New market creation through transformation

Is new market creation a search and selectionprocess within the theoretical space of all possible markets? Or is it the outcome of a process of transformation of extant realities into new possibilities? In this article we consider new market creation as a process involving a new network of stakeholders. The network is initiated through an effectual commitment that sets in motion two concurrent cycles of expanding resources and convergingconstraints that result in the new market. The dynamic model was induced from two empirical investigations, a cognitive science-based investigation of entrepreneurial expertise, and a real time history of the RFID industry. JEL Classification: M13, M31, D4, D52, D71, D72, L1, L2, P42 We would like to thank the Batten Institute at the Darden Graduate School of Business Administration, University of Virginia, for supporting this research. We would also like to thank the following on specific contributions to our thesis: Anil Menon for his relentless insistence on more precise formulations of effectual reasoning; Jim March for his conversation and for inspiring us to dig into Type I and Type II errors; Rob Wiltbank for firming up the section on opportunity costs; and Stuart Read for helping us clarify our writing. Correspondence to: S.D. Sarasvathy     

Computationally restricted unmediated talk under incomplete information

Summary. We show the role of unmediated talk with computational complexity bounds as both an information transmission and a coordination device for the class of two-player games with incomplete information and rational parameters. We prove that any communication equilibrium payoff of such games can be reached as a Bayesian-Nash equilibrium payoff of the game extended by a two phase universal mechanism of interim computationally restricted pre-play communication. The communication protocols are designed with the help of modern cryptographic tools. A familiar context in which our results could be applied is bilateral trading with incomplete information.Received: 9 September 2002, Revised: 14 March 2003, JEL Classification Numbers: C72. Correspondence to: Amparo UrbanoWe wish to thank financial aid from the Valencian Institute of Economic Research (IVIE) and partial support by DIGCYT under project PB95 - 1074. A previous version of this work appears as IVIE Working Paper WP-AD 99-07, under the title: "Unmediated talk under incomplete information".     

Regression analysis on the variation in efficiency frontiers for prevention stage of HIV/AIDS

Abstract

Objectives:

To investigate how the cost effectiveness of preventing HIV/AIDS varies across possible efficiency frontiers (EFs) by taking into account potentially relevant external factors, such as prevention stage, and how the EFs can be characterized using regression analysis given uncertainty of the QALY-cost estimates.

Methods:

We reviewed cost-effectiveness estimates for the prevention and treatment of HIV/AIDS published from 2002–2007 and catalogued in the Tufts Medical Center Cost-Effectiveness Analysis (CEA) Registry. We constructed efficiency frontier (EF) curves by plotting QALYs against costs, using methods used by the Institute for Quality and Efficiency in Health Care (IQWiG) in Germany. We stratified the QALY-cost ratios by prevention stage, country of study, and payer perspective, and estimated EF equations using log and square-root models.

Results:

A total of 53 QALY-cost ratios were identified for HIV/AIDS in the Tufts CEA Registry. Plotted ratios stratified by prevention stage were visually grouped into a cluster consisting of primary/secondary prevention measures and a cluster consisting of tertiary measures. Correlation coefficients for each cluster were statistically significant. For each cluster, we derived two EF equations – one based on the log model, and one based on the square-root model.

Discussion:

Our findings indicate that stratification of HIV/AIDS interventions by prevention stage can yield distinct EFs, and that the correlation and regression analyses are useful for parametrically characterizing EF equations. Our study has certain limitations, such as the small number of included articles and the potential for study populations to be non-representative of countries of interest. Nonetheless, our approach could help develop a deeper appreciation of cost effectiveness beyond the deterministic approach developed by IQWiG.     

Review

Peter Young & Paul Reynolds, The Amnesia of Reform. A Review of Post‐Communist Privatization. London: Adam Smith Research Trust, 1994, 40 pp., p/b.

Michael Kaser, Privatization in the CIS. London: Royal Institute of International Affairs, 1995, 62 pp., p/b.     

Wal‐Mart innovation and productivity: a viewpoint

Abstract Technology effects, business process development, and productivity growth are considered in the context of a single company: Wal‐Mart. The starting point is the 2001 McKinsey Global Institute report, which finds that over 1995–2000, a quarter of U.S. productivity growth is attributable to the retail industry, and almost a sixth of that is attributable to Wal‐Mart. Wal‐Mart is interesting as well because of its rapid growth in Canada. This is now Canada's largest private sector employer. We also consider other evidence relevant to public policy formation concerning Wal‐Mart and conclude with a discussion of options for partially filling important data gaps.     

Does a Switch of Budget Regimes Affect Investment and Managerial Discretion of State-Owned Enterprises? Evidence from Italian Firms

We investigate the investment decisions of Italian state-owned enterprises (SOEs) across budget constraint regimes and carry out a natural experiment that exploits a regime switch in 1987. Drawing on the theory of capital market imperfections, we apply an empirical framework for investment analysis to a panel of manufacturing SOEs in competitive industries. We identify parallels between SOEs and widely held, quoted companies afflicted by agency problems, managerial discretion, and overinvestment. We argue that, in the case of SOEs, the soft budget regime increases managerial discretion, facilitates collusion with vote-seeking politicians, and results in wasteful investment. Consistent with our predictions, we find that the regime switch disciplines SOE's investment behavior. Following a hardening of the budget constraint, managers lose discretion to indulge in collusion and overinvestment. J. Comp. Econ., June 2002 30(4), pp. 787–811. London School of Economics and Political Science, Houghton Street, London WC2A 2AE, United Kingdom; and CERIS–CNR, Institute for Economic Research on Firms and Growth, National Research Council, Via Avogadro, 8, 10121 Turin, Italy. © 2002 Association for Comparative Economic Studies. Published by Elsevier Science (USA). All rights reserved.Journal of Economic Literature Classification Numbers: E32, G31, G32, L32, M40.     

When does Strategic Debt-service Matter?

Recent work in corporate finance has suggested that strategic debt-service by equity-holders works to lower debt values and raise yield spreads substantially. We show that this is not quite correct. With optimal cash management, defaults occassioned by deliberate underperformance (strategic defaults) and those forced by inadequate cash (liquidity defaults) work as substitutes: allowing for strategic debt-service leads to a decline in the equilibrium likelihood of liquidity defaults. In some cases, this decline is sufficiently sharp that equilibrium debt values actually increase and yield spreads decline. We provide an intuitive explanation for these results in terms of an interaction of optionalitiesExpanded versions of this paper were presented in conferences and seminars at the Scottish Institute for Research in Finance, European Finance Association, Western Finance Association, Financial Management Association, 10th Derivative Securities Conference, Santa Clara University, Virginia Tech, the Norwegian School of Management, the Norwegian School of Business and Economics, Duke University, and Carnegie-Mellon University. We benefitted greatly from the comments of participants at these seminars and would particularly like to thank Francesca Cornelli, Kose John, Pete Kyle, Sanjay Unni, and Raman Uppal in this context     

The (S,s) Policy is an Optimal Trading Strategy in a Class of Commodity Price Speculation Problems

This paper introduces a model of commodity price speculation and proves that the optimal trading strategy is of the (S,s) form when a no expected loss condition holds. A strong form of this condition is that the retail price charged to consumers at time t exceeds the expected wholesale price of the commodity at time t+1, i.e. , where β ∈(0,1) is the speculator’s discount factor. We are extremely grateful to Herbert Scarf for pointing out an important error in a previous draft of this paper and for suggesting the key argument in a revised proof that fixed the problem. We also benefited from helpful feedback from an anonymous referee, William Brainard, Zvi Eckstein, participants of seminars at Yale, the Operations Research Center at MIT, and the Econometric Society Winter School at the Indian Statistical Institute, New Delhi.     

Social learning with private and common values

Summary. We consider an environment where individuals sequentially choose among several actions. The payoff to an individual depends on her action choice, the state of the world, and an idiosyncratic, privately observed preference shock. Under weak conditions, as the number of individuals increases, the sequence of choices always reveals the state of the world. This contrasts with the familiar result for pure common-value environments where the state is never learned, resulting in herds or informational cascades. The medium run dynamics to convergence can be very complex and non-monotone: posterior beliefs may be concentrated on a wrong state for a long time, shifting suddenly to the correct state.Received: 6 January 2005, Revised: 5 May 2005, JEL Classification Numbers: C72, D82.Jacob K. Goeree: Correspondence toFinancial support from the National Science Foundation NSF (SBR-0098400 and SES-0079301) and the Alfred P. Sloan Foundation is gratefully acknowledged. We thank Richard McKelvey posthumously for insights and conjectures about information aggregation that helped shape our thinking about the problem. We also acknowledge helpful comments from Kim Border, Tilman Börgers, Bogachen Celen, Luis Corchon, Matthew Jackson and seminar participants at University College London, the University of Arizona, Universitat Autonoma de Barcelona, the California Institute of Technology, the 2003 annual meeting of ESA in Pittsburgh, the 2003 Malaga Workshop on Social Choice and Welfare Economics, the 2003 SAET meetings in Rhodos, and the 2003 ESSET meetings in Gerzensee.     

The economic implications of exaptation

Accounts of economic change recognize that markets create selective pressures for the adaptation of technologies in the direction of customer needs and production efficiencies. However, non-adaptational bases for technological change are rarely highlighted, despite their pervasiveness in the history of technical and economic change. In this paper the concept of exaptation -a feature co-opted for its present role from some other origin - is proposed as a characteristic element of technological change, and an important mechanism by which new markets for products and services are created by entrepreneurs. Exaptation is a missing but central concept linking the evolution of technology with the entrepreneurial creation of new markets and the concept of Knightian uncertainty.JEL Classification: O3, M13, D8, D52Correspondence to: Nicholas DewThe authors would like to acknowledge the financial support of the Batten Institute of the Darden School of Business Administration, University of Virginia, for carrying out this research. We also wish to thank Rama Velamuri and an anonymous referee for their comments, which significantly improved this paper. All remaining faults are the sole responsibility of the authors.     

The cost-effectiveness of celecoxib vs diclofenac in the treatment of osteoarthritis in the UK; an update to the NICE model using data from the CONDOR trial

Abstract

Objectives:

The National Institute for Health and Clinical Excellence (NICE) health economic model for assessing the cost-effectiveness of celecoxib plus a proton pump inhibitor (PPI) compared to diclofenac plus PPI in the treatment of osteoarthritis has been updated using new adverse event (AE) risks from the CONDOR trial. In light of this new information, this study aimed to evaluate the incremental cost-effectiveness ratio (ICER) of celecoxib plus PPI compared to diclofenac plus PPI.

Methods:

NICE developed a health economic model as part of their 2008 multiple technology assessment of treatments for osteoarthritis. The model was adapted for this study to update the relative risks of adverse events, using data from the CONDOR trial.

Results:

Using the AE data from the CLASS trial alone, celecoxib plus PPI has an ICER of £9538 per QALY when compared to diclofenac plus PPI. When the AE data from CONDOR alone is used, this ICER decreases to £4773 per QALY. Using the pooled data from both trials, celecoxib plus PPI has an ICER of £9377 per QALY compared to diclofenac plus PPI.

Discussion:

The results suggest that when new AE risks are used, celecoxib plus PPI remains a cost-effective treatment for OA when compared to diclofenac plus PPI. However, this analysis is limited by the short time horizon, and additional AEs that have not been considered.     

A general revealed preference theorem for stochastic demand behavior

Summary. We present a general revealed preference theorem concerning stochastic choice behavior by consumers. We show that, when the consumer spends her entire wealth, the Weak Axiom of Stochastic Revealed Preference due to Bandyopadhyay, Dasgupta, and Pattanaik (1999) is equivalent to a restriction on stochastic demand behavior that we call stochastic substitutability. We also show that the relationship between the Weak Axiom of Revealed Preference and Samuelson's inequality in the deterministic theory, and the main result of Bandyopadhyay, Dasgupta, and Pattanaik (1999) are both special cases of our result.Received: 10 September 2001, Revised: 4 April 2003, JEL Classification Numbers: D11. Correspondence to: Prasanta K. PattanaikOur greatest debt is to the referee of this paper, who made numerous helpful suggestions. We thank Robin Cubitt, Kunal Sengupta and seminar audiences at Jawaharlal Nehru University, Indian Statistical Institute, University of East Anglia, Universidad Carlos III, University of Essex and University of Montreal for their helpful comments. Prasanta K. Pattanaik acknowledges his intellectual debt to Salvador Barbera, Tapas Majumdar and Amartya Sen.     

Are incomplete markets able to achieve minimal efficiency?

Summary. We consider economies with incomplete markets, one good per state, two periods, t = 0,1, private ownership of initial endowments, a single firm, and no assets other than shares in this firm. In Dierker, Dierker, Grodal (2002), we give an example of such an economy in which all market equilibria are constrained inefficient. In this paper, we weaken the concept of constrained efficiency by taking away the planners right to determine consumers investments. An allocation is called minimally constrained efficient if a planner, who can only determine the production plan and the distribution of consumption at t = 0, cannot find a Pareto improvement. We present an example with arbitrarily small income effects in which no market equilibrium is minimally constrained efficient.Received: 26 November 2002, Revised: 28 May 2003, JEL Classification Numbers: D2, D52, D61, G1.We are grateful to an anonymous referee for very valuable comments. E. and H. Dierker would like to thank the Institute of Economics, University of Copenhagen, for its hospitality and its financial support.     

Asset trading volume in a production economy

Judd et al. (J Finance 63: 2203–2217, 2003) show that the stationary Lucas tree model cannot generate nontrivial asset trading: Heterogenous agents will optimally choose a fixed portfolio after initial rebalancing. This paper explores asset trading volume in production economies with heterogeneous agents and dynamically complete market structures. We establish a recursive version of the Negishi approach to prove the existence of a competitive equilibrium. Furthermore, we develop a general method to solve for equilibrium portfolios in production economies within a fairly general set of complete market structures. We thus establish the theoretical reasons why production economies in general generate a nontrivial volume of asset trading even if heterogeneity of the agents is kept to a minimum. We would like to thank W. Brock, D. DeJong and, especially, H. Ennis for comments and suggestions. We also thank seminar participants at Di Tella and San Andrés Universities (Argentina), the Institute for Advanced Studies (Austria), SED Meetings 2005 (Budapest) and SAET Conference 2005 (Vigo).     

Asset price volatility and trading volume with rational beliefs

Summary. This paper develops a model of speculative trading in a large economy with a continuum of investors. In our model the investors are assumed to have diverse beliefs which are rational in the sense of being compatible with observed data. We demonstrate the existence of price amplification effects and show that the equilibrium prices can be higher or lower than the rational expectation equilibrium price. It is also shown that trading volume is positively related to the directions of price changes. Moreover, we study how asset price volatility and trading volume are influenced by belief structures, short selling constraints and the amount of fund available for investment.Received: 23 January 2003, Revised: 30 April 2003, JEL Classification Numbers: D84, G12.We are grateful to Professors Mordecai Kurz, Kenneth Arrow, Kenneth Judd, Carsten Nielsen, Maurizio Motolese, Mark Garmaise, Jean-Michel Grandmont, Peter Hammond, Karl Shell, Jan Werner and participants of the Society for the Advancement of Economic Theory (SAET) Conference and Stanford Institute of Theoretical Economics (SITE) Conference for many helpful suggestions. Correspondence to: H.-M. Wu     

Fiscal policy and private consumption behaviour: The Spanish case

In this article we analyse whether the Ricardian equivalence hypothesis is a valid approximation for Spains economic reality or whether there exist deviations from that situation which would be more in line with the conventional Keynesian perspective of the effects of debt on private consumption-savings decisions.Our aim is to contribute to the rather sparse empirical literature on the subject for the Spanish case. The analysis is based on annual aggregate data for Spain covering the years 1955 to 2000, and uses both the structural and the Euler equation approaches to test the neutrality proposition, and is thus to be considered as a generalization of foregoing work on the Spanish economy.The findings indicate that support for Ricardian equivalence is mixed, while we also find very little support for the Keynesian specification of consumption and fiscal policy.First revision received: March 2003 / Final version received: October 2003The authors wish to thank M. Ferré, J.M. González-Páramo, A. Marchante, P. Meguire, F. Pedraja, J.L. Raymond, J. Salinas and two anonymous referees for their helpful comments and suggestions on this paper. We also thank the participants in the V Encuentro de Economía Aplicada (Oviedo, Spain, June 2002) and the XVII Simposio de Análisis Económico (Salamanca, Spain, December 2002) for their comments. Any remaining defects are our responsibility. We also are grateful to the Institute for Fiscal Studies of Spain (Ministerio de Hacienda, Secretaría de Estado de Hacienda) for its financial support.     

The impact of increasing neurological disability of multiple sclerosis on health utilities: a systematic review of the literature

Abstract

Background: Multiple sclerosis (MS) is a debilitating disease, accompanied by neurological symptoms of varying severity. Utilities are a key summary index measure used in assessing health-related quality of life in individuals with MS.

Objectives: To provide a systematic review of the literature on utilities of relapsing-remitting MS (RRMS) and secondary progressive MS (SPMS) patients and to review changes in utilities associated with the increasing neurological disability of different stages of MS, as measured by the Expanded Disability Status Scale (EDSS).

Methods: Employing pre-defined search terms and inclusion/exclusion criteria, systematic searches of the literature were conducted in EMBASE, MEDLINE, PsycINFO, the Health Economic Evaluation Database (HEED), and the NHS Economic Evaluations Database (NHS/EED). Proceedings for the International Society for Pharmacoeconomics and Outcomes Research (ISPOR), the European Society for Treatment and Research in MS (ECTRIMS), the American Society for Treatment and Research in MS (ACTRIMS), and the Latin American Society for Treatment and Research in MS (LACTRIMS) were reviewed in addition to the UK National Institute for Health and Clinical Excellence website and the table of contents of PharmacoEconomics and Value in Health.

Results: This review identified 18 studies reporting utilities associated with health states of MS. Utilities ranged from 0.80 to 0.92 for patients with an EDSS score of 1, from 0.49 to 0.71 for patients with an EDSS score of 3, from 0.39 to 0.54 for patients with an EDSS score of 6.5, and from –0.19 to 0.1 for patients with an EDSS score of 9.

Limitations: Several of the studies reviewed relied on data from patient organizations, which may not be fully representative of the general patient populations. Additionally, the majority of the studies relied on retrospective data collection.

Conclusions: Utilities decrease substantially with increasing neurological disability. Cross-country differences are minimal with utility scores following a similar pattern across countries for patients at similar disease severity levels. This consistency in findings is noteworthy, as there is a reliable evidence base for selecting utility values for economic evaluation analyses. However, more research is needed to explore potential differences in utilities between RRMS and SPMS patients.     

Privatization and Price Liberalization: Comparative Analysis

Two transition paths from a mixed to market economy are investigated: a gradual increase in state retail prices and a gradual decrease of the state sector's share of the economy. The analysis is carried out in the framework of a general equilibrium model of a mixed economy with production. It is shown that, for a representative agent, privatization is better than price liberalization during the entire transition period regardless of individual preferences. For an economy with heterogeneous agents the conclusion remains valid for rich agents, but it is indeterminate for poor agents.J. Comp. Econom.,June 1997,24(3), pp. 313–334. Central Institute of Economics and Mathematics, Moscow 117418, Russia.     

Metropolitics: A regional agenda for community and stability

The problem of urban sprawl is explored in terms of its effects on the concentration of poverty, the decline of inner suburbs, and the distribution of economic and other benefits toward the “favored quarters” of a region. Also considered are the costs of the polarization that is symptomatic of urban sprawl, the benefits of regional cooperation and obstacles to attaining that cooperation. Metropolitan Area Research Corporation This is a summary of Myron Orfield's 1997 book,MetroPolitics: A Regional Agenda for Community and Stability. Washington, D.C.: Brookings Institution and Lincoln Institute for Land Policy.