the entrepreneur s idea and outside finance theory and evidence about entrepreneurial roles abstract we study the problem faced by the entrepreneur seeking outside support to turn an entrepreneurial idea into a successful innovation specifically a successful technological innovation resulting from research and development the paper develops and tests the hypothesis that as an entrepreneur s innovative idea becomes more complex the entrepreneur will find it more difficult to obtain outside finance and then outside support more generally for the commercialization of the idea consequently the entrepreneur will be more likely to take on additional roles beyond providing the essential idea the evidence supports the hypothesis that other things being the same an entrepreneur with a more complex idea will have greater difficulty obtaining outside finance and will be more likely to take on the additional roles of development production marketing and distribution that are necessary for successful innovation

a new look at the returns and risks to pharmaceutical r d this study investigates the returns to r d for 100 new drugs introduced into the united states during the decade of the 1970s in contrast to prior studies it incorporates several significant structural changes that have occurred in the pharmaceutical industry during the 1980s these include higher real drug prices and a greater degree of generic competition a major finding is that the return on r d for the average new drug is approximately equal to the 9 percent industry cost of capital however the performance of new drugs introduced during the latter half of the 1970s was markedly better than that of early 1970s introductions this latter finding is consistent with the more rapid rate of industry growth in real r d expenditures the study also finds that the variation in returns is highly skewed with only the top 30 drugs covering mean r d costs on a fully allocated basis finally it is shown that real drug price increases in the 1980s were necessary for the average new drug introduction to recover its r d costs

allocating between active and passive management with the recent difficulty in beating the s p 500 index the debate over active versus passive investing has risen to a new level of importance we provide a framework for analyzing the trade off the typical pension fund faces in deciding how much to index our analysis gets at the root of active performance stock picking skill after analyzing the performance associated with various degrees of skill in various equity styles for the 1985 97 period we found that a modest amount of stock picking skill goes a long way and that the optimal amount of allocation to indexing declines as skill increases for most risk categories however some allocation to indexing is appropriate

why are some independent inventors heroes and others hobbyists the moderating role of technological diversity and specialization abstract despite a substantial body of research investigating the market significance of inventions by independent inventors relatively little attention has been devoted to understanding their technological significance a recent study conducted by dahlin k taylor m fichman m 2004 today s edisons or weekend hobbyists technical impact and success of inventions by independent inventors res policy 33 1167 1183 on the tennis racket industry shows that independent inventors are a heterogeneous group which includes both heroes who contribute substantially to technological progress and hobbyists who make only a marginal contribution what is not asked and therefore not explained is why this distinction arises in this paper we focus on the type of prior technological knowledge in terms of technological specialization and diversity applied by independent inventors and their corporate counterparts as a factor explaining differences in technological impact our empirical setting is the field of medical equipment technology we find that independent inventors are more sensitive to the negative effects of technological diversity than their corporate counterparts furthermore our study reveals that technological specialization pays off more for independent inventors than for their corporate counterparts therefore those independent inventors who apply low degrees of diversity and high degrees of specialization are capable of reaching the same level as or even outperforming their corporate counterparts thus becoming heroes based on our findings we discuss implications for research and corporate practice

a new product growth for model consumer durables this article originally appeared in management science january 1969 volume 15 number 5 pp 215 227 published by the institute of management sciences a growth model for the timing of initial purchase of new products is developed and tested empirically against data for eleven consumer durables the basic assumption of the model is that the timing of a consumer s initial purchase is related to the number of previous buyers a behavioral rationale for the model is offered in terms of innovative and imitative behavior the model yields good predictions of the sales peak and the timing of the peak when applied to historical data a long range forecast is developed for the sales of color television sets

interest rates risk and imperfect markets puzzles and policies traditional theory emphasizes the key role that monetary policy can play through the manipulation of interest rates but there are several puzzles that cannot be reconciled with standard models these include the apparent constancy in interest rates over extended periods and changes at other times which appear unrelated to changes in technology and demography the cyclical pattern of movements in real interest rates the impact of nominal not real interest rate changes on real variables and the cyclical pattern of movements in interest rate spreads this paper reaches beyond the standard competitive equilibrium perfect information model of credit markets towards imperfect information models particularly those that focus on the determinants of bank behaviour of the standard models the money demand model is most deficient in understanding these puzzles the loanable funds theory and a generalized version of real productivity theory can be reconciled with imperfect information and markets and the consequent credit and equity rationing regimes help to explain the puzzles specifically banks may be insensitive to changes in monetary stance owing to risk aversion there are strong policy implications it is argued for instance that in east asia raising interest rates exacerbated economic decline and rather than contributing to exchange rate stability may have induced capital flight as default risk increased lowering risk adjusted expected returns

a re assessment of the relationship between real exchange rates and real interest rates 1974 1990 abstract this paper uses cointegration techniques and error correction models to re examine the link between real exchange rates and real interest rate differentials the results show that real exchange rates and real interest rates are nonstationary however they are not cointegrated with each other on the other hand the dynamic models indicate that there might be a long run relationship between these variables but this cannot be verified the final conclusion is that there is little empirical evidence in support of a systematic relationship and this result is robust across exchange rates time periods and measures of expected inflation

interest rate differentials and exchange rate policies in austria the netherlands and belgium in this paper the small but persistent interest rate differentials via a vis germany which have existed in austria the netherlands and belgium are analysed these interest differentials may be thought of to consist of three parts expected exchange rate movements within the band expected changes of the central rates and a risk premium following a similar test as proposed by svensson we examine the credibility of the exchange rate policy in these countries according to this test the belgian exchange rate policy clearly lacks credibility for most of the period under consideration there are however serious problems applying this test to belgium due to the dual exchange rate system for austria and the netherlands we calculate interest differentials which are adjusted for expected exchange rate movements within the band it appears that the differences between the adjusted and the unadjusted interest differentials can be substantial the granger causal relationship between fundamentals like the rate of inflation the government budget deficit and the current account is also quite different for the adjusted and the unadjusted interest differential where the fundamentals have the highest explanatory power for the latter measure

was it real the exchange rate interest differential relation over the modern floating rate period in this paper we explore the relationship between real exchange rates and real interest rate differentials in the united states germany japan and the united kingdom contrary to theories based on the joint hypothesis that domestic prices are sticky and monetary disturbances are predominant we find little evidence of a stable relationship between real interest rates and real exchange rates we consider both in sample and out of sample tests one hypothesis that is consistent with our findings is that real disturbances such as productivity shocks may be a major source of exchange rate volatility this paper investigates the empirical relationship between major currency real exchange rates and real interest rates over the modern post march 1973 flexible rate experience the exchange rates examined here include the dollar mark dollar yen and dollar pound rates our two major findings are as follows first the data do not indicate a strong correspondence between real interest rate differentials short term or long term and real exchange rates this finding appears to conflict with the predictions of most monetary and portfolio balance models of exchange rate determination though the conflict can be substantially reconciled if aggregate disturbances are primarily real in nature i e changes in productivity tastes etc it is true that in many cases the sign of the estimated exchange rate interest rate differential relationship is consistent with the possible predominance of financial market disturbances but the relationship is not stable enough to be statistically significant second although one does find some evidence of a unit root in both real exchange rates and long term but not shortterm real interest differentials these two series do not appear to be linearly cointegrated hence the nonstationarity or near nonstationarity in the two series cannot be attributed to the same factor in section i we briefly describe a class of small scale monetary models of exchange rate determination the importance of this class of models for empirical work derives from its strong predictions about how the exchange rate will move

over confidence may reduce negotiation delay abstract when a seller negotiates with multiple buyers how does over confidence affect the timing of trade in this paper we distinguish between over confidence about trade opportunities and over confidence about the terms of trade in bargaining environments without externalities both types of over confidence can cause delays in agreement if externalities are present the two forms of subjective bias have very different impacts on delay in particular over confidence about trade opportunities may reduce bargaining delay

and a vision appeared unto them of a great profit evidence of self deception among the self employed evidence is presented that the self employed expect better financial outcomes than do employees but experience worse realisations this is consistent with theories that entrepreneurship is driven by unrealistic optimism

does the real interest parity hypothesis hold evidence for developed and emerging markets we present empirical evidence on the real interest parity hypothesis for a set of emerging and developed countries this is done by carrying out a set of unit root tests on the real interest differentials with respect to the us our results support the hypothesis of a rapid reversion towards a zero differential for developed countries and towards a positive one for emerging markets mean reversion is faster for emerging market economies we also find that this adjustment tends to be highly asymmetric and markedly different for developed and emerging markets our evidence reveals a high degree of market integration for developed countries and highlights the importance of risk premia for emerging markets

do high interest rates stem capital outflows abstract conventional wisdom posits that high interest rates stem capital flight but if higher interest rates increase the probability of debt default they might have anti orthodox effects this note develops a framework for evaluating conditions under which this might occur

innovation threats and strategic responses in oligopoly markets this paper deals with the strategic reaction of firms to competitive threats stemming from newly developed products of actual competitors product innovation projects go through multiple time consuming stages with several continuation termination decisions hence competitors can react to the threat before the new product is introduced and thereby may prevent or facilitate the product s introduction we consider a duopoly model where firm 1 can start a two stage product innovation project for obtaining a horizontally and vertically differentiated product in between the two stages firm 2 can react by making an investment that improves the competitive position of the current product we find that under weak vertical differentiation firm 2 wants firm 1 to innovate horizontal differentiation softens competition and firm 2 over invests to induce firm 1 to launch the new product second under strong vertical differentiation firm 1 starts the product innovation project triggering under investment by firm 2 but never finishes it the under investment makes firm 2 a weaker competitor which induces firm 1 not to innovate third under very strong vertical differentiation firm 2 prevents a launch of the new product by over investing this results in a strong competitive position of firm 2 it therefore captures such a big market share that firm 1 will not introduce the new product the situation of firm 1 in the old market has worsened the option to complete the innovation created by initiating the first stage of the innovation project has a negative value for firm 1

who drives real interest rates around the pacific rim the usa or japan abstract this paper investigates the relative influence of us and japanese real interest rates in the determination of local pacific rim rates where influence is defined by the presence of common stochastic trends furthermore the degree to which long run real interest parity holds is examined the cointegration testing methodology of johansen 1988 is adopted for this analysis which allows for multiple cointegrating vectors the results indicate that hong kong malaysia and taiwan are linked with both the usa and japan in terms of cointegration and positive covariation while only singapore is solely linked with the usa on the other hand korea and perhaps indonesia and thailand appear to be more closely linked with japan real interest parity holds for only the following interest rate pairs usa singapore usa taiwan and japan taiwan

the effect of risk sensitivity on a supply chain of mobile applications under a consignment contract with revenue sharing and quality investment abstract the paper provides a thorough investigation of the revenue sharing contract format typically used in the mobile applications apps industry the platform provider sets the level of revenue sharing and the app developer determines the investment in quality and the selling price of the app the demand for an app which depends on both price and quality investment is assumed to be uncertain so the risk attitude of the supply chain members has to be considered specifically we focus on how risk sensitive behavior of supply chain members affects chain performance the members equilibrium strategies are analyzed under different attitudes toward risk averse neutral and seeking we show that the retailer s utility function has no effect on the equilibrium strategies and suggest schemes to identify these strategies for any utility function of the developer we find that i the revenue sharing contract circumvents the double marginalization effect associated with vertical competition and therefore yields the best selling price for the customer ii a decentralized supply chain sometimes performs better than a centralized one and iii a risk seeking developer may obtain a higher expected profit than does a risk neutral developer

does patenting help high tech start ups abstract using data on all high and medium tech start ups in the uk in 2000 this paper assesses the effect associated with a firm s decision to patent on a firm s subsequent growth between 2001 and 2005 we propose a new approach to addressing well known issues challenging identification of any patent effect firm heterogeneity simultaneity between firm performance and patenting and sample selection our findings suggest that patentees have higher asset growth than non patentees of between 8 and 27 per annum 2011 elsevier b v all rights reserved

entrepreneurial learning and the existence of credit markets abstract i explore the economic implications of learning by doing by borrower entrepreneurs who are initially imperfectly informed about their innate abilities it is shown how entrepreneurial learning worsens the adverse effects of moral hazard causing the possible disappearance of otherwise viable credit markets and thereby decreasing social welfare the reason is that learning reduces subjective uncertainty about risky future outcomes thus encouraging excessive risk taking behaviour

the world real interest rate stochastic index number perspectives abstract in a recent paper gagnon and unferth 1995 is there a real world interest rate j int money finance 14 845 855 test the hypothesis of real interest rate equality by regressing real interest rates for all major countries on dummy variables for each country and each period we show that this model can be interpreted as an application of the stochastic approach to index numbers this approach leads to estimates of and standard errors for the real rate for the world as a whole which have appealing index number interpretations and foundations we also extend gagnon and unferth s approach by weighting countries to recognise their differing importance in the world economy in terms of relative gdp and trade weighting does not lead to appreciable changes in the results however when the wpi which gives more prominence to goods entering into international trade is used as the deflator our results indicate that real rates are equalized internationally

the return to independent invention evidence of unrealistic optimism risk seeking or skewness loving examining a sample of 1 091 inventions i investigate the magnitude and distribution of the pre tax internal rate of return irr to inventive activity the average irr on a portfolio investment in these inventions is 11 4 this is higher than the risk free rate but lower than the long run return on high risk securities and the long run return on early stage venture capital funds the portfolio irr is significantly higher for some ex ante identifiable classes of inventions the distribution of return is skew only between 7 9 reach the market of the 75 inventions that did six realised returns above 1400 60 obtained negative returns and the median was negative

risky innovation the impact of internal and external r d strategies upon the distribution of returns a b s t r a c t external innovation increases the profits of the median firm but also increases dispersion and the kur tosis of the distribution of profits this means that external strategies are risky and may require a very large number of attempts before average returns are obtained this puts smaller firms into a position of disproportionately high risk despite the earlier evidence that the rewards from innovation are positively skewed we find no effect of innovation strategies upon the skewness of the distribution of firms profits

overoptimism and the performance of entrepreneurial firms recent theoretical and empirical research on cognitive bias in decision making suggests that overoptimism critically influences entrepreneurs decisions to establish and sustain new ventures we investigate whether such cognitive bias influences entrepreneurial venture performance using data on commercialization efforts for university inventions in contrast to prior studies our results suggest that entrepreneurial overoptimism does not appear to be the determining factor in the decision to found a firm we do find that entrepreneurs continue unsuccessful development efforts for longer periods of time than do established firms which is consistent with entrepreneurial overoptimism in the development of technologies with uncertain market prospects this latter finding is also consistent with rationality based models of decision making behavior however we find that the economic returns associated with many of the technologies in our sample are realized after the start up has been acquired by an established firm suggesting that start ups may serve as a transitional organizational form in the market for technology commercialization

on the market for venture capital we propose a theory of the market for venture capital that links the excess return to venture equity to the scarcity of venture capitalists vcs high returns make the vcs more selective and eager to terminate nonperforming ventures because they can move on to new ones the scarcity of vcs enables them to internalize their social value and the competitive equilibrium is socially optimal moreover the bilaterally efficient contract is a simple equity contract we estimate the model for the period 1989 2001 and compute the excess return to venture capital which turns out to be 8 6 percent finally we back out the return of solo entrepreneurs which is increasing in their wealth and ranges between zero and 3 5 percent

the persistence of real interest differentials abstract this paper applies kalman filtering techniques to estimate the persistence of ex ante real interest differentials identification results for state space models applicable in other contexts are presented and exploited in the model estimation ex ante real interest differentials for the period 1973 1987 are found to be relatively short lived and mean reverting to zero thus providing empirical support for theoretical models of economic interdependence characterized by real rate equality in the long run steady state for the sample considered the variability of the differentials relative to the u s is found to be larger than that relative to germany