population agglomeration and the effectiveness of enterprise subsidies a chinese analysis this paper investigates the impact of population agglomeration on the relation between government subsidies and firm innovation it constructs a parsimonious model to show that the positive effect

a minimum wage can be welfare improving and employment enhancing abstract we examine whether minimum wages can fulfill a useful role as part of an optimal tax transfer scheme the government cannot observe household abilities only their incomes and is constrained to ensure that those working are at least as well off as those not working a minimum wage combined with the institutional features of typical welfare systems allows the incentive constraint to be severed at the ability level associated with the minimum wage if such a scheme can be enforced the government can increase the amount of redistribution from those working to those not working and possibly lower the number of unemployed

international corporate diversification and the cost of equity european evidence abstract this paper analyzes the impact of corporate international diversification cid on domestic and world betas through the notion of psychic distance between countries using a large european sample of 598 firms our findings indicate that this dimension significantly influences corporate risk exposure by isolating three additive components of the foreign sales ratio fsr we obtain the most significant results by geographically partitioning the sample provided that firms are further classified by sector our framework sheds new light on how the cid of firms belonging to sweden and the united kingdom as well as the consumer cyclical consumer non cyclical and information technology sectors sometimes can reduce and sometimes increase firm betas

the ramsey problem for congestible facilities abstract in recent years a new set of models drawing on vickrey 1969 has been developed to analyze the economics of congestible facilities these models are structural in that they derive the cost function from consumers time of use decisions and the congestion technology standard models in contrast simply assume the general form of the cost function we apply the new approach to analyze the ramsey problem for a congestible facility and show that the solution generally entails cost inefficiency standard models have failed to reveal this result because they treat the cost function as completely determined by technology

a model of advertising with application to the german automobile industry this paper develops a dynamic duopolistic model of advertising and price competition advertising accumulates a stock of goodwill which enters directly into the demand functions and both the cooperative and predatory effects of advertising are considered it is shown that firms invest more in advertising the higher the degree of cooperativeness of advertising and some comparative static results are provided in the second empirical part of the article estimations of the demand equations are presented using data from the german automobile industry the main conclusion drawn is that advertising plays an important role in this market and has a predatory nature

product and international diversification among japanese multinational firms this paper examines the relationship of performance with product and international diversification on japanese multinational firms from 1977 to 1993 we show the relationships between diversification and performance change over time through the use of multiple time periods and accounting for keiretsu membership results show that while diversity strategies vary between keiretsu and non keiretsu firms performance is not much different across time periods performance varies considerably but strategies are less variable product diversity has weak effects on firm performance only in one time period while international diversification has negative profitability and positive growth consequences in in some periods these results suggest first that diversification strategies and their effects on performance vary across time periods and generally produce some unexpected findings we do not find strong interactive diversity effects copyright 2000 john wiley sons ltd

equity and efficiency in public sector pricing a case for stochastic rationing a view still widely held among economists is that given the objective of maximizing a paretian social welfare function rationing of private goods is inferior to transfers and subsidies hence existing rationing e g in housing programs involving rent regulation subsidized medical treatment to needy individuals distribution of day care for children according to need etc is often interpreted as a reflection of paternalistic objectives on the part of the government or simply as bad policy see tobin 1970 the purpose of this paper is to challenge the general validity of this conventional wisdom in the context of a traditional model of public sector pricing supplemented by an anonymous rationing scheme which affects individuals consumption patterns significantly as is often the case a government cannot achieve distributional equity i e situations where the social value of marginal utility of income is equal for all individuals by means of taxes and transfers because the use of these instruments is subject to various constraints this is a common feature of many taxation models cf atkinson and stiglitz 1980 from a purely technical point of view there is scope for improving on social welfare in such situations by means of other measures such as rationing but since the use of rationing as well as taxes and transfers is likely to be restricted by the same underlying factors e g information about consumers preferences and endowments or administrative costs it may be questioned whether rationing qualifies as an efficient policy instrument the type of rationing considered in this paper is stochastic rationing when prices are set at levels which generate excess demand some of the potential consumers are randomly barred from the markets entirely so that demand equals supply from the point of view of implementation such a rationing scheme has the desirable property of not requiring the government to have information about preferences and endowments at the individual consumer level nor is extensive administration required another interesting aspect of such a scheme is that in a sense it represents a lower bound on rationing schemes since in most cases actual rationing can be based on some information about consumers therefore if there are cases where a market clearing equilibrium can be improved upon by reducing prices below market clearing levels combined with elimination of excess demand by means of stochastic rationing the argument for rationing as a potentially efficient policy tool is in fact fairly strong in this paper we show that such cases do exist we also indicate that stochastic rationing may still be efficient even in situations where prices can be highly differentiated among different groups of individuals e g income groups we conclude that the absence of costless redistribution of income which indeed seems to be consistent with real world situations is crucial for the results two kinds of policy changes are considered the first involves eliminating a marginal excess demand by means of rationing in the model in this paper there is a continuum of consumers therefore while such a marginal rationing affects some consumers in a nonmarginal fashion it only affects an infinitesimal group of consumers hence it only

in kind transfers self selection and optimal tax policy abstract this paper examines the role of public provision of goods as a redistributive mechanism when tax policies are designed optimally on the basis of the information available to the government we characterize pareto efficient allocations that are attainable through the tax policy and derive the conditions under which public provision will enhance welfare above the maximum that can be achieved through a mix of a general income tax and commodity taxes price subsidies first when there are two produced goods we prove that public provision is always pareto improving the improvement is achieved through changing individuals actual consumption levels second with no restrictions on the number of goods we derive a sufficient condition for public provision to be pareto improving this is achieved by weakening self selection constraints so that welfare improving tax changes are made possible suitable examples include provision of day care basic health care and rights to a minimum old age pension

the political economy of publicly provided private goods abstract this paper integrates two different approaches to the analysis of public provision of private goods education health care day care etc while normative public economics has established an efficiency case for such provision the commonly held political economy view has been that it is an economically inefficient phenomenon generated by the political process we establish a political economy framework which in general yields an efficient choice of distributional policy it follows that the central mechanism studied in the normative theory is equally relevant to voting models of decisions on public provision it is shown that under plausible information constraints economically efficient public provision of private goods will be part of politically rational decisions the result is established both within a median voter process and a representative democracy of political parties

closed loop advertising strategies in a duopoly using the lanchester model to describe the dynamics of the market where two firms compete for customers by advertising we solve the problem of determining an optimal advertising strategy for maximum discounted profits we develop both open and closed loop strategies and explain the relationship between them using a new mathematical approach we prove that our closed loop solution is a global nash equilibrium the closed loop strategy is time variant and depends linearly on the actual market share the time variant coefficient incorporates the discount factor its computation requires the solution of a backward differential equation and a set of two nonlinear differential equations for an initial value problem the closed loop advertising expenditures are proportional to the open loop advertising expenditures and to the square of the competitor s actual market share this provides a very practical adaptive control rule that allows the manager to adjust the actual advertising expenditure and to deviate f

dynamic advertising and pricing in an oligopology a nash equilibrium approach a general dynamic oligopolistic price advertising model is formulated and open loop nash solutions are derived as a main result a generalisation of the well known dorfman steiner theorem to heterogenous oligopoly markets is presented furthermore a detailed discussion of long run equilibrium solutions is given for an important special case of the general model formulation it is shown that the optimal advertising policies are constant over time and constitute degenerated feedback solutions

dynamic promotional budgeting and media allocation this paper address the managerial problem of promotional budgeting and media allocation in a dynamic competitive framework we develop an extended lanchester model that is able to analyze multi instrument promotion in an oligopoly the competitors each with a different initial position as well as economic value of the market share and communication effectiveness adopt the strategy of maximizing their net present value of discounted profits taking the other players actions into account the resulting differential game is solved using a novel method providing both the open loop strategy and the closed loop strategy for each firm we prove that our solution is a global nash equilibrium we develop a simple formula that when applied to an open loop strategy readily generates a feedback strategy we also show that for both open and closed loop strategies the proportion of the budget allocated to each instrument is invariant with time and depends only on instrument effectiveness we illustrate the results and provide several managerial rules and discuss their application in practice finally we show that our model favorably compares with other model in the literature in explaining actual data

multinational corporations vs domestic corporations international environmental factors and determinants of capital structure this paper examines whether or not u s based multinational corporations mncs have different capital structures than u s domestic corporations dcs and if so what causes the differences in explaining the difference between the capital structures of mncs and dcs previous studies tended to directly discuss the relationships between international environmental factors e g political risk foreign exchange risk and the capital structure a framework of analysis is proposed in this paper that examines the influence of environmental factors on the firm related capital structure determinants e g agency costs bankruptcy costs that in turn affect the capital structure of the mnc among the determinants that are examined more emphasis is placed on the discussion of agency costs since no previous studies have applied this concept in the international arena empirical tests were conducted to investigate whether mncs are significantly different from dcs regarding agency costs of debt bankruptcy costs and capital structure contrary to conventional wisdom the empirical findings show that mncs do not have lower bankruptcy costs and that they tend to have lower debt ratios than dcs

tariffs quotas and piecemeal policy reform abstract this paper extends recent results on the welfare implications of piecemeal tariff adjustments to include cases where the initial trade distortions involve both tariffs and quotas it shows that the standard prescriptions for piecemeal tariff reform are largely unaffected by the presence of unalterable quotas on other goods prescriptions for piecemeal quota reform are also derived although they are constrained by the presence of unalterable tariffs

transfers in cash and in kind theory meets the data we review theoretical explanations for in kind transfers in light of the limited empirical evidence after reviewing the traditional paternalistic arguments we consider explanations based on imperfect information and self targeting we then discuss the large literature on in kind programs as a way of improving the efficiency of the tax system and a range of other possible explanations including the samaritan s dilemma pecuniary effects credit constraints asymmetric information amongst agents and political economy considerations our reading of the evidence suggests that paternalism and interdependent preferences are leading overall explanations for the existence of in kind transfer programs but that some of the other arguments may apply to specific cases political economy considerations must also be part of the story

welfare improving user charges for publicly provided private goods it is argued that free provision of publicly provided goods or services is rarely optimal the argument is simple if optimal lump sum transfers are not available then the government will wish to use all handles which provide information about the distribution of welfare one such handle may be the usage of publicly provided goods and services as long as this is not uniform then it is a potentially valuable index for redistributive purposes this is illustrated using two models one in which usage of the publicly provided good is legislated by the government and another in which it is determined in part by the private costs of consuming public services

a differential game model of a market of substitutable products abstract modern industrial organization often classifies groups of differentiated products that are fairly good substitutes to belong to the same market this paper develops a differential game model of a market of substitutable products to avoid the problem of time inconsistency we solve a feedback nash equilibrium solution for the game a set of state dependent equilibrium strategies is derived extensions of the model to a stochastic formulation and to an infinite time horizon specification are also provided

topping up or opting out the optimal design of public provision schemes there is extensive public provision of private goods in all developed countries the public provision scheme is often designed so that individuals can opt out but not top up supplement the publicly provided quantity quality using an optimal income ta

investigating the sensitivity of equilibrium profits to advertising dynamics and competitive effects the author investigates the validity of the flat maximum principle the insensitivity of a firm s profits to changes in its optimal advertising level in a duopolistic market in which advertising by the two firms has carryover effects two alternative competitive scenarios are examined i in which total industry sales are allowed to vary over time and ii where firms are engaged in market share rivalry for i the open loop nash equilibrium advertising strategies for the firms are derived assuming a specific sales response function and an infinite time horizon a numerical analysis of the sensitivity of firms profit functions to advertising expenditures is performed at different levels of the a discount rate b advertising elasticity and c advertising decay rate an empirical illustration from the pharmaceutical industry is provided special cases of the model formulation are examined analytically in order to highlight the intuition behind the flatness of the maximum and to study the sensitivity of results obtained to choice of equilibrium strategy closed loop vs open loop for the market share game closed loop policies are considered and the flat maximum principle is illustrated in the context of coke pepsi rivalry in the soft drinks market

viewpoint innovations in the theory and practice of redistribution policy we present a survey of key results from second best optimal redistribution theory and their implications for tax transfer policy the core results include the corlett hague theorem the deaton conditions the production efficiency theorem the atkinson stiglitz theorem and the mirrlees saez characterization of the optimal non linear income tax system these have been augmented in recent years by optimal participation tax rates the implications of involuntary unemployment the use of unconventional instruments such as minimum wages in kind transfer and workfare and the optimal taxation of capital income and bequests l auteur presente un survol des principaux resultats theoriques de la redistribution optimale de second ordre et de leurs implications pour les politiques d imposition et de transferts les resultats fondamentaux incluent le theoreme de corlett hague les conditions de deaton les theoremes d efficacite en production le theoreme d atkinson stiglitz ainsi que la caracterisation du systeme optimal d imposition non lineaire du revenu a la mirrlees saez ces derniers resultats ont ete enrichis au cours des dernieres annees par certains autres portant sur les taux d imposition decoulant des allocations conditionnelles les implications du chomage involontaire l usage d instruments non conventionnels tels que le salaire minimum les transferts en nature le workfare ainsi que l imposition optimale des revenus du capital et des legs ces resultats sont exposes et leurs implications pour les politiques d imposition et de transferts sont discutees

differential game models in management science abstract this paper reviews a number of differential games applications to management science and operations research problems published with a few exceptions during the last decade the purpose of the article is to provide the reader with an up to date account of the state of the art within this field after having stated in an introduction the general differential games framework as well as some conceptual problems we proceed to review the models which have been divided into the following functional areas investment consumption and employment production inventories and maintenance marketing advertising pricing and rd bargaining natural resources and pollution the survey concludes with some remarks on applicability solvability and directions for future research

optimal redistribution with productive social services publicly provided private goods are conventionally considered consumer goods departing from this perspective we analyze the public provision of inputs that improve household productivity e g education and childcare in a two class economy with distorting taxation public provision is always welfare improving with respect to pure taxation given that the public input directly affects household productivity moreover the case for public provision strengthens as households heterogeneity in input demand fades out contrary to consolidated results in the literature the features of optimal provision schemes depend on the nature of publicly provided input namely if it substitutes household productive capacity or just helps households to exploit it

minimum wage legislation and unemployment insurance as instruments for redistribution the use of minimum wages and unemployment insurance as instruments for redistributing income is analyzed the government is assumed to be able to implement an optimal income tax in an economy consisting of two types of individuals who differ in ability the effect of introducing a minimum wage which induces involuntary unemployment will be to improve social welfare under weak conditions circumstances under which combining unemployment insurance with the minimum wage will be welfare improving are also considered

the firm as a dedicated hierarchy a theory of the origins and growth of firms in the formative stages of their businesses entrepreneurs have to provide incentives for employees to protect rather than steal the source of organizational rents we study how the entrepreneur s response to this problem determines the organization s internal structure growth and its eventual size large steep hierarchies will predominate in physical capital intensive industries and will have seniority based promotion policies by contrast e at hierarchies will prevail in human capital intensive industries and will have up or out promotion systems furthermore e at hierarchies will have more distinctive technologies or cultures than steep hierarchies the model points to some essential differences between organized hierarchies and markets at the root of most enterprises generating economic surplus is an entrepreneur with a unique critical resource such as an idea good customer relationships a new tool or superior management technique a fundamental problem of entrepreneurship is how to enlist the cooperation of the many agents necessary for production without ceding to them too much of the surplus generated by the enterprise the risk of being expropriated however is always inherent in production in particular the entrepreneur has to give her employees whom we call managers close proximity or access to the critical resource for them to learn to produce effectively for example a manager has to understand the idea be in contact with the key customers and suppliers or even learn the entrepreneur s unique managerial techniques in order to work effectively but access also gives the manager the opportunity to expropriate this critical resource and compete against the entrepreneur managers may steal the idea walk away with clients or mimic the entrepreneur s management style and start up a rival concern the greater the access a manager has the more he can appropriate and the more effectively he can compete this paper explores the role of organizational design in

optimal pricing and advertising in a durable good duopoly abstract this paper analyzes dynamic advertising and pricing policies in a durable good duopoly the proposed infinite horizon model while general enough to capture dynamic price and advertising interactions in a competitive setting also permits closed form solutions we use differential game theory to analyze two different demand specifications linear demand and isoelastic demand for symmetric and asymmetric competitors we find that the optimal price is constant and does not vary with cumulative sales while the optimal advertising is decreasing with cumulative sales comparative statics for the results are presented

multinational corporations vs domestic corporations financial performance and characteristics the analysis in this paper is composed of two segments first the financial performance of a sample of multinational corporations mncs is compared with that derived for a control group of domestic corporations dmcs using market based performance measures then the paper presents a comparison of selected financial characteristics of the firms in the two groups the results suggest the dmcs appear to have a significantly superior risk adjusted market based performance are significantly less capitalized and have higher total risk as well as higher systematic risk the fact that mncs are substantially larger than dmcs is not found to be a significant factor in explaining the observed difference between the two groups performance

dynamic model of fresh fruit promotion a household production approach many studies consider the dynamic effects of commodity promotion on demand but few derive the theoretical basis for these effects in a model of optimal consumer behavior this study develops a dynamic household production model of u s fresh fruit consumption which it uses to evaluate the effectiveness of advertising and promotion expenditures by the washington apple commission estimates from a dynamic dual generalized leontief system show direct advertising to be marginally more effective than retail promotion in increasing apple sales but advertising has positive spillover effects to sales of other fruits whereas promotion reduces sales of competing products

the optimal public provision of private goods abstract this paper sets out conditions for the optimal public provision of in kind transfers rules are derived governing their marginal and optimal use in the presence of linear taxes because of the difficulty of using these conditions to examine what impact optimal transfers would have on optimal tax systems a simple two good simulation model is used to illustrate the problem

large cash transfers to the elderly in south africa we examine the social pension in south africa where large cash sums about twice the median per capita income of african households are paid to people qualified by age but irrespective of previous contributions we present the history of the scheme and use a 1993 nationally representative survey to investigate the redistributive consequences of the transfers documenting who receive the pensions their levels of living and those of their families we also look at behavioural effects particularly the effects of the cash receipts on the allocation of income to food schooling transfers and savings in south africa a large social pension about twice the median per capita income of african households is paid in cash to people qualified by age irrespective of previous contributions we present the history of the scheme and explain how such large transfers could come about in an economy in which the recipients were not only politically weak but without any political representation whatsoever we then use a 1993 nationally representative survey to investigate the redistributive consequences of the transfers documenting who receive the pensions their levels of living and those of their families we also look at behavioural effects particularly the effects of the cash receipts on the allocation of income to food schooling transfers and savings the pressing policy issue for south africans is whether it makes sense to target seven billion rand nearly 2 billion of social expenditure through the current pension schemes our analysis contributes to the discussion by documenting the redistributive and behavioural effects of the transfers we find that at least as far as immediate incidence is concerned and without allowance for behavioural effects the social pension is an effective tool of redistribution and that the households it reaches are predominantly poor because so many of the elderly among south africa s african population live with children the social pension is also effective in putting money into house

on the generalizability of advertising pulsation monopoly results to an oligopoly this paper introduces for the first time an analytical framework for modeling and analyzing sales response to advertising pulsation for competitive markets of mature products in continuous time for discrete piecewise policies that allow unequal cycle lengths employing a nash equilibrium solution concept this study supported with numerical analysis demonstrates that there is an oligopolistic as opposed to a monopolistic justification for advertising at a constant rate in the presence of concave response functions or advertising according to a pulsing policy in the presence of s shaped response functions the article employs a modeling framework whereby each of a set of competitors responses to advertising spending is governed mainly by lanchester type response is used to analyze the game resulting from cyclical advertising policies that are strictly adhered to by all players a non discounted averaged performance is used to assess the purported optimality of different variants of piecewise constant policies

measuring firm size in empirical corporate finance abstract in empirical corporate finance firm size is commonly used as an important fundamental firm characteristic however no research comprehensively assesses the sensitivity of empirical results in corporate finance to different measures of firm size this paper fills this hole by providing empirical evidence for a measurement effect in the size effect in particular we examine the influences of employing different proxies total assets total sales and market capitalization of firm size in 20 prominent areas in empirical corporate finance research we highlight several empirical implications first in most areas of corporate finance the coefficients of firm size measures are robust in sign and statistical significance second the coefficients on regressors other than firm size often change sign and significance when different size measures are used unfortunately this suggests that some previous studies are not robust to different firm size proxies third the goodness of fit measured by r squared also varies with different size measures suggesting that some measures are more relevant than others in different situations fourth different proxies capture different aspects of firm size and thus have different implications therefore the choice of size measures needs both theoretical and empirical justification finally our empirical assessment provides guidance to empirical corporate finance researchers who must use firm size measures in their work

the measurement of the degree of foreign involvement this paper extends errunza and senber 1984 in assessing the relationship between alternative measures of the degree of foreign involvement dfi and the conditions under which the use of a specific measure will not affect the outcome of empirical studies on corporate international diversification the results suggest that among 21 pairs of seven most widely used series of dfi only three series foreign assets foreign earnings and foreign tax ratios in two pairs are equivalent evidence of constant returns to scale between the ratio of foreign to total assets and the ratio of foreign to total earnings is also discussed

are multinational corporations safer the failure probabilities of a sample of multinational corporations mncs are derived and compared with those of a control group of domestic corporations dmcs the results suggest that the mean insolvency probability of dmcs is significantly higher than that of the mncs it is also observed that mncs are significantly more capitalized and the standard deviation of their equity as well as their average systematic risk are also significantly lower furthermore the average insolvency probability of the dmcs is more sensitive to changes in the values of the parameters than those of the mncs

subsidies versus public provision of private goods as instruments for redistribution the literatures on differential commodity taxes and on quantity controls to supplement income taxation have developed separately this paper combines these two strands in the standard framework of optimal non linear income taxation we use a model with two types of households where the government has access to both subsidy policy and public provision of a good substitutable for leisure and households can supplement the publicity provided good from the market we present conditions under which policy should involve one or both of these two instruments alongside income taxation the model is extended to many ability types

distributional consequences of rural food levy and subsidized urban rations abstract governments in many developing countries have imposed food levies on farmers to provide subsidized food to urban consumers the resulting price discrimination between individuals has general equilibrium effects so that the welfare consequences of such a policy for different socio economic groups have been controversial we relate the distributional consequences to the parameters of the economy and identify systematic relationships among different partitions of the outcomes we show for instance that if the policy helps hurts richer city dwellers then it hurts helps poorer farmers

estimating labour supply disequilibrium with fixed effects random coefficients regression long term contracting adjustment costs or efficiency wages can make a worker supply fewer more hours than desired at the current economic opportunity set a regression model with cross correlated random coefficients is used to obtain new theoretically based measures of the direction and relative intensity of labour supply disequilibrium among prime aged male hourly paid workers in the united states during 1978 82 evidence of widespread underemployment is found among primeaged male salaried workers some overemployment appears regressions incorporating person specific fixed effects are consistent with a life cycle labour supply model for salaried workers and suggest a need for fresh ways to include short run labour demand forces in micro labour supply models of hourly paid workers

optimal minimum wage policy in competitive labor markets this paper provides a theoretical analysis of optimal minimum wage policy in a perfectly competitive labor market and obtains two key results first we show that a binding minimum wage while leading to unemployment is nevertheless desirable if the government values redistribution toward low wage workers and if unemployment induced by the minimum wage hits the lowest surplus workers first importantly this result remains true in the presence of optimal nonlinear taxes and transfers in that context a binding minimum wage enhances the effectiveness of transfers to low skilled workers as it prevents low skilled wages from falling through incidence effects second when labor supply re sponses are along the extensive margin only the co existence of a minimum wage with a positive tax rate on low skilled work is always second best pareto ineffcient a pareto improving policy consists of reducing the pre tax minimum wage while keeping constant the post tax minimum wage by increasing transfers to low skilled workers and financing this reform by increasing taxes on higher paid workers overall our results imply that the minimum wage and subsidies for low skilled workers are complementary policies pa

international corporate diversification market valuation and size adjusted evidence errunza and senbet es 7 analyze the effects of international operations on the market value of the firm both at theoretical and empirical levels the theoretical model which is largely heuristic exploits the costly supply adjustment of multinational firms mncs in providing international portfolio diversification services to investors who face differential cost barriers to direct holdings of assets across national boundaries mncs compete as financial intermediaries to undo the barriers so that in equilibrium profits are driven out mncs and pure domestic firms sell at an equivalent risk adjusted return however costly financial intermediation and the associated relative efficiency leads to a positive valuation effect for mncs relative to purely domestic firms further the equilibrium analysis implies that demand side investor barriers to international capital flows alone are inconsequential to the valuation of mncs in their pure financial role but that the interaction with the supply side costs are necessary to produce a valuation effect at the corporate level es subject the theory to an empirical analysis in a value based approach by employing a variant of tobin s 17 qratio the analysis controlling for industrial market power suggests that the relationship between the excess valuation and the degree of international involvement doi has magnified over periods characterized by severe u s government controls vis a vis the more recent periods in this paper we formalize the theoretical argument by viewing indirect portfolio diversification by mncs as a means of completing the international capital market we employ a paradigm in the unanimity literature and formally characterize the equilibrium in which there is a rationale for mnc financial intermediation we then perform an expanded empirical study by employing generalized least squares and maximum likelihood procedures since the positive relationship between excess valuation and doi as suggested in es 7 might be attributed to the so called small firm or size and the p e effects the test methodology controls for such effects also the traditional literature has relied upon foreign sales percentage as a proxy for doi in view of the well recognized limitations of this proxy we employ four different measures of international

the effects of international operations on the market value of the firm theory and evidence this paper investigates the existence of monopoly rents associated with international operations in a market value theoretic framework the benefits of international operations evolve from such factors as 1 imperfections in the product and factor markets 2 differential international taxation and 3 imperfections in the financial markets in this paper these factors are subject to an equilibrium analysis in the context of recent advances in financial theory in particular imperfections in the financial sector arising from corporate international diversification are examined in a framework which allows a supply adjustments by multinational firms and b the interaction of barriers to international capital flows faced by both firms and investors taking the u s capital market and investors as a base we then specify the conditions under which the foregoing imperfections get priced out in an equilibrium these pricing effects cannot be detected empirically through the methodologies employed by the existing studies which examine the effects of corporate international diversification indeed it was an attempt to rescue the limitations of these studies which initially motivated our paper the existing empirical inquiries into this area rely on traditional risk adjusted performance measures e g 7 or international analogs of return generating processes e g 1 8 instead at the empirical level we employ a value based method which is in the same vein of the thomadakis 17 approach developed to identify the monopoly benefits of industrial market structure we conduct the tests over subperiods characterized by differential government controls in an attempt a to separate the pure financial motives for multinationality from other motives and b to detect if the benefits of international operations carry through recent periods

the genealogy of modern theoretical public economics from first best to second best abstract the development of second best modelling in the seventies has shaped modern theoretical economics the paper discusses some key changes in the economists conceptions the first two sections examine the efficiency equity dilemma the study of non convexities has shown that counterintuitive efficiency enhancing income redistribution might occur the introduction of asymmetric information has shed doubts on virtues of lump sum compensation the last sections focus on the intricate geometry of second best optimisation and the ambiguous value of the signals provided by the price system outside a first best world

in kind versus cash transfers in the presence of distortionary taxes in kind transfers can pareto dominate cash transfers as a means of income redistribution if in kind transfers and leisure are hicks substitutes and leisure is a normal good the result holds when redistributive instruments also include a linear income tax the paper proves that if the poor receive more in kind transfers and the rich less than what they would choose for themselves then compared to cash transfers there will be a higher labor supply by the poor a lower labor supply by the rich and higher levels of aggregate pre tax income and tax revenues

in kind transfers cash grants and the supply of labour abstract this paper corrects the notion that somehow benefits given in kind interfere less with the work leisure choice than cash grants of equivalent monetary value in a simple model the analysis proves that the true effect depends on the extent of the in kind transfer and the substitutability of the good in question with leisure

noncooperative solutions for a differential game model of fishery abstract in this paper a generalization of gordon schaefer s fishery resource model to a duopoly is presented the resulting noncooperative game is solved analytically as well as numerically by using the equilibrium concepts of nash and stackelbewrg it turns out that in both cases the player with the smaller unit costs is able to choose a higher catch rate than his opponent furthermore it is shown that the game is stackelberg dominant in the stackelberg case any information disadvantage in the sense of stackelberg fellowership can be eliminated by a more efficient technology

differential game models of advertising competition abstract differential game methodology combines two attractive features that are critical to the study of advertising competition dynamics and multi competitor decision making a focused review of two decades of differential game modeling of advertising competition indicates that insights gained to date while valuable are of a limited nature and research in the area needs to extend beyond present limits four recent studies are offered as examples of possible directions to follow in continued research

minimum wage legislation as a second best policy mass unemployment is a striking phenomenon of the present economic situation of european market economies although the profession of economists has been criticized for not providing satisfactory cures it has produced a number of different explanations either complementary or contradictory for the occurrence of mass unemployment in this paper we examine the argument that unemployment is the consequence of minimum wage legislation which is socially desirable the observation of current wage legislations suggests that the above argument is broadly at least partly accepted by policy makers curiously enough a defence of this argument meeting the rigorous requirements of modern theory seems to be missing symmetrically attacks against minimum wage legislation often rely upon reasonings of dubious relevance i e the obvious remark that unemployment is a waste with first best efficiency criteria the present paper proposes a second best analysis where second best stems from informational asymmetries which prevent the implementation of lump sum transfers needed for a first best redistribution policy the question under scrutiny can be reformulated in a more precise way as follows does a second best optimal redistribution policy lead to minimum wage legislation and unemployment our elements of answer are gathered in 3 sections in section 2 the principles of the analysis of the desirability of quantity controls and existing results are recalled in section 3 the analysis of section 2 is specified to a simple prototype model for the study of linear income taxation in section 4

ceo pay and firm size an update after the crisis in the size of stakes view quantitatively formalised in gabaix and landier 2008 ceo compensation reflects the size of rms aected by talent in a competitive market the years 2004 2011 were not part of the initial study and oer a laboratory to examine the theory with new positive and negative shocks executive compensation measured ex ante did closely track the evolution of average firm value supporting the size of stakes view out of sample during 2007 2009 rm value decreased by 17 and ceo pay by 28 during 2009 2011 firm value increased by 19 and ceo pay by 22

a note on feedback sequential equilibria in a lanchester model with empirical application we study in this paper dynamic equilibrium advertising strategies in a duopoly with asymmetric information structure and sequential play the advertising model of lanchester is used in a game where the relevant solution concept is feedback stackelberg equilibrium which is subgame perfect an algorithm is devised for the computation of this equilibrium and numerical results are reported and discussed using a data set from the cola market we obtain the resulting advertising strategies and provide a comparison with closed loop and open loop nash equilibria

assigning resources to budget constrained agents this article studies different methods of assigning a good to budget constrained agents schemes that assign the good randomly and allow resale may outperform the competitive market in terms of utilitarian efficiency the socially optimal mechanism involves random assignment at a discount an in kind subsidy and a cash incentive to discourage low valuation individuals from claiming the good copyright oxford university press

multilateral policy reforms and quantity restrictions on trade abstract we specify a many nation many commodity model of international trade involving tariff and quota distortions we derive conditions for the existence of strict pareto improving multilateral reforms of quotas and obtain recommendations for specific directions of such quota reforms given a mild rank condition on the world trade matrix all directions of quota reform that attain a strict pareto improvement using international lump sum compensation remain strict pareto improving even without lump sum compensation provided that the quota reform is accompanied by a multilateral reform of tariffs the precise nature of the tariff reform that accomplishes the redistribution task is determined

are small firms less vulnerable to overpriced stock offers we show an inverted u relation between targetiveness probability of being targeted and firm size however this pattern describes stock offers and is more pronounced during hot markets characterized by higher stock valuations for cash offers we find a negative and monotonic relation these contrasting patterns suggest that small firms in the bottom nyse size quartile are less vulnerable to overpriced stock offers in addition we find that the stock acquirers of small targets are less overvalued than those of large targets and that the announcement returns are less negative for stock acquirers of small targets than for those of large targets

liability and large scale long term hazards this paper analyzes the application of liability to large scale long term hazards the key features distinguishing such hazards are the long temporal separation between exposure to a hazard and disease and the large damages when injuries finally emerge the large scale of damages creates a strong incentive to avoid liability payments and the long temporal separation creates numerous avenues through which parties can avoid paying possible damage awards the analysis focuses on the incentive to avoid paying damages by vertically divesting production tasks associated with serious occupational risks such divestiture can lower liability costs if the small firm operating the risky stage goes out of business before latent injuries emerge or has insufficient assets to pay damages and declares bankruptcy when suits are filed the paper then presents an empirical regression analysis of small firm entry into the u s economy between 1967 and 1980 the period in which liability laws were changing the point estima

ceo duality and firm performance what s the fuss rising shareholder activism following poor corporate performance and a subsequent drop in shareholder value at many major u s corporations had rekindled interest in duality and corporate governance despite limited empirical evidence duality chairman of the board and ceo are the same individual has been blamed in many cases for the poor performance and failure of firms to adapt to a changing environment in examining the relationship between duality and firm performance this study considers the announcement effects of changes in duality status accounting measures of operating performance for firms that have changed their duality structure and long term measures of performance for firms that have had a consistent history of a duality structure our results suggest that 1 the market is indifferent to changes in a firm s duality status 2 there is little evidence of operating performance changes around changes in duality status and 3 there is only weak evidence that duality status affects long term performance after controlling for other factors that might impact that performance

market size and substitutability in imperfect competition a bertrand edgeworth chamberlin model competition is often associated with the idea that there are many traders in the market or that each price maker is small as compared to the market this paper introduces this notion of market size in a model of price competition with imperfect substitutes by constructing a model which creates a bridge between the chamberlin and bertrand edge worth lines of work on price competition we investigate the role of two fundamental parameters in the existence of an equilibrium the market size given by the number n of competitors and the degree of substitutability we prove that a for a given number of n 2 of competitors a sufficiently large but finite degree of substitutability entails nonexistence this thus generalizes the bertrand edgeworth nonexistence result which applies only to perfect substitutes b conversely for a given upper bound on the degree of substitutability a sufficiently large number of competitors ensures existence which thus introduces a significant role for market size in models of imperfect competition we finally investigate the proximity of an equilibrium when it exists to a competitive outcome and we find that both high substitutability and large market size are a condition for competitiveness

the boundaries of the firm revisited why do firms exist what is their function and what determines their scope these remain the central questions in the economics of organization they are also central questions for business executives and corporate strategists the worldwide volume of corporate mergers and acquisitions exceeded 1 6 trillion in 1997 it is hard to imagine that so much time effort and investment bankers fees would be spent on adjusting firm boundaries unless there was some underlying economic gain indeed the exceptional levels of merger and acquisition activity over the past two decades are a strong indication that economically significant forces do determine organizational boundaries the study of firm boundaries originated with the famous essay by coase 1937 who raised the question of why we observe so much economic activity inside formal organizations if as economists commonly argue markets are such powerful and effective mechanisms for allocating scarce resources coase s answer was in terms of the costs of transacting in a world of imperfect information when the transaction costs of market exchange are high it may be less costly to coordinate production through a formal organization than through a market in large part thanks to the work of williamson 1975 1985 recent decades have seen a resurgence of interest in coase s fundamental insight that firm boundaries can be explained by efficiency considerations our understanding of firm boundaries has been sharpened by identifying more precisely the nature and sources of transaction costs in different circumstances in the process the focus of

shadow prices and public policies in a disequilibrium model of an open economy the paper focuses on the interaction between the goals of optimal stabilization and of allocative efficiency in project evaluation in an economy that is small as an exporter which must maintain trade balance and where some disequilibrium may prevail on goods and labour markets the criteria that are developed reflect an aggregation of profitability and reduction of unemployment additional foreign demand foreign currency savings should be evaluated in welfare terms after weighting by the gap between the relevant market and shadow prices the shadow prices also lead to the definition of an optimal taxation system

public economics and the theory of public policy when james mirrlees and william vickrey were awarded the nobel prize in economics last year it marked only the third time that the award had gone to scholars of public sector economics in contrast to the reception given to the previous two winners ronald coase and james buchanan the news was greeted with some bewilderment by policy specialists once removed from the academic literature who are mirrlees and vickrey and what have they done that has been of lasting benefit to the study of public economics let alone of practical benefit to policy makers this seems to me to be a fair question coase after all had set out a conceptual approach to the study of externalities and transaction costs that has become an implicit part of the methodological baggage carried around by policy economists and policy makers alike buchanan was in part responsible for the welcome emphasis on institutions in public sector decision making and for insisting that politicians bureaucrats and voters are human beings with human motives the legacy of mirrlees and vickrey is less well known but i would argue it is every bit as profound their approach to the theory of economic policy which is grounded on the importance of imperfect information as a constraint on public policy has changed the very nature of public economics research and of its implications for economic

an oligopoly model of dynamic advertising competition abstract an oligopoly model is presented that allows the determination of feedback nash equilibrium advertising strategies for an oligopoly analyses of symmetric and asymmetric oligopolies with the model show that unit contribution and advertising effectiveness have positive effects on a competitor s own advertising and steady state sales while discount rate and decay rate have negative effects an asymmetric analysis further shows that unit contribution and advertising effectiveness affect positively and discount rate and decay rate negatively a competitor s rivals advertising but have effects in opposite directions regarding rivals steady state sales the symmetric and asymmetric analyses also show that steady state sales per competitor decline with the number of competitors in the oligopoly while total oligopoly steady state sales increase the model is applied empirically to the triopolistic competition involving anheuser busch sabmiller and molson coors in the beer industry

capacity investment preemption and commitment in an infinite horizon model the commitment value of capacity is analyzed in an infinite horizon duopoly model the paper focuses on the role of alternative behavioral assumptions about the ability of firms to commit to investment paths each firm s investment strategy in a feedback nash equilibrium is shown to be a decreasing function of its rival s current capacity this creates an incentive for a firm to expand its capacity to preempt subsequent rival investment in a precommitment equilibrium there are no incentives to invest preemptively as a consequence steady state capacity levels are greater in a feedback nash equilibrium than in a precommitment equilibrium copyright 1987 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

an empirical investigation of advertising strategies in a dynamic duopoly the equilibrium profit maximizing advertising policies of firms operating in a dynamic duopoly are derived by linking in a single framework the econometric estimation of the market response function and the technique of differential games that characterizes dynamic competitive behavior we use the lanchester model of combat to represent the system dynamics that capture the competitive shifts due to investments in advertising by the two market rivals we determine the equilibrium advertising levels using both closed and open loop policies we also compare these equilibrium advertising policies for each firm to those obtained using an optimal control theory formulation wherein the advertising spending levels of the rival are assumed to be known the empirical results obtained by analyzing the advertising rivalry between coke and pepsi for the period 1968 1981 under the above three alternative spending policies provide some interesting insights into the nature of competition between these two market rivals a significant contribution of this paper is to extend the existing literature on advertising competition by integrating theoretical and empirical analyses

risk sensitive dynamic market share attraction games we present partial results showing that risk sensitive oligopolists would spend less on advertising than would their risk neutral counterparts the model is an infinite horizon stochastic game in which each firm s goodwill is a random function of both its own and its competitors current and past advertising expenditures single period firm profits have a market share attraction form each firm seeks to maximize its expected exponential utility of the sum of discounted profits we analyze the impact that risk sensitivity and other parameters have on equilibrium advertising strategies by exploiting the special structure of the stochastic game model journal of economic literatureclassification number c73

competitive dynamic advertising a modification of the case game abstract in this paper we consider a modified version of the advertising differential game of case 1979 we derive non cooperative nash equilibria for open loop controls as well as for feedback strategies we consider finite and infinite planning horizons the feedback equilibrium is shown to be robust against stochastic disturbances of the state equation

managerial attributes and executive compensation we study the role of firm and manager specific heterogeneities in executive compensation we decompose the variation in executive compensation and find that time invariant firm and especially manager fixed effects explain a majority of the variation in executive pay we then show that in many settings it is important to include fixed effects to mitigate potential omitted variable bias furthermore we find that compensation fixed effects are significantly correlated with management styles i e manager fixed effects in corporate policies finally the method used in the article has a number of potential applications in financial economics the author 2011 published by oxford university press on behalf of the society for financial studies all rights reserved for permissions please e mail journals permissions oup com oxford university press

an empirical study on the lanchester model of combat for competitive advertising decisions this paper presents an empirical study on the lanchester model of combat for competitive advertising decisions three issues are evaluated i the specification of the market share response model ii the effect of inflation on the estimation of the response model and iii the performance of competitive strategies it is shown that a the square root function that is used in previous studies is often inappropriate to characterize the market share response model b market share variations are more responsive to current advertising expenditures c closed loop nash equilibrium strategies are better competitive advertising strategies for firms to maximize profits than open loop nash equilibrium strategies and d finally general perfect equilibria nash equilibrium strategies developed by case are usually not good competitive advertising strategies for firms to maximize profits

repeated interaction and the public provision of private goods the literature suggests that governments can use in kind transfers to design efficient and targeted redistribution schemes if individual incomes are not directly observable we investigate the extent to which the self selection property of in kind transfers carries through if redistributive transfers are made repeatedly in a two period setting the government may gain information about the individuals incomes in the first period and exploit this information for making targeted transfers in the second period this however also triggers changes in the individuals behavior if the government can commit to its future policy the least cost policy may involve randomization between cash and in kind transfers without commitment the dynamic setting works against the government s interest it may no longer be able to use in kind transfers to generate information about the individuals types jel classification h42 h2

excess market value the multinational corporation and tobin s q ratio the results of this study show that there is a positive and significant relationship between excess market value of multinational corporations and the degree of international involvement as measured by foreign sales percentage however the excess market value is not determined by the number of foreign subsidiaries nor the interaction between foreign sales and the number of foreign subsidiaries the relationship between excess market value and the two frequently used measures of monopoly power concentration ratio and the lerner index was also examined this study found that the lerner index contributes significantly in explaining excess market value but concentration ratio does not furthermore the positive and significant coefficients of advertising and r d intensity serve as evidence that product market imperfections appear to play a bigger role in explaining the excess market value experienced by mncs during our sample period

variety and size regulation in discrete choice oligopoly imperfectly competitive markets for a differentiated product may underprovide brand variety when consumer tastes for brands are highly heterogeneous we show that when the brands in question are indivisible in consumption and each consumer buys a customized quantity or size of the preferred brand only a welfare improvement can be obtained by regulating the size of purchase we study neutral size regulation which requires that the size of purchase be set equal to the size that would prevail in the absence of regulation this improves brand variety and consumer surplus provided consumer tastes are sufficiently heterogeneous

patent replacement and welfare gains abstract patents were chosen in an era when modern public finance tools were unavailable the same innovation outcomes can be achieved with higher welfare if patent elements are replaced by modern features this paper constructs two theoretical models of product innovation and simulates the welfare effects of replacing patents with an intertemporal bounty arrangement we find that replacing patents with this alternative has the potential to increase welfare in the united states through reform of pharmaceutical patents by 43 9 194 billion when measured in present value terms this is 0 3 1 3 of annual gdp based on simulations involving four selected drug sectors the potential to increase welfare would be higher if applied to the larger sector of drugs as a whole in principal patents could be replaced in other sectors as well

ceo incentives and firm size we develop a model that clarifies how to measure ceo incentive strength and how to reconcile the enormous differences in pay sensitivities between executives in large and small firms the crucial parameter is shown to be the elasticity of ceo productivity with respect to firm size we find that ceo marginal products rise significantly with firm size confirming rosen s conjecture that ceos of large firms have a chain letter effect on firm performance and overall ceo incentives are roughly constant or decline slightly with firm size we employ a multitask model to discuss implications for the design of control systems

empirical analysis of closed loop duopoly advertising strategies closed loop perfect equilibria in a lanchester duopoly differential game of advertising competition are used as the basis for empirical investigation two systems of simultaneous nonlinear equations are formed one from a general lanchester model and one from a constrained model two empirical applications are conducted in one involving coca cola and pepsi cola a formal statistical testing procedure is used to detect whether closed loop equilibrium advertising strategies are used by the competitors rather than open loop strategies in the second application involving anheuser busch and miller the general model is estimated results indicate that closed loop equilibria better explain dynamic advertising competition than do open loop equilibria also closed loop equilibrium advertising strategies implied by model estimates show that competitive advertising levels may or may not be monotonic in market share

effective demand enterprise reforms and public finance in china economic reform in china athar hussain and nicholas stern this paper examines some problems of transition from a command to a market economy through an analysis of the most important example to date the reforms in the chinese economy since the late 1970s our focus is on the links between enterprise reforms effective demand and public finance the reforms have created a curious and problematic hybrid of market and command economies with serious problems of coordination they have concentrated almost exclusively on the delegation of decision making to enterprises from the higher to lower tiers of the government without taking into account its implications for investment consumption and public finance an understanding of future policy and lessons for other countries requires a careful examination of the effects of these past policies granting discretion to enterprises over investment and wages has resulted in both an investment and consumption boom but paradoxically a fall in profits there are strong reasons to suppose that the investment ratio has been too high in recent years fuelling inflation and slowing additions to supply by prolonging the gestation period of investment there has been a large increase in liquid assets in the hands of households which makes their expectations increasingly important for macroeconomic policy there is need for concerted financial innovation to diversify household wealth away from liquid assets finally the changes in the composition of government revenue and expenditure are disturbing there is an urgent need for a flexible and broad based tax system and for reducing price subsidies and subsidies to loss making enterprises