costs of business cycles for unskilled workers abstract unskilled workers are subject to a much larger risk of unemployment during recessions than are skilled workers moreover unskilled workers earn less income which limits their ability to self insure we examine how this heterogeneity in unemployment risk and income across different skill groups translates into heterogeneity in the cost of business cycles we find that the welfare cost of business cycles for unskilled workers is substantially higher than the welfare cost for skilled workers

speculative growth hints from the u s economy we propose a framework for understanding episodes of vigorous economic expansion and extreme asset valuations we interpret this phenomenon as a high valuation equilibrium with a low cost of capital based on optimism about future funding the key ingredient for such equilibrium is feedback from increased growth to a decline in the long run cost of capital this feedback arises when an expansion comes with technological progress in the capital sector when fiscal rules generate procyclical fiscal surpluses when the rest of the world has lower expansion potential or high saving needs and when financial constraints are relaxed by the expansion itself

benefit cost analysis for financial regulation calls for benefit cost analysis in rule making based on the dodd frank wall street reform act have revealed a paucity of work on allocative efficiency in financial markets we propose three principles to help fill this gap first we highlight the need for quantifying the statistical cost of a crisis to trade off the risk of a crisis against loss of growth during good times second we propose a framework quantifying the social value of price discovery and highlighting which arbitrages are over and under supplied from a social perspective finally we distinguish between insurance benefits and gambling facilitation harms of market completion

demand structure and technological change the case of the european semiconductor industry abstract this article proposes that the structure of demand is one of the major factors that affect the rate and direction of technological change and the evolution of high technology industries both over time and across countries this article presents an analysis of the semiconductor industry in europe the united states and japan although particular emphasis is placed on the european case the decline of the european industry 1960s from a position equal to that of the american industry 1950s can to a large extent be explained by the dominance of electronics consumer goods demand rather than public procurement or computer demand in the structure of demand in these countries the later technological convergence of electronics final markets 1970s played a major role in the commitment of the european semiconductor industry to lsi technology this commitment however came too late to allow the european industry to catch up with its american and japanese counterparts

globalization and its challenges rudi was born and grew up in krefeld germany he was an undergraduate at the university of geneva and completed his ph d at the university of chicago in 1971 which is where we met he was a student of robert mundell and both the subject matter the development of the mundell fleming model and the elegance and insights of his early work reflected mundell s influence he taught at the university of rochester and at the university of chicago before accepting an offer from mit in 1975

competitiveness of regions from an evolutionary perspective boschma r a 2004 competitiveness of regions from an evolutionary perspective regional studies38 993 1006 do regions compete as firms do how does one deal with the fact that regions unlike organizations are entities that do not act does it make sense to talk about the ability of regions to generate new variety this paper aims to address these questions from an evolutionary perspective it is meaningful to talk about regional competitiveness when the region affects the performances of local firms to a considerable degree this is especially true when the competitiveness of a region depends on intangible non tradable assets based on a knowledge and competence base embedded in a particular institutional setting that are reproduced and modified through the actions and repeated interactions of actors although regions are increasingly becoming collective players actively responding to an increasing exposure to extra regional competition the paper explains why there are serious limits in enhancin

policy review section in this policy review section gerry stoker of the institute of local government studies presents a critical review of the role of urban development corporations udcs in comparing the experience of the udcs consideration is given to the varying nature of the land and property market in each udc area to the relationship with local authorities and other local bodies and the regeneration strategies pursued by the udcs this is followed by an assessment of the impact of the udcs in economic social and political terms in the second article john britton of the university of toronto examines the theoretical case for interventionist public policies to assist the innovation process in small and medium sized enterprises these arguments are supported by a review of the experience of various national support programmes introduced in the uk in particular the manufacturing advisory service introduced in 1978 and the design advisory service launched in 1982

the welfare cost of business cycles revisited finite lives and cyclical variation in idiosyncratic risk abstract this paper investigates the welfare costs of business cycles in a heterogeneous agent overlapping generations economy which is distinguished by idiosyncratic labor market risk aggregate variation arises both in terms of aggregate productivity shocks and countercyclical variation in the volatility of idiosyncratic shocks based on both aggregate data and microeconomic data from the panel study on income dynamics we find the welfare benefits of eliminating aggregate variation to be large an order of magnitude larger than those originally documented by lucas 1987 the key difference is countercyclical variation in idiosycratic risk which both amplifies the welfare cost of aggregate productivity shocks and imposes a cost of its own the magnitude of these effects increases non linearly in risk aversion our results therefore are consistent with the increasingly popular notion that distributional effects are an important aspect of understanding the welfare cost of business cycles

effects of ancestral populations on entrepreneurial founding and failure private liquor stores in alberta 1994 2003 until 1993 all liquor stores in the canadian province of alberta were government owned and run in the fall of 1993 the provincial government exited liquor retailing all government stores were shut down and entrepreneurs were allowed to open private liquor stores in this article we take advantage of this abrupt regulatory change in the alberta liquor retailing industry to address two related issues that have received little empirical attention first we investigate how an ancestral population affects processes of legitimation and competition while density dependence theory predicts that legitimation effects outweigh competitive effects at low levels of density will this be the case when a new population replaces a similar ancestral one second beyond density dependence we investigate how ancestral populations affect the locations of new entrepreneurial ventures will entrepreneurs follow ancestral location patterns and will these ancestral locations confer survival advantages to answer these questions we map all private liquor stores on the street map of calgary alberta s largest city from 1994 to 2003 and analyze store founding and failure we use our results to draw implications for theories of density dependence entrepreneurial behavior and industry spatial structure copyright 2011 the author 2011 published by oxford university press on behalf of associazione icc all rights reserved oxford university press

the inevitable limits of eu r d funding abstract the experience of the past 40 years in national policies for and european cooperation in science and technology points to clear conclusions about eu policies first the prevailing notions of technology gaps between europe and japan and the usa notions which have been a driving force in the eu policy for research and technology have been exaggerated however real gaps exist amongst the eu member countries themselves secondly it is unrealistic to expect eu funded r d programmes by themselves to make a substantial difference to the rate and direction of technical change in europe however eu policies for competition and other forms of regulation trade and investment can have a major influence on corporate decisions about technical change it is important for eu innovation policy to promote favourable framework conditions within which business firms are encouraged to improve their technological and related organisational practices

federal r and d spending in the united states of america some impacts on metropolitan economies malecki e j 1982 federal r d spending in the unitd states of america some impacts on metropolitan economies reg studies 16 19 35 government r and d spending in the united states of america is highly concentrated in a small number of metropolitan areas the effects of this spending are conceptualized in the context of technological change and in terms of local income effects agglomeration and spin off processes and inter urban subcontracting linkages description of the location pattern of federal r and d spending reveals a highly agglomerated pattern in a few specialized urban regions inter urban linkages through subcontracting for r and d tend to link fewer urban areas than do non r and d linkages reinforcing the concentrated pattern income change in metropolitan regions appears to be negatively influenced by federal r and d suggesting that positive local effects are more likely derived from the more complex processes of agglomeration and spin off

capital flows consumption booms and asset bubbles a behavioural alternative to the savings glut hypothesis bernanke 2005 hypothesized that a global savings glut was causing large trade imbalances however we show that the global savings rates did not show a robust upward trend during the relevant period moreover if there had been a global savings glut there should have been a large investment boom in the countries that imported capital instead those countries experienced consumption booms national asset bubbles explain the international imbalances the bubbles raised consumption resulting in large trade deficits in a sample of 18 oecd countries plus china movements in home prices alone explain half of the variation in trade deficits

the influence of market demand upon innovation a critical review of some recent empirical studies abstract a number of recent empirical studies of technical change at the level of the individual firm have concluded that market demand is the dominant influence upon the innovation process calling forth innovations in market economies the pace of innovation in the private sector heavily influences the growth of national output and productivity and these studies and their conclusions have therefore received much attention having been extensively quoted in discussions of appropriate government policy for the encouragement of innovation this paper reviews a number of these studies and concludes that their findings and the interpretations of their findings in the secondary literature are seriously flawed and in many cases invalid the proposition that market demand governs the innovation process is by no means conclusively demonstrated in these studies and they are therefore inadequate and inappropriate guides for the formulation of policy most of the studies examined employ a working definition of demand factors which is so broad as to embrace a range of possible influences upon innovation which should more properly be classified elsewhere the concept of demand utilized in these studies bears little resemblance to the more restrictive and precise definition of market demand found in economics in addition the phenomena analyzed in these studies are a very heterogeneous lot the studies do not address identical empirical questions and their findings are as a result neither uniform nor unambiguous both demand and supply side influences are crucial to understanding the innovation process and it is the exclusive preoccupation with only one set of these forces which is criticized in this paper some implications of the criticism for government policy toward innovation are discussed in the conclusion

when can changes in expectations cause business cycle fluctuations in neo classical settings abstract it is often argued that changes in expectation are an important driving force of the business cycle however it is well known that changes in expectations cannot generate positive co movement between consumption investment and employment in the most standard neo classical business cycle models this gives rise to the question of whether changes in expectation can cause business cycle fluctuations in any neo classical setting or whether such a phenomenon is inherently related to market imperfections this paper offers a systematic exploration of this issue our finding is that expectation driven business cycle fluctuations can arise in neo classical models when one allows for a sufficiently rich description of the production technology however such a structure is rarely allowed or explored in macro models in particular we identify a multi sector setting and a setting with a costly distribution system in which expectation driven business cycles can arise

asset bubbles and the cost of economic fluctuations lucas 1987 2003 estimates that the cost of economic fluctuations is low a social planner would pay no more than 0 1 of permanent consumption to eliminate all future business cycle fluctuations the current paper extends lucas calculations by studying the costs of fluctuations arising from asset bubbles we estimate two classes of costs consumption volatility due to asset bubbles in a representative agent economy and consumption volatility that arises because households have heterogeneous exposure to the bubble assets we show that the magnitude of welfare costs is primarily driven by the existence of heterogeneity our benchmark calibration implies that the asset bubbles of the last decade generated a social welfare cost equal to a permanent 3 reduction in the level of national consumption if assets are held proportionately across the population these welfare costs fall by an order of magnitude our calculations are sensitive to the details of the calibration including the degree of balance sheet and trading heterogeneity the coefficient of relative risk aversion and the magnitude of the asset bubble our preferred specifications generate welfare costs ranging from 1 to 10 of permanent national consumption

the spatial evolution of the british automobile industry does location matter this article aims to describe and explain the spatial evolution of the automobile sector in great britain from an evolutionary perspective this analysis is based on a unique database of all entries and exits in this sector during the period 1895 1968 collected by the authors cox regressions show that spinoff dynamics agglomeration economies and time of entry have had a significant effect on the survival rate of automobile firms during the period 1895 1968

evaluating risky consumption paths the role of intertemporal substitutability abstract in dynamic stochastic welfare comparisons a failure clearly to distinguish between risk aversion and intertemporal substitutability can result in misleading assessments of the impact of risk aversion on the welfare costs of consumption risk changes the problem arises in any setting in which uncertainty is propagated over time notably but not exclusively in economies with stochastic consumption trends regardless of the preference setup adopted an increase in risk aversion amplifies the per period costs of risks the weights consumers use to cumulate the per period costs of risks with persistent effects should however depend on intertemporal substitutability as well as on risk aversion under time separable expected utility preferences an increase in the period utility function s curvature therefore alters the welfare effect of risk for reasons that are in part unrelated to risk aversion to illustrate these points i reconsider lucas s estimate of the cost of consumption instability for the postwar united states

effects of government financial incentives on firms innovation performance in china evidences from beijing in the 1990s abstract the purpose of this paper is to investigate the effects of chinese government financial incentives on firms innovation performance during the nation s initial economic transition period in the mid 1990s through a large scale empirical survey of more than 1000 chinese manufacturing firms the empirical evidences show that whereas the major government financial incentives such as special loans and tax credits were positively influential to innovative economic performance of firms direct earmarks not only failed to enhance innovative economic performance it sometimes negatively affected it surprisingly the findings show that all financial incentives of governments were unrelated to the patents of either high tech or general firms and direct earmarks affected the patents of these firms negatively although not to a significant degree this indicates that the centrally planned funding system of the 1990s was ineffective for enhancing technological progress for chinese manufacturing firms the study results imply that the chinese government should further increase the role of market force in its reforms a more market driven model by developing more s t initiatives to match the strategic directions of different enterprises particularly soes is recommended

time should tell more evolutionary economic geography and the challenge of history abstractevolutionary economic geography theory stresses the importance of time and history to explain the evolution of regional economies yet consistent empirical treatment of longitudinal patter

rare disasters asset prices and welfare costs a representative consumer model with epstein zin weil preferences and i i d shocks including rare disasters accords with observed equity premia and risk free rates if the coefficient of relative risk aversion equals 3 4 if the intertemporal elasticity of substitution exceeds one an increase in uncertainty lowers the price dividend ratio for equity and a rise in the expected growth rate raises this ratio calibrations indicate that society would willingly reduce gdp by around 20 percent each year to eliminate rare disasters the welfare cost from usual economic fluctuations is much smaller though still important corresponding to lowering gdp by about 1 5 percent each year

on measuring the welfare cost of business cycles lucas 1987 argues that the gain from eliminating aggregate fluctuations is trivial following lucas a number of researchers have altered assumptions on preferences and found that the gain from eliminating business cycles are potentially very large however in these exercises little discipline is placed on preference parameters this paper estimates the welfare cost of business cycles allowing for potential time non separabilities in preferences where discipline is placed on the choice of preference parameters by requiring that the preferences be consistent with observed fluctuations in a model of business cycles that is a theoretical real business cycle world is constructed and the representative agent is then placed in this world the agent responds optimally to exogenous shocks given the frictions in the economy the agent s preference parameters along with other structural parameters are estimated using a bayesian procedure involving markov chain monte carlo methods two main results emerge from the paper first the form for the time non separability estimated in this paper is very different than the forms suggested and used elsewhere in the literature second the welfare cost of business cycles is close to lucas s estimate

revisiting marshall s agglomeration economies technological relatedness and the evolution of the sheffield metals cluster potter a and watts h d revisiting marshall s agglomeration economies technological relatedness and the evolution of the sheffield metals cluster regional studies according to alfred marshall firms receive increasing returns from a trinity of agglomeration economies a local pool of skilled labour local supplier linkages and local knowledge spillovers this article re examines the mechanisms underlying marshall s agglomeration economies in the sheffield metals cluster wherein marshall discovered them despite the cluster s decline empirical evidence is found that the mechanisms underlying marshallian agglomeration economies continue to occur within the surviving metals industry however upon closer examination marshallian agglomeration economies have evolved to become more prevalent amongst plants that use related metals technology the results highlight the importance of technological relatedness to cluster survival

the capabilities of new firms and the evolution of the us automobile industry firms that diversify into new and existing industries typically outperform de novo entrants but in some new industries diversifying firms are displaced by later entering de novo firms little is known about when and how new firms can overcome the advantages of diversifying firms this is investigated for one industry automobiles where new firms had considerable success all the entrants into the industry from its inception in 1895 through 1966 are identified the heritage of every entrant into the industry is traced including the founders of de novo entrants to explore how time of entry and pre entry experience affected firm survival while diversifying firms on average outperformed de novo entrants de novo entrants founded by individuals that worked for the leading automobile firms outperformed all firms and dominated the industry this is attributed to the novel organizational challenges faced by automobile firms which made the leading firms ideal training grounds for new entrants the implications of these findings for firm capabilities industry competition and regional economic development are discussed copyright 2002 oxford university press

the social cost of near rational investment abstract we show that the stock market may fail to aggregate information even if it appears to be efficient and that the resulting decrease in the information content of prices may drastically red

science technology and regional economic development review and prospects abstract this paper reviews the literature on the location and regional effects of science and technology st these pools of mobile workers are most attracted to large urban areas in only some of these areas however does the spin off process result in the generation of new technology based firms the availability of local venture capital appears to be the principal influence on this variation government policy regarding science and technology has impacts on regions by contributing to the agglomeration of r d government policy also often fails to recognize that s t policy and industrial policy have regional effects that may be long term in nature and most detrimental to those regions whose economies are least competitive finally some priorities for future research on innovation in a regional setting are identified

the roles of science in technological innovation abstract one of the central issues in science policy during the past decade has been the extent to which the national levels of expenditure on scientific education and research influence the standard of living this paper provides empirical evidence to show that the pay off from this investment in science is more complex and indirect than previously supposed

cost of business cycles with indivisibilities and liquidity constraints it is almost universally agreed that individuals face incomplete insurance markets and cannot perfectly insure against the idiosyncratic risk in this paper simple general equilibrium models with incomplete insurance markets are examined in order to assess the impact of imperfect insurance on the magnitude of the welfare costs of business cycles two versions of incomplete insurance markets are considered and certain statistical properties of the equilibrium stochastic processes in these environments are compared with those of a perfect insurance economy

the sensitivity of tests of the intertemporal allocation of consumption to near rational alternatives suppose a consumer sets consumption equal to income each period rather than following the optimal permanent income decision rule how much utility does he lose this paper finds that the answer is typically less than 10 cents 1 per quarter in environments specified by popular tests on aggregate data it includes calculations of the costs of excess sensitivity and excess smoothness to income and interest rate changes and the costs of ignoring information it concludes that the theory does not make predictions for aggregate tests that are robust to small costs such as information or transactions copyright 1989 by american economic association

the cost of business cycles under endogenous growth robert e lucas jr argued that the welfare gains from reducing aggregate consumption volatility are negligible subsequent work that revisited his calculation continued to find small welfare benefits further reinforcing the perception that business cycles do not matter this paper argues instead that fluctuations can affect welfare by affecting the growth rate of consumption i show that fluctuations can reduce growth starting from a given initial consumption which can imply substantial welfare effects as lucas himself observed empirical evidence suggests the welfare effects are likely to be substantial about two orders of magnitude greater than lucas original estimates

constructing regional advantage platform policies based on related variety and differentiated knowledge bases asheim b t boschma r and cooke p constructing regional advantage platform policies based on related variety and differentiated knowledge bases regional studies this paper presents a regional innovation policy model based on the idea of constructing regional advantage this policy model brings together concepts like related variety knowledge bases and policy platforms related variety attaches importance to knowledge spillovers across complementary sectors the paper categorizes knowledge into analytical science based synthetic engineering based and symbolic arts based in nature with different requirements of virtual and real proximity mixes the implications of this are traced for evolving platform policies that facilitate economic development within and between regions in action lines appropriate to incorporate the basic principles behind related variety and differentiated knowledge bases asheim b t boschma r and cooke p

job displacement risk and the cost of business cycles this paper analyzes the welfare costs of business cycles when workers face uninsurable job displacement risk that has a cyclical component using a simple general equilibrium model with incomplete markets this paper shows the following result for sufficiently high degree of risk aversion at least one cyclical variations in the long term earnings losses of displaced workers can generate arbitrarily large cost of business cycles even if the second moments of the distribution of individual income changes are constant over the cycle thus the previous literature which has either disregarded long term earnings losses of displaced workers or dealt with them only indirectly using second moment analysis might have severely under estimated the welfare cost of business cycles in addition to the theoretical analysis this paper also conducts a quantitative study of the cost of business cycles using empirical evidence on the long term earnings losses of u s workers the quantitative analysis suggests that cyclical variations in job displacement risk generate sizable cost of business cycles

urban amenities and agglomeration economies the locational behaviour and economic success of dutch fashion design entrepreneurs the spatial clustering of industries is traditionally explained by agglomeration economies benefiting co located firms the focus on firms rather than people has been challenged by florida arguing that urban amenities attract creative people to certain cities on the basis of a questionnaire an analysis is made of the extent to which these two mechanisms affect the locational behaviour of dutch fashion design entrepreneurs it is found that fashion design entrepreneurs consider urban amenities to be more important than agglomeration economies for their location decision designers located in the amsterdam cluster do not profit from agglomeration economies as such but rather from superior networking opportunities with peers both within and outside the cluster

toward a construct of liability of origin in this paper we advance a novel concept of liability of origin to explicate the mechanisms through which location can be become either a liability or an advantage our analysis sheds light on how firms ability to compete and gain legitimacy can be derailed or enhanced by their geographical location we illustrate our theoretical analysis using multiple cases in the airline industry in africa four distinct phases that explicate how liability of origin manifests in firms legitimacy quest are indicated our work highlights how actions and inactions of rival firms can make the geographical origin of a firm geographicalness to shift from being a strategic asset to become a liability we outline a number of implications for practice and fruitful avenues for future research

industrial dynamics and economic geography capasso m stam e and cefis e industrial dynamics and economic geography regional studies how do industries emerge and evolve over space in this special issue the fields of industrial dynamics and economic geography are brought together in order to achieve a richer and more fundamental understanding of the organization of industries over time and space than each of these fields could do separately firm heterogeneity at the micro level and industry composition of a region at the macro level provide important elements in the explanation of industry emergence and evolution over space history and space matter in the evolution of industries this special issue shows how and why