Focused Firms and the Incentive to Innovate

This paper explores the possibility that a firm may make a credible strategic commitment to high levels of innovation by limiting its horizontal or vertical scope. Specifically, I develop a model in which a firm decides whether to undertake an innovation that affects a system of products, which can also be interpreted as multiple stages of the production process. The products are technologically related, and innovation in the core product is assumed to impose costs on the producers of ancillary products, due to cannibalization of the old technology and redesign or retooling costs, for example. I demonstrate that a firm may optimally and credibly commit to innovate by choosing to be a focused firm and licensing the production of the ancillary product, even when licensees are inefficient. In stark contrast to the irrelevance results of the strategic delegation literature, this commitment may be credible even when licensing contracts are renegotiable, but only if licensees are sufficiently inefficient.     

Tax Competition between Unitary and Federal Countries

We analyse taxation of capital in a two-country model, where one country is unitary while the other one is federal, consisting of two identical regions. Both national and regional governments levy a tax on capital. The countries play a noncooperative game between them, with the government of the federal country acting as a Stackelberg leader with respect to its regional governments. We show under what circumstances, at equilibrium, the federal country sets its tax rate inefficiently low, while the unitary country sets it inefficiently high.We are deeply grateful to three anonymous referees for their comments, and especially to one of them for extremely helpful suggestions. We also wish to thank participants at ESEM 2004 for fruitful discussions     

Quality and Location Choices under Price Regulation

In a model of spatial competition, we analyze the equilibrium outcomes in markets where the product price is exogenous. Using an extended version of the Hotelling model, we assume that firms choose their locations and the quality of the product they supply. We derive the optimal price set by a welfarist regulator. If the regulator can commit to a price prior to the choice of locations, the optimal (second-best) price causes overinvestment in quality and an insufficient degree of horizontal differentiation (compared with the first-best solution) if the transportation cost of consumers is sufficiently high. Under partial commitment, where the regulator is not able to commit prior to location choices, the optimal price induces first-best quality, but horizontal differentiation is inefficiently high.     

Tax progression and training in a matching framework

This paper investigates the effect of tax progression on labour market outcomes in an equilibrium search model with wage bargain and endogenous training decisions. We find that the effect of tax progression on training depends crucially on which party invests and the tax function that is considered. When the firm invests, a higher tax progression may increase training levels. Moreover, when a complete contract is possible or when the firm invests, the optimal tax rate in a model with endogenous human capital is at least as high as in a model with exogenous human capital.     

Competition with Aftermarket Power When Consumers Are Heterogeneous

We study a model of competitive foremarkets and partly monopolized aftermarkets. We show that high aftermarket power prompts firms to engage in inefficiently aggressive below‐cost pricing in the foremarket. This inefficiency is driven by the presence of consumers with valuations below marginal cost. While for intermediate aftermarket power their presence leads to a competition‐softening effect, for high aftermarket power firms attract increasing numbers of unprofitable consumers by aggressively pricing below cost. For high aftermarket power, firms' equilibrium profits can therefore be decreasing in aftermarket power but are always higher than for low aftermarket power. If firms engage in price discrimination by bundling the foremarket and aftermarket goods or by reducing their aftermarket power, they avoid selling to unprofitable consumers but also reduce the competition‐softening effect. This decreases firms' equilibrium profits but increases consumer and social welfare.     

Cross-ownership as a hostage exchange to support collaboration

The impossibility of writing complete contracts causes loss of profitable transactions among firms, since their managers cannot ex ante bind themselves to future actions. We show how a reallocation of ownership rights into a network of mutual shareholdings among a coalition of firms produces an efficient enforcement mechanism. Co-operation is achieved by exchanging control rights until a mutual threat of capture of control is established. By making control over their firms vulnerable to a takeover by the other members of the coalition, each firm is able to make a credible commitment to future efficient actions. In equilibrium no punishment is administered, so that the arrangement achieves the outcome under complete contracts. More generally, it is proved that a mutual hostage exchange may dominate the threat of loss of reputation as an enforcement mechanism.     

财税政策影响产业升级的理论机制分析——基于地方政府竞争视角

财税政策通过促进关键生产要素流入可促进产业升级。通过构建动态模型分析地方政府财税竞争对要素流动、社会福利及产业升级的影响。研究发现，提高生产要素的税率不仅会导致该生产要素外流，还会导致其他生产要素外流；在税率变化冲击下，要素存量调整至新的均衡状态与生产函数凹性和调整成本函数凸性有关；对发达地区落后产业实行高综合税率以及新兴产业实行低综合税率会促进地区产业升级，对落后地区实行低综合税率会促进地区经济发展和产业升级；政府的财税协调有利于地区间实现产业升级和提高社会福利水平；地区居民对企业的持股份额会影响地区福利水平。     

Technology Adoption with Multiple Alternative Designs and the Option to Wait

Technology adoption is one the most important elements of a firm's strategy. In this paper, we address an essential, yet largely overlooked, question: What should a firm do when faced with several alternative proprietary designs of a new technology? In our base case we assume there are two technology designs, each described by an independent stochastic process of technology evolution. We show that, in equilibrium, a buyer chooses the leading technology design as soon as the discounted payoff from doing so is positive. When the option value of waiting is very high, it is jointly optimal to delay adoption. But because sellers cannot commit not to extract all of the buyer's future rents, inefficiently early adoption takes place. Strategies that improve commitment to low future license fees, such as increasing the number of competitors or cross‐licensing, may alleviate the hold up problem. Although previous research stressed the benefit of such commitments in terms of increasing the rate of technology adoption, we present a class of cases when the benefit from commitment is efficiently to delay adoption.     

Transport subsidies, system choice, and urban sprawl

This paper analyzes the effect of transport subsidies on the spatial expansion of cities, asking whether such subsidies are a source of undesirable urban sprawl. Even though the cost-reducing effect of transport subsidies is offset by a higher general tax burden (which reduces the demand for space), the analysis shows that subsidies nevertheless lead to spatial expansion of cities. If the transport system exhibits constant returns to scale, the subsidies are inefficient, making the urban expansion they entail undesirable. The paper also studies transport “system choice,” with the city portrayed as selecting its transport system from along a continuum of money cost/time cost choices. The analysis shows that subsidies inefficiently bias choice in the direction of a high money cost/low time cost option. Lastly, the paper considers system choice in a city with rich and poor groups, showing that the rich favor a system with a high money cost and low time cost, but that their choice, if implemented, leads to a city whose spatial size is smaller than optimal. Thus, rich control of system choice does not lead to urban sprawl.     

论企业高管股权激励有效性

企业高管股票期权激励制度已成为人们关注的焦点。依据股权激励的内在机理,结合我国股票期权激励的制度基础,在重新审视相关制约因素的基础上,从提升股票期权激励的有效性角度,提出了完善绩效评价体系、切实解决"内部人控制"与审慎处理期权费用化、尽快调整股权激励的税收政策等相关措施与政策建议。     

Corporate income taxation of multinationals and unemployment

Within a two-country model with involuntary unemployment, this paper investigates corporate income taxation under separate accounting versus formula apportionment. In contrast to separate accounting, under formula apportionment the corporate tax policy causes a fiscal externality that results from unemployment. This externality is the highest when the apportionment formula contains the payroll factor only. It is minimized for the pure sales (property) formula, if the substitution elasticity is low (high). The unemployment externality tends to compensate other externalities such that tax rates become inefficiently low. The deviation from the efficient tax policy is minimized when the apportionment formula contains the sales factor only.     

Are There Tax Arbitrage Opportunities in Private Rental Housing Markets?

Tax arbitrage opportunities in rental housing markets arise when high bracket taxpayers exploit the tax shelter and conversion features of the tax treatment of rental housing and as a consequence offer low bracket taxpayers rental housing at a cost lower than if they purchased the same quantity of housing for owner occupation. A microdata set has been employed to estimate the size of these tax arbitrage opportunities with respect to 1907 properties owned by Australian landlords. The measure of tax arbitrage opportunities is the breakeven tax rate at which the maximum rental rate a potential occupant is prepared to pay before turning to purchased housing is equal to the landlord's reservation rental rate. Potential occupants with marginal tax rates below the breakeven tax rate find that renting has a relative cost advantage over home purchase. When agency costs (the costs incurred in managing landlord-tenant relationships) are included in the tax arbitrage model, our estimates of the breakeven tax rate indicate that home purchase has a relative cost advantage over renting for most potential occupants. Renting is only financially attractive to low tax bracket individuals. This finding is consistent with Australian tenure patterns. However, there are more puzzling results. A majority of landlords belong to tax brackets below the top bracket, landlords in the lowest tax brackets typically make below normal profits, and reservation rental rates at the bottom of the rental housing market are relatively high. Down payment requirements, lock-in effects, and rent clientele groups are put forward as possible explanations for these findings.     

Siting noxious facilities: A siting lottery with victim compensation

This paper proposes a scheme to facilitate the siting of noxious facilities. A regional government announces that it will (a) use a lottery to choose a site for a noxious facility and (b) transfer income from tenants to host-city landowners to at least partly offset the effects of the noxious facility on local property values. The government will hold the lottery only if all citizens agree, in advance, to abide by the resulting siting decision. The lottery approach is superior to the conventional approach to siting (advance notification) in the sense that the lottery approach achieves unanimous support for the siting decision with less compensation. The compensation scheme can be financed with a regionwide tenant tax or a tax on residents in the nonhost city. For “small” compensation programs, the nonhost tax is superior to the regional tax.     

Mobile Labor, Multiple Tax Instruments, and Tax Competition

The tax competition literature shows that local governments keep property tax rates inefficiently low to prevent capital outflows, thereby underproviding local public goods. This paper adds mobile labor and an alternative tax instrument to the model. Jurisdictions have access to a property tax levied on land and capital, plus either a head tax or a labor tax. Scale economies in public good provision create incentives to use the property tax, but these incentives are not accompanied by increased incentives to underprovide public goods. In contrast, underprovision is associated with the use of a distortionary labor tax.     

Alternative tax constitutions and risky education in a federation

I analyze a two-period model in which risk-averse students divide their time between risky education, leisure, and work. The educated can migrate. Wage-tax financed transfer to students acts as an insurance, and increases both human capital investment and demand for leisure. I derive sufficient conditions for tax competition to lead to inefficiently low wage tax rates. I suggest that the educated should pay their wage taxes to the region which has financed their education. I show that this would increase taxation and human capital investment, and would also benefit the owners of the complementary factor.     

Investment in a New Technology as a Signal of Firm Value Under Regulatory Opportunism

We examine the question of whether a regulated firm that makes a long-term investment in infrastructure can credibly signal its private information regarding the future demand for its output to the capital market. We show that necessary conditions for a separating equilibrium in which the magnitude of investment signals high future demand may include a low degree of managerial myopia, large variability of future demand, a lenient regulatory climate, and low sunk cost. Our model suggests that in estimating valuation models of regulated firms it is important to separate firms into two groups: firms for which a separating equilibrium is likely to obtain and firms for which the equilibrium is likely to be pooling. The market value of a firm in the first group is positively correlated with its level of investment, but uncorrelated with the level of actual demand, whereas for the second group the opposite holds.     

How to get firms to invest: A simple solution to the hold-up problem in regulation

Abstract. Many governmental programs are effective only if firms make costly investments. The inability of authorities to precommit to a regulatory scheme creates incentives for firms not to invest and to hold-up the regulator. This paper describes a simple subsidy/tax scheme embedded in a four-stage mechanism that solves the hold-up problem. We design a self-financing subsidy/tax scheme which benefits a complying firm at the expense of a non-complying firm. In order to be credible, the subsidy and tax rates must maximize social welfare for any combination of investment decisions. We show that there exists a unique subgame perfect equilibrium in which all firms invest and no actual implementation with subsidies and taxes is required. We discuss in which cases the mechanism can work under incomplete information. Received: 30 December 1998 / Accepted: 12 October 2001     

Career Concerns and Product Market Competition

This paper studies the effect of increased competition in the product market on managerial incentives. I propose a simple model of career concerns where firms are willing to pay for managerial talent to reduce production costs, but also to subtract talented executives from competitors. This second effect is privately valuable to firms, but is socially wasteful. As a result, equilibrium pay for talent can be inefficiently high and career concerns too strong. Explicit incentive contracts do not solve the problem, but equilibrium pay is reduced if managerial skills have firm‐specific components, or if firms are heterogeneous. In this second case, managers are efficiently assigned to firms, but equilibrium pay reflects the profitability of talent outside the efficient allocation. The effect of increased competition is ambiguous in general, and depends on the profit sensitivity to cost reductions. This ambiguity is illustrated in two examples of commonly used models of imperfect competition.     

Spatial competition with free entry, Chamberlinian tangencies, and social efficiency

Free entry in Löschian spatial competition leads to a tangency between each firm's negatively sloped average revenue and the downsloping portion of average costs—as in Chamberlin's monopolistic competition. It is generally concluded that this equilibrium involves too many inefficiently small firms. However, this conclusion is incorrect. The difference between price and firm marginal production costs in spatial equilibrium is just sufficient to cover the additional marginal cost of output resulting from availability of multiple locations. This Chamberlinian tangency does not imply inefficiency, because it does not include all the social costs and benefits resulting from spatial competition.     

9. Human Rights: Historical Learning in the Shadow of Violence

This paper emphasizes the historical dimension of human rights understood as a social ethic. Rather than timeless principles, human rights and the universality proper to them emerge in a process of suffering, conflict, political assertion, and institutional change. We can understand them as historical yet also universal by seeing that human rights arise in processes of social learning that take place in an increasingly globalized world. Such learning often has advanced in the face of dramatic violence, for example, the bombing of Hiroshima. But the demands on a global social ethic today are not only a matter of responding to threats and acts of dramatic violence in isolation. Attention to the example of Hiroshima suggests that the problem of violence is bound up with other questions about the regulation of emerging technical powers in a context of inequality and social conflict. To what extent can an ethic centered on human rights provide an ethics that can inform effective responses to these problems? To consider the promise of human rights, we look more closely at the kind of social learning they involve and explore in particular the role of social movements in forging new identities and reciprocities along with normative claims proper to a global public sphere (the anti‐apartheid movement provides an example). We go on to see that these political experiences can inform interpretations of historical experience that can inform a widened sense of historical possibilities, both those missed in the past and those that confront us today. While this argument may thicken our sense of the promise of a human rights ethic, it remains speculative, not least because of the limited effectiveness of these norms in practice today. We close with the suggestion that nonetheless a coherent ethical response is possible, one that in the wealthy parts of the globe might take the form of an ethic of democratic responsibility. This would both represent a distinctive kind of learning and perhaps contribute to a wider advance of human rights.