getting big too fast strategic dynamics with increasing returns and bounded rationality neoclassical models of strategic behavior have yielded many insights into competitive behavior despite the fact that they often rely on a number of assumptions including instantaneous market clearing and perfect foresight that have been called into question by a broad range of research researchers generally argue that these assumptions are good enough to predict an industry s probable equilibria and that disequilibrium adjustments and bounded rationality have limited competitive implications here we focus on the case of strategy in the presence of increasing returns to highlight how relaxing these two assumptions can lead to outcomes quite different from those predicted by standard neoclassical models prior research suggests that in the presence of increasing returns tight appropriability and accommodating rivals in some circumstances early entrants can achieve sustained competitive advantage by pursuing get big fast gbf strategies rapidly expanding capacity and cutting prices to gain market share advantage and exploit positive feedbacks faster than their rivals using a simulation of the duopoly case we show that when the industry moves slowly compared to capacity adjustment delays boundedly rational firms find their way to the equilibria predicted by conventional models however when market dynamics are rapid relative to capacity adjustment forecasting errors lead to excess capacity overwhelming the advantage conferred by increasing returns our results highlight the risks of ignoring the role of disequilibrium dynamics and bounded rationality in shaping competitive outcomes and demonstrate how both can be incorporated into strategic analysis to form a dynamic behavioral game theory amenable to rigorous analysis

bubbles and total factor productivity evidence shows that asset price bubbles typically precede financial crises and financial crises are accompanied by the collapse of bubbles in addition stock market booms and busts are typically associated with credit market booms and busts the recent us housing and stock market bubbles and the subsequent great recession that began in late 2007 provide an example the stock market booms in the early 1990s and the subsequent asian financial crisis in 1997 provide another example there are also many other related episodes of financial crises in emerging economies motivated by these observations miao and wang 2011a propose a theory of credit driven stock price bubbles we show that a positive feedback loop mechanism generates stock price bubbles when firms borrow against the stock market value of their collateralized assets to finance investment we assume that firms face stochastic investment opportunities and bubbles improve investment efficiency we also study stochastic bubbles and policy implications in the present paper we apply the theory developed by miao and wang 2011a to an environment in which firms face idiosyncratic productivity shocks and credit constraints we show that both bubbleless and bubbly equilibria bubbles and financial crisis

banking bubbles and financial crises this paper develops a tractable macroeconomic model with a banking sector in which banks face endogenous borrowing constraints there is no uncertainty about economic fundamentals banking bubbles can emerge through a positive feedback loop mechanism changes in household confidence can cause the bubbles to burst resulting in a financial crisis credit policy can mitigate economic downturns the welfare gain is larger when the government interventions are more front loaded given that the government injects the same amount of liquidity in terms of present value bank capital requirements can prevent the formation of banking bubbles by limiting leverage but if too restrictive will lead to less lending and hence lower production

why is there no cannery in cannery row exploring a behavioral simulation model of population extinction available ecological models of organizations do not provide satisfactory explanation for population extinction in this article we search for a minimal set of assumptions needed to expand the range of dynamic behaviors of the ecological model of density dependence to admit extinction while preserving its original insight the revised version of the model builds on two core assumptions the first is that organizational populations are linked to their environments through feedback processes of resource generation and consumption as a consequence the carrying capacity for an organizational population changes systematically with its density the second assumption is that organizational vital rates respond with delay to changes in the level of available resources as a consequence organizational founding and mortality rates are affected by expectations that decision makers form about the future state of their environment using computer simulation we test these assumptions and show that the relative speed at which processes of resource regeneration and consumption happen and the speed at which expectations about future levels of resources are revised jointly determine a wide range of evolutionary trajectories that admit population extinction as one distinct possibility the model is validated using multivariate sensitivity analysis techniques we discuss the implications of our findings in the broader context of the current debate on the implications of selective sampling in the study of organizational populations copyright 2012 the author 2011 published by oxford university press on behalf of associazione icc all rights reserved oxford university press

rationality in the analysis of behavioral simulation models an important task in the analysis of a behavioral simulation model is to explain clearly how the model s organizational assumptions lead to its simulated behavior all too often model based arguments involve an uncomfortable leap of logic between equations and consequences this paper proposes two methods of analysis premise description and partial model testing which provide stepping stones between model equations and their simulated consequences premise description examines the bounded rationality of policies or decision functions in the model pointing out the process and cognitive limitations assumed in decisionmaking partial model tests expose the intended rationality of smalt combinations of policies showing that policies produce sensible actions with respect to their premises the application of those methods is illustrated with a simulation model of a sales organization in which sales force productivity is prone to decline the behavior of productivity is traced to dysfunctional interact

path dependence competition and succession in the dynamics of scientific revolution what is the relative importance of structural versus contextual forces in the birth and death of scientific theories we describe a formal dynamic model of the birth evolution and death of scientific paradigms based on kuhn s structure of scientific revolutions the model represents scientific activity as a changing set of coupled institutions a simulated ecology of interacting paradigms in which the creation of new theories is stochastic and endogenous the model captures the sociological dynamics of paradigms as they compete against one another for members solve puzzles and recognize anomalies we use sensitivity tests and regression to examine the role of intrinsic versus contextual factors in determining paradigm success we find that situational factors attending the birth of a paradigm largely determine its probability of rising to dominance while the intrinsic explanatory power of a paradigm is only weakly relatedto the likelihood of success for those paradigms surviving the emergence phase greater explanatory power is significantly related to longevity however the relationship between a paradigm s strength and the duration of normal science is also contingent on the competitive environment during the emergence phase analysis of the model shows the dynamics of competition and succession among paradigms to be conditioned by many positive feedback loops these self reinforcing processes amplify intrinsically unobservable microlevel perturbations in the environment the local conditions of science society and self faced by the creators of a new theory until they reach macroscopic significance such path dependent dynamics are the hallmark of self organizing evolutionary systems we consider the implications of these results for the rise and fall of new ideas in contexts outside the natural sciences such as management fads

unanticipated side effects of successful quality programs exploring a paradox of organizational improvement recent evidence suggests the connection between quality improvement and financial results may be weak consider the case of analog devices inc a leading manufacturer of integrated circuits analog s tqm program was a dramatic success yield doubled cycle time was cut in half and product defects fell by a factor of ten however financial performance worsened to explore the apparent paradox we develop a detailed simulation model of analog including operations financial and cost accounting product development human resources the competitive environment and the financial markets we used econometric estimation interviews observation and archival data to specify and estimate the model we find that improvement programs like tqm can present firms with a tradeoff between short and long run effects in the long run tqm can increase productivity raise quality and lower costs in the short run these improvements can interact with prevailing accounting systems and organizational routines to create excess capacity financial stress and pressure for layoffs that undercut commitment to continuous improvement we explore policies to promote sustained improvement in financial as well as nonfinancial measures of performance

the natural logic of management policy making its implications for the survival of an organization a process theoretic approach seldom used but not without promise for organizational behavior research is employed to postulate a process model of the natural logic evident in organizational policy making the model is used to explain how the policies of a sample firm for which 20 years of data are available became adopted and how together with critical events this caused the firm to evolve in particular directions rather than others implications of the study are put forward in terms of identifying pathologies of the policy making process some prescriptions are put forward for the proper control of organizations by supervisory bodies such as boards of directors it is suggested that management science in the form of systematic procedures for adaptive organizational design and updatable cause maps may have an important future role to play in senior management affairs

a behavioral model of the economic long wave abstract this paper presents a simple model of the economic long wave the model is based on the system dynamics national model since 1975 the national model has provided an increasingly rich theory of the economic long wave the theory relates capital investment employment and workforce participation monetary and fiscal policy inflation productivity and innovation and even political values the model presented here focuses on capital investment the structure of the model is shown to be consistent with the principles of bounded rationality the behavior of the model is analyzed and capital self ordering is shown to be sufficient to generate long waves the model complements the national model by providing a representation of the dynamic hypothesis that is amenable to formal analysis and is easily extended to include other important mechanisms that may influence the nature of the long wave

rentierism energy and economic growth the case of algeria and egypt 1965 2010 abstract the algerian economy is an example of a high level of rentierism while the egyptian economy shows a low moderate level of rentierism the ardl bounds test approach was used upon annual time series data from 1965 to 2010 the results suggest cointegration for both countries bi causality between energy consumption and growth in the long run was found for algeria there is a reversed negative energy growth nexus adding a new relationship to the traditional four causal hypotheses on the energy growth nexus for egypt we found positive elasticity both of oil price and energy which is in line with the mainstream

mission improbable does petroleum related aid address the resource curse petroleum related aid programmes and projects are a key part of donor activities in oil rich developing countries this paper critically assesses petroleum related aid activities using the norwegian oil for development programme as a main case recent research suggests that institutions or governance are essential in averting a resource curse while governance issues are beginning to receive more attention in these types of programmes they still form a minor part of programme activities the narrow sector focus that characterizes petroleum related aid makes it unlikely that it will produce the higher order institutional changes needed to lift the resource curse petroleum related aid activities address the issue of corruption only to a limited extent given the commercial and political interests of donor countries questions about the integrity and credibility of these types of programmes can be raised

resource curse an analysis of causes experiences and possible ways forward abstract higher prices for oil gas and mineral resources have again raised questions about how exporting countries can counter the challenges of resource curse international experience managing the risks of resource curse has varied summarising the continuing discussion on meeting the challenges of the resource curse this paper addresses four questions what are the positive and negative effects of high oil gas and mineral prices on exporters what have been the experiences with managing natural resource revenues can good institutions ensure that natural resource revenues have a positive impact on development and what is the direction for the way forward we argue that the current emphasis on institutions as a potential solution has largely ignored under what conditions institutions are formed and changed

a macroeconomic model with a financial sector this paper studies a macroeconomic model in which financial experts borrow from less productive agents we pursue four sets of results i the economy is prone to instability and occasionally enters volatile episodes as volatility spikes agents precautionary motive increases depressing prices even further log linear approximations fail to capture these non linear effects that can cause economies to be significantly depressed for long periods of time ii endogenous risk during volatile episodes increases asset price correlations iii financial experts impose a negative externality on each other and on the labor sector by not maintaining adequate capital cushion and funding structure iv while risk sharing within the financial sector through securitization and derivatives contracts reduces many inefficiencies it can also amlify systemic risks

if diversification is good why don t countries diversify more the political economy of diversification in resource rich countries abstract for resource rich countries diversification is claimed to represent a strategy for reducing resource curse problems this however depends on whether diversification has a positive effect on the country s institutions while there is a lot of evidence that exports of oil have a negative impact on institutions we know much less about the extent to which diversification leads to better institutions this article applies recent political economy theory to the phenomenon of diversification theoretical arguments suggest that it is the pattern of industrial activity rather than diversification per se which affects institutions like democracy in other words not all forms of diversification lead to better institutions furthermore where diversification has a positive impact on institutions diversification may be difficult to attain when it threatens the power base of the ruling elite a possible implication of these arguments is that policies for diversification should focus on international regulation affecting elite incentives rather than domestic industrial policy

the effects of governance modes on the energy matrix of andean countries this article addresses the consequences of different modes of energy governance on the energy matrix energy governance is understood as a regulation system of the energy related interplays between the state the society and the economy the energy matrix is a useful instrument for comparative policy analysis since it informs us about production and consumption trends by sources and sectors our central argument is that energy governance follows two different patterns one hierarchical and the other cooperative that are not necessarily determined by the initial factors allocation and produce different effects on the energy matrix hierarchical governance is based on centralized decision making and state centered development while co governance is based on decentralized decision making and market oriented development to develop this argument we compare the energy matrix from the five andean countries venezuela colombia ecuador peru and bolivia

financial crises bank risk exposure and government financial policy a macroeconomic model with nancial intermediation is developed in which the intermediaries banks can issue outside equity as well as short term debt this makes bank risk exposure an endogenous choice the goal is to have a model that can not only capture a crisis when banks are highly vulnerable to risk but can also account for why banks adopt such a risky balance sheet in the rst place we use the model to assess quantitatively how perceptions of fundamental risk and of government credit

savings growth and the resource curse hypothesis an important connection between recent attempts to understand the determinants of economic growth and the measurement of sustainability is the finding of a negative and significant relationship between natural resource abundance and economic growth this is the so called resource curse hypothesis using cross country regressions we offer evidence that the curse may itself be a manifestation of the inability of governments to manage large resource revenues sustainably in particular these results offer another perspective on the resource curse hypothesis the countries where growth has lagged are those where the combination of natural resource macroeconomic and public expenditure policies have led to a low rate of genuine saving net saving adjusted for resource depletion

rational asset pricing bubbles this paper provides a fairly systematic study of general economic conditions under which rational asset pricing bubbles may arise in an intertemporal competitive equilibrium framework our main results are concerned with nonexistence of asset pricing bubbles in those economies these results imply that the conditions under which bubbles are possible including some well known examples of monetary equilibria are relatively fragile this paper is concerned with the conditions under which asset prices in an intertemporal competitive equilibrium are equal to the present value of the streams of future dividends to which each asset represents a claim according to a central result of the theory of finance this is very generally true in the case of economies with trading at only a finite sequence of dates as long as there are no restrictions upon transactions other than that associated with possible incom pleteness of the set of securities that are traded the result is sometimes called the fundamental theorem of asset pricing here we consider the extent to which such a result continues to be valid in the case of trading over an infinite horizon it has often been observed in the econometric literature on asset pricing bubbles that it is possible in principle for the price of a perpetuity and the dividends on that security to satisfy at all times a present value relation for one period holding returns while the security s price nonetheless does not equal the present value of the stream of dividends expected over the infinite future in such a case the price of the perpetuity is said to involve a bubble component 2 joint stochastic processes for which this component is nonzero are sometimes argued to characterize existing assets for a recent example see froot and obstfeld 1991 but such an inference depends upon aspects of the stochastic

confidence and the real value of money in an overlapping generations economy we demonstrate that stochastic bubbles which have a constant exogenous probability of collapsing may exist in general equilibrium on an intrinsically useless and unbacked asset money this may happen provided that the probability q that the bubble will persist next period is large enough and exceeds a threshold level q which we call the minimum rate of confidence this condition is always violated when the economy without bubble is dynamically efficient it is more likely to be satisfied in dynamically inefficient economies the larger the size of the inefficiency as measured by the excess of the growth rate over the no bubble interest rate we study both exchange and production economies

the varieties of resource experience natural resource export structures and the political economy of economic growth many oil mineral and plantation crop based economies experienced a substantial deceleration in growth following the commodity boom and bust of the 1970s and early 1980s this article illustrates how countries dependent on point source natural resources those extracted from a narrow geographic or economic base such as oil and minerals and plantation crops are predisposed to heightened economic and social divisions and weakened institutional capacity this in turn impedes their ability to respond effectively to shocks which previous studies have shown to be essential for sustaining rising levels of prosperity analysis of data on classifications of export structure controlling for a wide array of other potential determinants of governance shows that point source and coffee and cocoa exporting countries do relatively poorly across an array of governance indicators these governance effects are not associated simply with being a natural resource exporter countries with natural resource exports that are diffuse relying primarily on livestock and agricultural produce from small family farms do not show the same strong effects and have had more robust growth recoveries

institutional assets for negotiating the terms of development indigenous collective action and oil in ecuador and alaska abstract case studies of two oil fields with superficial similarities same company same time period similar anticipated scale of production similar remote field design similarly situated in indigenous territory show radically different benefits for the adjacent indigenous communities this analysis finds that the major differences driving these results are institutional primarily differences in property rights regimes and secondarily in local institutional development in the alaska context the community was able to negotiate a direct share of the royalties while the ecuadorian community was entitled only to an indirect revenue share from the national government both communities also negotiated for various community assistance projects from the company the ecuadorian communities likely would have succeeded in instituting their sustainable development proposal if they had stronger local organization comparative analysis of the factors for local institutional development fit well in the conceptual

institutional analysis and the resource curse in developing countries abstract the present article examines the recent advances reported in the literature regarding the mechanisms underlying the resource curse in developing countries by analyzing the rule of law index we investigated how the institutions responsible for allocating hydrocarbon royalties can help minimize the effects of the resource curse we used a qualitative methodology based on case studies the results show that evidence of legal violations on the part of these institutions and the lack of tools in resource rich developing countries to uphold basic social and economic rights are associated with the resource curse our findings suggest that strengthening the institutions closer monitoring of oil revenue allocations and public participation can help to alleviate the resource curse

cross scalar dynamics of the resource curse constraints on local participation in the bolivian gas sector abstractcontributing to debate on the contextual underpinnings and varieties of the resource curse this article points to how political and economic dynamics of resource endowments operate in interrelated but potentially contradictory ways across spatial scales resource endowments insert a complex set of incentives and interests into the political arena in ways that both enable and constrain actors at different scales using a case study of gas governance in bolivia the article illustrates the interrelation of these dynamics across local national and international scales and in particular how they circumscribe the space for local participation

perspectives on positive political economy this volume serves as an introduction to the field of positive political economy and the economic and political processes with which it is concerned this new research tradition is distinct from both normative and historical approaches to political economy grounded in the rational actor methodology of microeconomics positive political economy is the study of rational decisions in a context of political and economic institutions more analytical than traditional approaches it is concerned with the derivation of principles and propositions against which real world experience may be compared its focus is on empirical regularities and its goal is theoretical explanation the field has focused on three main areas of research models of collective action constraints on competitive market processes and the analysis of transaction costs developments in all of these areas are covered in the book the first part of the volume surveys the field while the second part displays positive political economy at work examining a variety of subjects the final part contains essays by leading political economists on the theoretical foundations of the field

political foundations of the resource curse in this paper we argue that the political incentives that resource endowments generate are the key to understanding whether or not they are a curse we show 1 politicians tend to over extract natural resources relative to the efficient extraction path because they discount the future too much and 2 resource booms improve the efficiency of the extraction path however 3 resource booms by raising the value of being in power and by providing politicians with more resources which they can use to influence the outcome of elections increase resource misallocation in the rest of the economy 4 the overall impact of resource booms on the economy depends critically on institutions since these determine the extent to which political incentives map into policy outcomes countries with institutions that promote accountability and state competence will tend to benefit from resource booms since these institutions ameliorate the perverse political incentives that such booms create countries without such institutions however may suffer from a resource curse

debt constrained asset markets we develop a theory of general equilibrium with endogenous debt limits in the form of individual rationality constraints similar to those in the dynamic consistency literature if an agent defaults on a contract he can be excluded from future contingent claims markets trading and can have his assets seized he cannot be excluded from spot markets trading however and he has some private endowments that cannot be seized all information is publicly held and common knowledge and there is a complete set of contingent claims markets since there is complete information an agent cannot enter into a contract in which he would have an incentive to default in some state in general there is only partial insurance variations in consumption may be imperfectly correlated across agents interest rates may be lower than they would be without constraints and equilibria may be pareto ranked

bubbles and constraints on debt accumulation it is commonly thought tirole econometrica 50 1982 1163 1182 that bubbles cannot occur in deterministic sequential market economies with a finite number of infinitely lived agents this paper shows that the constraint on debt accumulation which make possible the existence of equilibrium can cause bubbles if agents face a wealth constraint bubbles can exist if and only if the assest is in zero net supply if agents face exogenous short sales constraints bubbles can exists if and only if some agent s endowment grows at a rate larger than the rate of return and the short sales constraint binds that agent infinitely often

exploratory assessment of the economic gains of a pre salt oil field in brazil abstract in recent years brazil has made public several oil discoveries located in deep waters below the salt layer discoveries are steadily enhancing national reserves and have brought the country into a new role in the global oil industry this paper aims at investigating the economic gains that could be expected from a brazilian oil field in the pre salt region analyses were conducted based on the libra field the largest oil discovery in brazil until now with approximately 10 billion barrels the results were calculated for different scenarios of oil prices companies arrangements and regulatory regimes the findings suggest that economic gains could be higher for the brazilian government if the oil production were conducted under a service contract scheme however considering the current production sharing regime in force for pre salt areas economic gains could be higher if a bidding process was conducted ensuring for the brazilian government a higher participation in the oil to be produced additionally the results demonstrate that under the current rules applied for the production sharing regime the government quota of oil has decreased over time putting at risk economic results