adverse selection in the overlapping generations model the case of pure exchange abstract we examine the general equilibrium consequences of credit rationing that results from an adverse selection problem relative to a full information benchmark economy static incentive problems result in reductions in the rate of return at inside money equilibria and hence can cause dynamic inefficiency these problems also create a role for outside money and may convert otherwise classical into samuelsonian economies however even the presence of money does not support steady state equilibria with constrained optimality properties policies that do support constrained optima are outlined as are the consequences of credit rationing for the financing of government deficits journal of economic literature classification numbers e13 e40 e44 e50 g14

switching bubbles from outside to inside bubbles abstract the united states has recently experienced two asset price bubbles the dot com and the housing bubbles these bubbles had very different effects on investment and debt of manufacturing firms in this paper i develop a framework to understand the differential effect of two types of rational bubbles i distinguish between i outside bubbles which i define as savers purchasing and selling costless assets not attached to inputs of production and ii inside bubbles which i define as savers buying an input of production e g land or houses only as a store of value the model is an olg economy with savers and entrepreneurs savers save to consume when they are old entrepreneurs can borrow to invest but they face a collateral constraint in this environment rational bubbles can emerge i show that the size of an inside bubble is larger i also find that when the economy switches from an outside to an inside bubble manufacturing or non housing investment and debt is lower consistent with the u s experience finally i show that even though steady state consumption is higher with an outside bubble a social planner would prefer an inside bubble when the productivity of entrepreneurs is low

business experience and start up size buying more lottery tickets next time around this paper explores the determinants of start up size by focusing on a cohort of 6 247 businesses that started trading in 2004 using a unique dataset on customer records at barclays bank quantile regressions show that prior business experience is significantly related with start up size as are a number of other variables such as age education and bank account activity quantile treatment effects qte estimates show similar results with the effect of business experience on log start up size being roughly constant across the quantiles prior personal business experience leads to an increase in expected start up size of about 50 instrumental variable qte estimates are even higher although there are concerns about the validity of the instrument

finite lifetimes and the effects of budget deficits on national saving abstract even though realistic deficit policies shift sizable tax burdens to future generations the assumption of an infinite horizon is a good approximation for analyzing a deficit s short run saving effect on individuals who are neither liquidity constrained nor myopic recent u s experience casts significant doubt on these assumptions however and appears difficult to reconcile with the ricardian equivalence proposition that the timing of taxes does not affect national saving recent deficits have coincided with reduced national saving and a substantial increase in the share of gnp devoted to consumption

no bubble condition model free tests in housing markets we test for the existence of housing bubbles associated with a failure of the transversality condition that requires the present value of payments occurring infinitely far in the future to be zero the most prominent such bubble is the classic rational bubble we study housing markets in the united kingdom and singapore where residential property ownership takes the form of either leaseholds or freeholds leaseholds are finite maturity pre paid and tradeable ownership contracts with maturities often exceeding 700 years freeholds are infinite maturity ownership contracts the price difference between leaseholds with extremely long maturities and freeholds reflects the present value of a claim to the freehold after leasehold expiry and is thus a direct empirical measure of the transversality condition we estimate this price difference and find no evidence of failures of the transversality condition in housing markets in the u k and singapore even during periods when a sizable bubble was regularly thought to be present

the day after grant aid business development schemes for small rural firms in lagging areas of greece this paper investigates the need for providing follow up business development instruments to small rural businesses that have benefited from grant aid assistance schemes a sample of 76 small rural businesses in lagging areas of insular greece is included in the present survey and ranks thirteen possible business growth instruments it is found that business development instruments are ranked according to each firm s economic and human capital characteristics furthermore most firms need the concurrent provision of more than one instrument likewise a mixture of business specific schemes regulatory interventions and infrastructure projects better serves their business development needs results from the present survey indicate that an integrated business development strategy in lagging areas of greece should be supported by modern flexibly tailored combinations of assistance using complex multi instrument sets of support to development efforts

international differences in saving the adequacy of national saving has taken on increasing importance in an era of large external imbalances among the major industrial countries at least among economists current account imbalances are seen as largely the outcome of domestic patterns of saving and investment rather than trade practices thus the low level of saving in the united states rather than a failure of japan to open its economy is the primary cause of the u s current account deficit most of the discussion of the decline of u s saving has focused upon the emergence of a large government budget deficit in the 1980s and has largely ignored an equally large decline in an already low level of private saving at the same time much of what we think we know about private saving behavior and the potential effectiveness of various policies to influence it are dominated by experience only within our own country but many of the factors in which we are most interested have exhibited very limited historical variation within the united states and of necessity the conclusions are ambiguous the purpose of this note is to make use of an underutilized data source that provides information on the saving and investment of the industrial countries within a common accounting framework to examine the pattern of change over time and the similarity of response to various economic disturbances in the 1970s and 1980s the basic annual data are drawn from the system of national accounts sna submitted by the individual member countries to the oecd for the period 1960 87 while the original analysis was undertaken for the seven largest nations plus a representative set of six smaller countries but the summary reported here is limited to the united states japan and an aggregate of nine european countries the data are presented within a simple accounting framework that relates the current account surplus ca to the difference between domestic saving s and domestic investment i domestic saving and investment can be further subdivided into their public and private components

targeted transfers and the fiscal response to the great recession abstract between 2007 and 2009 government expenditures increased rapidly across the oecd countries while economic research on the impact of government purchases has flourished in the data most of the increase in expenditures was in government transfers after documenting this fact we argue that future research should focus on the positive impact of transfers towards this we present a model in which there is no representative agent and ricardian equivalence does not hold because of uncertainty imperfect credit markets and nominal rigidities targeted lump sum transfers are expansionary both because of a neoclassical wealth effect and because of a keynesian aggregate demand effect

speculative growth hints from the u s economy we propose a framework for understanding episodes of vigorous economic expansion and extreme asset valuations we interpret this phenomenon as a high valuation equilibrium with a low cost of capital based on optimism about future funding the key ingredient for such equilibrium is feedback from increased growth to a decline in the long run cost of capital this feedback arises when an expansion comes with technological progress in the capital sector when fiscal rules generate procyclical fiscal surpluses when the rest of the world has lower expansion potential or high saving needs and when financial constraints are relaxed by the expansion itself

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

asset stock accumulation and sustainability of competitive advantage given incomplete factor markets appropriate time paths of flow variables must be chosen to build required stocks of assets that is critical resources are accumulated rather than acquired in strategic factor markets barney barney j 1986 strategic factor markets expectations luck and business strategy management sci october 1231 1241 sustainability of a firm s asset position hinges on how easily assets can be substituted or imitated imitability is linked to the characteristics of the asset accumulation process time compression diseconomies asset mass efficiencies inter connectedness asset erosion and causal ambiguity

the international transmission of credit bubbles theory and policy we live in a new world economy characterized by nancial globalization and historically low interest rates this environment is conducive to countries experiencing credit bubbles that have large macroeconomic eects at home and are quickly propagated abroad in previous work we built on the theory of rational bubbles to develop a framework to think about the origins and domestic eects of these credit bubbles this paper extends that framework to include many countries and general preferences and uses it to study how nancial integration aects the properties of credit bubbles how the latter are transmitted across countries and the role of international policy coordination

the fiscal multiplier in a liquidity constrained new keynesian economy we study the effects of fiscal policy on the macroeconomy using a liquidity constrained new keynesian model in which government bonds are liquid and private financial assets are only partially liquid we find that the fiscal multipliers in this economic environment are large enough for fiscal policy to be highly effective in this model a bond financed fiscal expansion can stimulate output because higher public borrowing improves liquidity by increasing the proportion of liquid assets in private sector wealth

the effectiveness of government debt and transfers as insurance abstract government debt and redistributive taxation can help people to smooth consumption when facing uninsurable individual specific risk i examine the effects that variations in public debt and transfers have on risk sharing efficiency and the distribution of resources i find that risk sharing can be improved significantly by both debt and transfers but that debt has adverse effects on equity when used in isolation debt will enhance welfare if transfers are lower than optimal however the beneficial effects of public debt vanish if transfers are used optimally

bubbles and self enforcing debt we characterize equilibria with endogenous debt constraints for a general equilibrium economy with limited commitment in which the only consequence of default is losing the ability to borrow in future periods first we show that equilibrium debt limits must satisfy a simple condition that allows agents to exactly roll over existing debt period by period second we provide an equivalence result whereby the resulting set of equilibrium allocations with self enforcing private debt is equivalent to the allocations that are sustained with unbacked public debt or rational bubbles in contrast to the classic result by bulow and rogoff 1989a positive levels of debt are sustainable in our environment because the interest rate is sufficiently low to provide repayment incentives

explaining the effect of rapid internationalization on horizontal foreign divestment in the retail sector an extended penrosean perspective we adopt a penrosean perspective to study the effect of rapid international expansion on the subsequent divestment of international operations we draw on regional strategy theory and differentiate penrosean managerial resources by their geographical fungibility to argue that the effect of rapid international expansion on the divestment of international operations varies with the regional patterns of firms international expansion and international experience we test our hypotheses using two stage least squares 2sls estimation on data that capture the international expansion and divestment of retailers over the period 2003 2012

estimation of the internal adjustment costs model using longitudinal establishment data this paper develops estimates of the internal costs measured in terms of foregone current output associated with the introduction of new plant and equipment into manufacturing establishments using the census bureau s longitudinal establishment data file a very large and rich source of production and investment data our estimates provide strong support for the internal adjustment costs hypothesis they indicate that one dollar increases in expansion and replacement investment cause on the average 35and 21 cent reductions respectively in current output the internal cost of adjusting to equipment appears to be higher than the cost of adjusting to plant

investment in lumpy capacity abstract investment in lumpy capacity is usually fraught with uncertainty divergent opinions about the future can then lead to adverse selection optimistic competitions tend to be the ones that expand few firms correct this bias formally they rely instead on payback criteria portfolio planning risk sharing and self restraint

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

the ricardian approach to budget deficits persistent budget deficits have increased economists interest in theories and evidence about fiscal policy this paper develops the ricardian approach and contrasts it with standard models the discussion considers from major theoretical objections to ricardian equivalence finite lifetimes imperfect capital markets uncertainty about future taxes and incomes and the distorting effects of taxation the paper then considers empirical evidence on interest rates consumption and saving and current account deficits the conclusion is that the ricardian approach is a useful first order approximation and that this approach will probably become the benchmark model for assessing fiscal policy this abstract was borrowed from another version of this item

bubbles and capital flow volatility causes and risk management emerging market economies are fertile ground for the development of real estate and other financial bubbles despite these economies significant growth potential their corporate and government sectors do not generate the financial instruments to provide residents with adequate stores of value capital often flows out of these economies seeking these stores of value in the developed world bubbles are beneficial because they provide domestic stores of value and thereby reduce capital outflows while increasing investment but they come at a cost as they expose the country to bubble crashes and capital flow reversals we show that domestic financial underdevelopment not only facilitates the emergence of bubbles but also leads agents to undervalue the aggregate risk embodied in financial bubbles in this context even rational bubbles can be welfare reducing we study a set of aggregate risk management policies to alleviate the bubble risk we show that prudential banking regulation sterilization of capital inflows and structural policies aimed at developing public debt markets and property rights all have a high payoff in this environment

product line expansion and resource cannibalization abstract diversification research argues that new products are more successful when they leverage a firm s intangible resources which may support multiple activities without engendering rivalry for their use however numerous complementary resources may also be needed to exploit a firm s intangibles if these resources are in limited supply or if it takes time to acquire and assimilate additional resource capacity then new products may impose costs on existing products by cannibalizing the services of firm resources our analysis of product introductions within the pharmaceutical industry provides evidence of resource cannibalization and suggests that product market experience helps offset some of these costs

globalization and financial development a model of the dot com and the housing bubbles abstract in the last decade the united states experienced the burst of the dot com and the housing bubbles i develop a model to study the relationship between globalization and the emergence of rational bubbles i also analyze how the effect of globalization on house prices depends on the type of bubble i show that bubbles cannot arise in a financially developed country in autarky in contrast as globalization progresses bubbles are more likely to appear in the financially developed country i also show that house prices increase with globalization only when the bubble is attached to houses this prediction is consistent with empirical evidence for u s metropolitan areas

capital flows consumption booms and asset bubbles a behavioural alternative to the savings glut hypothesis bernanke 2005 hypothesized that a global savings glut was causing large trade imbalances however we show that the global savings rates did not show a robust upward trend during the relevant period moreover if there had been a global savings glut there should have been a large investment boom in the countries that imported capital instead those countries experienced consumption booms national asset bubbles explain the international imbalances the bubbles raised consumption resulting in large trade deficits in a sample of 18 oecd countries plus china movements in home prices alone explain half of the variation in trade deficits

a quantitative content analysis of the characteristics of rapid growth firms and their founders a group of firms that is attracting attention are rapid growth firms these firms are of particular interest because rapid growth is an indication of market acceptance and firm success by studying rapidgrowth firms researchers can help all firms better understand the attributes associated with firm growth despite these positive outcomes however rapid firm growth is difficult to achieve and maintain this study adds to the literature through a quantitative content analysis of the narrative descriptions of 50 rapid growth firms and a comparison group of 50 slow growth companies the purpose of the study was to draw from the narratives a list of empirically grounded growth related attributes that are associated with rapid growth firms the findings of the study resulted in the advancement of a conceptual model of the attributes of rapid growth firms in four areas founder characteristics firm attributes business practices and human resource management hrm practices

economic growth with bubbles this paper presents a stylized model of economic growth with bubbles this model views asset price bubbles as a market generated device to moderate the effects of frictions in financial markets improving the allocation of investments and raising the capital stock and welfare the model illustrates various channels through which asset price bubbles affect the incentives for innovation and economic reforms and therefore the rate of economic growth the model also offers a new perspective on the effects of financial development on asset price bubbles and economic growth

y2k options and the liquidity premium in treasury markets financial institutions around the world expected the millennium date change y2k to cause an aggregate liquidity shortage responding to the concern the federal reserve bank of new york auctioned y2k options to primary dealers the options gave the dealers the right to borrow from the fed at a predetermined interest rate using the implied volatilities of y2k options and the on off the run spread we demonstrate that the fed s action eased the fears of bond dealers contributing to a drop in the liquidity premium of treasury securities our analysis shows the link between the microstructure of government debt markets and the central bank s provision of liquidity we argue that y2k options and their effects on liquidity premium broadly conform to the economic theory on public provision of private liquidity

the political economy of the pharmaceutical industry e conomicsis a practical science since its inception as an independent discipline it has probed the major policy issues of the day the topics that aroused the interests of its practitioners have generally been those that presented government officials with critical choices the modern literature on the economics of the pharmaceutical industry is no exception this body of material originated with the investigations of the kefauver committee in late 1959 public interest was aroused by the spectacle of confrontation between committee and industry the record made by this committee and its successors grew to tens of thousands of pages as claims and counterclaims were offered regarding industry conduct and performance the primary line of attack concerned pharmaceutical prices and profits the committee demonstrated that prices generally exceeded direct costs of manufacturing for 22 major pharmaceutical firms in 1958 costs of goods sold were merely 32 percent of total sales u s senate report 1961 p 31 the committee argued that this fact alone demonstrated the presence of monopoly power while the substantial difference between revenues and production costs permitted high expenditures on research and development it also paid for even higher selling outlays moreover reported rates of return after taxes during this period on the order of 21 to 22 percent exceeded twice the average for all manufacturing the industry replied that on the contrary prices were low relative to the value afforded consumers and high returns on successful products were required to balance the losses from the large numbers of unsuccessful ones the relevant concept of marginal costs according to the industry position must include the costs of developing and marketing new products and therefore prices were not excessive at all although it admitted earning substantial profits the industry argued that without these returns research outlays would be limited and the number of new drugs reduced the committee countered that little of social value arose from industry research molecules were manipulated and the new drugs that resulted were therapeutically similar to those already on the market indeed it suggested that much

broader product line a necessity to achieve success strategic product line breadth decisions evoke differential responses from the manufacturing and the marketing areas manufacturing prefers keeping process disruptions to a minimum and as a result discourages product proliferation however marketing in its attempt to match products to heterogeneous consumer needs and gain market share emphasizes a broader product line we systematically investigate the market benefits and cost disadvantages of broader product lines on a large sample of over 1 400 business units our results indicate significant market share benefits and increases in firms profitability with broader product lines moreover widely held beliefs of increases in production costs are not empirically supported american manufacturing firms may indeed be flexible enough to accommodate product variety without significant detrimental effects on costs

budget deficits rhetoric and reality w v t hatever the real or imagined ills of the economy the news media most politicians and a fair proportion of the economics profession are quick to point to the culprit the budget deficit no matter that few appear to know or care precisely what deficit they are talking about or how it is measured no matter that few bother to explain in terms of a relevant model just how government deficits may be expected to impact the economy no matter that few offer any empirical data to sustain their judgments so budget deficits cause inflation budget deficits raise interest rates budget deficits bring on the trade deficits budget deficits crowd out investment budget deficits are an irresponsible mortgage on the future and budget deficits caused the october 1987 stock market crash and now threaten further financial cataclysms is there truth in any of these assertions or does it all depend budget deficits do matter and their effects contrary to barro s ricardian equivalence theorem can be substantial as most economists have recognized for at least half a century budget deficits can however be too small as well as too large to know which you have to measure them right and you have to analyze their role in the world in which we live pure walrasian and rational expectation market clearing models may prove more useful for academic advancement than for promotion of economic health i need not repeat many of the objections to the equivalence theorem raised by bernheim and gramlich and addressed by barro in this symposium however there is

the optimal public and private provision of safe assets abstract we develop a theory of optimal government debt in which publicly issued and privately issued safe assets are substitutes while government bonds are backed by future tax revenues privately issued safe assets are backed by the future repayment of pools of defaultable private loans we find that a higher supply of public debt crowds out privately issued safe assets less than one for one and reduces the interest spread between borrowing and deposit rates our main result is that the optimal level of public debt does not fully crowd out private lending and maintains a positive interest spread moreover the optimal level of public debt is higher the more severe are financial frictions

entrepreneurial characteristics and the size of the new firm a model and an econometric test this paper examines entrepreneurial influences on the size of the new firm theory and previous empirical research indicate that the entrepreneurial attributes most likely to influence the characteristics and performance of new firms are motivation workskills and information the results of a regression analysis confirm these hypotheses when turnover and total assets are the dependent variables but are less conclusive when employment is the dependent variable possibly the most interesting finding is that the entrepreneurs who create the most jobs are those who are highly motivated have managerial skills and whose firms are in the manufacturing sector

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

bubbles and capital flows abstract this paper presents a stylized model of international trade and asset price bubbles its central insight is that bubbles tend to appear and expand in countries where productivity is low relative to the rest of the world these bubbles absorb local savings eliminating inefficient investments and liberating resources that are in part used to invest in high productivity countries through this channel bubbles act as a substitute for international capital flows improving the international allocation of investment and reducing rate of return differentials across countries this view of asset price bubbles could eventually provide a simple account of some real world phenomena that have been difficult to model before such as the recurrence and depth of financial crises or their puzzling tendency to propagate across countries

the incidence of deficit finance with imperfect capital markets the purpose of this paper is to examine the possible differential welfare implications of deficit finance using a portfolio allocation model to analyze the incidence of changing the time path of taxation in an economy with heterogeneous agents i develop a two period general equilibrium extension of work done previously to analyze the effects of taxation on risk taking at the individual level constraints on short sales of assets are introduced and fiscal policy changing the timing of taxation will indirectly determine which of these constraints bind as well as alter relative tax burdens changes in the timing of a flat rate tax will also alter equilibrium asset returns and because preferences are such that agents differ in their tolerance of risk a pareto frontier can be derived over a range of different levels of deficit finance

monetary fiscal interactions with endogenous liquidity frictions i develop a tractable macro model with endogenous asset liquidity to understand monetary fiscal interactions with liquidity frictions agents face idiosyncratic investment risks and meet financial intermediaries in competitive search markets asset liquidity is determined by the search friction and the cost of operating the financial intermediaries and it drives the financing constraints of entrepreneurs those who have investment projects and their ability to invest in contrast to private assets government bonds are fully liquid and can be accumulated in anticipation of future opportunities to invest a higher level of real government debt enhances the liquidity of entrepreneurs portfolios and raises investment however the issuance of debt also raises the cost of financing government expenditures a higher level of distortionary taxation and or a higher real interest rate a long run optimal supply of government debt emerges i also show that a proper mix of monetary and fiscal policies can avoid a deep financial recession

on the interplay between speculative bubbles and productive investment the aim of this paper is to study the interplay between long term productive investments and more short term and liquid speculative ones a three period lived overlapping generations model allows us to make this distinction agents have a portfolio decision when young they can invest in human capital that is a productive long term investment that provides a return during the following two periods when young or in the middle age they can invest in a bubble young individuals can also borrow on a credit market to finance the productive investment however the amount borrowed is limited by a credit constraint we show that the existence of a stationary bubble raises productive investment and production when the bubleless economy is credit constrained and dynamically efficient indeed young agents sell short the bubble to increase productive investments whereas traders at middle age transfer wealth to old age the bubble allows to relax the credit constraint we outline that a permanent technological shock inducing either a larger return of capital in the short term or a similar increase in the return of capital in both periods raises productive capital production and the bubble size we use our framework to discuss the effect on the occurrence of bubbles of financial regulation and fiscal policy

public versus private provision of liquidity is there a trade off abstract to what extent is public debt private liquidity much policy advice given in the aftermath of the financial crisis rests on the assumption that increasing public debt relaxes borrowing constraints of private households this is the case for ad hoc debt limits which are exogenous to public policy instead if debt limits are fully endogenous as e g in the case of the natural borrowing limit public debt has no impact we assume that borrowing limits arise because of limited contract enforceability and are therefore determined as equilibrium outcomes using an incomplete markets economy in which households are subject to uninsurable earnings shocks we show that public debt provides some liquidity but less so than it would if constraints were imposed ad hoc we show that generating borrowing constraints as an equilibrium outcome substantially alters the answers to other important questions such as for the welfare effects of government debt or its impact on real economic activity

fiscal policy with heterogeneous agents and incomplete markets i undertake a quantitative investigation into the short run effects of changes in the timing of proportional income taxes for model economies in which heterogeneous households face a borrowing constraint temporary tax changes are found to have large real effects in the benchmark model a temporary tax cut increases aggregate consumption on impact by around 29 cents for every dollar of tax revenue lost comparing the benchmark incomplete markets model to a complete markets economy income tax cuts provide a larger boost to consumption and a smaller investment stimulus when asset markets are incomplete copyright 2005 wiley blackwell

self employment wealth and job creation the roles of gender non pecuniary motivation and entrepreneurial ability this paper uses national child development study data for a large cohort of british individuals to explore the influence of education inheritance and other background characteristics on the propensity to become self employed and also on subsequent success as measured by job and wealth creation for the first time we study the effects of our regressor variables on our success measures via disaggregation of our sample by gender and in this way reveal striking differences between the determinants of male and female entrepreneurial performance

monetary policy and the global housing bubble what caused the housing boom of the 2000s a number of researchers have suggested that loose monetary policy during the first half of the 2000s was a primary cause of the substantial run up in house prices in many countries however using a common statistical approach we find that monetary policy was not the main factor that should not be surprising although low interest rates raise house prices the increase in prices during the mid 2000s was much larger than the historical relationship between the two variables would suggest instead we investigate further the link between the marked loosening in terms and standards for mortgage credit and the most rapid increases in house prices this link provides some evidence for a story where credit provision and the demand for housing fed on each other and helped spur the housing boom our work suggests a greater role for macroprudential regulation rather than monetary policy in managing asset price booms jane dokko brian m doyle michael t kiley jinill kim shane sherlund jae sim and skander van den heuvel

debt nonneutrality policy interactions and macroeconomic stability we study the consequences of non neutrality of government debt for macroeconomic stabilization policy in an environment where prices are sticky assuming transaction services of government bonds ricardian equivalence fails because public debt has a negative impact on its marginal rate of return and thus on private savings stability of equilibrium sequences requires a stationary evolution of real public debt which steers inflation expectations and rules out endogenous fluctuations under anti inflationary monetary policy regimes macroeconomic fluctuations tend to decrease with the share of tax financing which justifies tight debt constraints in particular a balanced budget policy stabilizes the economy under cost push shocks such that output and inflation variances can be lower than in a corresponding case where debt is neutral

asset bubbles endogenous growth and financial frictions this paper analyzes the effects of bubbles in an infinitely lived agent model of endogenous growth with financial frictions and heterogeneous agents we provide a complete characterization on the relationship between financial frictions and the existence of bubbles our model predicts that if the degree of pledgeability is sufficiently high or sufficiently low bubbles can not exist they can only arise at an intermediate degree this suggests that improving the financial market condition might enhance the possibility of bubbles we also examine whether bubbles are growth enhancing or growth impairing in the long run we show that when the degree of pledgeability is relatively low bubbles boost long run growth on the other hand when it is relatively high bubbles lower long run growth moreover we examine the effects of the burst of bubbles and show that the effects much depend on the degree of the pldgeability i e the quality of financial system

product innovation product market competition and persistent profitability in the u s pharmaceutical industry increasingly strategy scholars are exploring the relationships between innovation competition and the persistence of superior profits sustained high profitability may result when a firm repeatedly introduces valuable innovations that service previously unmet consumer demands while the returns to the firm from each innovation may erode over time innovation ensures that overall the firm maintains a high performance position at the same time sustained high profitability may also accrue to firms that innovate less often but effectively avoid the competition that otherwise erodes high returns this paper elaborates these relationships before presenting an empirical analysis of the effects of differential innovative propensities and differential rates of competition on pharmaceutical firms abilities to sustain profit outcomes that are above those earned by competing firms the analysis which is situated within the u s pharmaceutical industry finds support for the expected relationship between high innovative propensity and sustained superior profitability but no support for a link between persistence and the ability to avoid competition copyright 1999 john wiley sons ltd

financial market globalization symmetry breaking and endogenous inequality of nations this paper investigates the effects of financial market globalization on the inequality of nations the world economy consists of inherently identical countries which differ only in their levels of capital stock each country is represented by the standard overlapping generations model modified only to incorporate credit market imperfection an integration of financial markets affects the set of stable steady states as it changes the balance between the equalizing force of the diminishing returns technology and the unequalizing force of the wealth dependent borrowing constraint the model is tractable enough to allow for a complete characterization of the stable steady states in the absence of the international financial market the world economy has a unique steady state which is symmetric and stable in the presence of the international financial market symmetry breaking occurs under some conditions that is the symmetric steady state loses its stability and stable asymmetric steady states come to exist in the stable asymmetric steady states the world economy is endogenously divided into the rich and poor countries the borrowing constraints are binding in the poor but not in the rich the world output is smaller the rich are richer and the poor are poorer in any of the stable asymmetric steady states than in the unstable symmetric steady state

towards an economic theory of the multiproduct firm this paper outlines a theory of the multiproduct firm important building blocks include excess capacity and its creation market imperfections and the peculiarities of organizational knowledge including its fungible and taut character a framework is adopted in which profit seeking firms are seen to diversify in order to avoid the high transactions costs associated with using various markets to trade the services of various specialized assets neoclassical explanations of the multiproduct firm are shown to be seriously deficient

diversification ricardian rents and tobin s q according to prevailing theory firms diversify in response to excess capacity of factors that are subject to market failure by probing into the heterogeneity of these factors we develop the corollary that firms that elect to diversify most widely should expect the lowest average rents an empirical test with tobin s q as the measure of rents is consistent with this theory

the location of markets perceived entrepreneurial risk and start up capital of micro rural firms it is argued that when founders of smes perceive the probability of a successful and lucrative venture to be greater they are more likely to provide a greater proportion of the start up capital this paper provides an empirical examination of two concurrent hypotheses firstly that the size of the debt or equity is affected by factors influencing perceived entrepreneurial risk secondly that the location of the market for the firm s output is a major factor reducing perceived entrepreneurial risk and increasing equity of the start up capital a statistical analysis based on the simultaneous tobit model is used results show that significant factors influencing risk perception include the size of the new business and the sector of economic activity as well as entrepreneurial experience and the location of the markets for the firm s output the results highlight implications for the design and implementation of rural development policies and especially for the instruments supporting rural business creation

a neoclassical perspective on budget deficits i n the 1988 presidential campaign virtually every serious candidate spoke of the urgent need to trim government budget deficits public opinion polls have identified federal deficits as a key economic issue second only to unemployment while many economists are relieved by what they perceive to be a long overdue political response to a critical economic problem others regard the fuss as much ado about nothing it is indeed remarkable that economists can disagree so severely over an issue which commands such a uniform reaction from laymen of widely different ideologies and political affiliations generally speaking there are three schools of thought concerning the economic effects of budget deficits neoclassical keynesian and ricardian before proceeding further it is useful to review the basic structure and implications of each paradigm the neoclassical paradigm envisions farsighted individuals planning consumption over their own life cycles budget deficits raise total lifetime consumption by shifting taxes to subsequent generations if economic resources are fully employed increased consumption necessarily implies decreased saving interest rates must then rise to bring capital markets into balance thus persistent deficits crowd out private capital accumulation in the current economic environment most economists would agree that these consequences would be highly detrimental

growth enhancing bubbles this article challenges the conventional wisdom that speculation in financial markets reduces long run growth it shows that the real impact of a rational deterministic speculative bubble depends on the type of asset that is being speculated on speculative bubbles on equity raise the market value of firms thus encouraging entrepreneurship firm creation investment and growth on the other hand speculation on other types of assets is shown to be unambiguously growth impairing the model can explain some stylized facts about financial development and growth finally regulatory implications are discussed briefly