the control of technology alliances an empirical analysis of the biotechnology industry we examine the determinants of control rights in biotechnology alliances through three case studies and a quantitative analysis aghion and tirole 1994 argue that control rights will be assigned so as to maximize the value of the final output as long as the r d firm has sufficient financial resources consistent with this framework the allocation of control rights to the r d firm increases with the firm s financial resources the empirical evidence regarding the relationship between control rights and the stage of the project at the time the alliance is signed is more ambiguous

financial intermediation with risk aversion the paper extends diamond s 1984 analysis of financial intermediation to allow for risk aversion of the intermediary it shows that as in the case of risk neutrality the agency costs of external funds provided to an intermediary are relatively small if the intermediary is financing many entrepreneurs with stochastically independent returns even though the intermediary is adding rather than subdividing risks the underlying large numbers argument is not invalidated by the presence of risk aversion with risk aversion of entrepreneurs as well as the intermediary financial intermediation provides insurance as well as finance in contrast to earlier results on optimal intermediation policies under risk neutrality the paper shows that when an intermediary is financing many entrepreneurs with stochastically independent returns optimal intermediation policies must shift return risks away from risk averse entrepreneurs and impose them on the intermediary or on final investors

spillovers and governance an analysis of knowledge and reputational spillovers in information technology investigating spillovers potential costs and benefits to a firm that extend beyond an individual transaction i integrate transaction cost theory and the knowledge based view of the firm in an effort to better understand the efficient governance of knowledge contracts with detailed task descriptions were associated with transactions with the potential to generate new and reusable knowledge the risk of a firm s technology spilling over to others and the risk of reputation impairing spillovers were associated with suppliers using their own employees rather than subcontractors thus results suggest that the creation and protection of knowledge are key factors in understanding governance decisions

efficient adaptation in long term contracts take or pay provisions for natural gas to mitigate the inflexibility of long term contracting for natural gas parties will look for terms that minimize the need for costly adjudication while maintaining incentives for appropriate adaptation the authors examine the incident of take or pay provisions in contracts between natural gas producers and pipelines from this perspective they argue that take obligations can be viewed as a mechanism for effecting appropriate incentives for contractual performance and show that efficient breach considerations define an optimal take percentage as a function of characteristics of the transaction these incentives are distorted by regulated price ceilings which cause the adoption of take obligations in excess of optimal levels the findings refute the common perception that take or pay provisions are just an artifact of wellhead price regulation and serve no useful purpose in the absence of regulation 20 references 1 figure 1 table

platform competition in two sided markets many if not most markets with network externalities are two sided to succeed platforms in industries such as software portals and media payment systems and the internet must get both sides of the market on board accordingly platforms devote much attention to their business model that is to how they court each side while making money overall this paper builds a model of platform competition with two sided markets it unveils the determinants of price allocation and end user surplus for different governance structures profit maximizing platforms and not for profit joint undertakings and compares the outcomes with those under an integrated monopolist and a ramsey planner jel l5 l82 l86 l96

relational contracts and the theory of the firm relational contracts informal agreements sustained by the value of future relationships are prevalent within and between firms we develop repeated game models showing why and how relational contracts within firms vertical integration differ from those between nonintegration we show that integration affects the parties temptations to renege on a given relational contract and hence affects the best relational contract the parties can sustain in this sense the integration decision can be an instrument in the service of the parties relationship our approach also has implications for joint ventures alliances and networks and for the role of management within and between firms

costly monitoring financial intermediation and equilibrium credit rationing abstract this paper establishes a link between equilibrium credit rationing and financial intermediation in a model with asymmetrically informed lenders and borrowers costly monitoring and investment project indivisibilities intermediation is shown to dominate borrowing and lending between individuals and these financial intermediaries exhibit several of the important features of intermediaries as we know them equilibrium interest rates and the aggregate quantity of loans respond quite differently to changes in taste and technology parameters depending on whether or not there is rationing in equilibrium

cointegration and threshold adjustment this article proposes an extension to the engle granger testing strategy by permitting asymmetry in the adjustment toward equilibrium in two different ways we demonstrate that our test has good power and size properties over the engle granger test when there are asymmetric departures from equilibrium we consider an application namely whether there exists cointegration among interest rates for instruments with different maturities this issue has been widely tested with mixed results we argue that either cautious policy or possibly opportunistic behavior on the part of the federal reserve implies that an equilibrium relationship between short and long term interest rates exists but that adjustments from disequilibrium are asymmetric in nature empirical tests using u s yields confirm the asymmetric nature of error correction among interest rates of different maturities

land reforms poverty reduction and economic growth evidence from india recognition of the importance of institutions that provide security of property rights and relatively equal access to economic resources to a broad cross section of society has renewed interest in the potential of asset redistribution including land reforms empirical analysis of the impact of such policies is however scant and often contradictory this paper uses panel household data from india together with state level variation in the implementation of land reform to address some of the deficiencies of earlier studies the results suggest that land reform had a significant and positive impact on income growth and accumulation of human and physical capital the paper draws policy implications especially from the fact that the observed impact of land reform seems to have declined over time

contract duration and relationship specific investments empirical evidence from coal markets this paper examines the importance of specific relationship investments in determining the duration of coal contracts negotiated between coal suppliers and electric utilities data for 277 coal contracts are used to perform the analysis the results provide strong support for the view that buyers and sellers make longer commitments to the terms of future trade at the contract execution stage and rely less on repeated bargaining when relationship specific investments are more important

the optimal size of a bank costs and benefits of diversification abstract this paper provides a theory of diversification and financial structure of banks it shows that by diversifying the bank portfolio and financing it with debt the bank can commit to a higher level of monitoring by linking the benefits of diversification to the costs the paper derives an optimal size of the bank which is bounded the costs of diversification lie in the higher overload costs with which the banker is faced by monitoring more projects the benefits of diversification lie in increasing the bank s owner s incentives to monitor the lenders

agency theory and franchising some empirical results this article provides an empirical assessment of various agency theoretic explanations for franchising including risk sharing one sided moral hazard and two sided moral hazard the empirical models use proxies for factors such as risk moral hazard and franchisors need for capital to explain both franchisors decisions about the terms of their contracts royalty rates and up front franchise fees and the extent to which they use franchising in this article i exploit several new sources of data on franchising to construct a cross section of 548 franchisors involved in various business activities in the united states in 1986 the data are most consistent with a model based on two sided moral hazard the empirical models are also more successful at explaining the extent to which franchisors choose to franchise stores than at explaining the terms of franchise contracts finally contrary to the predictions of several theoretical models i find that royalty rates and franchise fees are not negatively related

bertrand competition for inputs and walrasian outcomes market making by merchants who obtain stock from suppliers and resell it to con sumers is modeled as a two stage pricing game with winner take all c ompetition for the inputs in contrast to fixed capacity models the re is a unique subgame perfect nash equilibrium spne which is walr asian for elastic demand and non walrasian for inelastic demand alte rnatively when merchants first sell forward contracts to consumers a nd then compete for supplies the unique spne is always walrasian th us the author has an equilibrium model in which walrasian price aris es not from the benevolent actions of a fictitious auctioneer but fr om optimal price setting behavior of merchants copyright 1988 by american economic association

do country level institutional frameworks and interfirm governance arrangements substitute or complement in international business relationships interfirm relationships among partners from institutionally distant environments are subject to governance difficulties owing to the paucity of shared cognitive and regulatory frameworks we examine the potential of formal contracting and relational governance developed at the partnership level to overcome the formal and informal institutional gap at the country level empirical results from a sample of 184 international partnerships of large us firms support an overall substitutive relationship between informal institutional frameworks and interorganizational relational arrangements whereby the performance benefits of relational governance are reinforced at higher degrees of informal institutional distance contrastingly formal institutional frameworks and contractual governance are found to have a complementary relationship with performance gains from formal contracting undermined at higher degrees of formal distance

forgiveness in vertical relationships incentive and termination effects two types of contractual solutions have been proposed for resolving incentive conflicts in vertical relationships formal and relational i e enforceable or not by third parties much is known about the optimal structure of formal contracts but relatively little is known about the structure of relational contracts we study a core feature of the latter the conditions leading to continuation of the relationship whose prospect gives relational contracts their force we build a formal model of a vertical relationship between two parties that endogenizes the choice of the minimum performance necessary for continuation as a function of the values of contractibles noncontractibles and outside options the model highlights a basic trade off between providing strong incentives for the present incentive effect and safeguarding relationships for the future termination effect the stable relationships that follow from a more forgiving contract are more important under certain conditions when a lot of value is jointly created by exchange partners i e high contractible value high noncontractible value or unattractive outside options however strong incentives from a less forgiving contract are more important under other conditions when a formal contract is insufficient and a relational contract is most important i e high noncontractible relative to contractible value we discuss implications for the choice of governance of interorganizational relationships

do firms learn to create value the case of alliances we investigate whether firms learn to manage interfirm alliances as experience accumulates we use contract specific experience measures in a data set of over 2000 joint ventures and licensing agreements and value creation measures derived from the abnormal stock returns surrounding alliance announcements learning effects are identified from the effects of unobserved heterogeneity in alliance capabilities we find evidence of large learning effects in managing joint ventures but no such evidence for licensing contracts the effects of learning on value creation are strongest for research joint ventures and weakest for marketing joint ventures these results are consistent with the view that learning effects are more important in situations characterized by greater contractual ambiguity copyright 2000 john wiley sons ltd

equilibrium selection inn person coordination games abstract this paper investigates several approaches to equilibrium selection and the relationships between them the class of games we study are n person generalized coordination games with multiple pareto rankable strict nash equilibria the main result is that all selection criteria select the same outcome namely the risk dominant equilibrium in two person games and that most equivalences break for games with more than two players all criteria select the pareto efficient equilibrium in voting games of which pure coordination games are special cases journal of economic literature classification numbers c70 c72 d82

an instrumental variables approach to estimating tax revenue elasticities evidence from sub saharan africa this paper exploits the significant response of real gdp growth of sub saharan african countries to exogenous international commodity price and rainfall shocks to construct instrumental variables estimates of the tax revenue elasticity iv estimates yield that a 1 increase in gdp increases tax revenues by up to 2 5

competition for scarce resources we model a downstream industry where firms compete to buy capacity in an upstream market which allocates capacity efficiently although downstream firms have symmetric production technologies we show that industry structure is symmetric only if capacity is sufficiently scarce otherwise it is asymmetric with one large fat capacity hoarding firm and a fringe of smaller lean capacity constrained firms as demand varies the industry switches between symmetric and asymmetric phases generating predictions for firm size and costs across the business cycle surprisingly increasing available capacity can cause a reduction in output and consumer surplus by resulting in such a switch

dhsy revisited the role of asymmetries davidson et al s data set is used to demonstrate the existence of a significant asymmetry in the adjustment of consumption towards equilibrium the granger lee and escribano pfann methods of partitioning the error correction term are compared and it is shown that the latter produces better results in this case it is concluded that adjustment is faster under conditions of recession than it is during boom periods

investigation of production sales and inventory relationships using multicointegration and non symmetric error correction models the accumulated sum of a stationary series is called integrated if a linear combination of some of the integrated series is stationary it is said to be cointegrated this paper presents empirical results on inventories to consider the possibility of a deeper form of cointegration called multicointegration which is introduced in granger and lee 1989 a vector integrated series is multicointegrated if the accumulated sum of its stationary cointegrated linear combination is again cointegrated with itself inventory which is the accumulated sum of production minus sales is probably cointegrated with production and sales the empirical results generally support the presence of multicointegration of production and sales in many u s industries and industrial aggregates the results also favour the non symmetric error correction model providing evidence that the strength of attraction is different on both sides of the attractor a modified s s rule for inventory control is investigated in the context of a non symmetric error correction model and the results generally do not support the s s rule sufficient evidence is found to conclude that multicointegration is a useful concept in the area of inventory determination

mitigating contractual hazards unilateral options and contract length in this article we consider the ways in which the desire for efficient low cost adaptation to change influences the tradeoff between the design and duration of long term contractual relationships we examine the distortions in contract terms occasioned by nonprice competition for natural gas in the presence of wellhead price regulation deviations from optimal contract incentives significantly raise the cost of being bound to long term agreements and shorten the duration of contracts the approach we adopt suggests a method for empirically assessing the efficiency of alternative contracting practices and legal standards

the strategic analysis of intermediation the importance and the special character of intermediation were recognized as early as in the eighteenth century and have been stressed by many authors afterwards in spite of this long tradition comparatively little work has been done on the details of the economic theory of intermediation instead it was assumed that intermediation can simply be treated like any other economic activity in contrast i will argue that the theory of intermediation requires a specific game theoretic analysis and moreover that many preconceptions that one might have on the basis of standard microeconomic theory are wrong

financial intermediation and delegated monitoring this paper develops a theory of financial intermediation based on minimizing the cost of monitoring information which is useful for resolving incentive problems between borrowers and lenders it presents a characterization of the costs of providing incentives for delegated monitoring by a financial intermediary diversification within an intermediary serves to reduce these costs even in a risk neutral economy the paper presents some more general analysis of the effect of diversification on resolving incentive problems in the environment assumed in the model debt contracts with costly bankruptcy are shown to be optimal the analysis has implications for the portfolio structure and capital structure of intermediaries

incentive conflicts and contractual restraints evidence from franchising abstract this study uses agency theory to develop testable implications about three provisions commonly observed in franchise contracts 1 restrictions on passive ownership 2 area development plans and 3 mandatory advertising expenditures the primary hypothesis is that these provisions are most likely when there are significant externalities among the units within the franchise system the evidence based on a large sample of franchise contracts is generally consistent with this hypothesis the evidence also suggests that these incentive instruments are complements in contrast to the theory most of the results do not support the hypothesis that the percentage of company owned units is related to externalities within the system franchisee risk aversion and or wealth constraints appear more important while the study focuses on franchising the results provide insights into related provisions in other contracts

tenancy and family resources a model and some empirical analysis abstract in this paper we discuss with the help of a simple model the role of family resource endowments in determining the extent of land leased in or leased out by a household this becomes important when the market for some of these resources is either not functioning at all or is functioning imperfectly we focus on three such resources which have some relevance in indian agriculture these are 1 the family s managerial skill 2 its endowment of human labour and 3 its endowment of draft animal labour household level data from six villages of maharashtra and andhra pradesh are also utilized to test some of the hypotheses

legal and managerial implications of the italian contratto di rete today innovation and internationalization processes need more programming and high investments in new knowledge and relationships through trans sectorial and trans territorial networks smes can participate to global dynamics especially in terms of knowledge sharing and absorbing we propose that the contratto di rete network contract is an innovative type of formal contract and a central solution in these dynamics since its introduction in 2009 by means of the law decree 5 2009 the brand new networking tool has achieved broad success among italian entrepreneurs the authors provide an overview of the discipline regulating the tool a background concerning network and contract theory and finally a presentation of some best practices through insightful case studies this approach integrates legal and managerial perspectives delivering useful implications for scholars and practitioners

the growth and variability of regional taxes an application to italy abstractthe growth and variability of regional taxes an application to italy regional studies this paper investigates the potential long term growth and short term cyclical stability of the italian regional tax system short and long run elasticities with respect to regional gross domestic product gdp are estimated between 2001 and 2012 for the surtax on central personal income tax rpit and for the regional tax on productive activities rtpa cyclical reactions are more marked for the rtpa and higher in the southern regions significant long run growth of the rpit and rtpa on the other hand is found only in the northern regions the results suggest that the behaviour of regional taxes may increase the italian north south gap and cast some doubt on these taxes in financing essential public services such as health in each region

contract choice in modern agriculture cash rent versus cropshare e conomists have expended enormous effort examining the rationale for various contractual arrangements in agriculture particularly sharecropping while economists have made considerable theoretical efforts to understand agricultural contracts few empirical studies have been undertaken the dearth of empirical analyses of agricultural contracts is particularly striking for modern western agriculture this is an important omission not only because the existing empirical work tends to focus on the question of efficiency but also because the theoretical models tend to examine contracts that bear little resemblance to those found in the united states today

credit layering in informal financial markets abstract informal lenders with access to markets or capital often find it attractive to delegate loan provision to downstream lenders who have an information or enforcement advantage in dealing with particular borrowers in this paper we examine the conditions under which such an arrangement is preferred by two informal lenders a landlord and a merchant who compete in loan provision to tenant farmers differentiated by wealth we show that credit layering is preferred only when tenants are sufficiently poor in this case the trader lends to tenant farmers via a contract with their landlord otherwise only the trader lends as a consequence a pattern of borrowing emerges in which relatively wealthy tenants borrow from merchants while poor tenants borrow mainly from their landlords interlinkage between land and credit thus arises only for a subset of tenants and purely as a consequence of credit layering this pattern is shown to be supported empirically

formal and informal governance in biotechnology alliances board oversight contractual control and repeated deals in complex transactions like strategic alliances firms are likely to employ both formal and informal governance mechanisms to achieve effective alliance governance the question of whether formal and informal governance mechanisms are complements or substitutes needs to be addressed within the context of effective governance as a means to economic value creation for the transacting partners rather than an either or choice between the two perspectives the substitute hypothesis and the complement hypothesis on the relationship between formal and informal governance mechanisms i provide evidence from the biotechnology industry that alliances characterized by high levels of exchange hazards utilizing both mechanisms supporting the complements hypothesis whereas those alliances with lower levels of exchange hazards utilize only one type of governance mechanism finding seemingly contrasting results within a single institutional setting suggests that in addition to institution specific characteristics alliance specific characteristics may also be critical for understanding how alliance partners utilize multiple governance mechanisms

let s work it out or we ll see you in court litigation and private dispute resolution in vertical exchange relationships we examine how partners in vertical exchange relationships actually resolve disputes that are sufficiently serious to get lawyers involved reaching beyond the usual domain of organizational and management research we leverage findings from law and economics to offer a novel organizational perspective on litigation and private dispute resolution and we develop hypotheses about the likelihood of litigation in different exchange settings our empirical analysis generates three sets of new findings first counter to the received wisdom we see that the involvement of lawyers does not necessarily signal the bitter end of an exchange relationship because firms frequently manage to avoid litigation and resolve their disputes privately and they do so in a manner that accords with our theoretical predictions second we see that familiarity with exchange partners does not automatically lead to increased willingness to work things out rather our empirical results suggest that the impact of exchange duration on parties willingness to resolve disputes privately is contingent on the development of norms of cooperation in the event that such norms do not develop the probability of a litigated outcome actually increases over time finally we see that firms willingness to work things out privately is also influenced positively by the shadow of the future these findings are suggestive of a discriminating alignment between exchange characteristics and the choice of dispute resolution procedure and they thus inject important new evidence into ongoing discussions about the legal underpinnings of different governance forms

the existence of mixed strategy equilibria in a price setting oligopoly with convex costs this paper shows that a mixed strategy equilibrium will exist in an industry producing a homogeneous product with perfectly informed consumers if firms are identical and have weakly convex costs this generalises an earlier result by dasgupta and maskin

evolution in economic games abstract this paper examines the conditions under which evolutionary processes select equilibrium strategies of agents or firms under plausible dynamics optimal selection takes place provided that economic agents are small relative to the environment that is each such agent has a negligible effect on others payoffs however when this assumption is not met survival need not imply optimality examples in the contexts of bargaining bidding and market competition are presented

dynamic price competition with capacity constraints and a strategic buyer we analyze a simple dynamic durable good model two incumbent sellers and potential entrants choose their capacities at the start of the game we solve for equilibrium capacity choices and the necessarily mixed pricing strategies in equilibrium the buyer splits the order with positive probability to preserve competition making it possible that a high and low price seller both have sales sellers command a rent above the value of unmet demand by the other seller a buyer benefits from either a commitment not to make future purchases or by hiring an agent to always buy from the lowest priced seller

growth and volatility of tax revenues in latin america against the backdrop of high macroeconomic instability and the need to meet the demands of public spending we analyze the trade off between growth and volatility of tax revenues in latin america short run and long run elasticities for a sample of 11 economies are estimated accounting for state dependent asymmetric reactions controlling for composition of revenue sources and other idiosyncrasies we find revenues above below its long run equilibrium to react stronger weaker to business cycle dynamics our detailed elasticity estimates can give some orientation on how to stably reach higher tax levels on the way to develop an adequate internal tax system

the long reach of cotton in the us south tenant farming mechanization and low skill manufacturing abstract this paper examines the long run impact of cotton agriculture on local development in the us south focusing on a novel aspect of structural change exploiting climate based variation in cotton production i show that cotton specialization in the late 19th century had a negative impact on local development that lasts through 2010 this negative relationship however only became evident in the second half of the 20th century i argue that the change was caused by the mechanization of cotton production which began in the 1950s after the mechanization local manufacturing absorbed displaced cotton tenants with low human capital in response to the inflow of cotton tenants labor productivity in manufacturing began to decline and the effects persisted in the long run the persistent decline in manufacturing productivity is explained by directed technical change that reduced demand for skills in manufacturing these results indicate that depending on the agricultural background structural change can negatively affect the evolution of technology and productivity in the industrial sector

tenure systems in traditional china i a general equilibrium model of tenure preference classical marginalists at least after john clark provide an unequivocal solution for the conventional factor market where people sell the productive services of their resources to producers the productexhaustion theorem says that if factors are priced according to their marginal products incomes of all resource owners will exactly exhaust the value of total products in the long run competitive equilibrium this holds true regardless of which factor is variable and which is fixed and regardless of which group of resource owners perform as producers who buy productive services of other resources in the market and claim residuals for themselves in an agrarian economy with land and labor as the inputs a land owner may cultivate his land and purchase the labor input from outside paying a wage rate in accordance with labor s marginal product the land owner is then the residual claimant alternatively he may lease out his land and receive a fixed rental rate per unit of area equal to the marginal product of land in this case the tenant is the producer and claims the residual income distribution between the two parties remains the same under each land arrangement wage and rent are therefore identical conceptually the classical marginal analysis has not presented a satisfactory theory of share tenancy which instead of being a seller buyer transaction in a conventional factor market is essentially a partnership arrangement between two persons who own complementary factors hence the term land renting will hereafter denote the fixed rent system exclusively in fact the direct application of marginal analysis to share tenancy has created considerable confusion in early economic literature only recently some general equilibrium models of land tenure systems have been developed for better understanding of the

banks as coordinators of economic growth and stability microfoundation for macroeconomy with externality abstract competition among banks promotes growth and stability for an economy with production externality following arrow and debreu 1954 6 i formulate a standard growth model with externality a two period version of romer 1986 39 as a game among consumers firms and intermediaries the walrasian equilibrium with an auctioneer does not achieve the social optimum without an auctioneer or intermediaries i show that no nash equilibrium exists with several banks strategically intermediating capital a nash equilibrium emerges with a realistic institution i e an interbank market with a negotiation process in the loan market the equilibrium outcome is uniquely determined and socially optimal

the existence of equilibrium in discontinuous economic games i theory the article presents information about the existence of equilibrium in discontinuous economic games in this paper and its sequel presents study the existence of nash equilibrium in games where agents payoff functions are discontinuous the enquiry is motivated by a number of recent studies that have uncovered serious existence problems in seemingly innocuous economic games in the sequel to this paper authors have explained the utility function in the economic games referred to earlier are neither continuous nor quasi concave however they demonstrate that the payoff functions in mildly modified versions of these constructs exhibit two weaker forms of continuity which together with the requirement of quasi concavity suffice for the existence of an equilibrium from this one may conclude that at least in the modified versions of these models discontinuities in the payoff functions are not the real source of the problem rather it is the failure of the payoff functions to the quasi concave which is responsible for the non existence of equilibrium these observations bear on the existence of nash equilibrium in pure strategies

intertemporal diversification in financial intermediation abstract this paper examines the incentive problem between a bank and depositors or deposit insurer limited liability makes risk shifting lucrative we show how intertemporal diversification of lending decisions i e bank s loan portfolio consists of overlapping long term loans and is thus gradually renewed may solve the incentive problem of risk shifting a new or expanding bank sets a high equity level and acquires depositors confidence subsequently it can allow its equity to depreciate to a permanently lower level depositors can control the bank by monitoring equity and realized credit losses ex post they do not have to monitor bank s lending choices ex ante maturity mismatch illiquidity of long term loans and liquidity of deposits is optimal the analysis can be extended more generally to the borrower lender relationship

reach for the stars a strategic bidding game we examine two sided competition in a duopoly market for differentiated products downstream the two firms compete in prices upstream they compete in bidding to hire talent input and there is one unique superstar the outcome depends on the downstream effect of only one firm employing the superstar when this intensifies downstream competition both firms are worse off than they would be if no superstar talent were available when the hiring of the superstar softens downstream competition both firms benefit but a winner s curse emerges in which the firm winning the superstar talent earns less profit than its rival

dancing with the enemy relational hazards and the contingent value of repeat exchanges in m a markets i examine the problem of relational hazards between repeat exchange partners and the contingent roles of trade uncertainty and future exchange prospects in moderating the potentially conflicting effects of past exchanges on these hazards thereby facilitating or restraining the formation of relational embeddedness on the data of advisory relationships in u s mergers and acquisitions from 1981 to 2004 i find that firms that repeatedly hire the same investment banks as financial advisors tend to overpay for acquisition targets as reflected by negative investor reactions measured in the cumulative abnormal return in addition the degree of overpayment increases with the frequency of prior exchanges this adverse effect of exchange history grows if the uncertainty regarding the target firm rises however better prospects for future business with acquiring firms help mitigate this negative effect although this moderating effect varies across the types of exchange experience the findings suggest that a potentially complex and nuanced process underlies repeat exchanges which are an oft claimed precursor of relational embeddedness to deliver tangible economic benefits this study contributes to the emerging literature on the dark side of embeddedness and more broadly to the sociology of markets and organizations by substantiating the contingency mechanisms that shape the value of a repeat relationship in market exchanges

banking competition and market efficiency this paper analyses competition among financial intermediaries in a set up where financial intermediaries economize on duplicated monitoring diamond 1984 we analyse two different games in which both direct trade and indirect trade are available we show that in general equilibrium outcomes are inefficient so that diamond s efficiency result is fragile intermediation may increase rather than decrease transaction costs disintermediation may also be an equilibrium we discuss the role played by the nonconvexities of banks technology and that played by competition for deposits and loans

market making oligopoly this paper analyzes price competition between market makers who set costly capacity constraints before they intermediate between producers and consumers the unique equilibrium outcome with pure strategies at the capacity stage is the cournot outcome the paper thus provides a rationale for cournot type competition between market makers this contrasts with previous findings in the literature where due to the absence of capacity constraints that are set ex ante the bertrand result typically obtains

learning to contract evidence from the personal computer industry organizational forms involving more detailed contracts than are found in traditional spot market exchanges appear to be increasingly prevalent there has been relatively little analysis however of the extent to which firms learn how to use contracts to manage their interfirm relationships over time in this paper we conduct a detailed case study of a time series of 11 contracts concluded during 1989 1997 between the same two partners both of whom participate in the personal computer industry to explore whether and how firms learn to contract we find many changes to the structure of the contracts that cannot be fully explained by changes in the assets at risk in the relationship and evidence that these changes are largely the result of processes in which the firms were learning how to work together including learning how to contract with each other the nature of this learning appears to have been quite incremental and local that is not very far sighted we suggest how and when contracts might serve as repositories for knowledge about how to govern collaborations and suggest some boundary conditions for this phenomenon our findings also provide implications for the debate about whether contracts have a positive or negative effect on interorganizational trust we conclude with suggestions for future research

financial opening deposit insurance and risk in a model of banking competition abstract we study the impact of competition on banks risk taking behavior under different assumptions about deposit insurance and the dissemination of information while financial opening increases banks riskiness a risk based deposit insurance or alternatively the public disclosure of financial information are likely to mitigate this effect moreover the limiting cases of uninsured but fully informed depositors and risk based full deposit insurance yield the same equilibrium risk level although the welfare consequences of increased competition depend on its impact on risk financial opening unambiguously improves welfare as we approach the limiting cases

complementarity and evolution of contractual provisions an empirical study of it services contracts an increasing volume of business activity appears to be occurring via alliances or other interfirm arrangements in which complex contracts are featured yet there has been relatively little study of contract design in the strategy or management literatures the economics literature on contracting has been extensive but it has been less concerned with learning and evolution phenomena in which strategy and organization scholars are deeply interested in this paper we investigate the relationship between two types of contractual provisions that are important in high technology contracts or contracts for which environmental uncertainty or technological complexity are significant namely contingency planning and task description previous research suggests that contracts can vary significantly in the degree of detail with which such key provisions are written and that they are each subject to learning in this paper we find evidence from a sample of 386 contracts that contingency planning and task description behave as complements in contractual design we argue that this complementarity reflects patterns of learning to contract we also find that repeated exchange between two firms leads to greater effort at contingency planning in subsequent contracts a finding that is also consistent with learning effects but not with frequently made claims that contracts and trust are substitutes

who i am and how i contract the effect of contractors roles on the evolution of contract structure in university industry research agreements in this exploratory study of university industry sponsored research agreements we investigate how organizational roles direct the relational learning of contracting personnel which subsequently influences contract evolution integrating theory with comments from field interviews we posit that as scientists gain contracting experience with an exchange partner their focus of attention on knowledge creation supports the establishment of a relationship based on technical competence behavioral experience and operational routines that cause the enforcement terms of subsequent contracts to become less detailed we also submit that contract administrators because of their focus on knowledge protection mitigating opportunism and enforcement primarily accumulate joint governance experience and establish administrative routines that cause the enforcement terms of subsequent contracts to become more detailed rich content analysis of monitoring and intellectual property terms of sponsored research agreements supports our theoretically grounded hypotheses

dynamic elasticities of tax revenue evidence from the czech republic abstracttax revenue elasticities with respect to tax bases are key parameters for the modeling of public finances yet the existing studies estimating these elasticities for emerging countries disregard the effects of tax reforms on tax revenue which renders their estimates inconsistent we introduce a framework for estimating both short and long run tax revenue elasticities using quarterly data adjusted for the effects of reforms our results suggest that the long run elasticities in the czech republic are 1 4 for wage tax 0 9 for value added tax 1 7 for profit tax and 1 for social security contributions the adjustment process for value added tax and social security contributions is fast but for the remaining two categories it is important to distinguish between the short and long run elasticities the initial response of revenue to changes in the bases is weak in the case of wage tax it takes half a year for the elasticity to surpass unity

network prominence bargaining power and the allocation of value capturing rights in high tech alliance contracts we suggest and provide empirical evidence that the bargaining power of alliance partners stemming from their prominence in alliance networks influences the ex ante allocation of value capturing rights in high tech alliance contracts network prominence can enhance the availability of alternative partners for a firm and thereby elevates the firm s bargaining power and enables the firm to receive i more value capturing rights vis a vis its partner i e more net value capturing rights and ii more rights to the unexpected outcomes vis a vis its partner we empirically investigate the content of research and development r d collaboration contracts between biotech and pharmaceutical firms and show that as the prominence of the client i e pharmaceutical firm increases it is able to attain i more net value capturing rights to outcomes within the area of collaboration and ii more rights to unexpected outcomes by contrast increased prominence of the r d firm i e biotech firm decreases both t

the role of interbank markets in monetary policy a model with rationing the empirical research on monetary transmission has reported a number of puzzles challenging extant theoretical models of the transmission mechanism in this paper we argue that asymmetric information in the interbank market may be important to have a better understanding of the mechanisms at work in the transmission process we show that asymmetric information may induce an equilibrium with rationing this in turn has two major implications first it reconciles the apparent irresponsiveness of business investment to the user cost of capital with the large impact of monetary policy magnitude puzzle and second it shows that this impact will not be limited to short term credit supply but will also affect long term lending even if the corresponding interest rate is unaffected composition puzzle

private money and banking regulation we show that the regulation of lending practices is desirable for the optimal provision of private money in an environment in which bankers cannot commit to repay their creditors neither an unregulated banking system nor a form of narrow banking in which banks hold 100 in reserves can provide the socially efficient amount of money if bankers provided such an amount then they would prefer to default on their liabilities we show that a regulation that increases the value of the banking sector s assets e g by limiting competition in credit markets will mitigate the commitment problem if the return on the banking sector s assets is made sufficiently large then it is possible to implement an efficient allocation

reputation effects and the limits of contracting a study of the indian software industry this paper examines evidence of the role that reputation plays in determining contractual outcomes we conduct an empirical analysis of the indian customized software industry using a data set we collected containing detailed information on 230 projects carried out by 125 software firms we propose a model ofthe industry where reputation determines contractual outcomes the evidence supports the view that reputation matters ex ante contracts as well as the outcome after ex post renegotiation vary with firms characteristics plausibly associated with reputation this holds after controlling for project client and firm characteristics

tax base elasticities a multi state analysis of long run and short run dynamics we examine the relative dynamic responses of state personal tax revenues and sales tax bases to changes in state personal income our econometric analysis which includes separate analyses of long run and short run dynamics for each state permits the estimation of asymmetric short run responses depending upon the relationship between current and expected tax base growth results indicate that the average long run elasticity for income taxes is more than double that for sales taxes most states have asymmetric short run income elasticities which are again greater for income taxes than for sales taxes however a joint analysis of long and short run dynamics reveals that neither tax is universally more volatile after calculating state specific income elasticities for both taxes we employ cross section regression techniques to explain the variation in elasticities across states several policy factors are found to be important including elements of tax bases and rate structures

formal contracts in the presence of relational enforcement mechanisms evidence from technology development projects formal contracting addresses the moral hazard problems inherent in interfirm deals via explicit terms designed to achieve incentive alignment alternatively when firms expect to interact repeatedly relational mechanisms may achieve similar results without the associated costs however as we now know from a growing body of theoretical and empirical work the resulting intuition that relational mechanisms will be substituted for formal ones whenever possible does not generally hold the extent to which firms substitute relational mechanisms for formal ones in the presence of repeated interaction is an empirical question that forms the basis of this paper we study a sample of 52 joint technology development contracts in the telecommunications and microelectronics industries and devise a coding scheme to allow empirical comparison of contract terms counter to the above intuition but consistent with recent research we find that a firm s contracts are more detailed and more likely to include penalties when it engages in frequent deals whether with the same or different partners our results suggest complementarity between formal and relational contracts and have implications for optimal contracting particularly in high technology sectors

an exogeneity test for a simultaneous equation tobit model with an application to labor supply a test of weak exogeneity in the simultaneous equation tobit model is proposed and illustrated using a female labour supply model estimated using cross section data the test statistic can be simply output from any standard tobit maximum likelihood package and is asymptotically efficient the procedure provides consistent estimators for the simultaneous tobit model whose asymptotic covariance matrix is a simple extension of the usual tobit formula we also provide the lagrange multiplier test of weak exogeneity this abstract was borrowed from another version of this item

ex post adaptations and hybrid contracts in software development services we follow the recent literature on ex post adaptations in procurement and argue that highly volatile specifications result in multiple variations of fixed price fp and time and materials t m contracts specifically placing a cap on specification change in fp contracts prevents specification volatility similar to the way that placing a cap on the price in t m contracts prevents price escalation we argue that these hybrid mechanisms are particularly important in software development contracting a new critical business capability involving frequent and costly ex post adaptations to specification change the level of completeness in these contractual archetypes is hypothesized to be determined by contracting costs and benefits where costs are related to project uncertainty and benefits are related to the likelihood of vendor opportunism we test this hypothesis with a unique data set of 270 software development contracts entered into by a leading international bank the analysis confirms the existence of multiple hybrid contracts that mitigate both price escalation and specification volatility it also shows that contracting costs and benefits explain more variance in contract choice when these hybrids are included uncovering the detailed mechanisms used to curb opportunism when the vendor is less familiar to the client

off farm work technical efficiency and rice production risk in taiwan this article investigates the differences in yield production production efficiency and yield risk for farmers both with and without off farm work using a nationwide survey of rice farmers in taiwan we estimate two stochastic production frontier models that accommodate technical inefficiency and production risk simultaneously for farmers both with and without off farm work the stochastic dominance criterion is then applied to compare the differences in the distributions of the estimated technical efficiency and yield risk between groups the empirical results indicate that these two groups of farmers use resources in different ways and off farm work is not necessarily associated with lower technical efficiency for farmers in the lower percentiles of the efficiency distribution those with off farm work are more efficient than their counterparts without off farm work in addition farmers with off farm work face higher production risk and this result is robust for the entire distribution

an approach to equilibrium selection abstract we consider equilibrium selection in 2 2 bimatrix both symmetric and asymetric games with two strict nash equilibria by embedding the static games in a dynamic random matching framework played by a continuum of anonymous agents unlike in evolutionary games the players are rational and maximize discounted payoffs but they are restricted to make a short run commitment when choosing actions this dynamic game with frictions has stationary states which correspond to the nash equilibria of the static game our selection is based on differential stability properties of the stationary states it is shown that for a small degree of friction a strict nash equilibrium becomes uniquely absorbing and globally accessible if and only if it is risk dominant harsanyi and selten a general theory of equilibrium selection in games mit press cambridge ma 1988 journal of economic literature classification numbers c72 and c73