraints are binding an additional dollar of internal finance should generate slightly more than an additional dollar of growth in assets this quantitative prediction should not hold for the relatively small number of firms which access external equity we test these predictions with a panel of more than 1 600 small firms and find that the growth of most firms is constrained by internal finance our results have implications for several different research literatures including models of firm growth

the deterrence of collusion by a structural remedy abstract as a penalty for illegal collusion this paper shows that a structural remedy makes collusion unprofitable when collusion is most stable and that it can be a greater deterrent than fines or damages

penalizing cartels the case for basing penalties on price overcharge yannis katsoulacos acknowledges that this research has been co financed by the european union european social fund esf and greek national funds through the operational program education and lifelong learning of the national strategic reference framework nsrf research funding program aristeia coleg

penalties and the deterrence of unlawful collusion this paper investigates the size of penalties required to deter cartel formation allowing the penalty to be increasing in duration within the infinitely repeated game framework penalties do not need to be as severe as previous research would suggest

the importance of regret minimization in the choice for renewable energy programmes evidence from a discrete choice experiment abstract this study provides a methodologically rigorous attempt to disentangle the impact of various factors unobserved heterogeneity information and environmental attitudes on the inclination of individuals to exhibit either a utility maximization or a regret minimization behaviour in a discrete choice experiment for renewable energy programmes described by four attributes greenhouse gas emissions power outages employment in the energy sector and electricity bill we explore the ability of different models multinomial logit random parameters logit and hybrid latent class and of different choice paradigms utility maximization and regret minimization in explaining people s choices for renewable energy programmes the pure random regret random parameters logit model explains the choices of our respondents better than other models indicating that regret is an important choice paradigm and that choices for renewable energy programmes are mostly driven by regret rather than by rejoice in particular we find that our respondents choices are driven more by changes in greenhouse gas emissions than by reductions in power outages finally we find that changing the level of information to one attribute has no effect on choices and that being a member of an environmental organization makes a respondent more likely to be associated with the utility maximization choice framework

random regret minimization exploration of a new choice model for environmental and resource economics this paper introduces the discrete choice model paradigm of random regret minimization rrm to the field of environmental and resource economics the rrm approach has been very recently developed in the context of travel demand modelling and presents a tractable regret based alternative to the dominant choice modelling paradigm based on random utility maximization theory rum theory we highlight how rrm based models provide closed form logit type formulations for choice probabilities that allow for capturing semi compensatory behaviour and choice set composition effects while being equally parsimonious as their utilitarian counterparts using data from a stated choice experiment aimed at identifying valuations of characteristics of nature parks we compare rrm based models and rum based models in terms of parameter estimates goodness of fit elasticities and consequential policy implications

trajectories of small business financial structure a dynamic theory of the small firm is expounded assuming entrepreneurs maximise business value over a finite time horizon predicted trajectories for key financial variables are seen to depend on whether debt or equity are cheaper the predicted trajectories are compared with actual trajectories using empirical evidence from three years of detailed primary source data on one hundred and fifty new business startups in scotland evidence largely confirms predictions of the model for the cheap equity case for this case as capital and sales rise steadily debt is retired rapidly except when interest rates on long term debt are low this finding is supported by explicit empirical trajectories of key financial variables

cartel pricing dynamics in the presence of an antitrust authority cartel pricing is characterized when firms are concerned about creating suspicions that a cartel has formed balancing concerns about maintaining the stability of the cartel with those of avoiding detection the cartel may either i gradually raise price to its steady state level or ii gradually raise price and then have it decline to its steady state level antitrust laws may have a perverse effect as they make cartel stability easier and thus allow for higher cartel prices

the role of regret minimisation in lifestyle choices affecting the risk of coronary heart disease abstract this paper introduces the discrete choice model paradigm of random regret minimisation rrm to the field of health economics the rrm is a regret based model that explores a driver of choice different from the traditional utility based random utility maximisation rum the rrm approach is based on the idea that when choosing individuals aim to minimise their regret regret being defined as what one experiences when a non chosen alternative in a choice set performs better than a chosen one in relation to one or more attributes analysing data from a discrete choice experiment on diet physical activity and risk of a fatal heart attack in the next ten years administered to a sample of the northern ireland population we find that the combined use of rum and rrm models offer additional information providing useful behavioural insights for better informed policy appraisal

preference reversal information processing effect or rational non transitive choice preference reversal is often explained as an information processing effect whereby individuals respond differently to valuation problems than to straight choices regret theory offers the alternative explanation that individuals act on consistent but nontransitive preferences regret theory in its most general form is shown to make specific predictions about nontransitive pairwise choices that correspond with the preferences reversal phenomenon some experiments designed to discriminate between these two explanations are reported the main finding is that as regret theory predicts the preference reversal phenomenon can be reproduced in situations in which subjects confront only choice problems copyright 1989 by royal economic society

do liquidity constraints matter in explaining firm size and growth some evidence from the italian manufacturing industry the paper investigates whether liquidity constraints affect firm size and growth dynamics using a large longitudinal sample of italian manufacturing firms we run standard panel data gibrat regressions suitably expanded to take into account liquidity constraints proxied by cash flow scaled by firm sales moreover we characterize the statistical properties of fi rms size growth age and scaled cashflow distributions pooled data show that i liquidity constraints engender a negative statistically significant effect on growth once one controls for size ii smaller firms grow more and experience more volatile growth patterns after controlling for liquidity constraints iii the stronger liquidity constraints the more size negatively affects firm growth we find that pooled size distributions depart from log normality and growth rates are well approximated by fat tailed tent shaped laplace densities we also study the evolution of growth size distributions over time our exercises suggest that the strong negative impact of liquidity constraints on firm growth which was present in the pooled sample becomes ambiguous when one disaggregates across years finally firms who were young and strongly liquidity constrained at the beginning of the sample period grew persistently more than those who were old and weakly liquidity constrained

reconciling quantile autoregressions of firm size and variance size scaling the aim of this paper is to understand what economic mechanisms may cause the law of proportionate effect to break down for fast growing and shrinking firms recent evidence has highlighted that the first order coefficients of quantile auto regression of firm size decline across quantiles our theoretical results show that negative variance size scaling is sufficient to yield a decline in quantile auto regression coefficients if firm log size is laplace distributed conditional on size one period ahead however it is sufficient only for declining auto regression coefficients for fast growing firms under asymmetric laplace conditional log size if skewness is decreasing with size in other words if the growth of large firms is less dispersed and more left skewed size is a disadvantage for the growth of fast growers but not necessarily an advantage for fast decliners thus size related determinants of negative growth skewness such as diseconomies of growth market power and managerial attention issues impact on how the lpe is violated using data on dutch manufacturing companies from the business register of enterprises observed between 1994 and 2004 our empirical estimates of quantile regression models confirm the evidence of declining quantile regression coefficients for small medium firms 20 199 employees mainly in the right most quantiles and for the same subsample we find that growth rates variance and skewness are decreasing with size the theoretical propositions of the paper are thus corroborated

on the different survival rates of portuguese microbusinesses the case of projects supported by microcredit in spite of their importance to the micro entrepreneur s life portuguese microbusinesses exhibit a short duration in activity however until now there has been scarce attention about the determin

does regret matter in public choices for air quality improvement policies a comparison of regret based and utility based discrete choice modelling abstract the choice experiment used to elicit public preferences and willingness to pay is increasingly popular in the studies of air quality improvement policies however the traditional random utility maximization rum models underlying the choice experiment approach ignores the important influence of anticipated regret on individual choice behaviour to explore the importance of regret in public preferences for air quality improvement policies this study introduces random regret minimization rrm models in the analysing of public choices and further compares the performance of utility based and regret based discrete choice modelling based on the multinomial logit and hybrid latent class models the results suggest that the rrm models outperform the rum model regarding goodness of fit and prediction indicating that the rrm models can be used as an alternative and supplement to traditional rum models particularly 55 9 of the choices from respondents are mainly driven by regret our results also reveal that respondents driven by regret based choice paradigm have a stronger preference for increased clean air days reduced haze days and lower mortality whereas utility based respondents prefer to shorten the years of policy delay these findings are useful for the design of socially optimal policies on the sustainable management of air pollution and providing theoretical reference for the development of environment related policies

applying regret theory to investment choices currency hedging decisions we apply regret theory an axiomatic behavioral theory to derive closed form solutions to optimal currency hedging choices investors experience regret of not having chosen the ex post optimal hedging decision hence investors anticipate their future experience of regret and incorporate it in their objective function we derive a model of financial decision making with two components of risk traditional risk volatility and regret risk we find results that are in sharp contrast with traditional expected utility loss aversion or disappointment aversion theories we discuss the empirical implications of our model and its ability to explain observed hedging behavior

does firm size matter evidence on the impact of liquidity constraints on firm investment behavior in germany abstract this paper examines the link between liquidity constraints and investment behavior for german firms of different sizes from 1970 to 1986 results indicate that medium sized firms appear to be more liquidity constrained in their investment behavior than either the smallest or largest firms in the study suggesting that the unique german infrastructure designed to assist the small firm has indeed succeeded in alleviating to some degree such liquidity constraints findings also support the hypothesis that the emerging competition and internationalism which characterized the german financial markets in the 1980s have been improving access to capital for some groups of firms

defending gibrat s law as a long run regularity according to gibrat s law of proportionate effect the growth rate of a given firm is independent of its size at the beginning of the period examined while earlier studies tended to confirm the law more recent research generally rejects it this article reconciles these two streams of literature taking into account the role of market selection and learning in reshaping a given population of firms through time consistently with previous studies we find that gibrat s law has to be rejected ex ante since smaller firms tend to grow faster than their larger counterparts however a significant convergence toward gibrat like behavior can be detected ex post this finding is an indication that market selection cleans the original population of firms so that the resulting industrial core does not depart from a gibrat like pattern of growth from a theoretical point of view this result is consistent with those models based on passive and active learning and can be seen as a defense of the validity of the law in the long run

incremental impact of venture capital financing this paper investigates the differences in the return generating process of venture capital vc backed firms and their peers that operate without vc financing using a unique hand picked database of 990 vc backed belgian firms and a complete population of belgian small and medium sized enterprises smes we focus on the extent to which the presence of a vc investor affects the sensitivity of a firm s returns to the changes in the capital structure in the operating cycle and in the industry dynamics the differences may stem from the self selection of better companies into vc portfolios from the venture capitalists vcs value adding activities and or from both we examine these factors in the context of a complex simulation procedure which allows separating selection from value adding when traditional approaches are difficult to implement our results indicate that vc backed firms are able to extract more rent from the changing industry conditions and from the optimizations in their capital structure the presence of vcs in the firm s equity seems to have only a marginal effect on the operating cycle efficiency overall the results are suggestive of the value adding being the main driver of the vc backed firm s performance

the financial conditions for swedish smes survey and research agenda this paper shows that in two important sectors of swedish industry in the early 1990s the existence of finance demand internally generated constraints in addition to the familiar finance supply externally generated constraints on businesses are a significant empirical phenomenon firms are aware that relinquishing some control would improve performance however the returns in growth profits and survival are not sufficient to offset the utility of control loss owners of younger firms especially in business services regard very favourably the added expertise of new preferably angel equity holders with one in three such firms having actively sought new owners equity finance is therefore to be regarded as a package from the viewpoint of the smaller firm with transfer of management skills from venture capitalist to firm sweetening the bitter pill of control loss

the importance of equity finance for r d activity this article analyzes the importance of equity finance for the r d activity of small and medium sized enterprises we use information on almost 6 000 german smes from a company survey using the intensity of banking competition at the district level as an instrument to control for endogeneity we find that a higher equity ratio is conducive to a higher r d intensity owners may only start r d activities if they have the financial resources to sustain them until successful completion we find a larger influence of the equity ratio for young companies equity may be more important for young companies which have to rely on the original equity investment of their owners since they have not yet accumulated retained earnings and can rely less on bank financing