fragmentation and multinational production abstract this paper examines the consequences of falling transport costs for intermediate goods and shows how this leads to the spatial fragmentation of production as firms divide their production between countries they become either vertical multinationals if upstream activities are labour intensive or horizontal multinationals if downstream activities are labour intensive in the former case the volume of world trade increases and in the latter it falls fragmentation need not narrow international factor price differences which depend on the factor intensity of the activities that relocate

product differentiation and entry timing in a continuous time spatial competition model abstract we extend the well known spatial competition model d aspremont gabszewicz thisse 1979 to a continuous time model in which two firms compete in each instance our focus is on the entry timing decisions of firms and their optimal locations we demonstrate that the leader has an incentive to locate closer to the center to delay the follower s entry leading to a non maximum differentiation outcome we also investigate how exogenous parameters affect the leader s location and firms values and in particular numerically show that the profit of the leader changes non monotonically with an increase in the transport cost parameter

investment under uncertainty with price ceilings in oligopolies abstract we study the impact of price cap regulation on the level and timing of investment in an oligopolistic cournot industry facing stochastic demand we find that a price ceiling affects investment decisions in two mutually competing ways it makes the option to defer investment more valuable but at the same time it reduces the incentive for firms to strategically underinvest in order to raise prices we show that while sensible price cap regulation speeds up investment a low price cap can be a disincentive for investment there exists an optimal price cap independent of market concentration the competitive investment price trigger that maximizes investment incentives and in the long term increases industry installed capacity this optimal price cap becomes less effective and less robust as the market becomes more competitive and as demand volatility increases errors in estimation of the optimal price cap have asymmetric effects underestimation has more dire consequences than overestimation

investment and capacity choice under uncertain demand this paper extends the real options literature by discussing an investment problem where a firm has to determine optimal investment timing and optimal capacity choice at the same time under conditions of irreversible investment expenditures and uncertainty in future demand after the project is installed with a certain maximum capacity this capacity is fixed as an upper boundary to the output and cannot be adjusted later on it turns out that in the framework of this once and for all decision uncertainty in future demand leads to an increase in optimal installed capacity but on the other hand it causes investment to be delayed to an extent that even small uncertainty makes waiting and accumulation of further information the optimal decision for large ranges of demand limiting the capacity which may be installed weakens this extreme effect of uncertainty

synthesizing the malthusian and senian approaches on scarcity a realist account food entitlement decline fed and food availability decline fad are two approaches to explaining famines that have different policy implications one focuses on the systemic level whereas the other is concerned with the individual level they therefore analyse relatively distinct causal mechanisms thus an important question is whether these approaches can be reconciled another related question is how fad and fed based explanations relate to classical malthusian views about rapid food requirement increase fri this paper analyses these questions and argues that these three approaches can indeed be reconciled within a single framework by outlining the causal sources of fad fed and fri this task requires among other things the separation of ontological categories and empirical measures as a consequence of this argument the paper suggests that there are only seven possible ontological combinations of how a famine situation can arise as a direct cause simultaneously it maintains that there are virtually an infinite number of ways in which these combinations may act as indirect causes rooted in economic political and social conditions the analysis is exemplified by the bengal famine of 1943 because that famine is a well known case the wider research and policy applicability of this general account are discussed but have yet to be tested in relation to other scarcity cases water land fish this synthesis is made possible by the incorporation of critical realist interventions into economic theory

interacting factor endowments and trade costs a multi country multi good approach to trade theory abstract we provide a synthetic analysis of the different ways in which countries participate in the world economy classic trade questions are reconsidered by generalizing a factor proportions model to multiple countries multiple goods or multi stage production and country specific trade costs each country s production specialization trade and welfare is determined by the interaction between its relative endowment and its trade costs we consider the effects of allowing one good to fragment into component and assembly production the volume of trade and welfare levels are higher with fragmentation for most countries although for many countries these variables fall with fragmentation

real options with constant relative risk aversion real options problems have recently attracted much attention worldwide one such problem is how to deal with claims on non traded assets often there is another traded asset which is correlated to the non traded asset and this traded asset is used as a proxy for hedging purposes we introduce a second non traded log brownian asset into the well known merton investment model with power law utility the investor has a claim on units of the non traded asset and the question is how to price and hedge this random payoff the presence of the second brownian motion means that we are in the situation of incomplete markets we propose an approximation to the solution for the optimal reservation price and hedge which is accurate when the position is small in comparison to wealth the resulting loss when a suboptimal proxy strategy is followed is shown to be approximately quadratic in 1

trade costs and current accounts are trade cost reductions a plausible explanation for growing global current account imbalances i advocate that changes in trade costs affect trade and production structures which is likely to affect national savings and investment explicitly adding trade costs a la markusen and venables into jin s framework this augmented model predicts that trade cost reductions affect the current account through changes in the industrial structure empirical evidence confirms that the interaction of trade costs and capital intensity drives current account balances i also provide evidence that the response of current accounts to changes in trade costs depends on the capital intensity of production and on the depth of regional agreements on trade and factor mobility aside from the direct effect generally emphasised in standard macro level analysis changes in production patterns could therefore be an additional channel of impact of regional integration on current accounts

capacity switching options under rivalry and uncertainty abstract deregulated infrastructure industries exhibit stiff competition for market share firms may be able to limit the effects of competition by launching new projects in stages using a two stage real options model we explore the value of such flexibility we first demonstrate that the value of investing in a sequential manner for a monopolist is positive but decreases with uncertainty next we find that a typical duopoly firm s value relative to a monopolist s decreases with uncertainty as long as the loss in market share is high intriguingly this result is reversed for a low loss in market share we finally show that this loss in value is reduced if a firm invests in a sequential manner and specify the conditions under which sequential capacity expansion is more valuable for a duopolist firm than for a monopolist

rethinking trade preferences how africa can diversify its exports this paper argues that the contribution of trade preferences to economic development needs to be reappraised in light of the growth of globalised trade in manufactures trade preferences may be able to act as a catalyst for manufacturing exports leading to rapid growth in exports and employment to do so preferences need to be designed to be consistent with international trade in fragmented tasks as opposed to complete products and need to be open to countries with sufficient levels of complementary inputs such as skills and infrastructure recent experience with the african growth and opportunities act shows that in the right conditions sub saharan african countries have had large manufacturing export supply response to trade preferences

strategic real options under asymmetric information abstract this paper studies the effect of private information on the capital allocation decisions of firms who operate under imperfect competition i analyze two interactive firms one with private information and the other without who must decide when to undertake an irreversible and uncertain investment decision traditional non strategic models of irreversible investment under uncertainty involve a single decision maker and result in an optimal period of delay before the investment is undertaken in a strategic setting firms must balance their desire to delay against competitive advantages from early investment i find that an equilibrium may not exist within the standard continuous framework when the private information is over revenues moreover when an equilibrium does exist the competitive pressures from the uninformed firm are weak this is in contrast to existing models with asymmetric information over costs where an equilibrium always exists and the competitive pressures remain strong hsu and lambrecht 2007 this work shows that the investment timing decision and thus the value of the private information is highly sensitive to the nature of incomplete information

optimal investment under operational flexibility risk aversion and uncertainty traditional real options analysis addresses the problem of investment under uncertainty assuming a risk neutral decision maker and complete markets in reality however decision makers are often risk averse and markets are incomplete we confirm that risk aversion lowers the probability of investment and demonstrate how this effect can be mitigated by incorporating operational flexibility in the form of embedded suspension and resumption options although such options facilitate investment we find that the likelihood of investing is still lower compared to the risk neutral case risk aversion also increases the likelihood that the project will be abandoned although this effect is less pronounced finally we illustrate the impact of risk aversion on the optimal suspension and resumption thresholds and the interaction among risk aversion volatility and optimal decision thresholds under complete operational flexibility

duopolistic competition under risk aversion and uncertainty a monopolist typically defers entry into an industry as both price uncertainty and the level of risk aversion increase by contrast the presence of a rival typically hastens entry under risk neutrality here we examine these two opposing effects in a duopoly setting we demonstrate that the value of a firm and its entry decision behave differently with risk aversion and uncertainty depending on the type of competition interestingly if the leader s role is defined endogenously then higher uncertainty makes her relatively better off whereas with the roles exogenously defined the impact of uncertainty is ambiguous

electricity retail contracting under risk aversion abstract risk has always been a dominant part of financial decision making in any industry recently models tools and computational techniques have been developed so that we can effectively incorporate risk in optimal decision policies the focus of this paper is on electricity markets where much of the inherent risk falls on the retail sector we introduce a three stage model of an electricity market where firms can choose to enter the retail market then enter into retail contracts and finally purchase electricity in a wholesale market to satisfy their contracts we explicitly assume that firms are risk averse in this model we demonstrate how the behaviour of firms change with risk aversion and use the example of an asset swap policy over a transmission network to demonstrate the importance of modeling risk aversion in determining policy outcomes

spiders and snakes offshoring and agglomeration in the global economy abstract global production sharing is determined by international cost differences and frictions related to the costs of unbundling stages spatially the interaction between these forces depends on engineering details of the production process with two extremes being snakes and spiders snakes are processes whose sequencing is dictated by engineering spiders involve the assembly of parts in no particular order this paper studies spatial unbundling as frictions fall showing that outcomes are very different for snakes and spiders even if they share some features both snakes and spiders have in common a property that lower frictions produce discontinuous location changes and overshooting parts may move against their comparative costs because of proximity benefits and further reductions in frictions lead these parts to be reshored predictions for trade volumes and the number of fragmented stages are quite different in the two cases for spiders a part crosses borders at most twice the value of trade increases monotonically as frictions fall except when the assembler relocates and the direction of parts trade is reversed for snakes the volume of trade and number of endogenously determined stages is bounded only by the fragmentation of the underlying engineering process and lower frictions monotonically increase trade volumes

multinationals multi plant economies and the gains from trade a general equilibrium model of a multinational enterprise based on economies of multi plant operation is developed these economies are modelled as arising from the existence of a joint input whose productivity in each production facility is independent of the number of facilities maintained by a firm the multinational thus offers the world increased technical efficiency by eliminating the duplication of the joint input that would occur with independent national firms since this technical efficiency may come at the expense of increased market power the full determinants of home country host country and world welfare are considered

factor movements and commodity trade as complements abstract several models are presented in which factor mobility leads to an increase in the volume of world trade the models share the common characteristic that the basis for trade is something other than differences in relative factor endowments these alternative bases for trade include returns to scale imperfect competition production and factor taxes and differences in production technology taken together the models suggest a more general idea the widely held notion that trade in goods and factors are substitutes is in fact a rather special result which is a general characteristic only of factor proportions models

a critical realist interpretation of evolutionary growth theorising the article discusses a critical realist interpretation of evolutionary growth theorising by focusing on some of its basic characteristics the evolutionary ontology is complex differentiated structured systemic open ever changing and radically uncertain its methodology tends to be increasingly based on appreciative theorising retroductive explanations and interdisciplinary analysis after discussing these features the article suggests that critical realism may indeed constitute an important philosophical and methodological foundation for the future development of evolutionary theories of economic growth

dynamic capital structure choice and investment timing abstract the paper considers the problem of an investor that has the option to acquire a firm initially this firm is run as to maximize shareholder value where the shareholders are risk averse to do so it has to decide each time on investment and dividend levels the firm s capital stock can be financed by equity and debt where less solvable firms pay a higher interest rate on debt revenue is stochastic we find that the firm is run such that capital stock and dividends develop in a fixed proportion to the equity in particular it turns out that more dividends are paid if the economic environment is more uncertain we also derive that the relationship between the levels of risk aversion of the current shareholders and the potential investor is a significant determinant in establishing whether the firm is a profitable takeover target for the investor

optimal regime switching under risk aversion and uncertainty abstract technology adoption is key for corporate strategy often determining the success or failure of a company as a whole however risk aversion often raises the reluctance to make a timely technology switch particularly when this entails the abandonment of an existing market regime and entry in a new one consequently which strategy is most suitable and the optimal timing of regime switch depends not only on market factors such as the definition of the market regimes as well as economic and technological uncertainty but also on attitudes towards risk therefore we develop a utility based regime switching framework for evaluating different technology adoption strategies under price and technological uncertainty we assume that a decisionmaker may invest in each technology that becomes available compulsive or delay investment until a new technology arrives and then invest in either the older laggard or the newer technology leapfrog our results indicate that if market regimes are asymmetric then greater risk aversion and price uncertainty in a new regime may accelerate regime switching in addition the feasibility of a laggard strategy decreases increases as price uncertainty in an existing new regime increases finally although risk aversion typically favours a compulsive and a laggard strategy a leapfrog strategy may be feasible under risk aversion provided that the output price and the rate of innovation are sufficiently high

trade in goods and trade in tasks an integrating framework abstract we introduce a simple but flexible analytical framework in which both trade in goods and trade in tasks arise we use this framework to provide versions of the gains from trade and the famous four ho theorems heckscher ohlin factor price equalisation stolper samuelson and rybczynski that apply to this environment we extend our framework to accommodate monopolistic competition and two way offshoring and to integrate theoretical results of the early offshoring literature

a note on the theory of the firm under multiple uncertainties abstract we develop a dynamic continuous time theory of the competitive firm under multiple correlated uncertainties output price uncertainty and output uncertainty as an example in doing so we completely generalize and extend the previous one period comparative statics results the marginal impact of each parameter on optimal output particularly we relax the assumption of the statistical independence between the risks and the restrictions on the coefficient of absolute relative risk aversion furthermore we generally show the impact of one risk on the aversion to another moreover we show the role of the factor of correlation between risks on the decisions of the firm

investment in oligopoly under uncertainty the accordion effect this paper studies investments in new markets where more than two anticipated identical competitors are present in case of three firms an accordion effect is detected an exogenous demand shock results in a change of the wedge between investment thresholds of the first and second investor that is qualitatively different from the change of the wedge between the second and third investment threshold furthermore it turns out that in the three firm case the investment timing of the first investor lies in between the one and the two firm case these results are numerically extended to the n firm case

entry into the electricity market uncertainty competition and mothballing options the present paper analyzes the entry strategies into the electricity market of two firms that have power plants under price uncertainty and competition we consider the symmetric and asymmetric two firms which have either a thermal power plant or a nuclear power plant the differences between the thermal power plant and the nuclear power plant such as the cost structure and operational flexibility are modeled the threshold values of market entry are calculated for each firm with either the thermal power plant or the nuclear power plant as the leader or the follower we show the dependence of cost structures on entry thresholds of the leader and the follower into the electricity market for various market and cost conditions the diagrams of the leader are also shown

preemption and rent equalization in the adoption of new technology we study the adoption of a new technology to illustrate the effects of preemption in games of timing we show that the threat of preemption equalizes rents in a duopoly but that this result does not extend to the general oligopoly game if the gain to preemption is sufficiently small then the optimal symmetric outcome which involves late adoption is an equilibrium this contrasts with reinganum s result that in precommitment equilibria there must be diffusion we develop a new and richer formalism for modeling games of timing which permits a continuoustime representation of the limit of discrete time mixed strategy equilibria

geographical disadvantage a heckscher ohlin von thunen model of international specialization abstract we analyse the trade and production patterns of countries located at varying distances from an economic centre exports and imports of final and intermediate goods bear transport costs which increase with distance we show how production and trade depend on factor endowments and factor intensities and also on countries locations and the transport intensities of different goods countries divide into zones with different trade patterns some export oriented and others import substituting we study the implications of distance for factor prices and real incomes the effects of changes in transport costs and the locational choice of new activities

reflections on critical realism in political economy this paper studies critical realism in political economy the focal points are two important tensions in critical realism the first tension relates generally to the status and importance of philosophy and the scope of critical realism the second tension relates specifically to critical realism in political economy firstly two perspectives within critical realism in political economy are separated a marxist current and a broad heterodox current secondly these two perspectives within critical realism are contrasted and discussed on the basis of a critical stance towards philosophical reductionism thirdly it is argued that reconciliation between central aspects of the two perspectives is both feasible and desirable and finally neo marxist political economy is pinpointed as a critical constructive and developmental mediation for critical realism in political economy copyright 2002 oxford university press

strategic technology switching under risk aversion and uncertainty abstract firms devising green investment strategies within a deregulated environment must take into account not only economic and technological uncertainty but also strategic interactions due to competition also further complicating green investment decisions is the fact that firms are likely to exhibit risk aversion since alternative energy technologies entail risk that cannot be diversified therefore we develop a utility based real options framework for pre emptive and non pre emptive competition in order to analyse how economic and technological uncertainty interact with risk aversion to impact the adoption of an existing technology in the light of uncertainty over the arrival of an improved version we confirm that greater risk aversion delays investment and show that technological uncertainty accelerates the follower s entry delays the entry of the pre emptive leader and intriguingly does not affect the non pre emptive leader s investment decision also we show how the relative loss in the leader s value due to the follower s entry is affected by economic and technological uncertainty as well as risk aversion and how the risk of pre emption under increasing economic uncertainty raises the value of direct investment in the new technology relative to stepwise investment