FIRST-MOVER (DIS) ADVANTAGE AND REAL OPTIONS

Fear of losing first-mover advantages has caused many corporate strategists to ignore real options analysis and simply go ahead with any project that they think is expected to have a positive net present value. But first-mover advantages are not nearly as valuable as most strategists tend to assume. This article weighs the expected value of first-mover advantages against the benefits of the real option arising from delay and flexibility. The real options model recognizes the value of delaying projects until important sources of uncertainty and risk can be resolved.
After reviewing two well-known cases of successful second movers—the triumph of VHS over Betamax in VCRs and Microsoft's remarkable late software entries—the authors go on to present more broadly based historical evidence for their view that first-mover advantages often fail to confer lasting value. The article closes with an assessment of first-mover advantages in the new economy, including a brief look at recent developments in the Internet and telecom sectors.     

Notes on forecasting a chaotic series using regression

It is well known that a nonlinear recursive equation can produce a chaotic sequence at certain values of the parameter. Furthermore, in the chaotic regime, extremely small changes in the initial value or in the value of the parameter produce very large changes in the sequence. It is surprising therefore that a short segment of a chaotic sequence can be used to reconstruct large portions of the sequence and to forecast future values of the sequence over short ranges. Furthermore, while the accuracy of the forecasts is dependent on the precision of the data, the relationship is much less sensitive than might have been expected. This is demonstrated by fitting a two-parameter model to two different types of chaotic equations: one a polynomial and the other a trigonometric function. This leads to the expectation that under certain circumstances, it may be possible to forecast values in a chaotic series over limited ranges, even if initial data are somewhat degraded.     

Future S&T management policy issues—2025 global scenarios

This article presents four scenarios depicting science and technology (S&T) management dilemmas of the next two decades. The scenarios concern the balance between risk and promise, between the need to steer the directions of S&T, to minimize risk, and the need to maintain a free and unconstrained S&T agenda. These scenarios were constructed in the third year of the Millennium Project's study of this topic. The scenarios were formed in an interactive process with the project's international participants. The key policies that were found to be useful in all of the scenarios include (1) when considering the possibility of the misuse of weapons of mass destruction by terrorists, include the possibility of misuse by a single individual, acting alone; (2) establish mechanisms and techniques for making possible the explicit unintended consequences of scientific research and technology, including malicious uses; (3) for desirable technologies, where it may not be possible to avoid significant risks, develop mitigation strategies in parallel; (4) teach science ethics.     

Protected areas in fisheries: a two‐patch,two‐species model*

The use of marine protected areas as a fishery management tool has been suggested as a hedge against management failures and variation in harvests. A stochastic bioeconomic model of a hypothetical predator–prey fishery is used to test the performance of protected areas in a fishery with heterogenous environments. Protected areas are analysed under density‐dependent and sink‐source dispersal relationships between the subpopulations that occur within the fishery. Differing management structures governing resource extraction are analysed. The focus of the study is placed on the biological and management characteristics that yield benefits to both fishers and society. It is shown that the establishment of a protected area improves fishery rent and lowers harvest variation. This result is sensitive to both current management controls and the correlation between species and patches.     

VALUING REAL OPTIONS: CAN RISK‐ADJUSTED DISCOUNTING BE MADE TO WORK?

This paper examines three alternative approaches to valuing real options: (1) the standard option pricing technique using "risk-neutral" probabilities; (2) the use of risk-adjusted discount rates; and (3) discounting certainty-equivalent values with a riskless discount rate. As suggested by the title, a question of particular interest is whether an approach based on risk-adjusted discount rates can be "made to work" for valuing options. The answer is yes. Indeed, the authors show that any of the three approaches will provide a correct valuation if properly employed.
Nevertheless, there are important differences in the information requirements associated with each of the three methods. Another important issue is the relative degree of difficulty in calculating the correct option value. When these two considerations are taken into account, the risk-neutral option pricing procedure generally proves to be the preferred method. It tends to be computationally more convenient—often much more convenient—and to require less information than either the risk-adjusted discounting or certainty-equivalent procedures.     

The Poverty of Politics: How Income Redistribution Hurts the Poor

In spite of the significant research literature identifying a tradeoff between income redistribution and economic growth, massive public programs have been implemented to help the poor by transferring income to them. Since Lyndon Johnson's war on poverty began in 1964, over 3.5 trillion dollars have been transferred. However, the possibility that everyone, including the poor, may in fact be made worse off by the transfer has largely been ignored. With a simple algebraic model, the authors demonstrate that, over time, both high and low-income groups are harmed by redistribution. In addition, social mobility, as well as political concerns with relative poverty and international income redistribution increases the damage to all income groups produced by redistribution.     

LIFE EXPECTANCY AND ECONOMIC WELFARE: THE EXAMPLE OF AFRICA IN THE 1990s

A formulation for incorporating Life expectancy information into empirical economic welfare calculations is presented. In an application analyzing the economic progress of the African continent during the 1990s due consideration of life expectancy factors substantially modifies the conclusions drawn from standard welfare calculations.     

INTRODUCTION: MINING HISTORY IN CONTEXT

This article introduces the theme and the articles in this special issue of the Australian Economic History Review on mining history. It puts the subject of the articles in the context of current changes in the global mining industry and notes the themes that may be explored in further research.