Innovation,profitability and growth over the business cycle

Recent debates about Industrial Policy are dominated by a concern to make firms more innovative. In order to make progress in assessing the magnitude of the effects of innovation on corporate performance, one needs to know how such effects occur. We have contrasted two views of the effect of innovation—the product view and the process view—and have provided some evidence to suggest that both effects are evident in the data. Although it is clear that individual innovations themselves have a positive effect on profitability and growth, it is equally clear that the process of innovation seems to transform firms in some way that gives rise to what look like generic differences between innovators and non-innovators. As a consequence, the process by which profitability and growth are generated differs noticeably between the two types of firms. Perhaps the clearest of these differences is that innovating firms seem to be much less sensitive to cyclical shocks than non-innovating firms are.We are obliged to the ESRC for support. Some of the work discussed here draws upon joint work with John Van Reenan, and we are obliged to him for his assistance and helpful comments. Jonathan Haskel also provided very helpful comments on an early draft of the paper. We are also obliged to seminar audiences at the University of Ulster, the University of Manchester, the National Institute of Economic and Social Research, NERA, UMIST, University College London, the Centre for Economic Performance at the LSE and the Industrial Organization Conference held at Vienna, June 24–26, 1992, for many stimulating observations. However, the usual disclaimer applies.     

Growing Silicon Valley on a landscape: an agent-based approach to high-tech industrial clusters

We propose a Nelson-Winter model with an explicitly defined landscape to study the formation of high-tech industrial clusters such as those in Silicon Valley. The existing literature treats clusters as the result of location choices and focuses on how firms may benefit from locating in a cluster. We deviate from this tradition by emphasizing that high-tech industrial clusters are characterized by concentrated entrepreneurship. We argue that the emergence of clusters can be explained by the social effect through which the appearance of one or a few entrepreneurs inspire many followers locally. Agent-based simulation is employed to show the dynamics of the model. Data from the simulation and the properties of the model are discussed in light of empirical regularities. Variations of the model are simulated to study policies that are favorable to the high-tech economy.JEL Classification: L11, R12This paper has been presented at the 9th International Schumpeter Society Conference in Gainesville, Florida, the Western Economic Associations 77th Annual Conference in Seattle, Washington, the 24th Annual Research Conference of the Association for Public Policy Analysis and Management in Dallas, Texas, and the Workshop on Industry and Labor Dynamics: The Agent-Based Computational Economics Approach in Turin, Italy. I would like to thank Rob Axtell, Giovanni Dosi, Olav Sorenson, and an anonymous referee for their comments, suggestions, and encouragement. I am grateful to Nikesh Patel for his superb assistance.     

Concavity assumptions in regulatory models and the capital waste controversy

Sherman (1992, 197) concludes that the wasteful use of capital [by a rate-of-return constrained monopolist] is motivated to avoid an inelastic region of demand. Previous analyses of capital waste by regulated firms often employ models with concavity restrictions on the profit and production functions. Here we demonstrate that these conventional assumptions in Averch-Johnson type models require demand to be everywhere elastic, ruling out the avoidance motive emphasized by Sherman. Although these highly restrictive assumptions are suitable for studying inefficient input mix, they are inappropriate when considering investment in unproductive capital.This note is based on the appendix to my doctoral dissertation completed at The University of Tennessee, Knoxville, and supervised by John W. Mayo. Useful comments were also made by Ross Eriksson of The University of Tennessee, David Kaserman of Auburn University, David Mandy of the University of Missouri, and an anonymous referee. All conclusions and opinions expressed herein are mine and do not necessarily reflect the views or policies of the National Regulatory Research Institute (NRRI) or any organization associated with NRRI.     

Bounded rationality in laboratory bargaining with asymmetric information

Summary. This paper reports an experiment on two-player sequential bargaining with asymmetric information that features some forces present in multi-round monopoly pricing environments. Buyer-seller pairs play a series of bargaining games that last for either one or two rounds of offers. The treatment variable is the probability of continuing into a second round. Equilibrium predictions do a poor job of explaining levels of prices and treatment effects. As an alternative to the conventional equilibrium model, we consider models that allow for bounded rationality of subjects. The quantal response equilibrium model captures some of the important features of the results.Received: 30 April 2003, Revised: 10 December 2003, JEL Classification Numbers: C78, D82, D42, C91. Correspondence to: Timothy N. CasonThis research was funded in part by the National Science Foundation (SBR-9809110). The experiments were run at the Economic Science Laboratory of the University of Arizona and the Krannert Laboratory for Experimental Economic Research at Purdue University, using the z-Tree software developed at the Institute for Empirical Research at the University of Zurich (Fischbacher [8]). David Cooper, Rachel Croson, Charles Noussair, an anonymous referee, and conference participants at the Economic Science Association and the Society for the Advancement of Economic Theory meetings provided helpful comments. Timothy ONeill Dang, Thomas Wilkening and Marikah Mancini provided expert research assistance.     

Stationary measures for some Markov chain models in ecology and economics

Summary. Let continuous, exists in for x in . Let be an i.i.d. sequence from F and X₀ be a nonnegative random variable independent of . Let be the Markov chain generated by the iteration of random maps by . Such Markov chains arise in population ecology and growth models in economics. This paper studies the existence of nondegenerate stationary measures for {X_n}. A set of necessary conditions and two sets of sufficient conditions are provided. There are some convergence results also. The present paper is a generalization of the work on random logistics maps by Athreya and Dai (2000).Received: 20 March 2002, Revised: 4 December 2002, JEL Classification Numbers: C22, D9.The author wishes to thank Professor Mukul Majumdar and the referees for several useful suggestions.     

Efficiency measurement using a latent class stochastic frontier model

Efficiency estimation in stochastic frontier models typically assumes that the underlying production technology is the same for all firms. There might, however, be unobserved differences in technologies that might be inappropriately labeled as inefficiency if such variations in technology are not taken into account. We address this issue by estimating a latent class stochastic frontier model in a panel data framework. An application of the model is presented using Spanish banking data. Our results show that bank-heterogeneity can be fully controlled when a model with four classes is estimated. This paper was written during Luis Oreas visit to Binghamton University in the summer of 2002. We would like to thank an associate editor of the journal and two anonymous referees for their detailed comments. However, we alone are responsible for any remaining errors.     

Exploring the relationship between university and innovation: evidence from the Italian food industry

This study provides empirical evidence on the role of universities’ technological transfer (TT) activities in the Italian manufacturing sector, with particular attention to the food industry. Using the UniCredit-Capitalia database (2008 UniCredit-Capitalia. 2008. Decima Indagine Sulle Imprese Manifatturiere Italiane. Rapporto Corporate. [Google Scholar]) for firms and data from the Ministry of Education, University and Research (MIUR) to obtain the university TT indicator, we estimate a probit model to assess the effect of universities’ TT activities on a firm’s likelihood to innovate. The role of proximity in knowledge spillovers from TT activities is also investigated. Results show that university TT activities seem to stimulate food industry firms innovation and the impact appears significantly higher than for the manufacturing sector. Moreover, the effect of TT activities on innovation appears to be geographically bounded. As regards policy implications, this study provides two insights which may help promote innovation in the food sector. First, the factors that influence innovative capability in the food sector are different from those in other sectors, suggesting the need for sector specific instruments for promoting innovation. Second, science is important in the food industry and this raises questions about the policy of mainly considering high-tech industries when promoting a closer relationship between firms and universities.     

Symmetric Cournot oligopoly and economic welfare: a synthesis

Summary Recently, Mankiw-Whinston (1986) and Suzumura-Kiyono (1987) have shown that socially excessive firm entry occurs in unregulated oligopoly. This paper extends this excess entry results by looking into strategic aspects of costreducing R&D investment that creates incentives towards socially excessive investments. In the first stage, firms decide whether or not to enter the market. In the second stage, firms make a commitment to cost-reducing R&D investment. In the third stage, firms compete in output quantities. It is shown that the excess entry holds even in the presence of strategic commitments.This is the synthesized version of the two earlier papers, Okuno-Fujiwara and Suzumura (1988) and Suzumura (1991). We are grateful to Professors J. Brander, D. Cass, M. Majumdar, A. Postlewaite, J. Richmond, A. Sandmo, B. Spencer and J. Vickers for their helpful comments and discussions on earlier drafts. Needless to say, they should not be held responsible for any remaining defects. Financial supports from the Japan Center for Economic Research, Tokyo Center for Economic Research, the Japanese Ministry of Education, and the Institute for Monetary and Economic Research, the Bank of Japan are gratefully acknowledged.     

Employment and wages with sector-specific shocks and worker moral hazard

We study a model of worker moral hazard with identical workers and where sectoral prices are subject to stochastic shocks. When firms are short-run maximizers, employment is shown to be distorted downward relative to the case of certain prices, and more so the higher is the current price. This implies that employment is relatively insensitive to sectoral output-price changes, and that average employment and output are reduced when price volatility increases. When firms can commit to future employment levels, employment is greater in low-demand states (implying labor hoarding), and thus even less sensitive to shocks, while average employment is less distorted downward by uncertainty. The model gives a new explanation of how increased sector-specific volatility can lead to output losses, and of the possibility of negative comovements of unemployment and turnover.