estimating the impact of currency unions on trade solving the glick and rose puzzle does leaving a currency union reduce international trade this paper uses a historical approach to re examine the puzzling large apparent impact of currency unions on trade i find that the early time series estimates were driven by the gradual decaying of colonial trade ties and other major geopolitical factors including warfare communist takeovers and ethnic cleansing episodes my methodology which carries lessons for other uses of gravity equations in policy analysis yields point estimates of currency unions on trade that are not statistically distinct from zero

tying and innovation a dynamic analysis of tying arrangements this paper analyses the effects of tying arrangements on r d incentives it shows that tying is a means through which a firm can commit to more aggressive r d investment in the tied goods market tying also has the strategic effect of reducing rivals incentives to invest in r d the strategy of tying is a profitable one if the gains via an increased share of dynamic rents in the tied goods market exceed the losses that result from intensified price competition in the market the welfare implications of tying and consequently the appropriate antitrust policy are discussed

fixed currency regimes and the time pattern of trade effects abstract this paper assesses duration specific treatment effects of fixed currency regimes on bilateral trade along a duration path of up to 25 years we find that country pairs with fixed exchange rate regimes trade more but only after about 8 years

product introduction with network externalities the authors study the introduction of a new product in a market with network externalities there is a common presumption that such markets exhibit excess inertia i e that they are biased toward existing products in contrast the authors provide conditions under which equilibrium involves insufficient friction i e a tendency to rush into new incompatible technologies they also analyze the firms incentives to make their products compatible and they show that the firm introducing the new technology is biased against compatibility copyright 1992 by blackwell publishing ltd

on the interplay of informational spillovers and payoff externalities this thesis consists of four independent essays which consider different topics in information economics and political economy the first two papers are variants of the same idea an uninformed principal e g a government will make a decision in order to gain more information it may consult two experts however these experts have a private interest in certain policies being implemented the question is to gain as much information as possible should the principal consult experts who are biased in the same direction or experts who prefer different decisions the main result is that as long as collusion between experts can be prevented homogeneous panels are superior to heterogeneous ones and this advantage increases with the experts informational precision in the third paper two firms consider entry in a new product market and must decide when to enter the market and how to design their product firms do not know for certain what the best design is so both firms want to outwait the other s decision in order to gain more information the focus of the paper is on which firm will make the first decision the main result is that if products are strong strategic substitutes the worst informed firm makes the first decision in equilibrium the analysis should apply to a range of other contexts such as investors trading decisions or the policy choices of political candidates the final paper asks the following question could it be that parties in a two party system may benefit from using several candidates in the same election to promote the use of multiple candidates i assume that a party never runs the risk of having its votes split up among its candidates despite this it turns out that parties have a strong incentive to restrict their number of nominees paradoxically it seems that the more uncertain parties are about voter opinion the fewer candidates they want to use in particular with a uniform voter distribution the optimal number of candidates is one

installed base and compatibility innovation product preannouncements and predation a good is often more valuable to any user the more others use compatible goods the authors show that this effect may inhibit innovation if an installed base exists and transition to a new standard must be gradual early adopters bear a disproportionate share of transient incompatibility costs this can produce excess inertia the installed base however is stranded if the new standard is adopted this may create excess momentum these dynamic effects have strategic implications temporary price cutting can permanently prevent entry and product preannouncements can be critical in innovation these strategic actions have ambiguous welfare effects

optimal bundling of technological products with network externality for many high tech and internet related products utility to consumers depends in part on the size of the user base a phenomenon called network externality a firm with a portfolio of these and other products that are often asymmetric in their degree of network externality or marginal cost may have to look beyond the traditional strategies of pure components pure bundling and mixed bundling one such strategic alternative in a two product case would be a so called mixed bundling 1 under which the bundle and product 1 are offered but the other product can only be purchased in a bundled form the purpose of this study is to compare and contrast the impact of such asymmetry or symmetry in direct network externality and cost on the choice of bundling strategies we model a monopolist firm that has a product in each of two categories and faces heterogeneous consumers results suggest that pure bundling is more profitable when both products have low marginal costs or high network externality whereas pure components or mixed bundling 1 is more profitable when the products diverge in their costs and network externality e g only one product has network externality traditional mixed bundling is optimal in other instances

attack defence and contagion in networks sanjeev goyal acknowledges support from a keynes fellowship cambridge inet institute and european research area complexity net resilience and interaction of networks in ecology and economics adrien vigier acknowledges support from a gates cambridge fellowship as well as a core fellowship from universite catholique de louvain

government spending shocks and rule of thumb consumers with steady state inequality in the body of literature concerning fiscal policy a central result is that government spending might stimulate private consumption because only some households save while others spend their entire income each period although such heterogeneity naturally causes inequality this complication is commonly avoided by assuming that transfers redistribute steady state wealth i show that this steady state assumption drives short run results without redistribution the equilibrium is indeterminate and the labor market structure that is imposed to support the expansive result is theoretically inconsistent on a more positive note i propose a labor market formulation under which the expansive effects of government spending might arise

honey the currency union effect on trade hasn t blown up as the value of real bilateral trade between countries i and j at time t cu is a dummy variable which is unity if i and j sharethe same currency at time t z is a vector of controls given by an augmentedgravity model c are the associate nuisance coefficients and is a hopefully well behaved residual my chief finding was that was large and robust mypoint estimate was 1 2 implying that currency union is associated with atripling since exp 1 2 3 of trade in his paper in this issue volker nitsch provides three pieces of value added first he finds and corrects a number of data errors in my original data set second he shows that adding extra controls to my empirical setup disaggregating bycurrency unions and adjusting for missing data affects the results he concludesthat the effect of currency union on trade is smaller than my original estimates has not been reliably estimated and may be zero

government spending and the taylor principle this paper explores how government size affects the scope for equilibrium indeterminacy in a new keynesian economy where part of the population live hand to mouth the main result is that a higher level of public consumption is likely to generate indeterminacy and render the taylor principle insufficient as criterion for equilibrium uniqueness this holds even though fiscal policy serves to reduce swings in current income only if government consumption is a substitute for private consumption will it narrow the scope for indeterminacy hence monetary policy should be conducted with an eye to the amount and composition of government consumption

de facto exchange rate arrangement tightness and bilateral trade flows abstract this paper estimates the effect of switching into and out of 14 different modes of exchange rate arrangements on bilateral exports between 1948 and 2001 in the world economy increasing the exchange rate arrangement tightness by one degree in the classification of reinhart and rogoff reinhart carmen m and kenneth s rogoff 2004 the modern history of exchange rate arrangements a reinterpretation quarterly journal of economics 119 1 48 increases bilateral trade flows by about 2 4 as compared to their initial level

complementing emu rethinking cohesion policy under emu the less competitive regions of the eu usually assumed to be peripheral have been widely expected to lose ground yet it is the core of the eu that so far has appeared to have suffered from the advent of the euro this paper looks at the processes behind regional divergence in the eu and presents evidence on recent and prospective trends as emu is consolidated bearing in mind that the imminent enlargement of the eu will radically change the political economy of the eu s efforts to assure cohesion policy issues are then discussed looking forward to the next renegotiation of the structural funds it is argued that difficult decisions have to be taken about the extent and character of eu policy the option of an open method of coordination for cohesion policy is put forward as a means of resolving some of the hard choices

trade integration and business cycle convergence is the relation robust across time and space in this paper we investigate the relationship between trade intensity and the business cycle correlation using a panel data set taken from 24 countries over the period 1959 2003 most previous studies did not account for the possibility that the business cycle correlation may be influenced by unobservable country pair specific effects our estimates using both fixed and random effects methodologies suggest that trade intensity and the business cycle correlation are positively related to one another however detailed investigation shows that this relationship exists mainly for the european countries

do currency unions deliver more economic integration than fixed exchange rates evidence from the franc zone and the eccu in this article we develop a model to identify determinants of macroeconomic integration in the african franc zone and in dollar pegging caribbean countries including members of the east caribbean currency union these two groups of countries each comprise states using several different local currencies on the one hand the uemoa cfa franc and the cemac cfa franc both pegged to the euro on the other the eccu dollar and other national dollar pegged currencies the purpose of the analysis is to distinguish the effect of monetary union on macroeconomic integration from the effect of pegging to a common oecd currency

currency unions and trade the effect is large the impact of a common currency on trade can be grossly mismeasured if countries that belong to currency unions are systematically different from those that do not and if the relationship between trade and its observable determinants is complex i argue that such complications are plausible and likely to distort the empirical results of a recent economic policy paper by andrew rose issue 30 2000 pp 7 45 using techniques designed to be robust in this situation i find that the effects of common currency on international trade are considerably less dramatic and much less precisely estimated copyright cepr ces msh 2001

do converters facilitate the transition to a new incompatible technology a dynamic analysis of converters abstract this paper analyzes the process of transition in standards between incompatible technologies when converters are available contrary to a common presumption that converters facilitate the transition from an old technology to an otherwise incompatible new technology i find circumstances in which the possibility of transition is blockaded by the existence of converters in the welfare analysis of converters a distinction is made between ex ante and ex post efficiency effects finally i also analyze the equilibrium behavior in the provision of converters and compare it to the socially optimal outcome

one money one market the effect of common currencies on trade currency unions their dramatic effect on international trade a gravity model is used to assess the separate effects of exchange rate volatility and currency unions on international trade the panel data bilateral observations for five years during 1970 90 covering 186 countries includes 300 observations in which both countries use the same currency i find a large positive effect of a currency union on international trade and a small negative effect of exchange rate volatility even after controlling for a host of features including the endogenous nature of the exchange rate regime these effects statistically significant imply that two countries sharing the same currency trade three times as much as they would with different currencies currency unions like the european emu may thus lead to a large increase in international trade with all that that entails andrew rose

competing technologies the learning curve and rational expectations abstract the problem of choice between several variants of a technology subject to dynamic learning economies is examined in a rational expectations model with overlapping adopters it is shown that even with rational expectations the long term market outcome depends sensitively on the pattern of early chance events and that only one variant of the technology will come to dominate the market in the long run this variant need not be the one which is socially optimal or most promising technically

new keynesian versus old keynesian government spending multipliers renewed interest in fiscal policy has increased the use of quantitative models to evaluate policy because of modelling uncertainty it is essential that policy evaluations be robust to alternative assumptions we find that models currently being used in practice to evaluate fiscal policy stimulus proposals are not robust government spending multipliers in an alternative empirically estimated and widely cited new keynesian model are much smaller than in these old keynesian models the estimated stimulus is extremely small with gdp and employment effects only one sixth as large and with private sector employment impacts likely to be even smaller we investigate the sensitivity of our findings with regard to the response of monetary policy the zero bound on nominal interest rates and the inclusion of an empirically relevant degree of rule of thumb behaviour in the new keynesian model in addition we relate our findings using estimated structural macroeconomic models to the recent literature using reduced form regression techniques

fiscal stimulus and the role of wage rigidity abstract in this paper we study the impact of an expansion in public spending in an economy characterized by limited asset market participation and sticky wages the flexible wage version of the model implies strong expansionary effects on output and consumption but also a counterfactual increase in real wages the introduction of sticky wages besides being a realistic addition solves this problem and preserves the expansionary effects on output and consumption moreover once we introduce segmentation in the labor market sticky wages are even essential to obtain expansionary effects

effective tax rates in macroeconomics cross country estimates of tax rates on factor incomes and consumption abstract this paper proposes a method for computing tax rates using national accounts and revenue statistics using this method we construct time series of tax rates for large industrial countries the method identifies the revenue raised by different taxes at the general government level and defines aggregate measures of the corresponding tax bases this method yields estimates of effective tax rates on factor incomes and consumption consistent with the tax distortions faced by a representative agent in a general equilibrium framework these tax rates compare favorably with existing estimates of marginal tax rates and highlight important international differences in tax policy

the wto trade effect this paper reexamines the gatt wto membership efiect on bilateral trade ows using nonparametric methods including pair matching permutation tests and a rosenbaum 2002 sensitivity analysis together these methods provide an estimation framework that is robust to misspeciflcation biases allows general forms of heterogeneous treatment efiects and addresses potential hidden selection biases this is in contrast to most conventional parametric studies on this issue our results suggest large gatt wto trade promoting efiects robust to various restricted matching criteria alternative indicators for gatt wto involvement different matching methodologies non random incidence of positive trade ows and inclusion of multilateral resistance terms

globalizing carbon lock in this paper extends the arguments surrounding carbon lock in elaborated in unruh energy policy 28 2000 817 30 2002 317 to countries currently undergoing industrialization it argues that for numerous reasons industrializing countries are unlikely to leapfrog carbon intensive energy development on the contrary carbon lock in may be globalizing and could further constrain climate change mitigation options it is then argued that many policy recommendations ignore carbon lock in possibly limiting their potential for successful implementation the paper then discusses four policy approaches that appear to have advantages given lock in conditions it is recognized however that relative ease of implementation does not necessarily equate with superiority instead it is merely a path dependent outcome of past development decisions pursuing policies on the basis of relative implementation ease may help address the issue of climate change but could also result in sub optimal outcomes along other dimensions of sustainable development

the general equilibrium effects of fiscal policy estimates for the euro area abstract this paper describes a dynamic stochastic general equilibrium model featuring a fraction of non ricardian agents in order to estimate the effects of fiscal policy in the euro area the model takes into account distortionary taxation on labor and capital income and on consumption while expenditures are broken down into purchases of goods and services compensation of public employees and transfers to households a newly computed quarterly data set of fiscal variables is used our results point to the prevalence of mild keynesian effects of public expenditures in particular although innovations in fiscal policy variables tend to be rather persistent government purchases of goods and services and compensations for public employees have small and short lived expansionary effects on private consumption while innovations in transfers to households show a slightly more sizeable and lasting effect the effects are more significant on the revenue side decreases in labor income and consumption tax rates have sizeable effects on consumption and output while a reduction in capital income tax favors investment and output in the medium run finally our estimates suggest that fiscal policy variables contribute little to the cyclical variability of the main macro variables

rule of thumb consumers meet sticky wages it has been argued that rule of thumb consumers substantially alter the determinacy properties of simple interest rate rules and the dynamics of an otherwise standard new keynesian model in this paper we show that nominal wage stickiness helps re establishing standard results key findings are that wage stickiness i affects the shape of determinacy regions in the parameters space restoring the relevance of the taylor principle for the conduct of monetary policy ii implies that a rise in consumption in response to an innovation in government spending is not a robust feature of the model

boom and bust patterns in the adoption of financial innovations we develop a dynamic model of the adoption of financial innovations each period firms decide whether or not to adopt an innovation of uncertain value and the profitability of each period s adoptions reveals information about the innovation s value we show that characteristics of financial innovation waves cited by critics as evidence of irrational excess are in fact consistent with fully rational behavior we also show that social welfare is enhanced when more firms adopt innovations of questionable value and that financial intermediaries base an incentive to encourage such adoption article published by oxford university press on behalf of the society for financial studies in its journal the review of financial studies

native language spoken language translation and trade we construct new series for common native language and common spoken language for 195 countries which we use together with series for common official language and linguistic proximity in order to draw inferences about 1 the aggregate impact of all linguistic factors on bilateral trade 2 the separate role of ease of communication as distinct from ethnicity and trust and 3 the contribution of translation and interpreters to ease of communication the results show that the impact of linguistic factors all together is at least twice as great as the usual dummy variable for common language resting on official language would say in addition ease of communication plays a distinct role apart from ethnicity and trust and so far as ease of communication enters translation and interpreters are significant finally emigrants have much to do with the role of ethnicity and trust in linguistic influence

banking market integration in the sadc countries evidence from interest rate analyses this study investigates the state development and drivers of banking market integration in the member countries of the southern african development community sadc a principal component analysis pca of national retail interest rates indicates increasing integration in loan and deposit markets these integration processes are not developing uniformly and we can identify a convergence club when investigating the interest rate pass through from central bank onto retail rates for this convergence club we find both genuine and monetary integration driven processes though the latter dominate we thus conclude that a selective expansion of the common monetary area cma is possible

evaluating the econometric evaluations of training programs with experimental data this paper takes the results of an employment and training program thatwas run as a field experiment in which the participants were randomlyassigned into a treatment or a control group and compares these results to the estimates that might have been produced by an econometrician who evaluated the program using the same econometric procedures that have been used in the program evaluation literature this comparison shows that many of these econometric procedures fail toreplicate the experimentally determined results and suggests that researchers should be aware of the potential for specification errorsin other nonexperimental evaluations copyright 1986 by american economic association

social learning and dynamic pricing of durable goods we analyze the impacts of social learning sl on the dynamic pricing and consumer adoption of durable goods in a two period monopoly consumers can make either early uninformed purchases or late but potentially informed purchases as a result of social learning several results are derived first we identify the market conditions under which ex ante homogeneous consumers may choose to purchase at different times second equilibrium adoption may demonstrate inertia where all adopt late or frenzy where all adopt early in particular adoption inertia appears when sl intensity is reasonably high but may vanish when sl intensity exceeds a certain threshold third firm profits and social welfare first weakly decrease in sl intensity and may then jump up by a lump sum amount at the threshold sl intensity level mentioned above last we show that the firm potentially benefits from informative advertising or investing to cultivate more social learning

the diffusion of clean technologies a review with suggestions for future diffusion analysis abstract this article gives an overview of the literature on clean technology diffusion followed by suggestions for future analysis findings from diffusion analysis are presented in the form of 10 stylised facts helping the reader to see the forest for the trees the overall conclusion is that the diffusion of clean technology same as the diffusion of normal innovations is governed by endogenous mechanism epidemic learning and learning economies and by exogenous mechanisms policy is important for clean technology diffusion but other factors are important too the characteristics of the clean technology absorptive capacities of potential adopters and the age structure of capital it is often overlooked that companies have a choice they can choose between an end of pipe solution a process change adaptation and a change of process substitution this means that the diffusion and evolution of one clean technology will be at the expense of the diffusion of another clean technology something overlooked in studies on clean technology diffusion further research is needed on the influence of public policy on clean technology choice expectations about learning economies and prices adjustment costs network externalities and complementary innovations on clean technology adoption choices

currency competition network externalities and switching costs towards an alternative view of optimum currency areas existing models of currency competition and monetary union ignore network effects and switching costs this paper develops a simple model that incorporates these features and shows how it can be used to shed light on observed monetary experience and current issues in international monetary relations it explains why agents will often be reluctant to switch currencies highlights the role of expectations and sheds light on the nature of currency competition and the effect of legal restrictions copyright 1993 by royal economic society

local network externalities and market segmentation this paper models interaction between groups of agents by means of a graph where each node represents a group of agents and an arc represents bilateral interaction it departs from the standard katz shapiro framework by assuming that network benefits are restricted only amongst groups of linked agents it shows that even if rival firms engage in bertrand competition this form of network externalities permits strong market segmentation in which firms divide up the market and earn positive profits the analysis also shows that some graphs or network structures do not permit such segmentation while for others there are easy to interpret conditions under which market segmentation obtains in equilibrium c 2009 elsevier b v all rights reserved

the savers spenders theory of fiscal policy the macroeconomic analysis of fiscal policy is usually based on one of two canonical models the barro ramsey model of infinitely lived families or the diamond samuelson model of overlapping generations this paper argues that neither model is satisfactory and suggests an alternative in the proposed model some consumers plan ahead for themselves and their descendants while others live paycheck to paycheck this model is easier to reconcile with the essential facts about consumer behavior and wealth accumulation and it yields some new and surprising conclusions about fiscal policy

trade spill overs of fiscal policy in the european union a panel analysis we explore the international spillovers from fiscal policy shocks via trade in europe a fiscal expansion stimulates domestic activity which leads to more foreign exports and hence higher foreign output to quantify this we combine a panel var model in government spending net taxes and gdp with a panel trade model on average a public spending increase equal to 1 of gdp implies 2 3 more foreign exports over the first two years the corresponding figure for an equal size net tax reduction is 0 6 both estimates are statistically significant as far as the effect on foreign activity is concerned a 1 of gdp spending increase net tax reduction in germany on average raises gdp of trading partners by 0 23 0 06 over the first two years these figures are likely to form lower bounds for the actual effects and suggest that it may be worthwhile to further investigate the benefits from coordinated fiscal expansions contractions in response to european wide cyclical downturns upswings

exploration and exploitation in the presence of network externalities this paper examines the conditions under which exploration of a new incompatible technologyis conducive to firm growth in the presence of network externalities in particular this study is motivated by the divergent evolutions of the pc and the workstation markets in response to a new technology reduced instruction set computing risc in the pc market intel has developed new microprocessors by maintaining compatibility with the established architecture whereas it was radically replaced by risc in the workstation market history indicates that unlike the pc market the workstation market consisted of a large number of power users who are less sensitive to compatibility than ordinary users our numerical analysis indicates that the exploration of a new incompatible technology is more likely to increase the chance of firm growth when there are a substantial number of power users or when a new technology is introduced before an established technology takes off

unemployment fiscal multipliers we estimate the effects of fiscal policy on the labor market in us data an increase in government spending of 1 percent of gdp generates output and unemployment multipliers respectively of about 1 2 percent at one year and 0 6 percentage points at the peak each percentage point increase in gdp produces an increase in employment of about 1 3 million jobs total hours employment and the job finding probability all rise whereas the separation rate falls a standard neoclassical model augmented with search and matching frictions in the labor market largely fails in reproducing the size of the output multiplier whereas it can produce a realistic unemployment multiplier but only under a special parameterization extending the model to strengthen the complementarity in preferences to include unemployment benefits real wage rigidity and or debt financing with distortionary taxation only worsens the picture new keynesian features only marginally magnify the size of the multipliers when complementarity is coupled with price stickiness however the magnification effect can be large

the nonlinear impact of currency unions on bilateral trade abstract most gravity model specifications assume that a currency union varies the level of bilateral trade between members by a constant proportion we demonstrate that a common currency also alters the slope of the relationship between bilateral trade and member country gdps

limited asset markets participation monetary policy and inverted aggregate demand logic abstract this paper incorporates limited asset markets participation in dynamic general equilibrium and develops a simple analytical framework for monetary policy analysis aggregate dynamics and stability properties of an otherwise standard business cycle model depend nonlinearly on the degree of asset market participation while moderate participation rates strengthen the role of monetary policy low enough participation causes an inversion of results dictated by conventional wisdom the slope of the is curve changes sign the taylor principle is inverted optimal welfare maximizing discretionary monetary policy requires a passive policy rule and the effects and propagation of shocks are changed however a targeting rule implementing optimal policy under commitment delivers equilibrium determinacy regardless of the degree of asset market participation our results may justify fed s behavior during the great inflation period

theorizing path dependence a review of positive feedback mechanisms in technology markets regional clusters and organizations the concept of path dependence has often been criticized as vague and only narrowly applicable although we can find some very refined definitions of the concept we also find a wide range of empirical phenomena being described as path dependent we argue that more detailed accounts of the positive feedback mechanisms that form paths can take path dependence beyond this state of being overdetermined but under specified reviewing three well described cases of path dependent dynamics in technology markets regional clustering and organizations we define a core set of positive feedback mechanisms that constitute path dependence at different analysis levels and clarify the relationship between positive feedback and increasing returns we show that path dependent processes that is processes driven by positive feedback that veer toward rigidity or lock in can be but do not have to be found under many labels including structural inertia coevolution or institutional persistence we conclude that a precise definition of path dependence does not need to be at odds with the concept s widespread use in understanding organizational and industrial development processes copyright 2013 the author 2012 published by oxford university press on behalf of associazione icc all rights reserved oxford university press

inefficient standard adoption inertia and momentum revisited i introduction since the establishment of the theory of network effects economists have been concerned with the question of whether a market with network effects will tend to settle on the socially optimal standard it has been postulated that markets may exhibit excess inertia once a technological standard is in place a new superior standard may not displace it because of installed base effects alternatively markets may exhibit excess momentum consumers may adopt a new standard too quickly ignoring the stranding effect they are having on previous users similar issues arise in the adoption of language and social norms the literature has investigated various conditions under which one of these inefficiencies arises such inefficiencies are of particular concern for open technologies such as the qwerty and dvorak keyboards 1 the situation is somewhat different when individual firms own standards in that case a simple argument seems to indicate that there is no possibility that an inefficient standard will persist if a new standard is superior in any objective sense there are gains to be made from switching to it once the standard has been adopted the firm can appropriate these gains therefore the firm has incentive to lower the initial price enough to induce adoption of the standard the preceding argument is made in liebowitz and margolis 1999 and repeated in spulber 2002 spulber expresses a general skepticism about the likelihood of inefficiencies when property rights are defined and markets exist critics might claim that previous models that imply inefficient standard adoption are unrealistic in some way and that if such models were modified slightly the inefficiency would disappear i reconsider the issue of inefficient standard adoption using a parsimonious yet compelling model assuming only that there are successive generations of finitely lived consumers that preferences are heterogeneous and that there are network effects among users adoption decisions can be inefficient this is true even if consumers can coordinate efficiently within a generation and a firm can act as a coordinating device across generations the model presented here generates some of the same results found in other papers collectively but in a more general setting and with more robust results if there is an established standard and a superior alternative emerges no single generation of consumers will be willing to switch to the new standard if the switching cost the loss of network benefit from breaking with past users is too high it may be that the benefits to future generations of consumers are large enough that from a social standpoint it would be efficient for one generation to adopt the new standard even if it is privately optimal for that generation to retain the old standard on the other hand the current generation considers only its own switching cost and not the cost it imposes on the previous generation leading to potential overadoption of new technology even for proprietary standards it is not clear that the incentive of the firm to induce adoption matches the social incentive in particular if consumer preferences are heterogeneous the firm will not be able to price in such a way to extract all of the additional surplus gained from the new standard on the other hand the firm will be able to appropriate some of the surplus generated by the network effect itself which is present for any standard and thus does not affect the social incentive to change standards it is not possible to address this issue with a two period model as in some of the previous literature see for example choi 1994 choi and thum 1998 katz and shapiro 1986 if a new technology is introduced in the second period but then the game ends the welfare of future generations of consumers is neglected 2 this article also differs from previous infinite horizon models of technology adoption

proactive r d management and firm growth a punctuated equilibrium model the external environment is characterized by periods of relative stability interspersed with periods of extreme change implying that high performing firms must practice exploration and exploitation in order to survive and thrive in this paper we posit that r d expenditure volatility indicates the presence of proactive r d management and is evidence of a firm moving from exploitation to exploration over time this is consistent with a punctuated equilibrium model of r d investment where shocks are induced by reactions to external turbulence using an unbalanced panel of almost 11 000 firm years from 1997 to 2006 we show that greater fluctuations in the firm s r d expenditure over time are associated with higher firm growth developing a contextual view of the relationship between r d expenditure volatility and firm growth we find that this relationship is weaker among firms with higher levels of corporate diversification and negative among smaller firms and those in slow clockspeed industries

spanning the institutional abyss the intergovernmental network and the governance of foreign direct investment global economic transactions such as foreign direct investment fdi must extend over an institutional abyss between the jurisdiction and therefore protection of the states involved intergovernmental organizations igos represent an important attempt to span this abyss the authors use a network approach to demonstrate that the connections between two countries through joint membership in the same igos are associated with a large positive influence on the fdi that flows between them moreover they show that this effect occurs not only in the case of connections through economic igos but also through those with social and cultural mandates this demonstrates that relational governance is important and feasible in the global context even for the most risky transactions the authors also examine the interdependence between the igo network and the domestic institutions of states social and cultural igo connections do more and economic igo connections less to increase fdi when the target country is mo

network effects and environmental externalities do clean technologies suffer from excess inertia abstract we study the diffusion of a clean substitute to a dirty durable in a dynamic model consumer utility of both durables increases in their respective market shares due to network effects first we characterize the optimal dirty good tax the tax should achieve a long run optimal division of the market between the two goods along the transition path to this steady state the optimal tax depends on the current and future market shares of the clean durable thus even if the marginal environmental damage from an additional dirty durable is constant the optimal tax should not be constant second we study whether excess inertia can occur if the emission tax is not optimally set we then find that a constant tax that only accounts for the environmental damage caused by the dirty good may lead to excess inertia excess inertia could happen even if the clean technology is proprietary and the technology owner has incentives to sponsor the initial market diffusion of the technology

r d in the presence of network externalities timing and compatibility two rival firms decide on the time of r d and whether the new products should be compatible i show that network externalities may induce the firms to introduce new incompatible technologies early which is socially harmful as the r d costs increase and de facto standardization becomes less likely compared with the equilibrium outcome both firms may gain by delaying the introduction of incompatible technologies by agreeing on common standards before product introduction entry is delayed and profit may increase an ex post optimal standardization policy may increase the incentives for early product introduction and consequently be an undesirable policy ex ante

unraveling the process of creative destruction complementary assets and incumbent survival in the typesetter industry when radical technological change transforms an industry established firms sometimes fail drastically and are displaced by new entrants yet other times survive and prosper drawing upon an unusually rich data set that covers the technological and competitive history of the typesetter industry from 1886 to 1990 this paper uses a combination of quantitative and qualitative analysis to unravel this process of creative destruction it argues that the ultimate commercial performance of incumbents vs new entrants is driven by the balance and interaction of three factors investment technical capabilities and appropriability through specialized complementary assets in this industry specialized complementary assets played a crucial role in buffering incumbents from the effects of competence destruction and an analysis that examined investment or technical capabilities in isolation would have led to misleading results this work thus highlights the importance of considering multiple perspectives when examining the competitive implications of technological change 1997 by john wiley sons ltd

on the distribution of exchange rate regime treatment effects on international trade abstract this paper provides evidence of heterogeneous treatment effects on trade for six different types of exchange rate regime transitions utilizing data on 218 643 country pair year observations all together previous research mainly focused on the currency union effect on trade and widely assumed that country pairs with identical observable characteristics receive the same effect we test the hypothesis of a homogeneous treatment effect empirically and find substantive statistical support for the presence of effect heterogeneity moreover we characterize the probability distribution of effect heterogeneity among observationally equivalent country pairs by way of a random coefficients model we estimate selected features of the empirical distributions of the treatment effects for each of the six different types of exchange rate regime transitions under two different sets of assumptions about the probability distribution of effect heterogeneity our findings suggest that the immediate effects on trade from switching to an exchange rate regime different from the one in the outset have wide waists and exhibit large positive extreme values we estimate the probability of two countries to experience an immediate positive effect on the growth of bilateral trade due to the adoption of any new exchange rate regime tighter or not to be approximately one half

preying for monopoly the case of southern bell telephone company 1894 1912 focusing on the southern bell telephone company we propose a modified version of the predation hypothesis to explain bell s natural monopoly over local telephone service southern bell effectively eliminated competition through a strategy of pricing below cost in response to entry which deprived competitors of the cash flow required for expansion even if it failed to induce exit investing in toll lines ahead of demand isolating independent companies in smaller towns and rural areas and forcing them to consolidate on favorable terms and influencing local regulatory policy in large cities to weaken rivals and ultimately to institutionalize the bell monopoly

systems competition and network effects this paper discusses firm behavior market performance and the public and private institutions that arise in systems markets i e markets where consumers use compatible components together to generate benefits in such markets which include communications networks and hardware software networks popular products are inherently more valuable these network effects can drive corporate strategies and are critical in understanding innovation in many high technology markets the discussion here emphasizes the dynamics of consumer adoption decisions in the presence of network effects competition between incompatible systems and how suppliers choose which components are compatible and which are not

currency unions and international integration this paper characterizes the integration patterns of international currency unions such as the cfa franc zone we empirically explore different features of currency unions and compare them to countries with sovereign monies by examining the criteria for mundellos concept of an optimum currency area we find that members of currency unions are more integrated than countries with their own currencies for instance we find that currency union members have more trade and less volatile real exchange rates than countries with their own monies business cycles are more highly synchronized across currency union countries than across countries with sovereign monies

defying the law of gravity the political economy of international migration bilateral flows of international migrants exhibit tremendous variance both across destination countries and over time to explain this variance studies of international migration tend to focus on economic determinants such as income differentials or on social conditions such as the presence of coethnics in certain destination countries the authors argue that migration is driven not solely by economic or social determinants rather the political environment across destinations plays a substantively large role in influencing bilateral migration flows they test the importance of the political environment citizenship rights and the prominence of right wing parties using data on migration flows from 178 origin countries into 18 destination countries over the period 1980 2006 they find even after controlling for a variety of economic social policy and international variables that variation in political environments across time and destination plays a key role in observed patterns of international migration

optimal patenting and licensing of financial innovations recent court decisions starting with the state street decision in 1998 allow business methods to be patentable and now give financial institutions the option to seek patent protection for financial innovations this new patentability paradigm and the heterogeneity of characteristics associated with financial innovations pose an immediate decision problem for senior management what to patent we present a parsimonious decision framework that answers this question we show that for innovations with certain characteristics it is optimal not to patent even if the option of patenting and licensing is available our model emphasizes the role of embedded real options that arise from certain types of financial innovations the model provides an explanation of observed patenting behavior of financial institutions and the success of a wide class of innovations including swaps credit derivatives and pricing algorithms