macroprudential regulation versus mopping up after the crash this paper compares ex ante policy measures such as macroprudential restrictions on leverage and ex post policy interventions such as bailouts to respond to systemic risk i e to the danger that an economy may experience nancial feedback loops in which falling asset prices declining net worth and tightening nancial constraints reinforce each other ex post policy measures are better targeted since they are taken only once a crisis has materialized but they aggravate the over investment problem ex ante and introduce a time consistency problem ex ante policy measures are more blunt but they can both mitigate the pecuniary externalities that arise during crises and resolve the time consistency problem in ex post policies we nd that except in limit cases it is optimal to respond to systemic risk by using a mix of both ex ante measures and ex post interventions and characterize the optimal policy mix furthermore limiting bailouts to the revenue accumulated in a bailout fund reduces welfare

a general equilibrium theory of firm formation based on individual unobservable skills abstract a model of firm formation is built along the lines of knight 1921 contrary to kihlstrom and laffont 1979 the individuals are risk neutral but have different productive efficiencies we suppose that the individuals who are the more efficient workers are also the more efficient entrepreneurs each agent chooses the activity which gives her the larger expected income in equilibrium the more efficient people become entrepreneurs and under a special kind of increasing returns to scale assumption this is also what is implied by efficiency considerations however we show that the equilibrium number of entrepreneurs is always larger than the pareto optimal one a simple uniform lump sum tax on firms together with redistribution of the tax revenue to workers is nevertheless sufficient to restore efficiency

inefficient credit booms this paper studies the welfare properties of competitive equilibria in an economy with financial frictions hit by aggregate shocks in particular it shows that competitive financial contracts can result in excessive borrowing ex ante and excessive volatility ex post even though from a first best perspective the equilibrium always displays under borrowing from a second best point of view excessive borrowing can arise the inefficiency is due to the combination of limited commitment in financial contracts and the fact that asset prices are determined in a spot market this generates a pecuniary externality that is not internalized in private contracts the model provides a framework to evaluate preventive policies which can be used during a credit boom to reduce the expected costs of a financial crisis copyright 2008 wiley blackwell

an empirical analysis of self employment in the u k the paper formulates a self employment paid employment choice problem that draws upon knight s notion that the individual responds to the risk adjusted relative earnings opportunities in each sector based on a development of such choice theoretic considerations an econometric model is developed with the purpose of empirically examining the determinants of self employment the model features simultaneous determination of employment status and earnings which allows for self selectivity the model is estimated using a sample of 4762 individuals from the general household survey for 1978 the estimation of the earnings equation enables a calculation of the self employment paid employment earnings differential and the estimated probit equation for self employment paid employment status facilitates the prediction of the probability of self employment the paper finds that there is positive selection bias in the observed earnings of employees that the probability of self employment depends positively on the earnings difference between the two sectors and that education and age are significant determinants of self employment

entrepreneurship human capital and labor demand a story of signaling and matching in contrast to employee qualifications there is no clear evidence that entrepreneurs qualifications positively affect their income in this study we propose that entrepreneurs can benefit from using their qualification as a signal during the process of recruiting employees this is assumed to follow a process of matching equals among equals we confirm a matching of qualification levels for highly skilled employees in denmark and an indication of this in germany partial support for matching among medium skilled employees was only found in germany with no consistent evidence of matching for low skilled employees in neither country this suggests that as skill levels of employees decrease their probabilities of working for different founders converge founders qualifications are the most reliable predictor of recruitment choices over time our findings are robust to numerous control variables as well as across industries and firm age

wealth effects distribution and the theory of organization abstract we construct a general equilibrium model of firm formation in which organization is endogenous firms are coalitions of agents providing effort and investment capital effort is unobservable unless a fixed monitoring cost is paid and borrowing is subject to a costly state verification problem because incentives vary with an agent s wealth different types of agents become attractive firm members under different circumstances when borrowing is not costly firms essentially consist of one type of agent and are organized efficiently but when the costly state verification problem is sufficiently severe firm organization will depend on the distribution of wealth with enough inequality it will tend to be dictated by incentives of rich agents to earn high returns to wealth even if the chosen organizational form is not a technically efficient way to provide incentives journal of economic literatureclassification numbers d2 d31 j41 l2

incentives contracts and markets a general equilibrium theory of firms1 this paper takes steps toward integrating firm theory in the spirit of alchian and demsetz 1972 and grossman and hart 1986 contract theory in the spirit of holmstrom 1979 and general equilibrium theory in the spirit of arrow and debreu 1954 and mckenzie 1959 in the model presented here the set of firms that form and the contractual arrangements that appear the assignments of agents to firms the prices faced by firms for inputs and outputs and the incentives to agents are all determined endogenously at equilibrium agents choose consumption but they also choose which firms to join which roles to occupy in those firms and which actions to take in those roles agents interact anonymously with the large market but strategically within the small firms they join the model accommodates moral hazard adverse selection signaling and insurance equilibria may be pareto ranked

equilibrium price dispersion with sequential search abstract the paper studies equilibrium pricing in a product market for an indivisible good where buyers search for sellers buyers search sequentially for sellers but do not meet every seller with the same probability specifically a fraction of the buyers meetings lead to one particular large seller while the remaining meetings lead to one of a continuum of small sellers in this environment the small sellers would like to set a price that makes the buyers indifferent between purchasing the good and searching for another seller the large seller would like to price the small sellers out of the market by posting a price that is low enough to induce buyers not to purchase from the small sellers these incentives give rise to a game of cat and mouse whose only equilibrium involves mixed strategies for both the large and the small sellers the fact that the small sellers play mixed strategies implies that there is price dispersion the fact that the large seller plays mixed strategies implies that prices and allocations vary over time we show that the fraction of the gains from trade accruing to the buyers is positive and nonmonotonic in the degree of market power of the large seller as long as the large seller has some positive but incomplete market power the fraction of the gains from trade accruing to the buyers depends in a natural way on the extent of search frictions

how much did the liberty shipbuilders learn new evidence for an old case study this paper offers some new estimates of the contribution of learning to the rapid increases in labor productivity observed in the construction of liberty ships during world war ii the study exploits new data on physical capital investment and vessel quality constructed from contemporary records held at the national archives estimates of the rate of learning are shown to be sensitive to the inclusion of the new capital data and data on vessel quality provide evidence that part of the measured productivity increases were secured at the expense of quality

beyond bankruptcy does the us bankruptcy code provide a fresh start to entrepreneurs abstract this paper assesses the extent to which the us bankruptcy system is effective in providing small businesses a fresh start after a bankruptcy filing i use data from the 1993 1998 and 2003 national survey of small business finances to explore how firms fare after a bankruptcy filing on the positive side previously bankrupt firms are not any more burdened than the average small firm by problems relating to profitability cash flow health insurance costs or taxes further the fact that these firms are surviving several years after the filing is itself a testament to the efficient functioning of the us bankruptcy system it suggests that the bankruptcy system goes a long way toward helping businesses recover after a bankruptcy filing however the one area of concern that persists after a filing is financing or credit access in general these firms have a nearly 24 percentage point higher likelihood of being denied a loan and are charged interest rates that are more than 1 percentage point higher than those charged to other businesses a bankruptcy affects all types of financing even trade credit which is a significant form of lending between businesses in fact it appears that firms with a bankruptcy record are rationed out of the market with all types of loans being denied at significantly higher rates than other firms further my results show that bankruptcy leads to a class of discouraged borrowers who are significantly less likely to even apply for a loan

job search with bidder memories this paper revisits the no recall assumption in job search models with take it or leave it offers workers who can recall previously encountered potential employers in order to engage them in bertrand bidding have a distinct advantage over workers without such attachments firms account for this difference when hiring a worker when a worker first meets a firm the firm offers the worker a sufficient share of the match rents to avoid a bidding war in the future the pair share the gains to trade in this case the diamond paradox no longer holds

real government size automatic feedback rules and the measured effectiveness of fiscal policy this paper argues that as intervention fiscal policy means more than simply any change in government spending and this requires of fiscal analysis a measure that separates the allocative from the counter cyclical activities of government defining intervention as an optimal policy rule that responds automatically to privately unanticipated variations in output a general equilibrium model is built to separate the supply side effects of desired changes in the size of government from demand side interventions designed to stimulate aggregate demand the model is tested using the results of a public choice investigation of the real size of government ferris and west 1996 that exercise produces a measure of desired size and through its residual an implicit measure of intervention the paper tests the prediction that increases in desired size increase aggregate supply and that ex post measures of fiscal intervention can be recovered and tested for their effect on aggregate output the test uses citibase

entrepreneurship and organization design we model entrepreneurship and the emergence of firms as an outcome of simultaneous bidding for labor services among heterogeneous agents what distinguishes our approach from prior work is that occupational choice and job matching are determined simultaneously so that the opportunity costs of entrepreneurs are accounted for those who are relatively unmanageable while possibly excellent managers themselves become entrepreneurs entrepreneurs compete and create value by building efficient organizations and offering potentially well paid jobs to others while the entry of an additional entrepreneur typically reduces some individual wages we show that it always raises the average wage and depresses the average income of incumbent entrepreneurs this result may help explain the empirically low returns to entrepreneurship

collective moral hazard maturity mismatch and systemic bailouts the paper elicits a mechanism by which private leverage choices exhibit strategic complementarities through the reaction of monetary policy when everyone engages in maturity transformation authorities haver little choice but facilitating refinancing in turn refusing to adopt a risky balance sheet lowers the return on equity the key ingredient is that monetary policy is non targeted the ex post benefits from a monetary bailout accrue in proportion to the number amount of leverage while the distortion costs are to a large extent fixed this insight has important consequences first banks choose to correlate their risk exposures second private borrowers may deliberately choose to increase their interest rate sensitivity following bad news about future needs for liquidity third optimal monetary policy is time inconsistent fourth macro prudential supervision is called for we characterize the optimal regulation which takes the form of a minimum liquidity requirement coupled with monitoring of the quality of liquid assets we establish the robustness of our insights when the set of

an intertemporal model of industrial exit a finite horizon model of industrial exit is developed after an initial lag most exits are by young firms the duration of the lag is positively related to sunk entry costs but not due to the fallacy of sunk costs the conception of entry differs from previous research as a result not all entrants are identical and firm size affects the rate of learning on average larger new firms last longer entrepreneurs in declining firms act more lazily as the firm declines a number of empirical observations about declining firms are organized by the model

human capital versus sorting the effects of compulsory attendance laws under the educational sorting hypothesis a state compulsory school attendance law will increase the educational attainment of high ability workers who are not directly affected hy the law under the human capital hypothesis such laws affect only those individuals whose hehavior is directly constrained we find that compulsory attendance laws do increase enrollment rates in age groups they do not affect directly thus our results contradict the human capital hypothesis and are consistent with the sorting hypothesis i introduction the last decade has seen considerable debate between supporters of the human capital and sorting models of education the former assert that the effect of education on wages reflects increased productivity the latter maintain that it reflects at least in part correlation between education and unobserved ability workers use education to signal their ability while employers use education to screen workers despite the importance of the debate no fully convincing tests of the hypotheses have been developed in fact many members of the profession maintain at least privately that these hypotheses cannot be tested against each other and that the debate must therefore be relegated to the realm of ideology in this paper we show that the models can be tested against each other by examining the effects of state compulsory school attendance laws we show that under the human capital hypotheis such laws will affect the educational attainment only of those who in the absence of the law would have left school prior to the minimum school leaving age on the other hand under the sorting hypothesis the effects of the law will percolate through the system increasing educational attainment even among workers not directly constrained by the law our results are consistent with the predictions of the sorting model

inefficient investment waves we show that firms individually optimal liquidity management results in socially inefficient boom and bust patterns financially constrained firms decide on the level of their liquid resources facing cash flow shocks and time varying investment opportunities firms liquidity management decisions generate simultaneous waves in aggregate cash holdings and investment even if technology remains constant these investment waves are not constrained efficient in general because the social and private value of liquidity differs the resulting pecuniary externality affects incentives differentially depending on the state of the economy and often overinvestment occurs during booms and underinvestment occurs during recessions in general policies intended to mitigate underinvestment raise prices during recessions making overinvestment during booms worse however a well designed price support policy will increase welfare in both booms and recessions

voluntary export restraints on automobiles evaluating a trade policy the authors evaluate the voluntary export restraint that was initially placed on exports of automobiles from japan in 1981 they evaluate the impact this policy had on u s consumer welfare firm profits and foregone tariff revenue from its initiation through 1990

an equilibrium model of search unemployment this paper develops a simple general equilibrium model with sequential search in which a nondegenerate wage offer distribution is endogenously determined we use this model to analyze the comparati

computable markov perfect industry dynamics we provide a general model of dynamic competition in an oligopolistic industry with investment entry andexit toensurethatthereexistsacomputationallytractablemarkov perfectequilibrium we introduce firm heterogeneity in the form of randomly drawn privately known scrap values and setup costs into the model our game of incomplete information always has an equilibrium in cutoff entry exit strategies in contrast the existence of an equilibrium in the ericson and pakes model of industry dynamics requires admissibility of mixed entry exit strategies contrary to the assertion in their article that existing algorithms cannot cope with in addition we provide a condition on the model s primitives that ensures that the equilibrium is in pure investment strategies building on this basic existence result we first show that a symmetric equilibrium exists under appropriate assumptions on the model s primitives second we show that as the distribution of the random scrap values setup costs becomes degenerate equilibria in cutoff entry exit strategies converge to equilibria in mixed entry exit strategies of the game of complete information

the international transmission of financial shocks the case of japan one of the more dramatic financial events of the late 1980s and early 1990s was the surge in japanese stock prices that was immediately followed by a very sharp decline of more than 50 percent while the unprecedented fluctuations in japanese stock prices were domestic financial shocks the unique institutional characteristics of the japanese economy produce a framework that is particularly suited to the transmission of such shocks to other countries through the behavior of the japanese banking system the large size of japanese bank lending operations in the united states enables us to use u s banking data to investigate the extent to which this domestic japanese financial shock was transmitted to the united states as well as to identify a supply shock to u s bank lending that is independent of u s loan demand we find that binding risk based capital requirements associated with the decline in the japanese stock market resulted in a decline in commercial lending by japanese banks in the united states that was both economically and statistically significant this finding has added importance given the severe real estate loan problems currently faced by japanese banks how japanese bank regulators decide to resolve these problems will have significant implications for credit availability in the united states as well as in other countries with a significant japanese bank presence

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

optimal bank regulation and fiscal capacity financial regulation is synchronized across countries despite the fact that countries vary widely in their ability to bail out their banking sector in the event of a nancial crisis this paper addresses the question of whether countries with dierent scal capacity should optimally have dierent ex ante minimum bank capital requirements in an environment with endogenously in complete markets and overinvestment because of moral hazard and pecuniary externalities i show that countries with larger scal capacity should have lower ex ante minimum bank capital require ments this result is the opposite of what one may expect given that countries with larger scal capacity often have stronger moral hazard i also show that in addition to a minimum bank capital requirement regulators in countries with strong moral hazard which are countries with a concen trated nancial sector and large scal capacity should impose a limit on the amount of liquidity pledged by nancial institutions in a crisis state this would entail restricting the amount of put options cds contracts sold by nancial institutions among other measures

could the irish miracle be repeated in hungary it is widely recognized that foreign direct investment fdi plays an important role in economic development however its impact on entrepreneurial activity has not been well researched internalization theory is used to explore how inward fdi impacts entrepreneurial activity using data from global entrepreneurship monitor gem we find significant differences in entrepreneurial activity between ireland and hungary in both the type of people starting businesses and the opportunities pursued economic development policies should focus on increasing human capital promoting enterprise development and upgrading the quality of fdi

matching with contracts comment the theory of two sided matching markets has interested researchers for its theoretical appeal and its relevance to the design of real world institutions the medical residency matching mecha nism in the united states the national resident matching program nrmp and student assign ment systems in new york city and boston are important mechanisms designed by economists using the theory 1 hatfield and paul r milgrom 2005 present a unified framework of matching with contracts which includes the two sided matching and package auction models as well as a simplified version of a labor market model of alexander kelso and vincent p crawford 1982 as special cases they introduce the substitutes condition of contracts which is an adaptation of the substitutability condition in the matching literature roth and marilda a oliveira sotomayor 1990 to matching with contracts they show that there exists a stable allocation if contracts are substitutes for hospitals and that a number of other results in matching generalize to problems with contracts they further claim that the substitutes condition on individual hospitals prefer ences is necessary to guarantee the existence of a stable allocation for all possible singleton preferences of others that is if contracts are not substitutes for a hospital then there exists a preference profile of other hospitals with single job openings and doctors such that there exists no stable allocation we show that this last claim of hatfield and milgrom 2005 does not hold in general the counterexample we present involves a hospital which has two different kinds of positions and the preferences of the hospital are a combination of preferences of these two positions while the substitutes condition does not hold for that hospital we adopt a technique developed by bettina klaus and flip klijn 2005 and show that there exists a stable allocation we then present the weak substitutes condition which we show is necessary to guarantee existence of stable allocations the modified result we present as well as the original contribu tion of hatfield and milgrom 2005 suggest a connection between the substitutes condition and stability 2

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

estimating the labor market signaling value of the ged this paper tests the labor market signaling hypothesis for the general educational development ged equivalency credential using a unique data set containing ged test scores and social security administration ssa earnings data we exploit variation in ged status generated by differential state ged passing standards to identify the signaling value of the ged net of human capital effects our results indicate that the ged signal increases the earnings of young white dropouts by 10 to 19 percent we find no statistically significant effects for minority dropouts

is the international convergence of capital adequacy regulation desirable the merit of international convergence of bank capital requirements in the presence of divergent closure policies of diierent central banks is examined the lack of a complementary variation between minimum bank capital requirements and regulatory forbearance leads to a spillover from more forbearing to less forbearing economies and reduces the competitive advantage of banks in less forbearing economies linking the central bank s forbearance to its alignment with domestic bank owners it is shown that in equilibrium a regression toward the worst closure policy may result the central banks of initially less forbearing economies also adopt greater forbearance i analyze the joint design of two bank regulatory mechanisms minimum capital requirements which are an ex ante mechanism to prevent bank failures and closure policy which is an ex post mechanism to manage the cost of bank failures at the heart of the paper is a simple but fundamental point ex post policies affect ex ante incentives and hence the design of an ex ante mechanism must take into account any feedback from the ex post policies the optimal design of capital requirements is thus tied to the extent of forbearance exercised by the central bank s closure policy this warrants a closer scrutiny of the merits of creating a level playing eld in capital requirements across countries as proposed and

demand fluctuations in the ready mix concrete industry i investigate the role of demand shocks in the ready mix concrete industry using census data on more than 15 000 plants i estimate a model of investment and entry in oligopolistic markets these estimates are used to simulate the effect of eliminating short term local demand changes a policy of smoothing the volatility of demand has a market expansion effect the model predicts a 39 increase in the number of plants in the industry since bigger markets have both more plants and larger plants a demand smoothing fiscal policy would increase the share of large plants by 20 finally the policy of smoothing demand reduces entry and exit by 25 but has no effect on the rate at which firms change their size

and a vision appeared unto them of a great profit evidence of self deception among the self employed evidence is presented that the self employed expect better financial outcomes than do employees but experience worse realisations this is consistent with theories that entrepreneurship is driven by unrealistic optimism

estimation of equilibrium wage distributions with heterogeneity summary equilibrium search models generalize the one sided models used earlier by endogenizing the wage offer distribution attempts to estimate versions of these equilibrium n search models have been unsuccessful ironically because the predicted wage distribution did not fit the wage data in this paper we extend the applicability of search models by introducing firm heterogeneity to account for the shape of the wage density the resulting estimation problem is difficult but we propose a solution and illustrate its feasibility and performance with a monte carlo study and an application to us labour market data

whom do new firms hire using the matched employer employee data set for denmark and information on the founders of new firms we analyze the hiring choices of all new firms that entered from 2003 to 2010 we develop a theoretical model in which the quality of a firm s employees determines its average cost a firm s productivity is based on its pre entry experience and persistent shocks and over time firms learn about their productivity the model predicts that more productive firms are larger and hire more talented employees which gives rise to various predictions about how pre entry experience firm growth rates and firm size influence the wages firms pay to their early hires we find that beginning with the time of entry larger firms consistently pay higher wages to their new hires these are firms with greater survival prospects at the time of entry based on the pre entry backgrounds of their founders and that grow at greater rates over time both of which are predictive of the wages paid to new hires from the time of entry onward our findings suggest workers are allocated to firms according to their abilities which can give rise to enduring firm capabilities

relationship between individualist collectivist culture and entrepreneurial activity evidence from global entrepreneurship monitor data this paper examines how one dimension of national culture an individualist collectivist orientation is related to total entrepreneurial activity depending on the level of economic development measured by gdp per capita researchers have traditionally associated individualism with high rates of firm creation arguing that an orientation towards achievement and the pursuit of personal objectives dominant aspects in individualist cultures are determinants of entrepreneurial activity the current analysis shows that a country s culture correlates to entrepreneurship but cannot uphold the idea that higher levels of individualism mean higher rates of entrepreneurship using data from the global entrepreneurship monitor on 52 countries the results show that a country s entrepreneurship rate is negatively related to individualism when development is medium or low and positively related to individualism when the level of development is high thus individualism is not related to entrepreneurship in the same way in countries with differing levels of development

stability of matchings when individuals have preferences over colleagues in the standard two sided matching models agents on one side of the market the institutions can each be matched to a set of agents the individuals on the other side of the market and the individuals only have preferences defined over institutions to which they can be matched we explicitly study the consequences for stability when the composition of one s coworkers or colleagues can affect the preferences over institution

are nascent entrepreneurs jacks of all trades a test of lazear s theory of entrepreneurship with german data in a recent paper edward lazear proposed the jack of all trades view of entrepreneurship based on a coherent model of the choice between self employment and paid employment he shows that having a background in a large number of different roles increases the probability of becoming an entrepreneur the intuition behind this proposition is that entrepreneurs must have sufficient knowledge in a variety of areas to put together the many ingredients needed for survival and success in a business while for paid employees it suffices and pays to be a specialist in the field demanded by the job taken this study contributes to the entrepreneurship literature by empirically testing lazear s hypothesis using a large recent representative sample of the german population the empirical estimation takes the rare events nature of becoming a nascent entrepreneur and the regional stratification of the sample into account the results illustrate the statistical significance and economic importance of the jack of all t

a dynamic analysis of the market for wide bodied commercial aircraft this paper uses an empirical dynamic oligopoly model of the commercial aircraft industry to analyse industry pricing industry performance and optimal industry policy a novel feature of the model with respect to the previous literature is that entry exit prices and quantities are endogenously determined in markov perfect equilibrium mpe we find that many unusual aspects of the aircraft data such as high concentration and persistent pricing below static marginal cost are explained by this model we also find that the unconstrained mpe is quite efficient from a social perspective providing only 10 less welfare on average than a social planner would obtain finally we provide simulation evidence that an anti trust policy in the form of a concentration restriction would be welfare reducing

employment stability in newly founded firms a matching approach using linked employer employee data from germany using a linked employer employee dataset and taking the perspective of individuals rather than firms this paper analyzes some effects of joining startups we show that entrants in new firms differ from those joining incumbent firms and we use a matching approach to compare a group of employees joining new firms in 1995 1996 with a control group entering incumbent firms our results indicate that individuals employment stability was higher in incumbent than in newly founded firms while their risk of becoming unemployed was lower in particular in eastern germany joining firms that were older than 6 years improved individuals employment prospects

income and wealth heterogeneity in the macroeconomy how do movements in the distribution of income and wealth affect the macroeconomy we analyze this question using a calibrated version of the stochastic growth model with partially uninsurable idiosyncratic risk and movements in aggregate productivity our main finding is that in the stationary stochastic equilibrium the behavior of the macroeconomic aggregates can be almost perfectly described using only the mean of the wealth distribution this result is robust to substantial changes in both parameter values and model specification our benchmark model whose only difference from the representative agent framework is the existence of uninsurable idiosyncratic risk displays far less cross sectional dispersion and skewness in wealth than u s data however an extension that relies on a small amount of heterogeneity in thrift does succeed in replicating the key features of the wealth data furthermore this extension features aggregate time series that depart significantly from permanent income behavior

stability vs flexibility the effect of regulatory institutions on opportunity type how entrepreneurial opportunities are formed and exploited depends upon the institutional environment in which they are embedded the varying amounts of risk and uncertainty across and within heterogeneous institutional environments have important implications for the types of opportunity developed while the international business and entrepreneurship literatures consider the effect of environmental risk and uncertainty on firms risk and uncertainty are often treated as interchangeable or synonymous and rarely are both considered to be present together to address this we develop a new theoretical model based on institutional economics describing how institutional arrangements promoting stability thus supporting an entrepreneur s ability to assess risk will lead to more imitative opportunities while institutions promoting flexibility thus supporting an entrepreneur s ability to respond to uncertainty by iterating will foster more innovative opportunities we test this framework using cross national data across 40 countries from the gem survey finding that institutional arrangements that promote stability do lead to more imitation while institutions that promote flexibility foster more innovation by treating risk and uncertainty as distinct constructs our study makes theoretical contributions to research on institutional environments and opportunity types with implications for future research on subsidiary initiatives the evolution of mnes and born global firms

optimal time consistent macroprudential policy collateral constraints widely used in models of financial crises feature a pecuniary externality agents do not internalize how borrowing decisions made in good times affect collateral prices during a crisis we show that under commitment the optimal financial regulator s plans are time inconsistent and study time consistent policy quantitatively this policy reduces sharply the frequency and magnitude of crises removes fat tails from the distribution of asset returns and increases social welfare in contrast constant debt taxes are ineffective and can be welfare reducing while an optimized macroprudential taylor rule is effective but less so than the optimal time consistent policy

public policies and the art of catching up matching the historical evidence with a multicountry agent based model in this paper we study the effects of industrial policies on international convergence using a multi country agent based model which builds upon dosi et al 2019b the model features a group of microfounded economies with evolving industries populated by heterogeneous firms that compete in international markets in each country technological change is driven by firms activities of search and innovation while aggregate demand formation and distribution follows keynesian dynamics interactions among countries take place via trade flows and international technological imitation we employ the model to assess the different strategies that laggard countries can adopt to catch up with leaders market friendly policies industrial policies targeting the development of firms capabilities and rd protectionist policies focusing on tariffs only we find that markets cannot do the magic in absence of government interventions laggards will continue to fall behind on the contrary industrial policies can successfully drive international convergence among leaders and laggards while protectionism alone is not necessary to support catching up and countries get stuck in a sort of middle income trap finally in a global trade war where developed economies impose retaliatory tariffs both laggards and leaders are worse off and world productivity growth slows down

job matching and coalition formation with utility or disutility of co workers abstract this paper studies the job matching market in kelso and crawford 1982 econometrica50 1483 1504 with one exception that co workers may generate utility or disutility in the workplace we provide a simple idea to show how a great number of sufficient conditions for a nonempty core in the literature can be extended to this labor market a generalized competitive equilibrium with a tax subsidy system is also discussed journal of economic literature classification number d71

monetary policy as financial stability regulation this paper develops a model that speaks to the goals and methods of financialstability policies there are three main points first from a normative perspective the model defines the fundamental market failure to be addressed namely that unregulated private money creation can lead to an externality in which intermediaries issue too much short term debt and leave the system excessively vulnerable to costly financial crises second it shows how in a simple economy where commercial banks are the only lenders conventional monetary policy tools such as open market operations can be used to regulate this externality while in more advanced economies it may be helpful to supplement monetary policy with other measures third from a positive perspective the model provides an account of how monetary policy can influence bank lending and real activity even in a world where prices adjust frictionlessly and there are other transactions media besides bank created money that are outside the control of the central bank

time to build and fluctuations in bulk shipping abstract this paper explores the nature of fluctuations in world bulk shipping by quantifying the impact of time to build and demand uncertainty on investment and prices we examine the impact of both construction lags and their lengthening in periods of high investment activity by constructing a dynamic model of ship entry and exit a rich dataset of secondhand ship sales allows for a new estimation strategy resale prices provide direct information on value functions and allow their nonparametric estimation we find that moving from time varying to constant to no time to build reduces prices while significantly increasing both the level and volatility of investment jel g31 l11 l62 l92

dynamic product positioning in differentiated product markets the effect of fees for musical performance rights on the commercial radio industry this article predicts how radio station formats would change if as was recently proposed music stations were made to pay fees for musical performance rights it does so by estimating and solving using parametric approximations to firms value functions a dynamic model that captures important features of the industry such as vertical and horizontal product differentiation demographic variation in programming tastes and multi station ownership the estimated model predicts that high fees would cause the number of music stations to fall significantly and quite quickly for example a fee equal to 10 of revenues would cause a 4 6 drop in the number of music stations within 2 1 2 years and a 9 4 drop in the long run the size of the change is limited however by the fact that many listeners particularly in demographics that are valued by advertisers have strong preferences for music programming publication abstract

migration and imperfect labor markets theory and cross country evidence from denmark germany and the uk we investigate the labor market effects of immigration in denmark germany and the uk three countries which are characterized by considerable differences in labor market institutions and welfare states institutions such as collective bargaining minimum wages employment protection and unemployment benefits affect the way in which wages respond to labor supply shocks and hence the labor market effects of immigration we employ a wage setting approach which assumes that wages decline with the unemployment rate albeit imperfectly we find that the wage and employment effects of immigration depend on wage flexibility and the composition of the labor supply shock in germany immigration involves only moderate wage but large unemployment effects since immigrants are concentrated in labor market segments with low wage flexibility the reverse is true for the uk and denmark

matching with contracts we develop a model of matching with contracts which incorporates as special cases the college admissions problem the kelso crawford labor market matching model and ascending package auctions we introduce a new law of aggregate demand for the case of discrete heterogeneous workers and show that when workers are substitutes this law is satisfied by profit maximizing firms when workers are substitutes and the law is satisfied truthful reporting is a dominant strategy for workers in a worker offering auction matching algorithm we also parameterize a large class of preferences satisfying the two conditions

detection and impact of industrial subsidies the case of world shipbuilding this paper provides a model based empirical strategy to i detect the presence and gauge the magnitude of government subsidies and ii quantify their impact on production reallocation across countries industry prices costs and consumer surplus i construct and estimate an industry model that allows for dynamic agents in both demand and supply and apply my strategy to world shipbuilding a classic target of industrial policy i nd strong evidence consistent with china having intervened and reducing shipyard costs by 15 20 corresponding to 5 billion us dollars between 2006 and 2012 the subsidies led to substantial reallocation of ship production across the world with japan in particular losing signi cant market share they also misaligned costs and production while leading to minor surplus gains for shippers

entrepreneur human capital endowments and minority business viability this study analyzes the relationship between entrepreneur human capital endowments and minority enterprise profitability the better educated subset of entrepreneurs earns high profits relative to their minority business counterparts and the lines of business in which they are concentrating lie outside the retail and personal service areas that have traditionally dominated minority business activity in addition to fostering industrial diversity by creating and expanding firms in heavy construction manufacturing and skill intensive services the better educated entrepreneur group is found to be utilizing effectively both its financial and human capital inputs

do newly founded firms pay lower wages first evidence from germany using a linked employer employee data set for germany this paper analyses wage setting in a cohort of newly founded and other establishments from 1997 to 2001 while theory provides alternative explanations for higher or lower wages in newly founded firms we show empirically that start ups tend to pay lower wages ceteris paribus on average wages in newly founded establishments are 8 lower than in similar incumbent firms this negative wage differential is substantially smaller in eastern than in western germany the wage differ ential is shown to decline over time as the newly founded firms become more mature

when do secondary markets harm firms to investigate whether secondary markets aid or harm durable goods manufacturers we build a dynamic model of durable goods oligopoly with transaction costs in the secondary market calibrating model parameters using data from the us automobile industry we find the net effect of opening the secondary market is to decrease new car manufacturers profits by 35 percent counterfactual scenarios in which the size of the used good stock decreases such as when products become less durable when the number of firms decreases or when firms can commit to future production levels increase the profitability of opening the secondary market

the costs of free entry an empirical study of real estate agents in greater boston this paper studies the consequences of xed commissions and low entry barriers in greater boston s real estate brokerage industry from 1998 2007 a period with substantial agent turnover we nd that entry is not associated with increased sales probabilities or reduced sales time instead it decreases the market share of experienced agents and reduces average service quality we develop a dynamic empirical model motivated by these patterns to study the extent of ineciency in the current system compared to alternatives to accommodate a large state space we approximate the value function using sieves and impose the bellman equation as an equilibrium constraint if commissions are cut in half there would be 40 fewer agents implying social savings of 23 of industry revenue and the average agent would facilitate 73 more transactions house price appreciation of 50 during our sample period accounts for a 24 increase in the number of agents and a 31 decline in average agent productivity finally improving information about past agent performance can increase productivity and generate signicant social savings

overconfidence and excess entry an experimental approach psychological studies show that most people are overconfident about their own relative abilities and unreasonably optimistic about their futures e g shelly e taylor and j d brown 1988 neil d weinstein 1980 when assessing their position in a distribution of peers on almost any positive trait like driving ability ola svenson 1981 income prospects or longevity a vast majority of people say they are above the average although of course only half can be if the trait is symmetrically distributed this paper explores whether optimistic biases could plausibly and predictably influence economic behavior in one particular setting entry into competitive games or markets many empirical studies show that most new businesses fail within a few years for example using plant level data from the u s census of manufacturers spanning 1963 1982 timothy dunne et al 1988 estimated that 61 5 percent of all entrants exited within five years and 79 6 percent exited within 10 years most of these exits are failures see also dunne et al 1989a 1989b d shapiro and r s khemani 1987

clubs and the market large finite economies abstract this paper builds a general equilibrium model of finite economies with exchange and club formation agents trade multiple private goods widely in the market can belong to several clubs and care about the characteristics of other club members because club memberships are indivisible and choices of club memberships must be coordinated across the population the core of such an economy may be empty and equilibrium may not exist however for large finite club economies an approximate core is not empty and states in this approximate core can be approximately decentralized by prices for private goods and for club memberships the arguments use convexification tools familiar from the literature on private goods economies and a new tool of some independent interest that addresses the special problems created by the nature of club memberships journal of economic literature classification numbers d2 d5 h4

determinants and effects of new business creation using global entrepreneurship monitor data this paper is an introduction to the present special issue dedicated to scientific research using data collected as part of the global entrepreneurship monitor gem and considering new venture creation as the hallmark of entrepreneurship after a short description of gem s theoretical and methodological background this introduction highlights the main results of seven papers which were presented at the first gem research conference in berlin from 1 to 3 april 2004 first there is empirical evidence that the role of entrepreneurial activity differs across the stages of economic development in that there appears to be a u shaped relationship between the level of development and the rate of entrepreneurship consequently a positive effect of entrepreneurial activity on economic growth is found for highly developed countries but a negative effect for developing nations second it is shown that different types of entrepreneurship may have a different impact on a nation s innovativeness and economic growth rate in particular potentially high growth business start ups and so called opportunity entrepreneurship enhance knowledge spillovers and economic growth third entrepreneurship is again shown to be a regional event that can only be understood if regional framework conditions including networks and regional policies are taken into consideration

the inefficiency of the stock market equilibrium this paper establishes that when there is not a complete set of markets but more than one commodity the stock market equilibrium will not in general be a constrained pareto optimum the economy will lack both the property of exchange and production efficiency necessary conditions which must be satisfied if the economy is to be a constrained pareto optimum for all technologies are derived if all individuals have identical homothetic indifference maps then either there must be unitary price elasticities so there is no effective risk or all individuals must have the same degree of risk aversion so there is no trade on the stock market

clubs and the market this paper defines a general equilibrium model with exchange and club formation agents trade multiple private goods widely in the market can belong to several clubs and care about the characteristics of the other members of their clubs the space of agents is a continuum but clubs are finite it is shown that i competitive equilibria exist and ii the core coincides with the set of equilibrium states the central subtlety is in modeling club memberships and expressing the notion that membership choices are consistent across the population

the post entry performance of new small firms in german manufacturing industries while recent years have witnessed a growing interest in research on market entry by new firms evidence regarding their postentry performance is scarce this paper uses longitudinal data for small firms that entered german manufacturing industries between 1979 and 1982 and monitors their performance until 1990 entrants face a high risk of failure hazard rates tend to increase during the first years and to decrease afterwards decline of employment in a cohort due to exits and shrinking firms is compensated by growing survivors no clear cut nexus between start up size and probability of survival shows up copyright 1994 by blackwell publishing ltd

uncertainty as commitment time inconsistency of no bailout policies can create incentives for banks to take excessive risks and generate endogenous crises when the government cannot commit however at the outbreak of nancial problems usually the government is uncertain about their nature and hence it may delay intervention to learn more about them we show that intervention delay leads to strategic restraint banks endogenously restrict the riskiness of their portfolio relative to their peers in order to avoid being the worst performers and bearing the cost of such delay these novel forces help to avoid endogenous crises even when the government cannot commit we analyze the eect of government policies from the perspective of this new result

what lies beneath the euro s effect on financial integration currency risk legal harmonization or trade abstract although recent research shows that the euro has spurred cross border financial integration the exact mechanisms remain unknown we investigate the underlying channels of the euro s effect on financial integration using data on bilateral banking linkages among twenty industrial countries in the past thirty years we also construct a dataset that records the timing of legislative regulatory harmonization policies in financial services across the european union we find that the euro s impact on financial integration is primarily driven by eliminating the currency risk legislative regulatory convergence has also contributed to the spur of cross border financial transactions trade in goods while highly correlated with bilateral financial activities does not play a key role in explaining the euro s positive effect on financial integration

bailouts and financial fragility how does the belief that policymakers will bail out investors in the event of a crisis affect the allocation of resources and the stability of the financial system i study this question in a model of financial intermediation with limited commitment when a crisis occurs the efficient policy response is to use public resources to augment the private consumption of those investors facing losses the anticipation of such a bailout distorts ex ante incentives leading intermediaries to choose arrangements with excessive illiquidity and thereby increasing financial fragility prohibiting bailouts is not necessarily desirable however it induces intermediaries to become too liquid from a social point of view and may in addition leave the economy more susceptible to a crisis a policy of taxing short term liabilities in contrast can correct the incentive problem while improving financial stability

entrepreneurs optimism and new venture performance a social cognitive perspective previous research indicates that entrepreneurs are generally high in dispositional optimism the tendency to expect positive outcomes even when such expectations are not rationally justified findings of the current study demonstrate a negative relationship between entrepreneurs optimism and the performance revenue and employment growth of their new ventures past experience creating ventures and industry dynamism moderated these effects strengthening the negative relationship between entrepreneurs optimism and venture performance these findings illustrate the benefits of applying a social cognitive perspective toward efforts to understand key aspects of the new venture creation and development process

entrepreneurial opportunities in peripheral versus core regions in chile governmental policies tend to support and boost entrepreneurship in peripheral regions in many countries this research revives the debate about specific regional policies designed to foster local new business creation and the entrepreneurial framework conditions needed at the regional level for emerging regions such as latin america we applied one of the global entrepreneurship monitor s methodologies the national experts survey to a sample of 695 key informants in chile at eight regions of which six are classified as peripheral using non parametric statistics we compared the differences between peripheral and core regions the main results indicate that peripherally located entrepreneurship experts perceive their regions as in a worse position than centrally located experts in terms of finance access and physical infrastructure on the other hand the results indicate that peripheral entrepreneurship experts detect more market dynamism in their regions and surprisingly perceive general policy and government programs as supporting entrepreneurship although the chilean government had not promoted many regional policies

product differentiation and oligopoly in international markets the case of the u s automobile industry this paper develops and estimates a model of the u s automobile industry on the demand side a discrete choice model is adopted that is estimated using micro data from the consumer expenditure survey the estimation results are used in conjunction with population weights to derive aggregate demand on the supply side the automobile industry is modelled as an oligopoly with product differentiation equilibrium is characterized by the first order conditions of the profit maximizing firms the estimation results are used in counterfactual simulations to investigate two trade policy issues the effects of the ver and exchange rate pass through

capacity dynamics and endogenous asymmetries in firm size empirical evidence suggests that there are substantial and persistent differences in the sizes of firms in most industries we propose a dynamic model of capacity accumulation that is consistent with the observed facts the model highlights the mode of product market competition and the extent of investment reversibility as key determinants of the size distribution of firms in an industry in particular if firms compete in prices and the rate of depreciation is large then the industry moves toward an outcome with one dominant firm and one small firm industry dynamics in this case resemble a preemption race contrary to the usual intuition this preemption race becomes more brutal as investment becomes more reversible

unemployment benefit duration and incentives in britain how robust is the evidence abstract recent years have seen considerable advances in the econometric treatment of micro data in models of unemployment duration this paper examines the evidence from such models concerning the effects of unemployment benefits on incentives to work in britain widely accepted results of a small but significant benefit effect are reproduced using a sample of 1 231 unemployed men however these results are only found when benefit receipt is assumed to follow a hypothetical pattern which is shown to be unrealistic and over generous when more realistic calculations of benefits are used no benefit effect is found the paper also argues that search theory is of little help in determining the choice between competing functional forms and explanatory variables results concerning benefits are shown to be sensitive to the latter