Is it the wage premium that targets worker turnovers?

The literature on FDI shows that there exists a wage premium that multinational enterprises (MNEs) pay to local workers and link this to a technology spillover argument. The MNEs pay higher wages to prevent worker turnovers and technology leakages. Literature relates the wage premium aspect of FDI using worker mobility data and uses worker turnovers and the technology spillover argument. We relate stock options in the FDI context of worker mobility and find in a simplified framework that the turnover of workers would depend on the relative payments of stock options.     

Optimal Organization of Surrogacy Contracts and Underinvestment

We develop a theoretical model of commercial gestational surrogacy in which a childless couple approaches a prospective surrogate, who is willing to gestate for the couple. We use a Principal-Agent framework with continuous effort to argue the following: in presence of limited liability of the surrogate, provision of optimal incentives (under non-contractible effort) is not feasible. Hence, a surrogate facing low outside option and having limited wealth is always found to put in sub-optimal care for the fetus. Put differently, the surrogate cannot be made a residual claimant (cannot be entitled with custody rights of the fetus) and therefore eliciting first best care is never optimal. But this result dramatically changes when the model is cast in discrete effort where inefficiency is likely only when the surrogate faces low outside option whereas we get multiple efficient contracts for higher outside option. Moreover, we see first-best efficient contracts may be implemented even without full transfer of custody rights to the surrogate.

     

Does Tariff Induce Intellectual Property Right Protection and Reduce Incidence of Piracy?

We consider a model with North exporting a copyrighted product to South where there is IPR violation, and South exports a basic good to North. We examine the impact of North's imposition of import tariff on South's monitoring of IPR violation and the incidence of piracy. If South values IPR compliance “lowly”, then tariff imposition do not alter the pre‐tariff no monitoring equilibrium outcome but unambiguously raises the incidence of piracy. If IPR compliance is valued “highly” then tariff either switches the equilibrium outcome from not monitoring to monitoring or increases its rate. However, the incidence of piracy may increase.     

Do Proprietary Algorithmic Traders Withdraw Liquidity during Market Stress?

We investigate the role of proprietary algorithmic traders in facilitating liquidity in a limit order market. Using order‐level data from the National Stock Exchange of India, we find that proprietary algorithmic traders increase limit order supply following periods of both high short‐term stock‐specific volatility and extreme stock price movement. Even following periods of high marketwide volatility, they do not decrease their supply of liquidity. We define orders from high‐frequency traders as a subclass of orders from proprietary algorithmic traders that are revised in less than three milliseconds. The behavior of high‐frequency trading mimics the behavior of its parent class. This is inconsistent with the theory that fast traders leave the market when stress situations arise, although their limit‐order‐supplying behavior becomes weaker when the increase in short‐term volatility is more informational than transitory. Agency algorithmic traders and nonalgorithmic traders behave opposite to proprietary algorithmic traders by reducing the supply of liquidity during stress situations. The presence of faster traders in the market possibly instills the fear of adverse selection in them. We document that the order imbalance of agency algorithmic traders is positively related to future short‐term returns, whereas the order imbalance of proprietary algorithmic traders is negatively related to future short‐term returns.     

Socio-economic development and software piracy. An empirical assessment

The high rate of software piracy is a growing concern for software developers as well as businesses and governments. It is argued here that the piracy rate is influenced by expected benefits and costs to the pirates. A model is developed using a set of variables that may affect such benefits and costs and hence piracy rate in a country, and tested for a large sample of 53 countries. The results of this paper suggest that the existing socio-economic conditions and the lack of proper institutions in developing and emerging economies may be responsible for high software piracy rates. One may, therefore, infer that the current trends of globalization and socio-economic development may help software piracy in developing countries.     

A simplified test for preference rationality of two-commodity choice

We provide a simplified test to determine if choice data from a two-commodity consumption set satisfies the Generalized Axiom of Revealed Preference (GARP), and thus the preference or utility maximization hypothesis. We construct an algorithm for this test and illustrate its application on experimental choice data. JEL Classification C91, D11, D12 An erratum to this article is available at .     

Joint venture instability in developing countries under entry

We explain the rationale for share adjustment in an international joint venture (JV) and opening up of a wholly owned subsidiary by the foreign JV partner. If the cost difference between the JV and other firms is small, the foreign firm opens a wholly owned subsidiary and completely sells-out its shares in its previously formed JV. If the cost difference is intermediate (large), the foreign firm adjusts (increases) its shareholding in the JV and opens (does not open) a competing subsidiary. JV instability may be the outcome of a friendly separation. There may also be situations with no share adjustment.     

Evaluating Product‐Centric Continuous Improvements: Impact on Competitive Capabilities and Business Performance

Product‐centric continuous improvements (CIs) are actions via which firms modify the design of a product after the start of its production and release into the market. Product‐centric CIs are initiated to help build competitive capabilities and sustain competitive advantage throughout the product life cycle. This study complements the perspective pervasive in the extant literature that actions related to product‐centric CIs can be disruptive to firms and be associated with negative performance consequences. It investigates a topic that is relatively much less researched, namely the upside potential of product‐centric CIs. The empirical analysis is based on data collected from 144 plants in the United States representing process and discrete part manufacturing industries. Specifically, the study analyzes the impact of product‐centric CIs on competitive capabilities and business performance. The results of the empirical analysis indicate the following: First, there exist two categories of product‐centric CIs: (1) actions for quality improvement and (2) actions for cost reduction. Second, while there is a positive association between each type of CI and the intended competitive capability, there also is a trade‐off—i.e., actions for quality improvement increase quality capability but reduce cost capability, and vice versa. Third, there is a strong linkage between business performance and quality capability, but not cost capability. All in all, the study presents empirical evidence that product‐centric CIs have a significant impact on competitive capabilities related to quality and cost, and, in turn, have an impact on business performance. From the standpoint of practice, the study suggests that product‐centric CIs should be managed to develop competitive capabilities and improve business performance.     

The Impact of R&D Cooperations and Mergers in Pharmaceuticals on Research Activities and Drugs Offered on the Market

In the last 10 years, the pharmaceutical industry has experienced steep, unprecedented price increases which are frequently attributed to increasing drug development costs. To cope with rocketing development costs, companies engage in Research and Development (R&D) cooperations. We study the impact of R&D cooperations on firms' research activities and drugs offered on the market. Using a comprehensive dataset, we find that R&D cooperations formed at the early stage of the drug development process increase the number of R&D projects and the number of drugs offered on the market. Late stage R&D cooperations, formed among larger firms in technology and product markets, increase firms' research activities, but reduce the number of drugs launched on the product market. Results suggest that large firms cooperating in the late research stage re‐optimize their R&D pipelines and eliminate similarly aligned research projects.     

Panel Data Unit Roots and Cointegration: An Overview

Recent developments in the field of the econometrics of panel data with non-stationary series are reviewed and interpreted. In particular, we discuss tests for unit roots and cointegration, and the roles of mean and variance correction, non-parametric correction and full modification for the construction of these tests and estimators. A discussion of the key contributions of the papers in this special issue is placed within the framework of the current literature and areas for further development are proposed.