Foresight and innovation in the context of industrial clusters: The case of some Italian districts

The “territory” is widely recognized in the literature on business strategy as a critical driver of industrial competitiveness (see, as an example, Porter, The Competitive Advantage of Nations). The generation and exploitation of new knowledge, both tacit and explicit, through the process of socialization, articulation, combination and internalization (see Nonaka and Takeuchi, The Knowledge-Creating Company) is essential to enable innovation of processes and products of “local” firms.Our recent Foresight exercises in the metal working and machinery district of Lecco and in the silk district of Como show that Foresight can play an important role in creating and exploiting new knowledge, and that different methodologies can be more or less effective to this aim.Critical technology list and interactive workshops, with the participation of entrepreneurs of SMEs and technologists, are more suited to foster the transfer of technologies that have overcome the initial stage of the life cycle and that have been already applied in other sectors. However, when radical innovations are needed in order to face the challenges posed by global competition, other methodologies, as Scenarios, are more appropriate. Even if these approaches are complex and time and resource consuming, they may be very effective in actively involving the most relevant private and public stakeholders of a district, and in making them to envisage the long term future of the economic, social, and cultural structure of their district. In this way Foresight drives the small entrepreneurs, the district stakeholders and the medium and large size firms to play the critical roles of Nonaka and Takeuchi's “frontline employees”, “senior managers” and “middle managers” in their “knowledge creating company”: the first ones grasp what the district is; the second ones build the vision of what it ought to be; the third ones, serve as a bridge between the future and the present.     

Operators for the adjudication of conflicting claims

We consider the problem of allocating some amount of an infinitely divisible and homogeneous resource among agents having claims on this resource that cannot be jointly honored. A “rule” associates with each such problem a feasible division. Our goal is to uncover the structure of the space of rules. For that purpose, we study “operators” on the space, that is, mappings that associate to each rule another one. Duality, claims truncation, and attribution of minimal rights are the operators we consider. We first establish a number of results linking them. Then, we determine which properties of rules are preserved under each of these operators, and which are not.     

Perfect competition in asymmetric information economies: compatibility of efficiency and incentives

The idea of perfect competition for an economy with asymmetric information is formalized via an idiosyncratic signal process in which the private signals of almost every individual agent can influence only a negligible group of agents, and the individual agents’ relevant signals are essentially pairwise independent conditioned on the true states of nature. Thus, there is no incentive for an individual agent to manipulate her private information. The existence of incentive compatible, ex post Walrasian allocations is shown for such a perfectly competitive asymmetric information economy with or without “common values”. Consequently, the conflict between incentive compatibility and Pareto efficiency is resolved exactly, and its asymptotic version is derived for a sequence of large, but finite private information economies.     

Scenarios of technology and innovation policies in Europe: Investigating future governance

In Europe, public research, technology and innovation policies are no longer exclusively in the hands of national authorities: increasingly, national initiatives are supplemented by, or even competing with, regional innovation policies or transnational programmes, in particular the activities of the European Union. At the same time, industrial innovation increasingly occurs within international networks. Are we witnessing a change of governance in European innovation policy? Based on some theoretical assumptions concerning the relationship between the “political systems” and “innovation systems” in Europe, the paper speculates about the future governance of innovation policies, trying to pave ways for empirical analyses. It sketches three scenarios stretching from (1) the idea of an increasingly centralised and dominating European innovation policy arena to (2) the opposite, i.e., a progressive decentralisation and open competition between partly strengthened, partly weakened national or regional innovation systems and finally to (3) the vision of a centrally “mediated” mixture of competition and cooperation between diverse regional innovation cultures and a related governance structure.     

Equilibrium selection and the dynamic evolution of preferences

A population of fully rational agents plays a symmetric 2-player game in biological fitnesses, but each agent?s play is determined by his payoffs, which are free to evolve according to “survival of the fittest” pressures. An equilibrium-selection mechanism is assumed to exist, and deliver a unique outcome for any given profile of payoffs; this allows the evolution of payoffs to be modeled as a well-defined replicator dynamics. The existing static stability results that “efficient strict Nash implies stability” and “stability implies efficiency” are translated to this dynamic context, although the latter gives way to indeterminacy in the absence of a specific equilibrium-selection mechanism. A strong form of stability is established for the efficient outcome of games with common interests, whilst a weaker stability result is provided for efficient mixed-strategy equilibria of doubly symmetric games. The results are illustrated using the equilibrium-selection mechanism provided by global games.     

Competition between insurers with superior information

We analyze markets where insurers are better informed about risk than consumers. We show that even competitive markets may result in insufficient information revelation and inefficient insurance coverage. This explains why certain risky consumers remain uninsured and why certain market segments are persistently profitable. We also show robustness to competition in menus or mechanisms. Our analysis of the “contrary of adverse selection” (competition between principals with common value and exclusivity) is suitable for other markets (lawyers, doctors, mechanics, etc.).     

The political economy of global carbon emissions reductions

The discussion about what reductions in greenhouse gas emissions are required and how the emissions rights might be distributed globally has fostered the belief that there is a fundamental conflict between the rich nations of the “North” and the poor but populous nations of the “South.” The argument is that grandfathering the rights will only reinforce existing global inequalities, while per capita distribution of the rights would lead to such huge transfers of wealth to the South as to be unacceptable to the North. However, a very simple general equilibrium model highlighting key elements of the global economy shows that this perception is incorrect under a plausible interpretation of the goal of the United Nations Framework Convention on Climate Change to “avoid dangerous anthropogenic interference with the climate system.” Instead of using an economic damage function to determine the optimal level of emissions reductions, the model's utility functions are calibrated to reflect scientific understanding of what would be required to stabilize the atmosphere at safe concentrations of greenhouse gases. Among policy options that would accomplish this, the United States has a preference for grandfathering the allocation of emissions rights over a per capita allocation, but this preference is not strong and could be offset by other geopolitical considerations.     

Risk taking by agents: The role of ex-ante and ex-post accountability

We study the role of accountability in situations where an agent makes risky decisions for a principal. We observe that in the absence of accountability, agents choose less risk averse investments for the principal than investors who invest for their own account. Accountability mitigates the observed decrease in risk aversion. Differences are observed between situations where agents are accountable for their decision (“ex-ante”) and where they are accountable for the outcome (“ex-post”).     

Match choice and Ghettoization in evolutionary games

I study how having a choice about who to play affects the conventions that arise in a population playing a 2×2 common interest game. Match choice allows agents playing “fragile but efficient” strategies to isolate themselves, raising their returns but making it harder for outsiders to duplicate their success. When agents are myopic, the second effect dominates: long run play can shift toward either the risk-dominant equilibrium (with common interests in matching) or toward the inefficient equilibrium (with opposing interests in matching). In contrast, when agents are patient, supra-Nash payoffs can be sustained.     

Collusion and discrimination in organizations

In a principal-multi-agent setting we investigate how optimal contracts should be modified under relative performance evaluation when agents collude. Agents may write side-contracts, which are not contingent on their effort choices but indirectly control them through side-transfers. We show that the optimal collusion-proof contract is to introduce a “discriminatory policy” in the sense that the wage schemes offered to agents depend on their identities even if they are identical with respect to productive abilities. Such discriminatory wage schemes explain the organizational strategy of “divide and conquer” as an optimal response to collusion.     

Endogenous asset ownership structures in deregulated markets

This paper determines the equilibrium ownership structure in an emerging market deregulated by a joint privatization and investment liberalization. It is shown that bidding competition in the privatization stage is not sufficient for reaching an efficient equilibrium market structure. Competition in the ensuing entry stage is also required. Otherwise, one firm can induce another to take the role of the weak firm in the subsequent product market competition, by making concessions in the bidding in the privatization auction. It is also shown that Employment Guarantees may “help” the buyer of the privatized firm “abstain” from investing and thus create a less competitive market structure.     

Self-admissible sets

Best-response sets (Pearce, 1984 [28]) characterize the epistemic condition of “rationality and common belief of rationality.” When rationality incorporates a weak-dominance (admissibility) requirement, the self-admissible set (SAS) concept (Brandenburger, Friedenberg, and Keisler, 2008 [17]) characterizes “rationality and common assumption of rationality.” We analyze the behavior of SAS's in some games of interest—Centipede, the Finitely Repeated Prisoner's Dilemma, and Chain Store. We then establish some general properties of SAS's, including a characterization in perfect-information games.     

Uniqueness of stationary equilibria in a one-dimensional model of bargaining

We prove uniqueness of stationary equilibria in a one-dimensional model of bargaining with quadratic utilities, for an arbitrary common discount factor. For general concave utilities, we prove existence and uniqueness of a “minimal” stationary equilibrium and of a “maximal” stationary equilibrium. We provide an example of multiple stationary equilibria with concave (nonquadratic) utilities.     

Selectivity in hierarchical social systems

We consider a selection process and a hierarchical institution in a dynamic model as in Harrington (1998) [4], where agents are “climbing the pyramid” in a rank-order contest based on the “up or out” policy. Agents are matched in pairs to compete, and each pair faces a particular environment. They are ranked according to the quality of their performances in this particular environment, and a fraction of the highest ranked agents are promoted. The size of this fraction characterizes the selectivity of the process, and we distinguish between local and global selectivity. We study the role of the degree of selectivity in the dynamic process where types of agent differ in their expected performances. Surprisingly, we find that an increase in the selectivity of the process can be detrimental to the agents with the highest expected performances and can increase the survivability of the lesser performing. However, if the selectivity decreases, the only survivor is the agent with the highest expected performance.     

Using scenarios for roadmapping: The case of clean production

Roadmapping and scenarios are two widely used futures techniques which help R&D managers set priorities for research. These techniques are combined in a Foresight exercise assessing development of clean production in metal manufacturing, drawing on the European CLEANPROD project. The aim of the project is to develop a set of roadmaps for metal processing R&D to achieve breakthrough sustainability — “clean production”.Scenarios, a frequently used Foresight method, are used to set the context for the exercise, inform the design of technology roadmaps and influence the wider policy context. Roadmaps are developed for three process areas of metal manufacture - surface preparation, machining and coating - on four levels including long run visions up to 2020, interim targets up to 2015, key R&D areas and specific project topics. Roadmaps are appraised in the light of alternative scenarios on the future of manufacturing. Promoting sustainability highlights gaps in a “business as usual” roadmap, suggesting a different portfolio of research projects. A revised overall scenario is used to shape public policy.R&D teams usually adopt one particular methodology to support resource allocation. However joint use of futures techniques helps if there is uncertainty over competing alternative technologies. Roadmapping often focuses on a single future. Scenario building as a Foresight technique introduces “multiple futures” thinking.     

Competing for capital when labor is heterogeneous

This paper investigates the impacts of capital mobility and tax competition in a setting with imperfect matching between firms and workers. The small country attracts less firms than the large one but accommodates a share of the industry that exceeds its capital share—a reverse home market effect. This allows the small country to be more aggressive and to set a higher tax rate than the large one, thus implying that tax competition reduces international inequalities. However, the large country always attains a higher utility than does the small country. Our model thus encapsulates both the “importance of being small” and the “importance of being large”. Last, tax harmonization benefits to the small country but is detrimental to the large one.     

Unlocking the promise of mobile value-added services by applying new collaborative business models

Due to the intense voice service competition and subscriber growth saturation, the average revenue per user (ARPU) of mobile communications service providers continues to decline, thereby severely affecting their total revenue and profitability. To counter this challenge, mobile communications service providers are now moving from “tariff competition” to “service competition.” As mobile communications enter the next-generation network (NGN) era, network bandwidth and transmission speed are greatly enhanced. The enhancement enables mobile communications service providers to provide content-rich, multimedia value-added services to create new service value, meet demands of customers, and increase ARPU. To understand how to construct mobile value-added services, this study uses survey forms to collect feedback from 35 industry and research institution experts and scholars and to present systematically the finding on the mobile value-added services strategy. The research employs the analytic network process (ANP) to analyze the strategy of mobile service providers in delivering mobile services in the NGN. The business strategy evaluation framework and evaluation result can be used as guides for players in the mobile communications industry to review, improve, and enhance their service and strategy.     

Managerial incentives and collusive behavior

I characterize the effects of empirically observed managerial incentives on long-run oligopolistic competition. When managers have a preference for smooth time-paths of profits - as revealed by the empirical literature on “income smoothing” - manager-led firms can sustain collusive agreements at lower discount factors. Capped bonus plans and incumbency rents with termination threats make collusion supportable at any discount factor, independent of contracts' duration. When managers have these preferences/incentives and demand fluctuates, “price wars during booms” need not occur: the most collusive price may then be pro-cyclical.     

The veil of public ignorance

A theory of cooperative choice under incomplete information is developed in which agents possess private information at the time of contracting and have agreed on a utilitarian “standard of evaluation” governing choices under complete information. The task is to extend this standard to situations of incomplete information. Our first main result generalizes Harsanyi's (J. Polit. Econ. 63 (1955) 309) classical result to situations of incomplete information, assuming that group preferences satisfy Bayesian Coherence and Interim Pareto Dominance. These axioms are mutually compatible if and only if a common prior exists. We argue that this result partly resolves the impossibility of Bayesian preference aggregation under complete information.     

Can micro-credit bring development?

We examine the long-run effects of micro-credit on development in an occupational choice model similar to Banerjee and Newman (JPE, 1993). Micro-credit is modeled as a pure improvement in the credit market that opens up self-employment options to some agents who otherwise could only work for wages or subsist. Micro-credit can either raise or lower long-run GDP, since it can lower use of both subsistence and full-scale industrial technologies. It typically lowers long-run inequality and poverty, by making subsistence payoffs less widespread. Thus, an equity-efficiency tradeoff may be involved in the promotion of micro-credit. However, in a worst case scenario, micro-credit has purely negative long-run effects. The key to micro-credit's long-run effects is found to be the “graduation rate”, defined as the rate at which the self-employed build up enough wealth to start full-scale firms. We distinguish between two avenues for graduation: “winner” graduation (of those who earn above-average returns in self-employment) and “saver” graduation (due to gradual accumulation of average returns in self-employment). Long-run development is not attainable via micro-credit if “winner” graduation is the sole avenue for graduation. In contrast, if the saving rate and self-employment returns of the average micro-borrower are jointly high enough, then micro-credit can bring an economy from stagnation to full development through “saver” graduation. Thus the lasting effects of micro-credit may partially depend on simultaneous facilitation of micro-saving. Eventual graduation of the average borrower, rather than indefinite retention, should be the goal of micro-banks if micro-credit is to be a stepping stone to broad-based development rather than at best an anti-poverty tool.