the district effect and the competitiveness of manufacturing companies in local productive systems the present study evaluates the existence of differences in competitiveness of spanish industrial firms as a consequence of the district effect a quantitative analysis has been performed in order to assess external competitiveness taking into account whether firms are located in industrial districts in the sense proposed by marshall becattini or remain isolated the methodological approach considers geographical and sectoral variables it attempts to establish the existence of a relationship between sectoral specialisation and business efficiency measured as the capacity to export in local productive systems most of the variables come from a 1991 fiscal data set and the territorial units of analysis are 332 municipalities with a population of over 15 000 inhabitants from the results on the econometric model it can be inferred that the geographical concentration of companies in the same activity positively influences their level of competitiveness

time to complete and research joint ventures a differential game approach abstract in this paper we analyze cooperation in r d in the form of research joint ventures rjvs we show that the optimal size of an rjv does not only depend on the degree of spillovers as literature suggests but also on the cost function of r d activities moreover the explicit consideration of the fact that r d projects take time to complete shows that benefits from cooperation in r d not only allow rjvs to carry out larger r d projects but also to reduce the time to completion for projects with a given size and consequently to accelerate the acquisition of the benefits associated with the innovation

the future developments of the electricity prices in view of the implementation of the paris agreements will the current trends prevail or a reversal is ahead abstract we assess the impact on the european electricity market of the european union clean energy for all europeans package which implements the eu nationally determined contribution in paris cop 21 we focus on the year 2030 which is the year with defined climate targets for the assessment we employ a game theoretic framework of the wholesale electricity market with high technical detail the model is applied to two core scenarios a base scenario and a low carbon scenario to provide insights regarding the future electricity capacity generation mix cross border trade and electricity prices we also assess three additional variants of the core scenarios concerning different levels of a fossil and co2 prices b additional flexibility provided by batteries c market integration we find that the electricity prices in 2030 substantially increase from today s level driven by the increase in fuel and co2 prices the flexibility from batteries helps in mitigating the price peaks and the price volatility the increased low marginal cost electricity generation the expansion of non dispatchable and distributed capacities and the higher market integration further reduce the market power from producers in the electricity markets from today s level

learning curve spillovers and market performance this paper examines the effect of learning curve spillovers on market structure and performance we derive a simple characterization of the true marginal cost for a broad class of learning curves and use calculated examples to show that spillovers substantially undercut the barriers to entry erected by proprietary learning unlike the case of cost reducing research and development spillovers also tend to improve market performance the increased efficiency of the industrywide reduction process typically outweighs the decrease in firms incentives to reduce costs by expanding output

cooperative and noncooperative r d in an oligopoly with spillovers this paper examines the positive and normative effects of cooperative r d whereby member firms commit themselves to the joint profit maximizing level of r d in a precompetitive stage but remain fierce competitors in the product market vis a vis noncooperative r d socially first best r d and socially second best r d in the presence of sufficiently large r d spillovers neither noncooperative nor cooperative equilibria achieve even second best r d levels in the absence of spillover effects however while the cooperative r d level remains socially insufficient the noncooperative level may overshoot first and second best levels of r d copyright 1992 by american economic association

noncooperative oligopoly and preemptive innovation without winner take all earlier models of innovation under oligopolistic rivalry are modified to include a share parameter a describing the manner in which profits are divided among rivals when one firm is successful in its search for a valuable resource stock there is a unique value of a that maximizes expected industry profits by guiding noncooperative oligopolists to choose the profit maximizing exploration rate moreover setting a at this maximizing value which always allocates some share of industry profits to the losers in the exploration race leads to an exploration rate identical to what would be chosen by a jointly managed cartel

endogenous formation of research coalitions with spillovers abstract we examine the endogenous formation of research coalitions with high spillovers among symmetric firms members of a research coalition set their r and d investments in order to maximize the aggregate profits of members of their coalition the exclusive membership rule supports a more concentrated coalition structure and thus leads to higher industry r and d investments for high spillovers than the open membership rule does however due to free riding problems the grand research coalition which is the socially efficient outcome is rarely an equilibrium outcome under either rule our results suggest that government subsidies to research consortia for basic research with high spillovers can improve social welfare by encouraging wider participation to a research consortium that is by alleviating free rider problems in coalition formation from a more theoretical viewpoint our results on stable coalition structures are applicable to a wide variety of economic coalitions with positive externalities

a technological communications costs model of r d consortia as public policy abstract for complex technologies the process of innovation and diffusion often requires close cooperation among people for learning what one another know the social and political context of those links among researchers is an important determinant of their efficiency where there are social and political barriers to those links free market structures are not well suited to minimizing the costs of the communication of technological information the paper develops a technological communications costs market failure model of r d results as impure public goods it shows how the design of the european r d consortia promoting public policies esprit and eureka helps firms overcome the market failures described by the model the analysis expands the traditional market failure justifications for a government role in industrial r d governments can play a positive economic role by helping firms overcome social and political barriers to negotiations and technological communications yet market failure arguments are not alone sufficient for policymaking so the paper considers the esprit and eureka policy designs in a political context as model policy tools for organizing public support for industrial r d

an analysis of cooperative research and development i analyze the effects of cooperative research whereby member firms agree to share the costs andfruits of a research project before they undertake it in this model industrywide agreements tend to have socially beneficial effects when the degree ofproduct market competition is low when there are r d spillovers in the absence of cooperation when a high degree of sharing is technologically feasible and when the agreement concerns basic research rather than development activities i show that a royalty free cross licensing agreement among any number offirms lowers the equilibrium level of innovation even though it increases the efficiency of r d through sharing

on the sources of technological change assessing the evidence this paper uses a selective review of the economic literature on technological change to support four points that are important for interpreting and incorporating technological change into formal models of energy and the environment the review 1 supports the notion that no single source dominates the process of technological change it supports roles for rd 3 indicates that these spillovers are often indirect requiring own industry activities to utilize and 4 indicates that simple experience curve calibrations often used in formal models likely include a range of sources of technological change in addition to learning by doing some of which might not be induced by the sorts of policies typically considered in the climate context

the degree of spillovers and the number of rivals for maximum effective r d abstract the amount of cost reduction or effective r d that results in a symmetric sequential nash equilibrium with quadratic payoffs and differentiated goods is shown to increase with spillovers in oligopolies with a few rivals and to achieve a maximum for spillovers that are not perfect in industries with many firms similar tendencies apply for consumer surplus profits and static welfare more rivals typically lead to reduced investments output and profitability while consumer surplus and welfare increase or at least do not decrease limited entry in markets with a few rivals may enhance innovative investments profitability and consumer surplus if only product differentiation and spillovers are sufficiently high and r d costs sufficiently low too many rivals will then again lead to reductions and a decrease in static welfare

research joint ventures vs cross licensing agreements an agency approach abstract in this paper two broad categories of organizing a cooperative r d project are compared a research joint venture rjv and a cross licensing agreement cla in a non deterministic r d setting including asymmetric information we show that an rjv is more efficient in providing incentives it allows to capture existing synergies and facilitates the dissemination of the partners know how which is socially desirable however contrary to a cla an rjv faces the risk of opportunistic behavior by the partners regarding the provision of their know how to the venture which could lead a cla to perform more efficiently and in some cases this organization turns out to be superior

strategic investment with asymmetric spillovers this paper investigates the implications of asymmetric spillovers on noncooperative strategic investments in a duopoly with quadratic pay offs a unique equilibrium in the announcement of the leader follower role exists in the case where one firm absorbs large spillovers while the other at most is able to receive only small spillovers the leader in this equilibrium is the firm that absorbs the large spillovers other asymmetries in initial costs or efficiency in research and development do not affect this outcome

interindustry r d spillovers rates of return and production in high tech industries this paper presents estimates of the productivity and factor bias effects of interindustry r d spillovers for five high tech industries each industry is distinguished as a separate spillover source the industries are each affected by r d spillovers and are themselves spillover sources thus a spillover network between the industries is estimated private and social rates of return to r d capital are calculated the private rates of return are generally greater than the returns to physical capital in addition the social rates of return are greater than the private rates the results show that there are significant differences between industries as to their importance as sources of r d spillovers this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item

robust tracking error portfolio selection with worst case downside risk measures abstract this paper proposes downside risk measure models in portfolio selection that captures uncertainties both in distribution and in parameters the worst case distribution with given information on the mean value and the covariance matrix is used together with ellipsoidal and polytopic uncertainty sets to build up this type of downside risk model as an application of the models the tracking error portfolio selection problem is considered by lifting the vector variables to positive semidefinite matrix variables we obtain semidefinite programming formulations of the robust tracking portfolio models numerical results are presented in tracking sse50 of the shanghai stock exchange compared with the tracking error variance portfolio model and the equally weighted strategy the proposed models are more stable have better accumulated wealth and have much better sharpe ratio in the investment period for the majority of observed instances

ambiguity and the corporation group disagreement and underinvestment abstract we study a dynamic corporate investment problem where decisions have to be made collectively by a group of agents holding heterogeneous beliefs and adhering to a utilitarian governance mechanism in which each agent has a given influence in the decision in this setting we show that i group decisions are typically dynamically inconsistent ii dynamic inconsistency leads to inefficient underinvestment and iii the ability to trade securities among insiders or with outsiders may restore efficient investment decisions but it may in some cases lead to inefficient overinvestment our theory can help explain the empirical evidence on the effect of diversity of groups such as corporate boards on firms outcomes and more generally on the difference between group and individual behavior

a definition of uncertainty aversion a definition of uncertainty or ambiguity aversion is proposed it is argued that the definition is well suited to modelling within the savage as opposed to anscombe and aumann domain of acts the defined property of uncertainty aversion has intuitive empirical content behaves well in specific models of preference multiple priors and choquet expected utility and is tractable tractability is established through use of a novel notion of differentiability for utility functions called eventwise differentiability

spillovers from publicly financed r d capital in high tech industries abstract this paper employs a dynamic production model to examine the short run effects of publicly financed r d capital on the cost structure of six high tech us manufacturing industries the results show that given an industry s output publicly financed r d capital reduces the variable production cost in all industries in addition an increase in publicly financed r d causes output to increase implying that producers as well consumers are better off despite the presence of strong monopoly power in some industries a low bound for the social rate of return to publicly financed r d is also calculated

cooperative and noncooperative r d in duopoly with spillovers erratum in our article published in this review volume 78 no 5 december 1988 pp 1133 37 we have shown that in the presence of sufficient spillovers of the r d benefits duopolists cooperating in r d but not in the output spend more on r d than noncooperating firms at both stages and also produce more output closest to the socially optimal level a second symmetric result is that for small spillovers duopolists cooperating neither in r d nor in output spend more on r d and produce more output than cooperative firms however this result has been obscured by an obvious inequality inversion and other typos implying a modification in the conclusions indeed in fn 13 on p 1135 one should have that x x iff

r d profitability the role of risk and knightian uncertainty this paper provides the first empirical attempt of linking firms profits and investment in r d revisiting knight s risk uncertainty and profit hart schaffner marx boston 1921 distinction between uncertainty and risk along with the risky profit maximising scenario identifying a second off setting unpredictable bias that leads to heterogeneous returns to r d investments is crucial to fully understand the drivers of corporate profits consistently with the knightian theory that relates risk to profitability we model the impact of risk and uncertainty on profits and provide a first empirical attempt to model the effect of ambiguity a particular type of uncertainty on r d returns

research joint venture with technology transfer kamien et al 1992 show that an industry wide research joint venture rjv compared to the case without any rjv does not lead to better technological development or a higher consumer surplus in contrast we show that every non industry wide rjv leads to strict improvements in both measures and it also results in higher production efficiency furthermore when technology transfer is possible after making rd et lorsque l efficacite de la recherche est faible ces ameliorations s amplifient davantage les gouvernements devraient promouvoir l innovation par l entremise de collaborations independantes avec transfert de technologie comme alternative a l etablissement de consortiums de recherche a l echelle de tout un secteur

knowledge capital and cost structure in the u s food and fiber industries we explore the existence and extent of scale economies arising from three different external knowledge capital factors investments in r d high tech and human capital these relationships are evaluated for the two and three digit level food and fiber processing industries from the 1960s through the 1980s the results generate strong evidence of scale economies but also suggest that the three knowledge capital factors have tended to reduce input use and thus costs for all privately demanded factors the impacts on private capital are particularly large although human capital appears to have a relatively large impact on labor use in the textiles industry

union structure and firms incentives for cooperative r d investments we examine how different unionisation structures and the spillovers of r d activities affect r d investments and fi rms incentives to form ar esearch joint venture we find that whenever firms invest non cooperatively an industry union increases r d investments if industry specific spillovers are low in case of a research joint venture investments are always higher under firm level unions we also find that firms incentives to form a research joint venture are stronger when they face an industry union if spillovers are low rigidities in the labour market such as high unemployment benefits or and a central union have negative effects on employment output and profits and hinder the diffusion of the efficiency created by a rjv to consumers and employees integrated labour market and r d policies are also discussed

on the organization of cooperative research and development theory and evidence abstract it has become increasingly prevalent that business firms often rival firms join forces in cooperative r and d to develop new technologies that they can use in their downstream business equity research joint ventures and non equity co development are the two major modes of organization and they differ in how ownership rights over newly developed technologies are assigned this paper addresses the question of when cooperative r and d should be carried out in a research joint venture as opposed to a co development program in a setting of contractual incompleteness the nature of the downstream business of participating firms is shown to determine the organization of cooperative r and d empirical evidence that is consistent with the theoretical analysis is also presented

r d intensity firm performance and the identification of the threshold fresh evidence from the panel threshold regression model this article tests whether there is an optimal level of research and development r d intensity at which point a firm is able to maximize its performance an advanced panel threshold regression model is employed to investigate the panel threshold effect of r d intensity on firm performance among publicly traded taiwan information technology and electronic firms the results confirm that a single threshold effect does exist and show an inverted u correlation between r d intensity and firm performance this article demonstrates that it is possible to identify the definitive level beyond which a further increase in r d expenditure does not yield proportional rewards some important policy implications emerge from the findings

optimal asymmetric strategies in research joint ventures abstract this paper identifies an overlooked implication of models of research joint ventures initiated by d aspremont and jacquemin 1988 even though the aggregate r d cost of identical firms in a research joint venture would be lowest if they invested equally to reduce subsequent production costs nonetheless members may often enlarge their overall joint profit by making unequal investments such a strategy raises costs in the investment stage but may create more than offsetting benefits in the production stage since industry profits are larger there when the firms are of unequal size when the consideration leading to asymmetry prevails we find that in contrast to previous work a research joint venture can raise welfare even when there are no spillovers

interindustry technology flows and productivity growth a reexamination the relationship between productivity growth and r and d intensity is reexamined using detailed data for 193 us manufacturing industries and a breakdown of r and d into own product and process improvement oriented components and imported r and d from other industries a significant interindustry relationship between total factor productivity growth and r and d intensity is reconfirmed with used r and d having larger coefficients than own product r and d components but own product r and d is also significant and the explanatory power of the used r and d component rather than the embodied component imported from other industries thus the evidence for r and d spillovers remains tenuous 6 references 2 tables

ambiguity aversion and the absence of wage indexation abstract this paper analyzes optimal wage contracting assuming agents are not subjective expected utility maximizers but are instead ambiguity or uncertainty averse decision makers who maximize choquet expected utility we show that such agents will choose not to include any indexation coverage in their wage contracts even when inflation is uncertain unless the perceived inflation uncertainty is high enough significantly the exercise does not presume any exogenous costs e g transactions costs of including indexation links

optimal pricing and quality choice of a monopolist under knightian uncertainty abstract this paper analyzes a simple vertical product differentiation model with demand uncertainty and derives a risk neutral monopolist s optimal market entry timing her optimal pricing and optimal quality choice by incorporating knightian uncertainty irreversibility and flexibility in quality enhancing investment into a continuous time stochastic model it is shown that an increase in knightian uncertainty induces decreases in the optimal price the optimal quality and the value of undertaking the quality enhancing investment by the monopolist the social optimal entry timing pricing and quality are also analyzed

risk uncertainty and option exercise many economic decisions can be described as an option exercise or optimal stopping problem under uncertainty motivated by experimental evidence such as the ellsberg paradox we follow knight 1921 and distinguish risk from uncertainty to capture this distinction we adopt the multiple priors utility model we show that the impact of ambiguity on the option exercise decision depends on the relative degrees of ambiguity about continuation payoffs and termination payoffs consequently ambiguity may accelerate or delay option exercise we apply our results to investment and exit problems and show that the myopic npv rule can be optimal for an agent having an extremely high degree of ambiguity aversion

inflation ambiguity and the term structure of u s government bonds abstract variations in trend inflation are the main driver for variations in the nominal yield curve according to empirical data investors observe a set of empirical models that could all have generated the time series for trend inflation this set has been large and volatile during the 1970s and early 1980s and small during the 1990s i show that log utility together with knightian uncertainty about trend inflation can explain the term premium in u s treasury bonds the equilibrium has two inflation premiums an inflation risk premium and a knightian inflation ambiguity premium

uncertainty risk neutral measures and security price booms and crashes abstract this paper provides a general analysis of intertemporal utility based on the multiple priors model of aversion to knightian uncertainty then the existence of equilibrium is proven for a representative agent security market model it is shown that uncertainty aversion can invalidate the existence of a risk neutral measure representation for prices in addition an example suggests an intriguing link between uncertainty aversion and the possibility of abrupt changes in security prices the analysis relies heavily on a fubini type theorem for analytic functions due to dellacherie and meyer probabilities and potential c north holland new york 1988 journal of economic literature classification numbers g12 d81 d90

the merit order effect a detailed analysis of the price effect of renewable electricity generation on spot market prices in germany the german feed in support of electricity generation from renewable energy sources has led to high growth rates of the supported technologies critics state that the costs for consumers are too high an important aspect to be considered in the discussion is the price effect created by renewable electricity generation this paper seeks to analyse the impact of privileged renewable electricity generation on the electricity market in germany the central aspect to be analysed is the impact of renewable electricity generation on spot market prices the results generated by an agent based simulation platform indicate that the financial volume of the price reduction is considerable in the short run this gives rise to a distributional effect which creates savings for the demand side by reducing generator profits in the case of the year 2006 the volume of the merit order effect exceeds the volume of the net support payments for renewable electricity generation which have to be paid by consumers

cooperative r d between vertically related firms with spillovers abstract this paper analyzes the effects of cooperative r d in two vertically related duopolies which are two final good manufacturers and two input suppliers with horizontal and vertical spillovers vertical r d cartels yield a larger social welfare than non cooperative r d and if the horizontal spillover rate between the input suppliers is not sufficiently high than horizontal r d cartels technological improvement is accelerated by forming vertical research joint ventures rjvs whether or not their member firms r d decisions are coordinated vertical rjv cartels yield the largest social welfare when the vertically related firms can coordinate their r d decisions and or share useful knowledge fully

coordinating research through research joint ventures abstract in a simple model we show that a joint venture can implement the rates of investment that maximize joint profit when firms research abilities are private information this can be done with budget balance even though there are participation constraints there is no conflict between budget balance and participation constraints because firms payoffs can depend on ex post signals of abilities the conflict between budget balance and participation constraints is restored when both abilities and rates of investment are unobservable we give a condition under which the profit maximizing rates of investment can be implemented if we relax budget balance

investing in finite life carbon emissions reduction program under risk and idiosyncratic uncertainty this paper aims at emphasizing the ability of new frameworks of real option model to highlight key characteristics of industrial carbon emissions reduction program investment decision we develop both theoretical arguments and numerical simulations with structural parameters calibrated on real life data we find that both radical uncertainty and risk lead to speed up green investments compared to the predictions of real option models that are normally used in green investment literature the conventional wait and see attitude questioned in recent developments of the real option theory is not validated in conclusion our results should foster companies to implement green investments and help governments to define appropriate incentives to encourage green investments of particular note the paper highlights that finance theory is not necessarily an obstacle to green investment decisions

cooperative r d and vertical product differentiation abstract a partial equilibrium model with vertical product differentiation coumot competition and quality determined by r d expenses is analysed cooperative agreements on r d entail higher levels of r d quality output and welfare than at the non cooperative equilibrium under well denned conditions on spillover rates this confirms in a new setting a well known outcome of models with cost reducing r d further cooperation in r d allows a larger number of firms to operate in the industry than in the non cooperative case via a reduction in prices a new source of social gains from cooperative research is identified

endogenous spillovers and the performance of research joint ventures we present a model of r d with endogenous spillovers and demonstrate that noncooperation can produce maximal spillovers the only other noncooperative outcome is minimal spillovers when noncooperation achieves maximal spillovers so does an rjv whereas minimal noncooperative spillovers imply partial but not necessarily maximal spillovers by an rjv partial rjv spillovers are chosen for anti competitive reasons and an rjv may also close a lab for anti competitive reasons the possibility of anti competitive outcomes is precluded in the existing literature on rjvs which focuses on symmetric outcomes our model predicts when anti competitive behaviour by an rjv arises

cost reduction competition and industry performance in many markets firms compete over time by expending resources with the purpose of reducing their costs sometimes the cost reducing investments operate directly on costs in many instances they take the form of developing new products that deliver what customers need more cheaply therefore product development can have the same ultimate effect as direct cost reduction in fact if one thinks of the product as the services it delivers to the customer in the way that lancaster pioneered then product development often is just cost reduction

cooperative and noncooperative r d in duopoly with spillovers contrary to the usual assumption made in most oligopoly models relations among firms are seldom of a wholly cooperative or noncooperative type in many situations they compete in some fields while they cooperate in others an important example is the case of cooperative research efforts bringing fierce competitors together two types of agreement are observed first r d cooperation can take place at the so called precompetitive stage companies share basic information and efforts in the r d stage but remain rivals in the market place 1 a second type of agreement involves an extended collusion between partners creating common policies at the product level the usual justifications of this extension are the difficulties of protecting intellectual property the idea is then to allow partners who have achieved inventions together to also control together the processes and products which embody the results of their collaboration in order to recuperate jointly their r d investments 2 what could be expected from these types of agreement is a reduction in r d expenditures because of less wasteful duplication and a reduction of total production because of more reprinted from the american economic review 78 5 1133 1137 1988 center for operations research econometrics 1348 louvain la neuve belgium we are grateful to jean

the structure of canadian inter industry r d spillovers and the rates of return to r d this paper estimates the effects of interindustry r d spillovers on the production cost of nine major canadian industries production costs in all nine are affected by spillovers and six industries are influenced by at least two different source industries rates of return to r d capital for each industry are also estimated private rates of return on r d are at least two and a half times those on physical capital rates of return on r d inclusive of spillovers are also computed for industries that are major sources of spillover the spillover inclusive returns are at least twice the private returns copyright 1989 by blackwell publishing ltd

ambiguity aversion in buyer seller relationships a contingent claims and social network explanation negotiations between buyers and sellers or suppliers of goods and services have become increasingly important due to the growing trend towards international purchasing outsourcing and global supply networks together with the high uncertainty associated with them this paper examines the effect of ambiguity aversion on price negotiations using multiple priors based real options with non extreme outcomes we study price negotiation between a buyer and seller in a dual contingent claims setting call option holding buyer vs put option holding seller to derive optimal agreement conditions under ambiguity with and without social network effects we find that while higher ambiguity aversion raises the threshold for commitment for the seller it has equivocal effects on the buyer s negotiation prospects in the absence of network control conversely when network position and relative bargaining power are accounted for we find the buyer s implicit price or negotiation threshold decreases or increases unequivocally with increasing aversion to ambiguity extending extant real options research on price negotiation to the case of ambiguity this set of results provides new insights into the role of ambiguity aversion and network structures in buyer seller relationships including how they influence the range of negotiation agreement between buyers and sellers the results also help assist managers in formulating robust buying selling strategies for bargaining under uncertainty by knowing their network positions and gathering background information or inferring the other party s ambiguity tolerance beforehand buyers and sellers can anticipate where the negotiation is heading in terms of price negotiation range and mutual agreement possibilities

evaluating natural resource investments notwithstanding impressive advances in the theory of finance over the past 2 decades practical procedures for capital budgeting have evolved only slowly the standard technique which has remained unchanged in essentials since it was originally proposed see dean 1951 bierman and smidt 1960 derives from a simple adaptation of the fisher 1907 model of valuation under certainty under this technique expected cash flows from an investment project are discounted at a rate deemed appropriate to their risk and the resulting present value is compared with the cost of the project this standard textbook technique reflects modern theoretical developments only insofar as estimates of the discount rate may be obtained from crude application of single period asset pricing theory but see brennan 1973 bogue and roll 1974 turnbull 1977 constantinides 1978 the inadequacy of this approach to capital budgeting is widely acknowledged although not widely discussed its obvious deficiency is its the evaluation of mining and other natural resource projects is made particularly difficult by the high degree of uncertainty attaching to output prices it is shown that the techniques of continuous time arbitrage and stochastic control theory may be used not only to value such projects but also to determine the optimal policies for developing managing and abandoning them the approach may be adapted to a wide variety of contexts outside the natural resource sector where uncertainty about future project revenues is a paramount concern

uncertain dynamics correlation effects and robust investment decisions abstract we analyze a firm s investment problem when the dynamics of project value and investment cost are uncertain we provide an explicit solution using a robust method for an ambiguity averse firm taking this into account ambiguity aversion regarding a common risk factor impacts differently than ambiguity aversion regarding investment cost residual risk correlation between project value and investment cost matters ambiguity aversion regarding common risk can decrease the investment probability only if correlation is positive ambiguity aversion regarding residual risk always increases the investment probability when only project value is risky volatility can monotonically decrease the investment threshold this does not hold with the multiple prior method

the role of uncertainty and learning for the success of international climate agreements abstract transnational externalities e g transboundary pollution trade contagious diseases and terrorism warrant coordination and cooperation between governments but this proves often difficult one reason for the meager success is the public good character of many of these economic problems encouraging free riding another reason one might suspect is uncertainty surrounding most environmental problems and in particular climate change this provides often an excuse for remaining inactive paradoxically some recent papers have concluded just the opposite the veil of uncertainty can be conducive to the success of international environmental cooperation in this paper we explain why and under which conditions this can be true however we argue that those conditions are the exception rather than the rule most important we suggest a mechanism for those conditions where learning has a negative effect on the success of cooperation which removes this effect or even turns it into a positive effect our results apply beyond the specifics of climate change to similar problems where cooperation generates positive externalities

renewable energy integration in zonal markets in this paper we investigate the impact of zonal network management in the operation of power systems with significant levels of renewable energy integration our study is inspired by the current state of the european energy market and we focus on a case study of the central western european cwe system first we present a hierarchy of models that account for unit commitment the separation of energy and reserves and the simplified representation of transmission constraints in a zonal market in order to examine the impact of these factors on efficiency in a regime of large scale renewable energy integration second we simulate operations of the cwe system under the zonal market design using a detailed instance that consists of 656 thermal generators 679 nodes and 1073 lines with multiarea renewable energy production and 15 minute time resolution zonal market operations are compared against deterministic and stochastic unit commitment using high performance computing in order to tackle the scale of the resulting models we find that market design can have an influence on cost efficiency which far exceeds the benefits of stochastic unit commitment relative to deterministic unit commitment we conduct a detailed analysis of the numerical results in order to explain the relative performance of the different models

an experimental analysis of dynamic incentives to share knowledge knowledge sharing arrangements are an important part of the innovation process as they help firms acquire technological capabilities shorten development time and spread risk and cost a question central to the study of knowledge sharing arrangements is the impact of competition on cooperation while cooperation has the benefit of avoiding duplication it may have an adverse effect on the competitive advantage of a leading firm hence firms face a difficult challenge during the innovation process while deciding which components of it if any to carry out in collaboration with other firms this paper reports the results of controlled laboratory experiments which identify how the decision to form research joint ventures changes with both relative progress during the r d process and the intensity of product market competition the design is based on a modified version of erkal and minehart optimal sharing strategies in dynamic games of research and development research paper 1038 university of melbourne department of economics 2008 the results indicate that if expected profits are such that the lagging firms always stay in the race cooperation unravels as firms move forward in the discovery process and as monopoly profits become more attractive these results are generally consistent with the theoretical predictions jel c91 l24 o30 d81

irreversible investment and knightian uncertainty when firms make a decision about irreversible investment they may not have complete confidence about their perceived probability measure describing future uncertainty they may think other probability measures perturbed from the original one are also possible such uncertainty characterized by not a single probability measure but a set of probability measures is called knightian uncertainty the effect of knightian uncertainty on the value of irreversible investment opportunity is shown to be drastically different from that of traditional uncertainty in the form of risk specifically an increase in knightian uncertainty decreases the value of investment opportunity while an increase in risk increases it

cooperative and noncooperative r d in experimental duopoly markets abstract we analyze the relation between technological spillovers and r d cooperation in a duopoly experiment based on the well known model of d aspremont and jacquemin for scenarios without and with full spillovers two noncooperative treatments are run one without and one with non binding communication possibilities and one cooperative treatment with binding contract possibilities we find that without technological spillovers binding r d contracts are needed for r d decisions to deviate from the subgame perfect nash r d level towards the cooperative level with full spillovers the possibility of non binding cheap talk may suffice to move closer to r d cooperation

the simple economics of research portfolios this article identifies biases in market portfolios of parallel research projects arising from the noncongruence of social goals and private aspirations occasioned by those circumstances where the market rewards only the winner and where the winner is awarded the entire social surplus it is shown that under risk neutrality this noncongruence implies that t he market encourages the development of too many discoveries too lar ge a spread in the distribution of the quality of discoveries and an excessive occurrence of multiple discoveries copyright 1987 by royal economic society

evaluating a dutch scheme for encouraging research development this paper contains an evaluation over the period 1984 1988 of an important instrument of dutch technology policy a generic subsidy on r d labor costs which especially favours small firms the evaluation is based on surveys among nearly 3000 subsidy using firms and on empirical analysis the surveys show that the subsidy effectively strengthened the r d activities of small firms in particular it can be concluded from the empirical analysis that the subsidy generated between 40 and 150 of additional r d spending given the large spill over effects of r d this probably means that the social benefits of the subsidy outweigh the costs the incubation period of subsidies like the dutch scheme require consistency and continuity of governmental r d policies in order to influence corporate strategies in particular those of small firms

uncertainty spillovers and cooperative r d abstract this paper extends the literature on cooperative r d in an oligopoly with spillovers the model has three new features it introduces uncertainty focuses on spillover of innovation instead of effort spillover and offers a new definition of the research joint venture rjv the rjv is an arrangement to coordinate r d efforts and also to share the innovation firms form an rjv only if the innovation raises flow industry profit but independently of the speed of spillovers and the degree of uncertainty the model is robust when we allow for licensing the single lab endogenous spillovers and r d effort spillovers

research joint ventures and optimal r d policy with asymmetric information abstract when to allow research joint ventures rjvs or not is an important instrument in the development of an optimal r d policy the regulator however is unlikely to know all the relevant information to regulate r d optimally the extent to which there exist appropriability problems between the firms is one such variable that is private information to the firms in the industry in a duopoly setting we analyze the characteristics of a second best r d policy where the government can either allow rjvs or not and give lump sum subsidies to the parties involved the second best r d policy without subsidies will either block some welfare improving rjvs or allow some welfare reducing ones with lump sum subsidies the second best policy trades off the expected subsidy cost with allowing welfare decreasing rjvs or blocking welfare increasing ones

asset pricing in a lucas fruit tree economy with the best and worst in mind this paper studies a lucas 1978 fruit tree economy under the assumption that the agents are choquet expected utility ceu rather than standard expected utility decision makers more speci cally the agents non additive beliefs about the economy s dividend payment process are modelled as neo additive capacities so that the agents decision behavior emphasizes the best respectively worst possible economic scenarios in contrast to existing models of lucas type economies with ambiguity averse agents epstein and wang 1994 which ensure dynamic consistency through heavy restrictions on admissible ambiguity attitudes my ap

cooperative r d under uncertainty with free entry abstract this paper analyzes the effects of cooperative r d arrangements in a model with stochastic r d and output spillovers our main innovation is to allow for free entry in both the r d race and product market moreover in contrast with the literature we assume that cooperative r d arrangements do not have to include all the firms in the industry we show that sharing of research outcomes is a necessary condition for the profitability of cooperative r d arrangements with free entry the profitability of rjv cartels depends on their size subsidies may be desirable in cases of larger rjvs since they are the ones which are less likely to be profitable

market failures of market coupling and counter trading in europe an illustrative model based discussion the horizontal integration of the energy market and the organization of transmission services remain two open issues in the restructured european electricity sector the coupling of the french belgian and dutch electricity markets the trilateral market in november 2006 was a real success the extension of the system to germany in november 2010 also proceeded smoothly and the intent is to continue with the same market architecture but market coupling is based on a zonal system which has often failed in meshed grids this may cast doubts on what will happen in the future when electricity demand picks up again and wind develops the nodal system has generally been more successful than zonal architectures but its implementation is not currently foreseen in the eu this paper analyzes versions of market coupling that differ by the organization of counter trading while underplayed in current discussions counter trading could become a key element of market coupling as its geographic coverage expands and wind penetrates we simplify matters by assuming away strategic behavior between the energy and counter trading markets and conduct the analysis on a stylized six node example taken from the literature we simulate market coupling for different assumptions of zonal decomposition and coordination of transmission system operators tsos we show that these assumptions matter even in the absence of strategic behavior market coupling can be quite vulnerable to the particular situation on hand countertrading can work well or completely fail and it is not clear beforehand what will prevail our analysis relies on standard economic notions such as social welfare and generalized nash equilibrium but the use of these notions is probably novel the nodal organization is the reference first best scenario different zonal decompositions and degrees of coordination are then studied with respect to this first best solution

convergence to symmetry in dynamic strategic models of r d the undiscounted case abstract will r d increase or decrease the asymmetry between firms over time we examine this issue in the context of a dynamic alternate move duopoly model of non cooperative r d the asymmetry we consider is with respect to the initial stocks of technological knowledge which provides one firm a greater potential for current and future profits in the product market utilizing a value loss process constructed from the optimality equation of dynamic programming we show that for the undiscounted case the asymmetry between the firms disappears over time we obtain this convergence to symmetry result by imparting a temporal character to r d through the notion that r d investment cannot be changed instantaneously by allowing research externalities complementarity or substitutability between own and appropriated r d and either increasing decreasing or constant returns to scale in the production of technical knowledge from own and rival r d

ambiguity made precise a comparative foundation the theory of subjective expected utility has been recently extended to allow ambiguity to matter for choice we propose a notion of absolute ambiguity aversion by building on a notion of comparative ambiguity aversion we characterize it for a preference model which encompasses some of the most popular models in the literature we next build on these ideas to provide a definition of unambiguous act and event and show the characterization of the latter as an illustration we consider the classical ellsberg 3 color urn problem and find that the notions developed in the paper provide intuitive answers journal of economic literature classification number d81

climate agreements in a mitigation adaptation game abstract we analyze the strategic interaction between mitigation public good and adaptation private good strategies in a climate agreement we show the fear that adaptation will reduce the incentives to mitigate carbon emissions may be unwarranted adaptation can lead to larger self enforcing agreements associated with higher global mitigation levels and welfare if it causes mitigation levels between different countries to be no longer strategic substitutes but complements we argue that our results extend to many public goods the well known problem of easy riding may turn into easy matching if the marginal utility of public good consumption is strongly influenced by private consumption

uk industrial policy old tunes on new instruments this paper discusses the current labour government s industrial policy as most recently reflected in its document on manufacturing strategy in the context of industrial policy in the uk over the last 50 years and the form that it has taken elsewhere in europe it concludes that the thematic priorities for uk industrial policy in the 1960s international competitiveness innovation competition and skills continue to be the key themes of uk policy today the paper presents data that illustrate the gaps that exist in key indicators of performance between the uk and its main economic competitors the difference between the 1960s and the 2000s is that there are new instruments of policy two areas in particular are focused on competition policy and technology policy and an attempt is made to assess the likely effectiveness of these new instruments the paper concludes that the international evidence base for these new approaches is reasonably robust but that it is still too soon to tell if they are having the hoped for impact on the performance of the uk economy copyright 2002 oxford university press

a two person dynamic equilibrium under ambiguity this paper describes a pure exchange continuous time economy with two heterogeneous agents and complete markets a novel feature of the economy is that agents perceive some security returns as ambiguous in the sense often attributed to frank knight the equilibrium is described completely in closed form after identifying agents as countries the model is applied to address the consumption home bias and equity home bias puzzles 2002 elsevier science b v all rights reserved jel classi cation d81 g11 g12 g15

evidence of under investment in energy r d in the united states and the impact of federal policy investments in energy technology research and development r d and in associated human and institutional capacity are fundamental to our ability to respond to changing economic and environmental needs this paper uses data on r d investments and patent records to examine the relationship between expenditures on r d and innovation with a particular focus on the energy sector we observe that r d spending and patents both overall and in the energy sector have been highly correlated over the past two decades in the us in addition we observe that the r d intensity of the us energy sector is extremely low when compared to other sectors we argue that the data illustrates the critical role of public policy as evidenced by the impact of recent technology transfer related legislation on the total number and on the ownership of innovations resulting from federally sponsored r d we conclude that there has been a significant and sustained pattern of under investment in the us energy sector and that recent declines in energy r d exacerbate this situation innovation for the us energy infrastructure is also a significant driver of the international energy economy thus the spillover from us under investment detracts from the global capacity to respond to emerging risks such as global warming

renewable electric energy integration quantifying the value of design of markets for international transmission capacity abstract integrating large quantities of variable renewable electricity generation remains a political and operational challenge one of the main obstacles in europe to installing at least 200 gws of power from variable renewable sources is how to deal with the insufficient network capacity and the congestion that will result from new flow patterns we model the current methodology for controlling congestion at international borders and compare its results under varying penetrations of wind power with models that simulate an integrated european network using nodal localised marginal pricing the nodal pricing simulations illustrate that congestion and price patterns vary considerably between wind scenarios and within countries and that a nodal price regime could make better use of existing network capacity introducing substantial operational cost savings and reducing marginal power prices in the majority of european countries

r d production structure and rates of return in the u s japanese and german manufacturing sectors a non separable dynamic factor demand model abstract the focus of this paper is an analysis of the production structure the demand for factor inputs and the rates of return in the manufacturing sector of three major industrialized countries the united states japan and germany the analysis is based on a dynamic factor demand model with two variable inputs labor and materials and two quasi fixed inputs capital and rd also for all countries the speed of adjustment for capital is found to be higher than that for r d

cooperative and noncooperative r d in duopoly with spillovers comment claude d aspremont and alexis jacquemin 1988 employ a simple yet elegant symmetric duopoly model of r d and spillovers to compare several equilibrium concepts these concepts include 1 the two stage noncooperative solution 2 the two stage mixed game 3 the two stage fully cooperative solution 2 and 4 the social planner s optimum 3 for each of the cases stated above they computed the equilibrium levels of output q q1 q2 and r d xl x2 x and the required second order conditions they report i for large spillovers i e b 0 5 x x x and q q q q and ii for small spillovers i e 3 x 2x x and q q q q where x denotes a firm s r d level q denotes total industry output denotes the social optimum denotes the fully cooperative model the noncooperative two stage case and the mixed game 3 is the spillover parameter here we show that comparing the pure cooperative and the pure noncooperative solutions as defined by d aspremont and jacquemin is only meaningful when the noncooperative solution is stable that is when spillovers are not too small we find that for very small spillovers in our example this occurs when 3 0 17 the d aspremont jacquemin observation holds because the noncooperative model is unstable the importance of this result rests on the fact that even though the output reaction functions cross correctly when 3 0 17 the r d reaction functions do not when 0 17 0 41 stability obtains but r d levels are higher in the noncooperative case than the fully cooperative one for large spillovers the d aspremont jacquemin result is confirmed moreover we find that the introduction of spillovers in the case of the noncooperative model tends to promote stability in the case of the cooperative model however as the level of spillovers is increased an equilibrium ceases to exist

equilibrium and optimal size of a research joint venture in an oligopoly with spillovers this paper analyzes a simple oligopoly model with information spillovers firms spend on r d to affect their costs of production the main finding is that depending on the magnitude of the spillover the market may not provide enough incentives for the optimum degree of cooperation to take place it is shown that the equilibrium size of a research joint venture is usually less than the optimum size which requires all firms to participate in the research joint venture the policy implications of this result are that there should be encouragement for firms competing in high technology industries to form industry wide cooperative agreements copyright 1995 by blackwell publishing ltd

modelling imperfectly appropriable r d via spillovers abstract we provide an extensive comparison of the well known r d models of d aspremont jacquemin and kamien muller zang exposing full or partial conflict in key conclusions and policy prescriptions using a mix of formal and or intuitive criteria we argue that the first model is of questionable validity for large spillover values the latter being characterized by jointly increasing returns to scale in the r d process an argument leading to equivalence between the two r d processes but not to agreement on some key conclusions is exposited in conclusion the models emerge as fundamentally different although a unilateral shift in the cost function of the first leads to agreement in all equilibrium outcomes

r d induced industry polarization and shake outs abstract we consider the standard two stage game of r d and cournot competition with ex ante identical firms but depart from the literature in assuming that r d is characterized by mildly instead of strongly decreasing returns to scale we establish that only extreme r d levels are possible at equilibrium and that for a broad range of parameters equilibria are asymmetric in r d levels possibly leading one firm to endogenously exit this provides a simple link between returns to scale in r d and industry polarization including shake outs a novelty is that exit may be triggered by positive opportunities in a strategic setting given the original nature of our r d equilibrium a complete welfare analysis is conducted including a possible role for r d subsidies

search and knightian uncertainty suppose that uncertainty about labor market conditions has increased does this change induce an unemployed worker to search longer or shorter this paper shows that the answer is drastically different depending on whether an increase in uncertainty is an increase in risk or that in true uncertainty in the sense of frank knight we show in a general framework that while an increase in risk the mean preserving spread of the wage distribution that the worker thinks she faces increases the reservation wage an increase in knightian uncertainty a decrease in her confidence about the wage distribution reduces it

the relationship between r d and physical investment of firms in science based industries this study is motivated by the one way inducement hypothesis that r d induces granger causes physical investment but physical investment does not induce r d raised by lach and schankerman 1989 and lach and rob 1996 it is demonstrated that their results do not hold after extending the sample that matches their criteria by including more time periods and or more firms namely it is found that the granger causality between r d and physical investment occurs both ways it is also shown that their contemporary relationship derived by dynamic simultaneous expressions is positive in both ways from current r d to current physical investment and from current physical investment to current r d moreover previous r d affects current physical investment and previous physical investment also affects current r d

the economics of formal business networks abstract this paper analyzes the under researched issue of formal business networks comprising voluntary groupings of entrepreneurs who share knowledge and experiences between themselves economic analysis is used to show how formal business networks which enable entrepreneurs to share good and bad practice can improve efficiency and social welfare the paper also derives conditions for the existence and equilibrium size of formal business networks two principles of network design are proposed to promote their stability and to avoid their collapse

r d cooperation or competition abstract the economic literature provides empirical evidence of the existence of technological cartels such as research joint ventures or deliberate sharing of technological knowledge our aim is to answer to the questions i is the creation of technological cartels beneficial from a social welfare point of view and ii do the firms have private incentives to form such cartels we depart from the approach adopted in the literature by considering a dynamic model and allowing for the possibility that the firms are asymmetric the results show the importance of the degree of existing technological spillovers and stress the differences between the symmetric and asymmetric cases

downstream research joint venture with upstream market power in a vertically related industry we examine the downstream firms incentives to invest in cost reducing research and development r d and to form a research joint venture rjv under two alternative structures of input supply exclusive vertical relations and a single supplier in contrast to the hold up argument in which downstream firms invest non cooperatively and spillovers are low r d investments are higher under a single supplier than under competing vertical chains downstream firms incentives to form a rjv are also stronger in the former case than they are in the latter we identify conditions under which an rjv is beneficial for society integrated innovation and competition policies are also discussed

it substitution for energy leads to a resilient structure for a survival strategy of japan s electric power industry abstract the dramatic surge in information technology it around the world and an evolving global economy are subjecting firms to megacompetition this is the case particularly in japan s electric power industry where the power rate is one of the highest in the world hence it is noted that japan s industry has lost its price competitiveness in the world market resulting in stagnation of production hence leading to stagnation in power demand in addition an increase in trends of customer s preferences and the variety of participants in the power supply race have put electric power companies at the mercy of customers with alternative supply sources given that uncertainty with respect to energy security as well as power generation and distribution systems safety increases as strongly cautioned by the recent blackout in the us and canada a dramatic conversion of existing strategies would be indispensable for electric power companies a conversion from a high demand elasticity dependent supply structure to a resilient structure is required while the former aims at constructing a high demand elasticity supply structure based on the myth of high growth of demand the latter aims at maintaining profit while minimizing the elasticities of factors with high uncertainty such as energy resources and costly capital investment linked to a fluctuating power demand this paper demonstrates the significance of it substitution for energy through consortia structure thereby utilizing it spillover and leading to resilience and leveraging consortia structure as japan s electric power industry survival strategy an empirical analysis using japan s nine leading electric power companies over the last quarter century has been conducted

hybrid pricing in a coupled european power market with more wind power abstract in the european electricity market the promotion of wind power leads to more network congestion zonal pricing market coupling which does not take the physical characteristics of transmission into account is the most commonly used method to relieve network congestion in europe however zonal pricing fails to provide adequate locational price signals regarding scarcity of energy and thus creates a large amount of unscheduled cross border flows originating from wind generated power in this paper we investigate the effects of applying a hybrid congestion management model i e a nodal pricing model for one country embedded in a zonal pricing system for the rest of the market we find that compared to full nodal pricing hybrid pricing fails to fully utilize all the resources in the network and some wrong price signals might be given however hybrid pricing still outperforms zonal pricing the results from the study cases show that within the area applying nodal pricing better price signals are given the need for re dispatching is reduced more congestion rent is collected domestically and the unit cost of power is reduced

choice under uncertainty with the best and worst in mind neo additive capacities the concept of a non extreme outcome additive capacity neo additive capacity is introduced neo additive capacities model optimistic and pessimistic attitudes towards uncertainty as observed in many experimental studies moreover neo additive capacities can be applied easily in economic problems as we demonstrate by examples this paper provides an axiomatisation of choquet expected utility with neo capacities in a framework of purely subjective uncertainty

environmental externalities and the optimal level of market power this article derives the condition under which agricultural chemical producers desire to under produce associated with market power exactly offsets the tendency to overproduce due to their failure to consider externality costs of agricultural chemicals this condition is satisfied when the price markup in the chemical industries equals the marginal environmental damages caused by chemicals our estimates of price markup for nitrogen phosphate and pesticides industries indicate that the welfare loss caused by market power is exactly offset by environmental benefits if the marginal pollution costs are respectively eight nine and twenty two cents for each dollar s worth of these chemicals

learning dynamics in research alliances a panel data analysis the aim of this paper is to empirically test the determinants of research joint ventures rjvs group dynamics we develop a model based on learning and transaction cost theories which represent the benefits and costs of rjv participation respectively according to our framework firms at each period in time weigh the benefits against the costs of being an rjv member rjv dynamics can then be interpreted as a consequence of this evolving trade off over time we look at entry turbulence and exit in rjvs that have been set up under the us national cooperative research act which allows for certain antitrust exemptions in order to stimulate firms to co operate in r d accounting for unobserved project characteristics and controlling for inter rjv interactions and industry effects the tobit panel regressions show the importance of group and time features for an rjvs evolution we further identify an average rjvs long term equilibrium size and assess its determining factors ours is a first attempt to produce robust stylized facts about co operational short and long term dynamics a neglected dimension in research co operations but an important element in understanding how collaborative learning works

optimal social security in a dynastic model with human capital externalities fertility and endogenous growth abstract in this paper we investigate the optimal scale of pay as you go social security in a dynastic family model with human capital externalities fertility and endogenous growth human capital externalities reduce the return to human capital investment and hence lead to under investment in human capital and over reproduction of the population if the taste for the number of children is sufficiently weak relative to the taste for the welfare of children social security can be welfare enhancing by reducing fertility and raising human capital investment per child

cost reducing and demand creating r d with spillovers this article analyzes r d policies when the returns to cost reducing and demand creating r d are imperfectly appropriable and market structure is endogenous we generalize previous characterizations of appropriability to permit the possibility that own and rival r d are imperfect substitutes we also describe how equilibrium expenditures on process and product r d as well as equilibrium market structure depend on technological opportunities and spillovers in contrast to previous work diminished appropriability does not necessarily reduce r d expenditures for example under some conditions an increase in the extent of process product spillovers will lead to an increase in product process r d we estimate several variants of the model by using manufacturing line of business data and data from a survey of r d executives