information technology and productivity evidence from country level data this paper studies a key driver of the demand for the products and services of the global it industry returns from it investments we estimate an intercountry production function relating it and non it inputs to gdp output on panel data from 36 countries over the 1985 1993 period we find significant differences between developed and developing countries with respect to their structure of returns from capital investments for the developed countries in the sample returns from it capital investments are estimated to be positive and significant while returns from non it capital investments are not commensurate with relative factor shares the situation is reversed for the developing countries subsample where returns from non it capital are quite substantial but those from it capital investments are not statistically significant we estimate output growth contributions of it and non it capital and discuss the contrasting policy implications for capital investment by developed and developing economies

individual behavior and bidding heterogeneity in sealed bid auctions where the number of bidders is unknown i introduction most of the work in sealed bid auction theory and related experimental work has focused on the case in which the number of bidders is known this is of course not always the case in naturally occurring environments for instance construction firms submitting bids in a sealed bid procurement auction may not know exactly how many other firms have completed the costly process of preparing and submitting a bid until bidding has closed there is a body of theory to address environments with an unknown number of bidders mcafee and mcmillan 1987 matthews 1987 harstad kagel and levin 1990 krishna 2002 1 the purpose of this article is to provide theoretical considerations and analysis of a large data set of individual bids from laboratory sealed bid auction markets in which buyers have some information about the number of rivals but not certainty 2 according to the received theory the availability of information about the number of rivals as expected directly affects bidding and therefore seller revenue in first price fp auctions but should not affect bidding in the second price sp auctions although bidding own valuation is optimal in sp auctions regardless of the number of bidders the majority of previous experimental work on auctions with known number of bidders has shown systematic deviation kagel 1995 while a few studies report coincidence with theory see isaac and james 2000b for an extended discussion earlier work on fp auctions with known number of bidders indicated systematic overbidding compared to risk neutral equilibrium risk aversion has been suggested as one of the possible explanations for observed overbidding cox roberson and smith 1982 dyer kagel and levin 1989 is the only previous experimental study looking at individual bidding in auctions where the number of bidders is unknown and their design is different from this study they look at fp auctions with restricted auction size of either six or three participants and ask subjects to submit three bids two bids for contingent bidding procedure and one bid for noncontingent bidding procedure subjects submit all three bids simultaneously and do not know at the time which procedure will be used they find overbidding in this environment compared to risk neutral nash equilibrium although we test for deviation from risk neutral bidding strategy in a more general setting our study also addresses a broader set of questions previous studies of open bid ascending silent auctions suggested that there may have been revenue loss to the sellers by bidders guarding their higher valued items that is remaining physically proximate to the bidding stations isaac and schnier 2005 the possibility that guarding was at the root of the revenue reductions was investigated by isaac and schnier 2006 who replaced the open bid ascending silent auctions with both fp and sp sealed bid auctions which is the environment studied in this article their paper reported on the aggregate revenue effects of the switch to sealed bid auctions but did not look at individual behavior it is clear that such analysis of individual bidding behavior must be informed by theories of bidding with an unknown number of rivals because such is the reality facing bidders in a multiple sealed bid silent auction context in addition data from a noncomputerized experiment closely approximating field auctions allows the analysis of possible behavioral adjustments in the field for example the attempt to guard the item and count the number of bidders such an analysis is presented in this article 3 our analysis of fp auctions contributes to the discussion about the causes of heterogeneous deviation of individual bidding from risk neutral theory cox roberson and smith 1982 and cox smith and walker 1988 reported heterogeneous bidding above risk neutral equilibrium in fp auctions for mechanisms with fixed number of bidders and palfrey and pevnitskaya 2008 for auctions with endogenous entry where the number of bidders was known at the time of submitting a bid

technical change external economies and the porter hypothesis abstract michael porter introduces the idea that environmental regulations may benefit affected firms this paper derives results consistent with porter s hypothesis by employing a general equilibrium framework with a large number of agents external economies of scale in production and discrete changes in technology the model shows that endogenous technical change makes porter s hypothesis feasible however a policy that produces results consistent with porter s hypothesis is not necessarily optimal

β convergence and the cyclical dynamics of uk regional house prices the potential convergence of regional house prices in the uk is examined in contrast to the existing literature which focuses upon stochastic convergence the present paper considers alternative f

recursive non expected utility connecting ambiguity attitudes to risk preferences and the level of ambiguity abstract i study how risk preferences and the level of ambiguity influence ambiguity attitudes in uzi segal s recursive second order non expected utility model it is shown that the negative certainty independence axiom for risk preferences is equivalent to a global form of ambiguity aversion that entails ambiguity averse behavior irrespective of the state space and the decision maker s second order belief thus the second order version of the cautious expected utility model is the only subclass of segal s theory that robustly predicts ambiguity aversion moreover a mean preserving spread operation over second order beliefs which corresponds to a particular way of increasing the level of ambiguity is equivalent to increasing the relative strength of ambiguity aversion for each possible specification of risk preferences within the cautious expected utility model an application of the latter result establishes a negative relation between participation rates in an asset market and the level of ambiguity concerning the distribution of returns

cost externalities and corporate diversification abstract this paper examines the optimal time of entry by established firms that strategically exploit cost externalities resulting from experience transfer from their core product line to the entered market established firms may delay entry even under conditions when newborn firms would enter early the paper can also explain other entry scenarios including early diversification at an initial loss into markets that newborn firms would never enter the shape of the experience curve in the entered market strongly affects these differences in scenarios

regulatory fog the role of information in regulatory persistence abstract regulation is very persistent even when inefficient we propose an explanation for regulatory persistence based on regulatory fog the phenomenon by which regulation obscures information regarding the value of counterfactual policies we construct a dynamic model of regulation in which the underlying need for regulation varies stochastically and regulation undermines the social planner s ability to observe the state of the world compared to a full information benchmark regulation is highly persistent often lasting indefinitely regulatory fog is robust to a broad range of partially informative policies and can be quite detrimental to social welfare regulatory experiments modeled as costly and imperfect signals of the underlying state do not eliminate the effects of regulatory fog we characterize their effects and provide a framework for choosing amongst a set of potential regulatory experiments

equilibrium in auctions with entry the authors model entry incentives in auctions with risk neutral bidders and characterize a symmetric equilibrium in which the number of entrants is stochastic the presence of too many potential bidders raises coordination costs that detract from welfare the authors show that the seller and society can benefit from policies that reduce market thickness i e the relative abundance of buyers their analysis extends well known revenue equivalence and ranking theorems but also demonstrates that variations in the auction environment affect optimal policies e g reservation prices in ways not anticipated by models that ignore entry copyright 1994 by american economic association

information effects in uniform price multi unit dutch auctions we design a multi unit descending price dutch auction mechanism that has applications for resource allocation and pricing problems we address specific auction design choices by theoretically and experimentally determining optimal information disclosure along two dimensions bidders are either informed of the number of bidders in the auction or know that it is one of two possible sizes they also either know the number of units remaining for sale or are unaware of how many units have been taken by other bidders we find that revealing group size decreases bids and therefore revenue if units remaining are not shown when group size is unknown the price also falls if the number of units remaining is revealed the most efficient and largest revenue outcome occurs when bidders are not provided information on either group size or units remaining these laboratory results conform to some directional predictions from our theory although overbidding is common

auctions with a stochastic number of bidders abstract auction theory is generalized by allowing the number of bidders to be stochastic in a first price sealed bid auction with bidders having constant absolute risk aversion the expected selling price is higher when the bidders do not know how many other bidders there are than when they do know this thus the seller should conceal the number of bidders if he can moreover a bidder s ex ante expected utility is the same whether or not there is a policy of concealing the number of bidders concealment therefore pareto dominates announcement with risk neutral bidders the optimal auction is the same whether or not the bidders know who their competitors are

dynamics of entry and exit of firms in the presence of entry adjustment costs abstract this paper presents a simple model of industry dynamics with entry adjustment costs these costs imply a non instantaneous adjustment path to the steady state so that the model permits the short run and long run characterization of industry dynamics in a single framework the type of the steady state zero entry and exit or positive entry and exit with the co existence of high efficiency and low efficiency firms depends on the fixed cost of entry as well as entry adjustment costs the short run dynamics exhibits non monotonicity if persistence in efficiency over time is not too high the model is consistent with the empirical observations that the total number of firms and net entry follow non monotonic paths and entry and exit are positively correlated over time

delay and cycles when the profitability of investment depends on the general level of economic activity entrepreneurs have an incentive to delay investments during a recession endogenous delay thus prolongs the recovery from a recession and heightens the effect of the boom this paper describes a dynamic model that exhibits both delay and cycles and develops methods for analysing the role of delay in propogating business cycles a number of interesting characteristics of the cycle are revealed first the effect of delay is asymmetric it lengthens the recovery but not the downturn second delay can increase the amplitude and typically reduces the frequency of the cycle third it can reduce the average level of activity but it achieves this effect by prolonging the recession rather than by reducing the amplitude of the cycle the welfare effects of delay are ambiguous however

frequency domain and time series properties of asymmetric error correction terms the now familiar error correction model has recently been extended to allow for the modelling of asymmetric behaviour resulting in the development of the asymmetric error correction model previous workers have undertaken studies upon which the classic implicitly symmetric error correction model was developed it was found that the escribo pfann method approach detected significant asymmetries while the granger lee did not in this paper the properties of the alternative methods are analysed in detail to examine why one method met with success but not the other via the use of estimated sample spectral densities and correlograms a significant property of the granger lee method is uncovered this property particularly relevant in application to consumers expenditure has a wider relevance helping explain why the approach has met with limited success

the convergence of regional house prices in the uk the ripple effect hypothesis implies a long run convergence of regional uk house prices however despite many authors believing in the existence of such an underlying constancy statistical evidence has yet to be presented supporting this implication in this paper an alternative approach is proposed to analyse regional house price ratios in contrast to the findings of previous studies application of this new procedure results in the detection of widespread convergence of house prices in a number of regions of the uk the results suggest that the failure of previous analyses to uncover convergence is due to an underlying asymmetry in the adjustment process being ignored interestingly the form of asymmetry detected varies between regions while regions in the south east experience faster convergence following downswings in prices other regions exhibit more rapid convergence following increases in prices

ranking auctions with risk averse bidders this paper ranks first and second price independent value auctions with risk averse bidders when entry is endogenous unless bidders exhibit decreasing absolute risk aversion dara the fixed n ranking of first price over second price is sustained however when bidders exhibit dara we show that the effect of entry sometimes reverses the ranking we discuss how elements of the auction environment such as the relative magnitude of entry costs the number of potential bidders and the degree of risk aversion affect the ranking journal of economic literatureclassification numbers d44 d82 c72

a simple multivariate test for asymmetry since many macroeconomic models are linear it is not desirable to use themwith an asymmetric dependent variable in this article we formulate aunivariate test for symmetry based on the third cen

vickrey auctions in the theory of expected utility with rank dependent probabilities abstract when decision makers maximize expected utility with rank dependent probabilities and the object being auctioned is a risky prospect then with independent private value vickrey auctions lose their demand revealing property moreover they might be non pareto optimal

learning and capacity expansion under demand uncertainty a competitive dynamic model of entry into a new industry is set up and both its positive and normative aspects are studied the main assumptions are that entry is sequential that it occurs under imperfect information on the size of the market and that better information becomes available as time goes on the gradual improvement in information is due to the fact that later waves of entrants are able to observe the profitability of earlier entrants the major results reported here under suitable restrictions are that the equilibrium rate of entry is monotonically decreasing over time and that at any given point in time it is smaller than the socially optimal one when a new market opens as a result of a product being newly invented for instance or when an existing market starts to expand uncertainty with respect to its size is likely to prevail as a result of this uncertainty entry of firms into such markets typically will occur in waves some firms will enter initially while others will wait to see the consequences of that initial entry if the experience of early entrants is favourable entry will continue otherwise entry will cease hence with the introduction of a new product two phases are associated the growth phase typified by positive operating profits for existing firms and expansion of productive capacity due to entry of new firms and the mature phase typified by erosion of profits and fixed total productive capacity empiricists estimating the time pattern of investments during the growth phase have found an s shaped diffusion curve see mansfield 1986 and gort and klepper 1982 the purpose of the present paper is to theoretically characterize these time patterns and to investigate their welfare properties any attempt to model the type of entry described above must account for differences in both entry dates and resultant earnings in other words the theory must explain why the realized earnings of different cohorts of firms are not equal often such ex post differences are reconciled by assuming heterogeneity with respect to some latent underlying characteristic managerial ability for instance and attributing differences in earnings to differences in that characteristic in this paper instead earning differentials are attributable to luck only ex ante all firms are technologically identical and equally capable of forecasting market prospects and rationally acting upon those forecasts ex post some firms turn out to have entered at the right time and are for that reason more profitable the model developed in this paper analyzes a parametric example of a sequential entry problem in which the uncertainty over market size is gradually resolved over time in a bayesian setting in an environment of perfect competition and constant returns toscale a free entry equilibrium concept is introduced and the aggregate implications of the time path of investments are derived i then compare this actual time path to the optimum this comparison is interesting because the equilibrium is analysed under the

herd behavior the penguin effect and the suppression of informational diffusion an analysis of informational externalities and payoff interdependency this article analyzes a technology adoption process in which the effect of informational spillover interacts with network externalities the interplay of informational externalities and payoff interdependency induces risk averse and clustering behavior in the technology adoption process the analysis differs from the herd behavior literature in focusing on how the herd behavior of subsequent users influences the initial adoption decision moreover herd behavior in this article stems from each agent s desire to inhibit the revelation of new information that can be used in a way detrimental to her rather than from each agent s effort to free ride on information contained in the decisions made by predecessors

influence of social learning on exchange rate policy in developing countries a preliminary finding by using a suitable econometric model this study shows that beyond factors postulated by theorists social learning is a very powerful phenomenon for guiding developing countries in their exchange rate policy we introduce two variables that fairly encapsulate features of learning among neighbours the new variables together with those advanced in theory are then used to determine choice of a managed float by analysing 1993 cross section data from asian developing countries

final offer arbitration with uncertainty averse parties abstract final offer arbitration foa is a widely used binding dispute resolution mechanism where an impartial arbitrator is constrained to choose one of the two final offers proposed by two disputing parties we build an equilibrium model of foa with players averse to arbitral uncertainty to study three important issues the role of foa in incentivizing negotiated settlements the convergence of final offers and the normative effect of diversity of arbitrator opinion we show that increase in arbitral uncertainty increases the likelihood of negotiated agreements and make the final offers converge to each other risk aversion is not necessary for convergence of offers precision and mean of arbitral uncertainty matter differently and can be controlled separately moreover as also argued by the industry practitioners carefully selected level of diversity of opinion in the arbitrator roster increases the welfare of negotiating parties

technology shocks and job flows we consider a version of the solow growth model where technological progress can be investment specific or investment neutral the labour market is subject to search frictions and the existing productive units may fail to adopt the most recent technological advances technological progress can lead to the destruction of technologically obsolete jobs and cause unemployment we calibrate the model to replicate the high persistence that characterizes the dynamics of firms neutral technology and the frequency of firms capital adjustment we find that neutral technological advances increase job destruction and job reallocation and reduce aggregate employment investment specific technological advances reduce job destruction have mild effects on job creation and are expansionary hence neutral technological progress prompts schumpeterian creative destruction while investment specific technological progress operates essentially as in the standard neoclassical growth model using structural var models we provide support to the key dynamic implications of the model copyright 2007 wiley blackwell

risk aversion learning spillovers and path dependent economic growth abstract each agent j 1 n receives an independent shock influencing her degree of risk aversion then undertakes a risky or safe investment prior investment in related industries reduces the uncertainty the shock history and this intertemporal interaction determine the long run growth rate

optimal bidding in auctions from a game theory perspective abstract the game theoretic perspective in auction bidding has provided a powerful normative framework for the analysis of auctions and it has generated an impressive volume of research contributions tracing this research we review key recent advances which have greatly expanded our understanding of the operation of auctions and produced a more accurate analysis of mechanism design and optimal bidding we follow various experimental studies which have shown that the predictive power of auction theory remains in many cases limited for this reason we concentrate on research themes which enhance the applicability of auction theory leading to more realistic descriptions of bidding behaviors we identify important innovations which expand the environment of auction bidding and carry us beyond rational decision making we conclude providing directions of future research and discussing their implications

dynamic complementarities a quantitative analysis abstract this paper considers the importance of dynamic complementarities as an endogenous source of propagation in a dynamic stochastic economy dynamic complementarities link the stocks of human and organizational capital which are influenced by past levels of economic activity to current levels of productivity we supplement an otherwise standard dynamic business cycle model with both contemporaneous and dynamic complementarities the model is calibrated using estimates of these effects from both micro and aggregate data our quantitative analysis identifies empirically relevant dynamic complementarities as a source of propagation for both technology and taste shocks

mass layoffs and unemployment abstract mass layoffs give rise to groups of unemployed workers who possess similar characteristics and therefore may learn from one another s experience searching for a new job two factors lead them to exert too little effort in equilibrium the first is an information externality searchers fail to take into account the value of their experience to others the second is an incentive to free ride each worker would like others to experiment and reveal information concerning the location of productive jobs together these forces imply that in equilibrium the natural rate of unemployment is too high

equilibrium bid functions for auctions with an uncertain number of bidders abstract the number of rivals may be unknown when a bidding strategy is formulated in an auction in a symmetric model with risk neutral bidders holding independent information we obtain explicit equilibrium bidding functions for first price and second price auctions with uncertainty about the number of rivals five auctions are revenue equivalent first price and second price auctions each with the number of bidders known or uncertain and english auctions

revenue ranking of discriminatory and uniform auctions with an unknown number of bidders an important managerial question is the choice of the pricing rule we study whether this choice depends on the uncertainty about the number of participating bidders by comparing expected revenues under discriminatory and uniform pricing within an auction model with affiliated values stochastic number of bidders and linear bidding strategies we show that if uncertainty about the number of bidders is substantial then the discriminatory pricing generates higher expected revenues than the uniform pricing in particular the first price auction might generate higher revenues than the second price auction therefore uncertainty about the number of bidders is an important factor to consider when choosing the pricing rule we also study whether eliminating this uncertainty i e revealing the number of bidders is in the seller s interests and discuss the existence of an increasing symmetric equilibrium

optimal minimum bids and inventory scrapping in sequential single unit vickrey auctions with demand learning abstract retailers often conduct sequential single unit auctions and need to decide the minimum bid in each auction to reduce inventory costs it may be optimal to scrap some of the inventory rather than holding it until it is auctioned off in some auctions the seller may be uncertain about the market response and hence may want to dynamically learn the demand by observing the number of posted bids we formulate a markov decision process mdp to study this dynamic auction design problem under the vickrey mechanism we first develop a clairvoyant model where the seller knows the demand distribution we prove that it is optimal to scrap all inventory above a certain threshold and then auction the remaining units we derive a first order necessary condition whereby the bidders virtual value at an optimal minimum bid equals the seller s marginal profit this is a generalization of riley and samuelson s result from the one single unit auction case when the virtual value is strictly increasing this necessary condition is also sufficient and leads to a structured value iteration algorithm we then assume that the number of bidders is poisson distributed but the seller does not know its mean the seller uses a mixture of gamma prior on this mean and updates this belief over several auctions this results in a high dimensional bayesian mdp whose exact solution is intractable we therefore propose and compare two approximation methods called certainty equivalent control cec and q function approximation numerical experiments suggest that q function approximation can attain higher revenues than cec

decentralization duplication and delay we argue that although decentralization has advantages in finding low cost solutions these advantages are accompanied by coordination problems which lead to delay or duplication of effort or both consequently decentralization is desirable when there is little urgency or a great deal of private information but it is strictly undesirable in urgent problems when private information is less important we also examine the effect of large numbers and find that coordination problems disappear in the limit if distributions are common knowledge

uncertainty risk and incentives theory and evidence uncertainty has qualitatively different implications than risk in studying executive incentives we study the interplay between profitability uncertainty and moral hazard where profitability is multiplicative with managerial effort investors who face greater uncertainty desire faster learning and consequently offer higher managerial incentives to induce higher effort from the manager in contrast to the standard negative risk incentive trade off this learning by doing effect generates a positive relation between profitability uncertainty and incentives we document empirical support for this prediction this paper was accepted by wei jiang finance

the effects of business to business e commerce on transaction costs this paper studies transaction costs changes arising from the introduction of the internet in transactions between firms we divide transaction costs into coordination costs and motivation costs we classify coordination efficiencies into three categories process improvements marketplace benefits and indirect improvements for motivation costs we focus on informational asymmetries we apply this framework to internal data from an internet based firm to measure process improvements marketplace benefits and motivation costs our results suggest potentially large process improvements and marketplace benefits we find little evidence that informational asymmetries are more important in the electronic marketplace than in the existing physical ones

vintage human capital growth and the diffusion of new technology we develop a model of vintage human capital in which each technology requires vintage specific skills we examine the properties of a stationary equilibrium for our economy the stationary equilibrium is characterized by an endogenous distribution of skilled workers across vintages the distribution is shown to be single peaked under general conditions there is a lag between the appearance of a technology and its peak usage a phenomenon known as diffusion an increase in the rate of exogenous technological change shifts the distribution of human capital to more recent vintages thereby increasing the diffusion rate

entry and competition effects in first price auctions theory and evidence from procurement auctions motivated by several interesting features of the highway mowing auction data from the texas department of transportation tdot we study three competing procurement auction models with endogenous entry our entry and bidding models provide several interesting implications for the first time we show that even within an independent private value paradigm as the number of potential bidders increases bidders equilibrium bidding behaviour can become less aggressive and the expected procurement cost may rise because the entry effect is always positive and may dominate the negative competition effect we then develop structural models of entry and bidding corresponding to the three models under consideration controlling for unobserved auction heterogeneity and use the recently developed semi parametric bayesian estimation method to analyse the data we select the model that best fits the data and use the corresponding structural estimates to quantify the entry effect and the competition effect with regard to the individual bids and the procurement cost copyright 2009 wiley blackwell

on industry life cycles delay entry and shakeout in beer brewing abstract this paper proposes a new explanation for industry shakeout an event evident in the life cycle of many industries in which the number of firms drops significantly in a short interval of time based on an in depth analysis of the shakeout in the united states beer brewing industry between 1880 and 1890 we propose that industry shakeouts naturally follow periods of mass entry by firms similar patterns are evident in two other industries we briefly examine the us automobile and tire industries while entry rates fluctuate broadly in all these industries we find that the timing of exit for a given cohort of entrants is remarkably similar over time the exit hazard rate is peaked in the first two years of every cohort s life and drops dramatically to low and stable levels for subsequent ages in this sense mass exit follows mass entry and does not require a deep explanation it is the mass entry evident in the data for these industries that requires an explanation we propose a theoretical model of information accumulation to explain entry into an industry entrepreneurs are uncertain about the profitability of the industry and this uncertainty is resolved through sufficient accumulation of information regarding the fortunes of incumbent firms delay in entry occurs solely due to the fact that it takes time to accumulate sufficient information to support more entry the resulting entry pattern from simulations of the model looks much like that observed in the industries we study

payoff equivalence in sealed bid auctions and the dual theory of choice under risk abstract this paper considers single item auctions in the private values framework with buyers whose preferences satisfy the axioms of yaari s econometrica 55 1987 95 dual theory of choice under risk it is shown that when their valuations are independently distributed risk averse buyers are indifferent among all the auctions contained in a large family of mechanisms that includes the standard auctions

auctions with uncertain numbers of bidders abstract we investigate bidders and seller s responses to ambiguity about the number of bidders in the first price auction fpa and the second price auction spa with independent private valuations we model ambiguity aversion using the maxmin expected utility model we find that bidders prefer the number of bidders to be revealed in the fpa are indifferent between revealing and concealing in the spa and prefer the spa to the fpa if bidders are more pessimistic than the seller then the seller prefers to conceal the number of bidders in the fpa and prefers the fpa to the spa

dhsy revisited the role of asymmetries davidson et al s data set is used to demonstrate the existence of a significant asymmetry in the adjustment of consumption towards equilibrium the granger lee and escribano pfann methods of partitioning the error correction term are compared and it is shown that the latter produces better results in this case it is concluded that adjustment is faster under conditions of recession than it is during boom periods

misperception driven chaos theory and policy implications abstract in a large economy it is extremely difficult if not impossible to immediately grasp the state of our surrounding environment with precision since we normally have access only to a subset of relevant information in this paper we introduce this information imperfection into an ordinary model of endogenous business cycles and examine how it would affect the dynamic nature of the model we in particular present a mechanism by which observation errors result in chaotic fluctuations in a model that would behave regularly otherwise thereby indicating the importance of potential misperception about the current state in a qualitative sense also our model is tractable enough to explicitly derive a policy index of chaotic fluctuations under some conditions this feature of the model allows us to draw some policy implications regarding the observability of macroeconomic state variables

let s get real a factor analytical approach to disaggregated business cycle dynamics this paper develops a method for analysing the dynamics of large cross sections based on a factor analytic model we use law of large numbers arguments to show that the number of common factors can be determined by a principal components method the economy wide shocks can be identified by means of simple structural var techniques and that the parameters of the unobserved factor model can be estimated consistently by applying ols equation by equation we distinguish between a technological and a non technological shock identification is obtained by minimizing the negative realizations of the technology shock empirical results on 4 digit industrial output and productivity for the u s economy from 1958 to 1986 show that 1 at least two economy wide shocks both having a long run effect on sectoral output are needed to explain the common dynamics 2 although the technological shock accounts for at least 50 of the aggregate dynamics of output it cannot by itself explain dynamics at business cycle frequencies 3 sector specific shocks explain the main bulk of total variance but generate mainly high frequency dynamics 4 both the technological and the non technological component of output show a peak for positive sectoral comovements of output at business cycle frequencies 5 technological shocks are strongly correlated with the growth rates of the investment in machinery and equipment sectors and their inputs many interesting questions about cyclical fluctuations and economic growth can be answered only by studying the dynamic behaviour of sectoral variables when data contain information on time for a large cross section of sectors traditional econometric techniques used in the macroeconomic literature such as vector autoregressive var and vector autoregressive moving average varma models are not appropriate since they require the estimation of too many parameters this is why new methods which allow for the reduction of the parameter space need to be developed the objective of this paper is both methodological and descriptive at the methodological level we develop a simple framework for the dynamic analysis of large cross sections the basic model is a dynamic factor analytic model as in sargent and sims 1977 the sectoral variables are decomposed into two unobservable components a common component driven by macroeconomic shocks and a purely sectoral component when

sectoral shocks learning and aggregate fluctuations we present a model in which sectoral shocks have aggregate consequences the model relies on irreversible investment and imperfect information to slow the adjustment of expanding industries we show that this gradual expansion is sub optimal

timing and quality decisions for entrepreneurial product development abstract an entrepreneur is developing a new product and each period must decide whether to enter the market or to continue development we formulate a model of this decision for ventures facing diminishing returns to product quality and for which funding availability product development success and market competition growth are uncertain we characterize the profit maximizing time to stop product development and enter the market and then show how this stopping time is affected by changes in the business environment by further focussing our modeling assumptions we are able to translate our time based criteria into product quality terms we propose that management set a target quality level that the product must meet in order for the venture to maximize profit we also demonstrate that management should decrease this target and hence the quality of the final product over time and adjust it to respond to changes in the business context

disclosure policies in research contests with stochastic entry abstract this paper models research contests as an all pay auction with stochastic entry and analyzes the effect of disclosing the actual number of participants on the expected winning bid i find that the classic disclosure irrelevance principle on expected revenue does not extend to the ranking on expected winning bid the ranking on expected winning bid crucially depends on the number of potential bidders participation probabilities and the distribution of bidders valuations when there are more than two potential bidders fully concealing the actual number of participants elicits a higher expected winning bid if potential bidders have low participation probabilities whereas the rank reverses if bidders have high participation probabilities and high chances of being high types

the process of innovation assimilation by firms in different countries a technology diffusion perspective on e business this paper extends our previous studies on the assimilation of internet based e business innovations by firms in an international setting drawing upon theories on the process and contexts of technology diffusion we develop an integrative model to examine three assimilation stages initiation adoption routinization the model features technological organizational and environmental contexts as prominent antecedents of this three stage assimilation process based on this model we hypothesize how technology readiness technology integration firm size global scope managerial obstacles competition intensity and regulatory environment influence e business assimilation at the firm level a unique data set of 1 857 firms from 10 countries is used to test the conceptual model and hypotheses to probe deeper into the influence of the environmental context we compare two subsamples from developed and developing countries our empirical analysis leads to several key findings 1 competition positively affects initiation and adoption but negatively impacts routinization suggesting that too much competition is not necessarily good for technology assimilation because it drives firms to chase the latest technologies without learning how to use existing ones effectively 2 large firms tend to enjoy resource advantages at the initiation stage but have to overcome structural inertia in later stages 3 we also find that economic environments shape innovation assimilation regulatory environment plays a more important role in developing countries than in developed countries moreover while technology readiness is the strongest factor facilitating assimilation in developing countries technology integration turns out to be the strongest in developed countries implying that as e business evolves the key determinant of its assimilation shifts from accumulation to integration of technologies together these findings offer insights into how innovation assimilation is influenced by contextual factors and how the effects may vary across different stages and in different environments

investment options and the business cycle abstract this paper extends r mehra e c prescott recursive competitive equilibrium the case of homogeneous households econometrica 48 1980 1365 1380 to a production economy with two capital goods it is an rbc model in which each unit of investment requires a new idea an option when options are scarce new capital is harder to put in place and the value of old capital rises thus the stock market and tobin s q are negative indexes of intangibles during a boom q rises gradually as options are used up because investment represents an exercise of options it has an intertemporal substitution tradeoff that is absent from the adjustment cost model equilibrium may be efficient even without markets for knowledge the stock market may suffice

dynamic consistency revelations in auctions and the structure of preferences analyzing the optimal bidding behaviour in ascending bid auctions and second price sealed bid auctions with independent private values we show that expected utility maximizing behaviour is equivalent to a dynamically consistent bidding in ascending bid auctions b the equivalence of the optimal bids in ascending bid auctions and in second price sealed bid auctions c bidding the value of the object in second price sealed bid auctions in addition the optimal bid in ascending bid auctions equals the value of the object if and only if the bidder s preferences on lotteries are both quasi concave and quasi convex

industry and firm effects on it diffusion processes firm level evidence in italian enterprises this article examines the antecedents and performance consequences of capabilities developed from the use of information technology it in a sample of 186 italian large enterprises attention is given to the influence of industry and firm characteristics on the creation of capabilities and on the returns from it investments our work makes three principal contributions first the it diffusion patterns reveal that these technologies have a dual nature some capabilities derived from it use i e administrative capabilities diffuse evenly across industries because the underlying technologies easily adapt to industry and firm specific conditions in contrast the use of it in supporting other capabilities such as those related to product development is less developed and more concentrated in the high tech and information service sectors second using a resource based perspective this articles shows the positive effects that firm specific preconditions have on the accumulation of it resources and capabilities that exhibit a rare diffusion at the industry level third given industry level differences in competitive environments we show how the value appropriation of capabilities that firms have developed using it depends on industry type with hi tech and information services industries exhibiting lower profit returns

investment cycles strategic delay and self reversing cascades we study investment cycles and information flows in a model of social learning in which investment returns fluctuate according to a markov process in our waiting game agents observe the investment history and a private signal correlated with the current period s investment return agents then decide whether to invest in round 1 or to delay their decision to round 2 of the current period cascades in which everyone invests and no one invests eventually correct themselves as compared to the no waiting game with no opportunity for delay the waiting game has shorter investment cascades longer recessions and shorter booms the waiting game also has more underinvestment and less overinvestment

implementation cycles investment and growth we develop a model of intrinsic cycles driven by the decentralized behavior of entrepreneurs and firms making continuous divisible improvements in their productivity we show that when the introduction of productivity improvements is endogenous implementation cycles arise even in the presence of reversible investment and consumption smoothing the implied cyclical equilibrium is unique within its class and shares several features in common with actual business cycles in particular its predictions are qualitatively consistent with the joint behavior of the investment rate and tobin s q during u s recessions

auctions with a random number of identical bidders abstract we examine and compare the normally mixed symmetric equilibrium bidding strategies in first price and all pay common value multiple item auctions with a random number of bidders who only seek one of the identical items and have the same budget

growing through cycles the neoclassical growth model focuses on factor accumulation as an engine of growth while the neo schumpetarian growth model stresses innovation this paper argues that these two views of growth may capture different phases of a single growth experience in the model presented below the balanced growth path is unstable and the economy achieves sustainable growth through cycles under an empirically plausible condition perpetually moving back and forth between two phases one phase is characterized by higher output growth higher investment no innovation and a competitive market structure the other phase is characterized by lower output growth lower investment high innovation and a more monopolistic market structure both investment and innovation are essential in sustaining growth indefinitely and yet they move in an asynchronized way only one of them appears to play a dominant role in each phase the economy grows faster along the cycles than along the unstable balanced growth path

information transparency of business to business electronic markets a game theoretic analysis the abundance of transaction data available on the internet tends to make information more transparent in electronic marketplaces in such a transparent environment it becomes easier for suppliers to obtain information that may allow them to infer their rivals costs is this good news or bad news in this study we focus on theinformational effects of business to business b2b exchanges and explore firms incentives to join a b2b exchange that provides an online platform for information transmission we then study the equilibria by developing a game theoretic model under asymmetric information we examine whether the incentives to join a b2b exchange would be different under different competition modes quantity and price different information structures and by varying the nature of the products substitutes and complements our results challenge the information transparency hypothesis i e open sharing of information in electronic markets is beneficial to all participating firms in contrast to the popular belief we show that information transparency could be a double edged sword the individual rationality of participation in the online exchange reflects the tradeoff between information transparency and data confidentiality this may have important implications for the microstructure design e g data access rules of b2b electronic marketplaces

evolutionary trends of industry variables abstract the paper offers empirical evidence on the evolutionary trends of industry variables it investigates the time path of patents product price and quantity and number of firms from the first introduction of a product to maturity of the market the paper extends earlier work by gort and klepper by expanding the data on products through 1991 and augmenting it with new products and new data sources the reexamination of the aging patterns reveal the gort and klepper results to be robust the time trends follow the expected patterns with remarkable consistency and are strongly significant for most products new evidence on patenting activity reveal an eventual decline in technological activity over the later years of the product market life cycle

monopolistic competition and the effects of aggregate demand how important is monopolistic competition to an understanding of the effects of aggregate demand on output we ask the question at three levels can monopolistic competition by itself explain why aggregate demand movements affect output can it together with other imperfections generate effects of aggregate demand in a way that perfect competition cannot if so can it give an accurate account of the response of the economy to aggregate demand movements the answers are no yes and yes

frictionless technology diffusion the case of tractors many new technologies display long adoption lags and this is often interpreted as evidence of frictions inconsistent with the standard neoclassical model we study the diffusion of the tractor in american agriculture between 1910 and 1960 a well known case of slow diffusion and show that the speed of adoption was consistent with the predictions of a simple neoclassical growth model the reason for the slow rate of diffusion was that tractor quality kept improving over this period and more importantly that only when wages increased did it become relatively unprofitable to operate the alternative laborintensive horse technology jel l62 n51 n52 n71 n72 o33 q11 understanding the determinants of the rate at which new technologies are created and adopted is a critical element in the analysis of growth even though modeling equilibrium technology creation can be somewhat challenging for standard economic theory understanding technology adoption should not be specifically once the technology is available the adoption decision is equivalent to picking a point on the appropriate isoquant dynamic considerations make this calculation more complicated but they still leave it in the realm of the neoclassical model a simple minded application of the theory of the firm suggests that profitable innovations should be adopted instantaneously or with some delay depending on various forms of cost of adjustment the evidence on the adoption of new technologies seems to contradict this prediction jovanovic and lach 1997 report that for a group of 21 innovations it takes 15 years for its diffusion to go from 10 percent to 90 percent the 10 90 lag they also cite the results of a study by grubler 1991 covering 265 innovations who finds that for most diffusion processes the 10 90 lag is between 15 and 30 years 1

investment under uncertainty irreversibility and the arrival of information over time in this paper we consider a risk neutral competitive firm which is uncertain about the true state of demand we build upon arrow by demonstrating that the irreversibility of investment in physical capital together with the anticipation of receiving information and of learning the state of demand lead to 1 cautious investment behaviour and hence to lower investment levels than otherwise since the firm cannot disinvest if market conditions turn out to be less favourable than currently anticipated 2 a time varying risk premium or marginal adjustment cost which is shown to arise endogenously and to be positively related to the investment level and to the anticipation of greater information in the sense of blackwell 1951 1953 3 a gradual adjustment of the capital stock to the desired level defined as the optimal capital stock corresponding to the true state of demand

investment as a process of search this paper analyzes optimal capital accumulation in the face of structural uncertainty in which the firm does not fully know its own profit function and can discover it only through further investment it is shown that under structural uncertainty capital accumulation is gradual even when adjustment costs are linear and not convex it is further shown that structural uncertainty creates an incentive to market research the paper also presents an example of structural uncertainty in which an additional price uncertainty has a negative effect on investment contrary to the standard models

maxmin expected utility over savage acts with a set of priors abstract this paper provides an axiomatic foundation for a maxmin expected utility over a set of priors mmeu decision rule in an environment where the elements of choice are savage acts this characterization complements the original axiomatization of mmeu developed in a lottery acts or anscombe aumann framework by i gilboa and d schmeidler 1989 j math econ 18 141 153 mmeu preferences are of interest primarily because they provide a natural and tractable way of modeling decision makers who display an aversion to uncertainty or ambiguity the novel axioms are formulated using standard sequence techniques which allow cardinal properties of utility to be expressed directly through preferences journal of economic literature classification number d81

cheap talk coordination and entry we show how costless nonbinding nonverifiable communication cheap talk can achieve partial coordination among potential entrants into a natural monopoly industry where the payoffs are qualitatively like the battle of the sexes the analysis would apply equally in other economic situations with such payoffs for example bargaining under complete information or choosing compatibility standards while cheap talk helps achieve asymmetric coordination in a symmetric mixed strategy equilibrium it cannot achieve complete coordination if the game involves even a small amount of conflict

ambiguous beliefs and mechanism design abstract this paper develops a payoff equivalence theorem for mechanisms with ambiguity averse participants with preferences of the maxmin expected utility meu form gilboa and schmeidler 1989 we use our payoff equivalence result to explicitly characterize the revenue maximizing private value auction mechanism for agents with arbitrary forms of ambiguous beliefs we also show that the revenue ranking between first and second price auctions is sensitive to the form of ambiguity aversion our payoff equivalence techniques allow us to study the constrained efficient budget balanced bilateral trade mechanism and show that increased ambiguity improves the efficiency of the mechanism in addition we characterize the revenue maximizing efficient bilateral trade mechanism and show that heightened ambiguity lowers ex ante budget deficits

threshold nonlinearities and asymmetric endogenous business cycles abstract this paper presents a model of endogenous business cycles in the presence of knowledge spillovers and a time to build restriction there are two key assumptions that characterize the model i the payoff to each firm depends on the aggregate state of knowledge and ii the innovation of a project is time consuming under those assumptions a simple structure is shown to be described by a piecewise linear difference equation with a discontinuity we show that the resulting dynamics generated by such a dynamical system leads to an asymmetric periodic cycle of arbitrary period that appears to switch repeatedly between different regimes

entry exit and diffusion with learning by doing early entry has the advantage of higher revenues per unit of output early on late entry has the benefit of learning from the experience of earlier entrants and hence lower production costs the advantages are balanced off in a continuous time perfect foresight equilibrium competition generates s shaped diffusion and staggered entry and exit a monopolist will innovate less than a competitive industry but the innovation that he does do he will do sooner copyright 1989 by american economic association

business as usual market crashes and wisdom after the fact the authors present a three stage model of market dynamics in the first stage routine behavior tends to keep information of common interest trapped in private hands in the second stage private information reaches a threshold that triggers some agents to alter their behavior these actions release information to the market the final stage involves the market s response to this news as other participants react to the initial departure from routine behavior the authors present an application to industry investment they also outline applications to the international debt crisis to bank runs and to political upheavals copyright 1994 by american economic association

shakeouts and market crashes this article provides a microfoundation for the rise in optimism that seems to precede market crashes small young markets are more likely to experience stock price run ups and crashes we use a zeira rob type of model in which demand size is uncertain optimism then grows rationally if traders prior distribution over market size has a decreasing hazard such prior beliefs are appropriate if most new markets are duds and only a few reach a large size the crash occurs when capacity outstrips demand as an illustration for the period 1971 2001 we fit the model to the telecom sector

multiple expectational equilibria under monopolistic competition this paper shows that a monopolistically competitive economy with real investment can have multiple rational expectations equilibria one is associated with entrepreneurs optimistic expectations about future demand another with entrepreneurs pessimism it also shows that an optimistic expectational equilibrium pareto dominates a pessimistic equilibrium an investment subsidy can be beneficial both by reducing the original underinvestment distortion and by changing firms expectations from pessimistic to optimistic the most important assumption is increasing returns to scale and monopolistic competition makes increasing returns consistent with each producer s optimization

a dynamic general equilibrium analysis on fostering a hydrogen economy in korea hydrogen is anticipated to become one of the major alternative energy technologies for a sustainable energy system this study analyzes the dynamic economic impacts of building a hydrogen economy in korea employing a dynamic computable general equilibrium cge model as a frontier technology hydrogen is featured as having a slow diffusion rate due to option value positive externality resistance of old technology and complementary vintages without government intervention hydrogen derived energy will supply up to 6 5 of final energy demand by 2040 simulation outcomes show that as price subsidy rates increase by 10 20 and 30 hydrogen demand will increase by 9 2 15 2 and 37 7 respectively of final energy demand by 2040 the output of the transportation sector will increase significantly while demands for oil and electricity will decline demands for coal and lng will experience little change household consumption will decline because of the increase of income taxes overall gdp will increase because of the increase in exports and investments co2 emission will decline for medium and high subsidy rate cases but increase for low subsidy cases ultimately subsidy policy on hydrogen will not be an effective measure for mitigating co2 emission in korea when considering dynamic general equilibrium effects

design of discrete dutch auctions with consideration of time abstract as a departure from much of the existing literature that aims at maximizing the expected revenue from a single auction this research work is concerned with the design of discrete dutch auctions to achieve the optimal balance between the selling price of the object and the auction duration so that the auctioneer s expected revenue per unit of time is as high as possible the new objective is especially important in trading perishable products or services when multiple auctions are to be conducted by the auctioneer for different sellers during a limited period of time our findings indicate that the proposed discrete dutch auction models generate higher average revenues per unit of time for the auctioneer than their counterparts without consideration of time this is achieved by reducing the duration of each auction in exchange for more auctions to be held within the given time frame so that the small decrease in the revenues from the longer auctions is more than compensated for by the large increase in the total revenues from the shorter auctions the numerical results show that the proposed discrete dutch auction design becomes extremely useful when the number of bidders becomes large it is also shown that complete knowledge about the number of bidders in the auction results in a higher auctioneer s expected revenue per unit of time

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

industry competition and firm human capital this paper argues that objective and subjective human capital may have substantial impact upon organizational performance in a competitive context objective human capital pertains to such features as education and experience whereas subjective human capital relates to personality characteristics the argument is illustrated by presenting the results of two empirical studies 1 a cross section 1990 1991 analysis of about 50 incumbents in the flemish furniture industry concentrating on the impact of subjective human capital particularly the chief executive officer s ceo s locus of control personality on financial performance and 2 a longitudinal 1970 1992 analysis of a cohort of 100 entrants into the dutch audit industry focusing on the influence of objective human capital particularly education and experience on exit by merger and acquisition m a or diaspora both studies support the claim that objective and subjective human capital matters for example flemish furniture firms headed by a ceo with an internal locus of control trait reach higher levels of financial performance and dutch audit firms with a high proportion of personnel with business experience are more likely to exit the industry over the years as a result of diaspora finally the data of the flemish furniture and dutch audit industries are re analyzed so as to compare the impact of human capital variables on small firm performance in both industries this re analysis reveals that in both industries the impact of human capital variables is more pronounced in large firms compared to small businesses

a definition of uncertainty aversion a definition of uncertainty or ambiguity aversion is proposed it is argued that the definition is well suited to modelling within the savage as opposed to anscombe and aumann domain of acts the defined property of uncertainty aversion has intuitive empirical content behaves well in specific models of preference multiple priors and choquet expected utility and is tractable tractability is established through use of a novel notion of differentiability for utility functions called eventwise differentiability

is investment time irreversible some empirical evidence for disaggregated uk manufacturing data it has long been suggested that investment may be time irreversible and consideration of the option value of waiting to invest has aroused renewed interest in this issue this study tests for time irreversibility in uk investment according to disaggregation by type of investment expenditure and across manufacturing sector groupings the test results reported indicate that the irreversibility of investment patterns varies not only from industry to industry but also according to the type of capital being purchased with significant time irreversibility detected in gross fixed capital formation and aggregate vehicles expenditure and industrial sector groupings comprising fuels and oil refining engineering and vehicles and textiles and leather however only in the first and last of these series is time irreversibility attributable to non linearities in the underlying data generating process and consistent with threshold effects which may be associated with s s type models of investment dynamics

ambiguity made precise a comparative foundation the theory of subjective expected utility has been recently extended to allow ambiguity to matter for choice we propose a notion of absolute ambiguity aversion by building on a notion of comparative ambiguity aversion we characterize it for a preference model which encompasses some of the most popular models in the literature we next build on these ideas to provide a definition of unambiguous act and event and show the characterization of the latter as an illustration we consider the classical ellsberg 3 color urn problem and find that the notions developed in the paper provide intuitive answers journal of economic literature classification number d81

a dynamic model of entry and exit in a growing industry the potential demand in a new industry evolves over time demand is initially low but advertising by the industry s early entrants can speed up demand growth however there is intrinsic uncertainty of the demand level in each period and uncertainty of the demand evolution path which can be affected by the underlying economic environment we construct a dynamic model that features the stochastically and endogenously expanding demand of a new industry and we investigate the optimal entry and exit behavior of firms as the industry evolves we find that firms incentive to enter early depends critically on the cost that early entrants have to pay in developing the market when the cost is high and the benefit spills over to potential entrants firms have an incentive to wait and the probability of entry can increase with the number of incumbents under certain circumstances firms entry strategy is also influenced by the transition of economic states firms are more likely to enter under a state that shows the prospect of demand taking off soon we also find that in the early stage of an industry higher demand uncertainty can induce faster entry