foreign ownership and the theory of trade and welfare some standard topics in the theory of international trade are reconsidered in this paper by distinguishing between national and aggregate income when fixed supplies of foreign inputs are present within the home country under conditions that would ensure a national welfare gain if foreign ownership were absent international transfer economic growth or tariff policy might cause a national welfare loss in the presence of foreign ownership the techniques developed could be applied to other domestic distinctions such as those based on race sex age or ethnicity and to the theory of customs unions in a three country world

preferential trading agreements and capital flows abstract a three country trade model is used to determine the impact of a preferential trading agreement between two countries on world prices and the international allocation of capital assuming the agreeing countries have characteristics typically associated with developing countries we derive a simple condition that predicts whether a country experiences an inflow or outflow of capital with the agreement while at least one country experiences a capital inflow the other may experience an outflow welfare implications are addressed

competitive equilibrium in the credit market under asymmetric information abstract we study a competitive credit market equilibrium in which all agents are risk neutral and lenders a priori unaware of borrowers default probabilities admissible credit contracts are characterized by the credit granting probability the loan quantity the loan interest rate and the collateral required the principal result is that in equilibrium lower risk borrowers pay higher interest rates than higher risk borrowers moreover the lower risk borrowers get more credit in equilibrium than they would with full information no credit is rationed and collateral requirements are higher for the lower risk borrowers

the incidence of secured debt evidence from the small business community critics claim that theories of secured debt fail to explain the widespread use of collateral because they incorrectly predict when a loan will be secured this paper provides the first rigorous statistical test of the transaction cost models of secured debt data from two samples of over 1 000 small business loans generally support the common set of predictions of these theories the incidence of secured debt is positively related to probability of default loan size loan maturity and marketability of assets changes in the legal and economic environment also alter firms decisions regarding the pledging of collateral

asymmetric information multiperiod labor contracts and inefficient job separations economists have for some time been telling the world and each other that in a dynamic economy some labor turnover is to be expected and is in fact efficient however there is a pervasive feeling that not all of the observed turnover is efficient the dilemma of course is to provide satisfactory reasons why inefficient turnover should occur with optimizing rational economic agents in light of this problem recent developments in implicit contract theory 1 4 5 have begun to focus on the idea that in a world of uncertainty asymmetric information and moral hazard problems may prevent efficient fully enforceable contingent claims contracts from developing in particular the asymmetric information i e firms privately observe their profits and workers privately observe their alternatives and moral hazard problems make efficient turnover unlikely because parties making separation decisions have neither all available relevant information nor have an incentive to use this information to make an efficient decision while this investigation into the ramifications of asymmetric information has yielded new insights analysis in previous studies has been limited to models in which separations occur only in the final period of the model in this paper a simple multiperiod model is developed in which separations may occur in each of several successive periods the multiperiod specification enables us to distinguish between temporary and permanent separations and to focus attention on the potential for inefficient separations induced by asymmetric information problems in an intertemporal setting in an intertemporal model in which separations may occur in any one of several successive periods intertemporal allocation problems arise because compensation in a given period plays an allocative role not only in that particular period but also in all periods prior to that period that the terms of compensation may play a multiple intertemporal role in allocating labor has been recognized previously in other contexts for instance this argument has been used to explain the observed occurrence of rising wage profiles with tenure in the presence of such factors as worker shirking or firm specific skill acquisition 2 9 in this asymmetric information setting intertemporal allocation problems

job matching and on the job training conventional analysis predicts that workers pay part of their on the job training costs by accepting a lower starting wage and subsequently realize a return to this investment in the form of greater wage growth missing from the conventional treatment of on the job training is a discussion of the process by which heterogeneous workers are matched to jobs requiring varying amounts of training this matching process constitutes a key feature of the on the job training model presented in this article and tested with a unique data set containing extensive information concerning on the job training employer search wages and wage and productivity growth

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

international factor movements in the presence of a fixed factor abstract to the basic model of international factor mobility is added a third immobile factor unlike the basic model the factor flows that result from a policy of free mobility are now uniquely determined additionally a large variety of privately optimal national policies is predicted each dependent upon the country s endowment pattern and the fiscal instruments available to it several of the predicted policies e g subsidies paid to migrant factors and simultaneous restrictions on the export of both factors are incompatible with the basic model

the higher cost of follow up loans this paper uses unique data and looks at the interest margin for follow up finance vis a vis first round finance applying data for asset values we examine the substitution between collateral and interest margins consistent with the theories of bester 1985 besanko and thakor 1987 and the empirical evidence of cressy 1996b we find that a trade off between collateral and interest margins exists our main result indicates that follow up finance is more expensive for loans but not for overdrafts we suggest that a relatively fixed asset base land and buildings as seen in higher security to loan values raises the price and risk of successive financial increments this explains the higher relative cost of follow up finance to borrowers

welfare taxes and foreign investment abstract r d based growth models imply a positive growth effect of foreign investment through the introduction of new technologies however it has been shown that in an economy without taxes national welfare may decrease due to the transfer of profits to foreigners this paper investigates whether the introduction of a tax on profits warrants a positive welfare effect of foreign investment it is shown that the welfare effect of foreign investment may be negative due to the existence of transfers of profits to foreigners even when the domestic economy is following the optimal tax policy

employment change in independent owner managed high technology firms in great britain there is a growing volume of literature that points to the potential for small technology based firms to achieve substantial employment growth as a direct consequence of such work this sector of any economy has attracted increasing attention from national and local governments concerned with finding ways of revitalising economically deprived localities and creating employment opportunities this paper provides up to date empirical evidence surrounding the ability of small high technology firms to create additional jobs in great britain in addition key founder and business characteristics are isolated which are significantly associated with employment change in growing high technology firms over the 1986 to 1992 period with respect to factors influencing these high levels of employment growth a high firm size in 1986 was found to act positively on employment growth as was a graduate level education for the key founder on the finance side firms which had access to and used a multiplicity of sources of start up finance tended to grow faster futher on the basis of our results we would suggest and recommend a government policy which at the firm level actively encourages high technology firm start ups who record higher rates of survival than firms in more conventional sectors as well as providing support for existing high technology firms who have already demonstrated the inclination and ability to grow in employment size

collateral loan quality and bank risk abstract most commercial loans are made on a secured basis yet little is known about the relationship between collateral and credit risk several theoretical studies find that when borrowers have private information about risk the lowest risk borrowers tend to pledge collateral in contrast conventional wisdom holds that when risk is observable the highest risk borrowers tend to pledge collateral an additional issue is whether secured loans as opposed to secured borrowers tend to be safer or riskier than unsecured loans empirical evidence presented here strongly suggests that collateral is most often associated with riskier borrowers riskier loans and riskier banks

staying in business abstract the paper analyses factors which help a small entrepreneurial firm to stay in business the time scale for the analysis is three years 1985 1988 the main issue that the paper is concerned with is the role of market and financial variables primary source data are used an estimated probit model indicates that for this sample product range and gearing are the key maket and financial variables respectively the greater the product range and the lower the gearing ceteris paribus the better the chances of staying in business

equilibrium in a market with sequential bargaining this paper considers a market where pairs of agents who are interested in carrying out a transaction are brought together by a stochastic process and upon meeting initiate a bargaining process over the terms of the transaction the basic bargaining problem is treated with the strategic approach the paper derives the steady state equilibrium agreements analyzes their dependence on market conditions such as the relative numbers of agents of different types and discusses their relations with the competitive equilibrium outcome and other results in the search equilibrium literature this paper considers a market that operates in the following way pairs of agents who have mutual interest in carrying out a transaction are brought together by a stochastic process when two agents meet they initiate a bargaining process over the terms of the transaction if two agents reach an agreement a transaction takes place and they leave the market of course the bargaining positions and hence the agreement reached in any particular meeting will be affected by the conditions prevailing in the market these will include the chances that each of the negotiating parties have of meeting other partners in the event that the agreement in the current negotiations is delayed also the expected length of time required to achieve an alternative transaction and the expected behavior of alternative partners the study of such a market mechanism is of interest for two reasons firstly it captures some realistic aspects of the trade in certain specific markets e g asset markets such as housing and some labor markets secondly it contributes to an understanding of the micro mechanisms of price formation and their role in shaping market outcomes in both cases the features studied are largely neglected in the traditional market equilibrium analyses the related literature includes the articles by diamond 4 5 diamond and maskin 6 mortensen 8 9 and zusman and bell 13 these articles consider markets of the type described above in which transactions are concluded at pairwise meetings of agents the major difference between our work and these articles is in the approach to the basic bargaining problem in the cited articles it is assumed that a meeting is concluded with an instantaneous agreement which divides the associated surplus in an arbitrary predetermined way when the surplus is assumed to be divided equally the division rule is in fact nash s axiomatic bargaining solution in contrast the present paper treats the basic bargaining problem with the strategic approach see rubinstein 19 which constitutes an attempt to look into the bargaining black box this approach explicitly models the time dimension of the bargaining process describes in detail the bargaining procedure and justifies the agreement as a perfect equilibrium in

new ventures and their credit terms using uk bank data for 466 new venture loan applications we explore the determinants of interest margin the sanctioning decision and the amount borrowed when these factors are considered simultaneously collateral levels greatly influence the size of credits to new ventures a finding consistent with existing work on firm foundation rates and assets black et al economic journal 106 60 75 1996 de meza and webb the economic journal 109 153 163 1999 evans and jovanovic journal of political economy 97 4 808 827 1989 holtz eakin et al 1994 consistent with the rand journal of economics 25 334 347 diversionary models of debt firms with larger credits enjoy discounted interest margins even when we have controlled for firm size

firm specific training layoffs and unreliable workers firm specific training layoffs and unreliable workers 1 introduction early work in implicit contract theory argues that a long term relationship between a worker and a firm evolves due to the risk sharing nature of the implicit contract between a risk averse worker and a risk neutral firm some authors have criticized this initial argument see for example haltiwanger 1983 feeling that a long term relationship between a worker and a firm and the terms of an implicit contract between the two in large parts is explained via hiring costs training costs and the like this is the approach taken in the early work of becker 1975 oi 1962 and the most recent work of jovanovic 1979a these latter explanations are also appealing because long term relations between a worker and a firm are typically characterized by quits that decline with tenure and wages that increase with tenure as discussed in mortensen 1988 explanations of these phenomena fall into two categories job search theories or job training theories job search theories stress that there is a match specific component to the productivity of any worker firm match that a good match will result in a long term relationship explains why wages are positively correlated with tenure to explain a rising wage profile within a given match requires that the firm and the worker learn about the quality of their match over time a good match will be a long term one and the wage will rise over time as the match is discovered to be a good one jovanovic 1979b and barron and loewenstein 1985 model such a learning process job training theories maintain that long term relationships with rising wages exist because of firm specific training that increases with tenure again see jovanovic 1979a as an example this paper integrates these two theories in this paper firm specific training evolves as an increasing function of a worker s tenure with a firm this is so because there is a positive probability that a worker is unreliable in that he will be searching for another employer the firm being unable to identify in advance which workers are unreliable will update its prior belief as to a worker s reliability as a function of the worker s tenure the total level of training at any point in time will be an increasing function of this updated belief thus learning about the quality of a match an aspect of the job search theories plays an important role in explaining the level of firm specific training this learning process can also play a role in determining optimal layoffs if an unreliable worker is more likely to receive an acceptable outside offer when the worker is laid off than when he is employed the firm can use layoffs to elicit information about the worker s reliabiliy based upon this fact layoffs may occur even when the worker s marginal product exceeds his value of leisure before discussing the model in detail one crucial assumption deserves comment unlike previous work such a salop and salop 1976 enforceable self revealing contracts are ruled out by assumption thus the firm here cannot commit itself to a wage contract promising low wages initially in exchange for high wages as job tenure increases which contract would attract only reliable workers this assumption is of course a polar extreme but as such is consistent with more recent work in contract theory which investigates the terms of self enforcing contracts see for example holmstrom 1983 the idea is to provide a comparison with contracts in an idealized economy with no enforcement problems this assumption is justified if the cost of writing a legally enforceable contract is prohibitive or if as suggested in charmichael 1984 reputational forces are insufficient to deter a firm from cheating although workers here are risk neutral the model could be amended to include risk averse agents

technological regimes and firm survival evidence across sectors and over time in addition to the usual variables representing firm and industry specific features that impact the firm s survival this paper uses three r d related variables to reflect two schumpeterian technological regimes creative destruction the entrepreneurial regime and creative accumulation the routinized regime after controlling for age size entry barriers capital intensity the profit margin the concentration ratio the profit cost ratio and entry rates the empirical results confirm the theoretical relationship between technological regimes and the survival rate of new firms new firms are more likely to survive under the entrepreneurial regime moreover this effect is larger within the younger cohorts of firms than within the older ones

capital account liberalization what do cross country studies tell us capital account liberalization it is fair to say remains one of the most controversial and least understood policies of our day one reason is that different theoretical perspectives have very different implications for the desirability of liberalizing capital flows another is that empirical analysis has failed to yield conclusive results the answer another influential strand of thought contends is that this efficient markets paradigm is fundamentally misleading when applied to capital flows limits on capital movements are a distortion it is an implication of the theory of the second best that removing one distortion need not be welfare enhancing when other distortions are present

the role of linkages in firm performance evidence from southern italy abstract this paper estimates the probability of success of post entry performance of new firms using survey data from a group of southern italian small firms several factors involving inter firm linkages contribute to success especially production for order and subcontracting the empirical investigation supports hirschman s idea on the industrialization process and positive assessments of the downsizing phenomenon in italy

introduction funding gaps theoretical and empirical foundations of government policies to plug alleged business funding gaps are highly controversial but rarely subject to wide ranging in depth debate this symposium from major scholars in the field provides a counterbalance topics addressed cover the theory of lending under asymmetric information its implications for overlending relationship lending as a market solution to information asymmetries government emulation of private sector decision making to eliminate underprovision of high tech equity and theoretically based empirical work testing for funding deficiencies in the high tech sector despite the very different and potentially contradictory contributions the result is surprisingly a set of mutually agreed policy conclusions

do binary collateral outcome variables proxy collateral levels the case of collateral from start ups and existing smes this paper is designed to test whether the factors which affect the decision to collateralise business loans affect the level of collateralisation in the same manner if the level of collateralisation does matter the provision of collateral becomes more than a goodwill gesture to placate banks and more a device to ameliorate the risk of lending we use a thitherto unseen dataset from a u k retail bank comprising 4 618 transfers and start ups ts group who applied for business loans and overdrafts between january 1998 and january 2000 the control sample comprised 9 596 existing businesses from the same period our unique dataset permits an analysis of this kind for the first time because it contains a continuous variable for collateral unlike previous studies existing businesses exhibit a higher frequency binary outcome and level tobit outcome of collateral than the businesses who are start ups or have transferred from another bank only when distortions within the data are not controlled for these distortions negate the value of binary collateral variables factors such as business type and loan purpose are useful at explaining the likelihood of a borrower having his loan collateralised and the level of collateralisation for borrowers who provided collateral or not

the financing of business start ups abstract this article investigates the determinants of capital structure and types of financing used around business start ups utilizing a survey that reduces the confounding effects of survivorship bias in particular the influence of start up size asset structure organization type growth orientation and owners characteristics are examined both in the choice and in the magnitude of finance use the results are consistent with the theoretical models incorporating issues such as information asymmetries agency theory and transaction costs the results also demonstrate linkages among providers of finance maturity of assets and the capital structure of start ups while the results provide insights into business finances near the time of creation some recommendations for future research are discussed

optimal policy in the presence of licensed technology from abroad this paper extends the theory of international trade to analyze optimal commercial policy of a country importing technology for which royalties must be paid to foreigners as the analysis shows the country can maximize national welfare by combining a tax on international trade in commodities and a domestic commodity market tax or subsidy depending respectively on whether foreigners are net exporters or importers of the commodity whose technology is licensed internationally the analysis also demonstrates that the maximum level of national welfare might be lower with than without technological imports if the country s exportable commodity uses the foreign technology

complex actions and simple outcomes how new entrepreneurs stay in business in this paper the entrepreneur within the new small firm is regarded as taking complex rather than simple actions which determine whether he or she will remain in business thus instead of simply choosing output as in the standard analysis of the competitive firm the entrepreneur may take actions which involve choices about markets finance organisation innovation and much else besides to explore this approach very detailed information on actions within small firms is required it is shown how this was obtained by a fieldwork study of new business starts using data from this fieldwork a rich statistical picture was created of actions within the new small firm in turn this permitted econometric analysis of actions that help a new small firm to stay in business over a three year period this indicates that the crucial actions which enable a small firm to stay in business are the rapid repayment of debt and the willingness to sacrifice short run profit for growth there is also evidence that staying in business is fostered by tight control of the wage bill especially by substituting other labour inputs for full time employees

loan commitment contracts terms of lending and credit allocation this paper analyzes the structure of loan commitment contracts and the interrelationships among their component parameters lenders offer borrowers a set of loan packages from which the latter may choose that package found to be most appealing borrowers may trade off changes in any loan parameter in exchange for other adjustments the borrower at this time may purchase a larger credit ration for a price supporting empirical evidence is presented recently researchers have begun to study the determinants of loan commitment or line of credit contracts such contracts play an extremely important role in bank credit allocation according to the federal reserve bulletin over 70 of u s commercial and industrial loans are made under loan commitment contracts given the central importance of the institution it is not surprising that it is the subject of a growing literature loan commitment contracts have importance both at the micro level in terms of the bank customer relationship and at the marco level in terms of the channels of operation of monetary policy in this paper we seek to present and test empirically an analytic model of loan commitment contracts our paper differs from most previous work in that we include empirical analysis of credit allocation moreover most previous theoretical work on the subject has concentrated on the specific issue of pricing of the contracts often using an approach based on option theory and not on the quantity allocation of credit and its determinants we are particularly interested in the determinants of the quantitative allocation of credit to bank customers and in the composition of and trade offs among the various parameters comprising such a loan commitment package our model helps explain how contract terms are established in the market and will illuminate the institutional framework of commercial lending a view of the credit contract as a package of loan terms has been implied recently in connection with the credit rationing problem studies by azzi and cox 21 arzac schwartz and whitcomb 11 and koskela 81 show that the

the role of legal status in influencing bank financing and new firm growth this paper examines the characteristics of new firm founders who use loans and overdrafts from the clearing banks to finance initially their business bank lending to new firms appears unrelated to the personal characteristics of founders but related to whether individuals provide personal savings and the legal status of the business this contrasts with the factors which influence the growth of new firms here the founder s age employment status and birthplace are associated with larger firms the only variable which appears to influence consistently both bank lending and the employment growth in firms is whether or not the business is a limited company

competition risk neutrality and loan commitments abstract we rationalize fixed rate loan commitments forward credit contracting with options in a competitive credit market with universal risk neutrality future interest rates are random but there are no transactions costs borrowers finance projects with bank loans and choose ex post unobservable actions that affect project payoffs credit contract design by the bank is the outcome of a non cooperative nash game between the bank and the borrower the initial formal analysis is basically in two steps first we show that the only spot credit market nash equilibria that exist are inefficient in the sense that they result in welfare losses for borrowers due to the bank s informational handicap second we show that loan commitments because of their ability to weaken the link between the offering bank s expected profit and the loan interest rate enable the complete elimination of informationally induced welfare losses and thus produce an outcome that strictly pareto dominates any spot market equilibrium perhaps our most surprising result is that if the borrower has some initial liquidity it is better for the borrower to use it now to pay a commitment fee and buy a loan commitment that entitles it to borrow in the future rather than save it for use as inside equity in conjunction with spot borrowing

credit market efficiency and tax policy in the presence of screening costs after establishing the existence of capital market equilibrium in the presence of asymmetric information and screening costs this paper examines tax policies designed to correct the attendant externalities when projects differ in expected returns it is shown to be ambiguous whether costly private screening weakens or strengthens the case for an interest income tax however when projects differ only in riskiness as in the model of stiglitz and weiss screening opportunities cause the efficiency case for tax intervention to disappear

asymmetric valuations and the role of collateral in loan agreements loan contracts with provision for collateral are of two general types in one the collateral may be an existing asset of the borrowing firm which is pledged to a lender in the event of default in this case collateral does not increase the assets that the borrower would lose if there is default since all the borrower s assets are attachable therefore the expected marginal cost to the borrower of providing an additional unit of collateral includes principally transactions costs associated with the collateral l this describes the usual type of commercial loan arrangement with the collateral being either equipment real estate accounts receivable or inventories in the other type of loan contract the collateral is an additional asset that is given up by the borrower if there is default that is in addition to the usual assets that are available to its lenders the borrower assigns as collateral to a creditor an asset that would normally not be legally attachable this arrangement is more common in small business loans that are secured by a personal asset e g a house of the entrepreneur likewise debt issued by a legally separate subsidiary may be secured by an asset of the parent firrn in these cases the expected marginal cost to the borrower the owner manager of the small firm or the parent corporation in the latter example of providing an additional unit of collateral

international trade and capital mobility between diversified economies abstract this paper reconsiders and simplifies the theory of international trade with foreign investment while concentrating on significant gaps in the analysis of the globally diversified case where both countries of the two commodity two factor model remain incompletely specialized the analysis goes beyond previous literature by 1 deriving an important condition for stability of equilibrium 2 investigating the effects of import tariffs and foreign investment taxes on the international allocation of capital 3 examining the actual signs of optimal first best and other tariffs and taxes and 4 developing new and plausible conditions for existence of global diversification

informed lending and security design we examine the role of security design when lenders make inefficient accept or reject decisions after screening projects lenders may be either too conservative in which case they reject positive npv projects or too aggressive in which case they accept negative npv projects in the first case the uniquely optimal security is debt in the second case it is levered equity in equilibrium profitable projects that are relatively likely to break even are financed with debt while less profitable projects are financed with equity highly profitable projects are financed by uninformed arm slength lenders professional lenders have specialized expertise in screening projects unlike the typical entrepreneur to whom they lend they have been exposed to a wide variety of projects in the past professional lenders have experienced loan officers and analysts who know precisely what information is relevant how to treat soft information such as management quality and how to weigh the various pieces of information in making a forecast of the project s cash flows and default risk this paper examines how securities should be optimally designed when lenders make inefficient accept or reject decisions after screening projects in our model screening generates an informative albeit private signal about the project s profitability high signals indicate a positive net present value npv and low signals indicate a negative npv where the project s npv is increasing

wages separations and job tenure on the job specific training or matching a general stochastic model of optimal job separation behavior is developed in the paper the model nests both the job training and the job matching hypotheses of the wage tenure relationship as special cases the purpose of the paper is to compare the implications of the two hypotheses for job turnover that expected wealth maximizing separation strategies are qualitatively identical under the two hypotheses is the principal theoretical result although the empirical implications of the two hypotheses for observations on the distribution of completed job spell lengths are similar as a consequence they are not quite identical

pre entrepreneurial income cash flow growth and survival of startup businesses model and tests on u k data a target income human capital model of startup survival and growth is derived and tested the objective of the entrepreneur is to produce an independent source of income for him herself to replace income from previous employment target income is a function of pre entrepreneurial income and human capital represented by age the model predicts that higher pre income entrepreneurs and more mature individuals will grow faster to achieve these targets and that growth is an ambiguous function of size it also predicts that these same individuals and businesses that start larger will be more likely to survive the key results of the empirical analysis are that a businesses run by proprietors with higher pre entrepreneurial incomes do indeed grow faster than other startups but have no greater survival prospects and b businesses run by mature proprietors possess greater longevity we conclude that business income targets in practice constitute a significant motivation for startup growth and that the human capital represented by age plays no additional role however proprietor age rather than pre income determines survival despite the fact that pre income and age are positively correlated both with each other and with growth

saving to overcome borrowing constraints implications for small business entry and exit this paper shows how a dynamic analysis of entrepreneurial choice in which inter temporal savings plans can be adjusted to build up capital allows agents to overcome borrowing constraints this casts fresh doubt on the notion that borrowing constraints deter entrepreneurial entry in the long run impatient agents are shown to voluntarily remain constrained indefinitely whereas patient agents become entrepreneurs the model also explains temporary and permanent closures of viable businesses the model s predictions are consistent with evidence of greater savings behaviour by entrepreneurs

quid pro quo foreign investment and welfare a political economy theoretic model abstract the classic paper by brecher and diaz alejandro 1977 analyzed the implications of tariff jumping direct foreign investment dfi induced by the imposition of an import tariff we analyze a new type of dfi where it occurs with a view to defusing not circumventing protection or rather the threat of protection by the host country an example is the dfi by japan in the united states the decision about the level of foreign investment is taken in the first of a two period horizon period this together with the level of exports in the first period determines the probability of a quota on exports being imposed in the second period policy makers aware of the effects of the first period decisions on the second period will impose an optimal tariff and an optimal tax subsidy on capital exports

a bargaining model with incomplete information about time preferences etude d un jeu de negociation strategique sequentiel avec information incomplete caracterisation d une classe d equilibres sequentiels appeles equilibres sequentiels de negociation et demonstration de l unicite de cet equilibre

new firm growth and bank financing this paper examines the extent to which lucas ideas on human capital and jovanovic theorising on learning can provide further insights into the development of small firms it focuses exclusively upon newly established independent firms our evidence from two surveys is that bank lending to new firms is unrelated to many of the personal characteristics of founders which have been argued by other researchers to relate to small firm performance instead lending appears to be more related to whether or not the founder can or chooses to use personal savings and the legal status of the business

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

playing by the new subsidy rules capital subsidies as substitutes for sectoral subsidies abstract in a small open economy characterized by an increasing returns sector and foreign owned capital a sector specific instrument generally is needed to achieve the optimum a capital subsidy alone can be used for decentralization however when the optimal production plan is specialization in the externality generating activity the effect of a capital subsidy on home income and its distribution depends on the pattern of production and the share of domestic capital that is foreign owned in a diversified economy a subsidy benefits capital owners harms labor and raises national income only if foreign capital ownership is sufficiently small in a specialized economy a subsidy may raise national income even if all domestic capital is foreign owned and if it does both labor and capital owners gain thus a capital subsidy may be an attractive replacement for sector specific subsidies proscribed by international agreements

analytical issues in external financing alternatives for sbes as the amount of information about an enterprise is generally not neutral with respect to firm size financiers have problems to identify the default risk associated with a borrower or to have control over a borrower s investments this review paper analyses how various control mechanisms are fit to reduce this information problem and how various types of capital suppliers are endowed to finance small business enterprises

matching turnover and unemployment this paper develops the view that workers move into and out of the labor market because of changes in the perceived value of their market opportunities a search model is combined with a matching model to yield movement of workers from job to job and into and out of employment

what makes a new business start up successful this paper seeks a good measure of new business performance and then explains this measure by various dimensions of business strategy three criteria are used to create a one dimensional ordinal ranking of high medium and low performance for new business starts employment growth return on capital employed and labour productivity it is shown that statistical cluster analysis provides a convincing separation of a sample of new business starts into high medium and low performance categories using a minimum distance criterion for clustering an ordinal logit model with selection is then used to explain this performance ranking the results indicate that many widely discussed features of small business strategy have little or even negative impact on performance of the numerous aims that owner managers may adopt survival growth etc only one appears to have a major impact on performance the pursuit of the highest rate of return on investment many entrepreneurial perceptions of their own capabilities appear false or unimportant with the exception of organisational features and systems

commitment lending under asymmetric information theory and tests on u k startup data u k business startup data is used to examine the role of contract parameters in solving the bank s problem of lending under asymmetric information margins are found to be a direct function of the probability of failure and an inverse function of security for given loan size consistently with collateral being invoked to solve the moral hazard problem business survival is also found to be enhanced by owner equity inputs for given debt again consistent with a requirement for owner financial inputs to enhance unobservable effort security rises along with loan size and survival chances a finding consistent with a a firm loan size effect larger borrowers have lower marginal admin cost to the bank and with b positive borrower self selection better borrowers offer collateral because they are less likely to experience forfeiture observable business characteristics are found to play an important intermediary role in the solution to the moral hazard problem more mature proprietors have more experience business commitment assets for borrowing and the willingness to use them for loan collateral their contract parameters reflect these facts

the relationship between u k banks and their small business customers much emphasis is placed upon the benefits to both parties of a good relationship between banks and their small business customers having explained the significance of smes in the u k economy the papers goes on to consider briefly some of the arguments which underpin the rationale for these relationships the roles of information and communication are discussed and the poor co ordination between banks smes and their accountants is highlighted evidence from over 6 000 small businesses in response to the forum of private business survey in 1994 is then presented this demonstrates the strong positive association between more participative relationships and more positive perceptions of their banks by firms finally it is suggested that a virtuous circle of information and communication could be established if the parties cooperate in a systematic process of risk assessment

on employer specific information and internal labor markets the human capital literature of which becker s 2 paper is the seminal work stresses the productivity enhancing effects of schooling and on the job training later work by spence 21 and others emphasizes the fact that it is difficult for employers to ascertain the productivity of potential employees and suggests that activities such as schooling may provide employers with signals as to workers productivities in the signalling literature it is assumed that information generated concerning an individual s abilities is general in that it is known to all potential employers yet the information that an employer gathers concerning his workers abilities is not likely to be completely transferable to other employers as a consequence as rosen 18 249 points out there are limitations on the ability of the price system to achieve efficient assignments if the price system is incomplete there is a role for entrepreneurial activity of assembling an optimal work force this paper analyzes the employment relations that arise when employers information concerning new workers abilities is incomplete until after a period of employment the acquisition of such employer specific information is shown to lead to what has been referred to in the literature as internal labor markets internal labor markets as identified by dunlop 5 32 are the complex of rules which determine the movement of workers among job classifications within administrative units these movements may be transfers promotions demotions or layoffs to the exterior labor markets doeringer and piore 3 emphasize skill specificity and on the job training as the key factors in the emergence of the internal labor market along similar lines williamson wachter and harris 22 point out that job idiosyncracy can result in employment relations with attributes like those of internal labor markets by way of contrast this paper emphasizes the role of employer specific information in generating internal labor markets the theory provides an explanation as to why employers dismiss current employees at the same time that new employees are hired evidence that dismissal rates are not insignificant is presented in section iv the theory also provides a new rationale for long term em

an analysis of new firm survival using a hazard function a unique data set is used to provide a detailed examination of the survival of newly established manufacturing firms in north east england using data on 781 firms established between 1973 and 2001 log logistic hazard models are estimated separately for i micro enterprises and ii small and medium establishments smes both micro enterprises and smes show clear evidence of positive duration dependence followed by negative duration dependence we find the two firm types are differentially affected by firm specific and macro economic variables increases in initial plant size impact negatively on micro enterprise survival and positively on sme survival

international capital mobility and commercial policy in an economic region abstract if two small countries are linked by capital movements then at low tariff levels any increase in capital flows induced by the commercial policy of either country will harm that country and benefit the other country while at low levels of international investment a tariff increase always harms the country levying the tariff nevertheless an increase in one country s tariff could benefit both countries by alleviating regional distortions in factor allocation if the countries liberalize factor movements within a customs union then conflicts must arise in choosing the level of the common external tariff

microfinance subsidies and local externalities we analyse equilibrium borrowers effort and the cost of microcredit loans in the presence of moral hazard project correlation and subsidies under group lending conditions our results show that under the assumption of endogenous effort project correlation has significant effects on borrowers effort only when it is determined by asymmetric positive or negative shocks these findings indicate that the well known negative effect of within group symmetric project correlation on group lending with joint liability disappears once endogenous effort is taken into account we also analyse the effects of subsidised lending and asymmetric correlation on the relative convenience in terms of borrowers effort of the alternative 1 between group lending and individual lending with notional collateral and 2 among three different market structures of the microfinance industry

equilibrium long term labor contracts the paper presents a labor market equilibrium analysis of implicit contract theory a two period single good model is used to propose consistent notions of labor market equilibrium for long term employment contracts both when labor is specialized and cannot move in the second period and when there is free mobility without costs the result that long term contracts emerge in equilibrium even without mobility costs is novel and contrary to common beliefs the main features of equilibrium are that risk neutral firms will insure risk averse workers against downside risk yielding downward rigid wages wages are not fully rigid as in earlier work on contract theory because workers may quit and wages have to be bid up to retain them the firm gets its return of the insurance deal by paying less than marginal product in the first period the resulting equilibrium is second best and lies between productive efficiency and full insurance workers gain from long term contracts in comparison to spot markets whereas owners may not in the model with specialized skills there exist transfer payments such that both parties are better off within an equilibrium with long term contracts

a multistage model of bargaining this paper presents a simple multistage model of bargaining wherein a seller makes an offer that can be either accepted or refused if rejected the process continues how the seller s ability to make commitments affects bargaining outcomes is analysed by comparing the commitment equilibria to those arising when commitment is impossible the effects of increasing uncertainty about preferences and varying the length of the bargaining horizon are analysed the ways in which the bargaining environment can be changed to improve outcomes are discussed

collateral relationship lending and family firms prior research suggested that relationship lending could play a role in solving asymmetric information problems between borrower and lender other studies suggest a relationship between family ownership and the shareholder bondholder agency conflict the present paper investigates the impact of relationship characteristics family ownership and their interaction effects upon the use of collateral in sme lending we examine the determinants of collateral as well as the determinants of the choice between business and personal collateral using decision tree analysis the results reveal that relationship characteristics have a significant influence but not always in the direction as expected moreover they do not seem to be the primary determinants in our classification models the most important determinants in both classification models seem to be the loan amount total assets and the family versus non family firm distinction in addition we differentiate between line of credit and non line of credit loans and find significant differences between these decision trees

second best policy for international trade and investment abstract this paper investigates second best commercial policy for an open economy within the two commodity two factor model of a two country world where the first best strategy is known to require taxes subsidies on both international trade in commodities and foreign investment via capital movements as the analysis shows when either of these policy instruments is prohibited the other instrument generally must be complemented by a tax subsidy in consumption or production if a second best rather than third best equilibrium is desired the paper derives moreover precise conditions for determining the second best package of policies

small business failure and external risk factors unlike much of the previous literature which has generally focused on internal risk factors this study seeks to explore the impact of macro economic factors on small business mortality the results suggest that economic factors appear to be associated with between 30 and 50 of small business failures depending on the definition of failure used as expected failure rates were positively associated with interest rates where failure was defined as bankruptcy and the rate of unemployment where failure was defined as discontinuance of ownership however somewhat unexpectedly failure rates were found to be positively associated with lagged employment rates where failure was defined as to prevent further losses and with current and lagged retail sales where failure was defined as either failed to make a go of it discontinuance of ownership or discontinuance of business this indicates that a strengthening economy may provide the trigger for an increase in voluntary business exits as individual proprietors seek to maximize the returns available to them on both their financial and human capital

on the choice between capital and labour mobility trade theorists since the pioneering work of kemp 1966 have considered the question of national advantage from international factor mobility by considering only one factor to be so mobile kemp analyzed elegantly the question of optimal policies in 2 x 2 x 2 model and showed that since monopoly power could exist in both the goods and factor markets in consequence of international capital mobility the optimal policy intervention would generally involve two policy instruments tariffs cum subsidies on goods and duties cum subsidies on international capital flows jones 1967 subsequently extended kemp s argument to the secondbest context by examining the optimal level of one of these instruments when the other was arbitrarily set at zero elsewhere in this issue brecher 1983 shows in an elegant and original contribution that the jones policy problem is in fact a third best rather than a second best problem as generally believed and that if only one of the tariff and capital mobility taxes cumsubsidies can be used it is generally possible to improve welfare further by admitting an altogether different domestic policy instrument namely a production or consumption tax cum subsidy as the case may be the research of bhagwati was supported by the german marshall fund grant no l 34015 the problem analyzed in the paper was posed in bhagwati 1979 and an early ingenious and neglected analysis in ramaswami 1968 was noted by bhagwati we have profited greatly from these contributions also from reading webb 1970 ramaswami 1970 and a recent paper of calvo and wellisz 1983 on this problem this result is in consonance with the results of bhagwati ramaswami and srinivasan 1969 for the case without international capital mobility but the consonance is intuitive only after the result was established for the case with international capital mobility