Income distribution and income dynamics in the United Kingdom

In this paper, we propose a model of income dynamics which takes account of mobility both within and between jobs. The model is a hybrid of the mover‐stayer model of income dynamics and a geometric random walk. In any period, individuals face a discrete probability of ‘moving’, in which case their income is a random drawn from a stationary recurrent distribution. Otherwise, they ‘stay’ and incomes follow a geometric random walk. The model is estimated on income transition data for the United Kingdom from the British Household Panel Survey (BHPS) and provides a good explanation of observed non‐linearities in income dynamics. The steady‐state distribution of the model provides a good fit for the observed, cross‐sectional distribution of earnings. We also evaluate the impact of tertiary education on income transitions and on the long‐run distribution of incomes. Copyright © 2001 John Wiley & Sons, Ltd.     

Survival and the art of profit maximization

We study the relationship between rationality and economic survival in a simple dynamic model, where agents from different populations interact repeatedly through random matching. An explicit criterion (“bankruptcy”) determines whether agents survive each interaction; all agents are presumed to be aware of this criterion. Survival in each interaction depends on two factors: the strategies agents adopt when they interact, and the wealth levels they bring to the game. The model is completely symmetric with the only difference between the agents of different populations being their objectives. We consider the case where there are two populations of agents in which all agents from one group have as their objective, maximizing the expected profits from each interaction, while all agents from the other attempt simply to maximize the probability of surviving (i.e., not going bankrupt in) the interaction. We show that under the equilibrium dynamics, the proportions of each group in the total population must be bounded away from zero, but the balance is in favor of the survival-probability maximizers in that their numbers as a fraction of total population must always exceed 1/2, and can be arbitrarily close to unity. On the other hand, the fraction of total wealth controlled by the expected profit maximizers must also be at least 1/2, and can asymptotically tend to unity.     

The evolution of growth intentions: Toward a cognition-based model

This research examines the relationship between growth intentions, cognitive style, and perceived competitive conditions, with a focus on whether and why intentions change over time. Drawing on qualitative data from a sample of 30 entrepreneurs over a five-year span, we find that entrepreneurs' cognitive style moderates the relationship between perceptions of the competitive environment and growth intentions. Entrepreneurs with differing cognitive styles vary in their approaches toward formulating and revising growth intentions. Relative to analytic entrepreneurs that exhibit greater stability in their intentions, holistic entrepreneurs are prone to greater variations in growth intentions. The findings have implications for future research, practice, public policy, and entrepreneurship training and development.     

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.     

Discussion of “Dynamic performance measurement with intangible assets”

Carona (2008) investigates the roles of nonfinancial performance indicators and long-term commitments in an incentive contracting setting. The paper develops a multiperiod agency model in which nonfinancial performance indicators are shown to be valuable in providing the agent with desirable incentives. The relative importance of nonfinancial measures depends on the level of commitment that the principal and the agent can sustain. While long-term contracts are more efficient than short-term contracts, the analysis shows that a sequence of overlapping medium-term contracts can be as efficient as long-term contracts. In this discussion, I provide a brief review of the related streams of literature and discuss the paper’s contributions to them. The discussion also illustrates the intuition behind the paper’s main findings through a simple example and raises questions for future research.     

Education and Public Policy

This article surveys the literature on education as a matter of public policy. We present international comparisons of expenditure on education and then discuss the contribution of education to economic growth, distinguishing between growth accounting and regression approaches, but concluding that the picture is still confused. We assess the risky nature of investment in higher education and also discuss the link between educational experience and social class. We show that this, when studied in aggregate, accounts for less than half of the persistence of earnings between fathers and sons but it nevertheless does a good job of relating fathers’ and sons’ occupations. Finally, we look at the link between education and earnings in the UK. For most subjects, the private return to university education has held at over 15 per cent p.a. despite the introduction of fees. However, some subjects offer a negative return.     

Better Late than Early: Vertical Differentiation in the Adoption of a New Technology

After the initial breakthrough in the research phase of R&D, a new product undergoes a process of change, improvement, and adaptation to market conditions. We model the strategic behavior of firms in this development phase. We emphasize that a key dimension to this competition is the innovation that leads to product differentiation and quality improvement. In a duopoly model with a single adoption choice, we derive endogenously the level and diversity of product innovations. We demonstrate the existence of equilibria in which one firm enters early with a low-quality product while the other continues to develop the technology and eventually markets a high-quality good. In such an equilibrium, no monopoly rent is dissipated and the later innovator makes more profits. Incumbent firms may well be the early innovators, contrary to the predictions of the "incumbency inertia" hypothesis.     

Nash implementation through elementary mechanisms in economic environments

This paper identifies a class of mechanisms, called elementary mechanisms, which are (in a precisely defined sense) the “simplest” mechanisms that can implement efficient outcomes in economic environments. The class of social choice correspondences that can be implemented by elementary mechanisms is completely characterized in a variety of different economic contexts.