When do thick venture capital markets foster innovation? An evolutionary analysis

In this paper, we examine the trade off between different effects of the availability of venture capital on the speed of technological progress in an industry. We consider an evolutionary industry simulation model based on Nelson and Winter (1982), in which R&D efforts of an incumbent firm generate technological know-how embodied in key R&D employees, who might use this know-how to found a spinoff of the incumbent. Venture capital is needed to finance a spinoff, so that the expected profits from founding a spinoff depend on how easily venture capital can be acquired. Accordingly, thick venture capital markets might have two opposing effects. First, incentives of firms to invest in R&D might be reduced and, second, if spinoff formation results in technological spillovers between the parent firm and the spinoffs, the generation of spinoff firms might positively influence the future efficiency of the incumbent’s innovation efforts. We study the manner in which this tradeoff influences the effect of venture capital on innovation expenditures, speed of technological change and evolution of industry concentration in several scenarios with different industry characteristics.     

PERFORMANCE MEASUREMENT IN SOLIDARITY ECONOMY ORGANIZATIONS: THE CASE OF FAIR TRADE SHOPS IN ITALY

ABSTRACT: The aim of this paper is to introduce a multidimensional assessment model for organizations that have multiple goals and are not driven exclusively by profit. Therefore, it is an assessment method particularly suitable for social enterprises. In order to measure the efficiency of production units in each dimension, the Data Envelopment Analysis non‐parametric method is applied. Our case study is concerned with Fair Trade shops and members of the consortium Altromercato for which we collected variables that could be associated with input and output for the economic, socio‐cultural and organizational dimensions. The results of the analysis confirm the presence of economies of scale in the economic dimension but not in the socio‐cultural dimension. Moreover, our organizational analysis confirmed a low general professionalization. Our results also confirm, on the one hand, the more pronounced capacity of cooperatives to sell Fair Trade products compared to associations, which, on the other hand, have the tendency to achieve proportionately better results in the socio‐cultural dimension.     

Where Should the Elderly Live and Who Should Pay for Their Care?*

We consider a model with a population consisting of earners and retired persons; elderly care is publicly provided. There is one big city, where congestion effects and agglomeration forces are at work, and a number of small villages. We show how the externalities related to population mobility lead to an inefficient spatial distribution of earners and retirees, and we characterize the second‐best solution. Decentralization of this solution in a fiscal federalism structure requires the use of taxes and subsidies proportional to the number of earners and retired persons living in the city and the villages.     

Child policy ineffectiveness in an overlapping generations small open economy with human capital accumulation and public education

Motivated by the recent decrease in the number of children experienced in several developed countries, in this paper we consider a small open economy model with overlapping generations, endogenous fertility and human capital formation through public education, and look at the role the government can play in affecting fertility through the widely used child allowance policy. Contrary to conventional view, we show that the public provision of child allowances is fertility-neutral in the long run, that is it is not effective as a pro-natalist policy, while also reducing human capital accumulation. In contrast, the financing of the public education system is beneficial to both fertility and human capital. These results hold in the cases of both fixed and time cost of children.     

On a variational formulation used in credit risk modeling

We consider the credit risk model of Collin-Dufresne and Goldstein (2001). According to this model, the price of a defaultable bond can be efficiently computed using a variational formulation that consists of an integral relation and a Volterra integral equation. In Collin-Dufresne and Goldstein (2001) this integral equation is justified by a probabilistic intuition, but is not proven formally. In this paper we analytically derive the variational formulation used in Collin-Dufresne and Goldstein (2001). This analysis allows to give a correct characterization of the solution of the integral equation. Furthermore the approach proposed in this paper could also be employed for other models of credit risk.     

The international risk sharing puzzle is at business cycle and lower frequency

Abstract We decompose the correlation between relative consumption and the real exchange rate in its dynamic components at different frequencies. Using multivariate spectral analysis techniques, we show that, at odds with a high degree of risk sharing, in most OECD countries the dynamic correlation tends to be quite negative, and significantly so, at frequencies lower than two years – the appropriate frequencies for assessing the performance of international business cycle models. Theoretically, we show that the dynamic correlation over different frequencies predicted by standard open economy models is the sum of two terms: a term constant across frequencies, which can be negative when uninsurable risk is large; a term variable across frequencies, which in bond economies is necessarily positive, reflecting the insurance intertemporal trade provides against forecastable contingencies. Numerical analysis suggests that leading mechanisms proposed by the literature to account for the puzzle are consistent with the evidence across the spectrum.     

The codetermined firm in a Cournot duopoly: A stability analysis

This paper aims to study the stability issue in a Cournot duopoly with codetermined firms. We show that when both firms codetermine employment together with decentralised employees' representatives, a rise in wages acts as an economic (de)stabiliser when the wage is fairly (high) low, while under profit maximisation a rise in wages always acts as a stabilising device because the parametric stability region monotonically increases with the wage in such a case. Moreover, a rise in the union's bargaining power has a de-stabilising effect, except when the wage is low and the firm power is already high. Therefore, under codetermination a change either in the wage or firm power in the Nash bargaining plays an ambiguous role on stability. We also show with numerical simulations that complex dynamics can also occur.     

Economic growth and stability with public pay-as-you-go pensions and private intra-family old-age insurance

This paper compares the steady-state and dynamic outcomes of two historical alternatives as a means of old-age insurance, namely, voluntary intra-family transfers from young to old members versus pay-as-you-go public pensions, in a general equilibrium overlapping generations model with children as a desirable good. We show that the shift from a private system of old-age support to public pensions increases the gross domestic product (GDP) per worker. Moreover, although in both cases the steady-state stock of capital, under myopic expectations, may be (globally) unstable depending on the size of the inter-generational transfer, we show that the existence of public pensions rather than private intra-family gifts considerably reduces the possibility of cyclical instability.     

Political,Institutional, and Economic Factors Underlying Deficit Volatility

It is well known that fiscal policy can counter‐cyclically smooth out the effect of unexpected shocks and public deficit volatility may reflect the (optimal) policy response to them. However, the welfare losses associated to fiscal instability are also an important challenge for many countries, as it typically implies an inefficient allocation of resources, higher sovereign risk premium and an inadequate provision of public services. In this paper, we empirically analyze the political, institutional, and economic sources of public deficit volatility. Using the system‐generalized method‐of‐moments (GMM) estimator for linear dynamic panel data models and a sample of 125 countries analyzed from 1980 to 2006, we show that higher public deficit volatility is typically associated with higher levels of political instability and less democracy. In addition, public deficit volatility tends to be magnified for small countries, in the outcome of hyper‐inflation episodes and for countries with a high degree of openness.     

Policy matters. The long run effects of aggregate demand and mark-up shocks on the Italian unemployment rate

This paper estimates a VAR including labor productivity, real wage and unemployment rate, to identify the dynamic effects of technology, demand, and mark-up shocks, respectively, on the Italian labor market. Identification is achieved by imposing recursive restrictions on the matrix of long run multipliers. Our results show that both mark up and aggregate demand shocks permanently reduce the unemployment rate. Finally, technology shocks do not significantly affect the unemployment rate in the long run. These findings convey important policy implications: expansionary aggregate demand and deregulation policies reducing the mark up permanently decrease the Italian unemployment rate.Jel classification: C32, E32, J29This paper has been produced as part of a CEPR Research Network on New Approaches to the Study of Economic Fluctuations. We would like to thank Marcello DAmato, Mario Forni, Marco Lippi and Antonio Ribba for useful comments. We are also grateful to Bernd Sussmuth for pointing out to us several significant improvements to the paper.First version received: November 2001/Final version received: October 2002