Perfectly competitive innovation

Based partially on the belief that innovation is not possible under perfect competition, a huge number of papers have been written about the nature of innovation under monopoly or oligopoly. In fact, competitive rents can and do sustain innovation in the complete absence of monopoly power. However, little is known about the source and significance of these rents, or about the way in which innovative activity takes place under conditions of competition. We begin to remedy this imbalance by examining the way in which competitive innovators earn rents both in theory and in practice.     

Modeling hard and soft facts for SMEs: Some international evidence

This paper asks how well the use of quantitative and qualitative variables can improve the assessment of companies' creditworthiness and how this result can be influenced by the economic and financial peculiarities of countries. We harden qualitative variable measures to model soft information aimed at scoring microfirms, small, and medium‐sized firms. The structural survey covers Germany, Italy, and the UK in a sample of about 17 thousand companies observed during the financial crisis. Soft facts are determined within the balanced scorecard framework in order to find out the impact of customers, business processes, learning and growth, and financial perspectives. Our findings show that credit models integrating soft variables optimize the risk estimation, but estimates are country‐specific and should be tailored to the characteristics of each economic system.     

Deep Trade Agreements and Global Value Chains

Review of Industrial Organization - A prominent argument as to why countries sign “deep” preferential trade agreements (PTAs) is to foster global value chains (GVCs) operations. By...     

Bank loan recovery rates: Measuring and nonparametric density estimation

In this paper we analyse a comprehensive database of 149,378 recovery rates on Italian bank loans. We investigate a new methodology to compute the recovery percentage that we suggest to consider as a mixed random variable. To estimate the probability density function of such a mixture, we propose the mixture of beta kernels estimator and we analyse its performance by Monte Carlo simulations. The application of these proposals to the Bank of Italy’s data shows that, even if we remove the endpoints from the support of the recovery rate, the density function estimate is far from being a beta function.     

The impact of brand authenticity on brand trust and SME growth: A CEO perspective

This article investigates the linkages between brand authenticity, brand trust, and SME growth from a CEO perspective. Brand authenticity is operationalized as consisting of three factors: brand consistency, brand customer orientation, and brand congruency. The hypotheses derived in this paper will be tested with new measures and data from 285 German SMEs using structural equation modeling. The results confirm that brand consistency and congruency foster brand trust, which in turn drives SME growth.     

Endogenous time-varying risk aversion and asset returns

Stylized facts about statistical properties for short horizon returns in financial markets have been identified in the literature, but a satisfactory understanding for their manifestation is yet to be achieved. In this work, we show that a simple asset pricing model with representative agent is able to generate time series of returns that replicate such stylized facts if the risk aversion coefficient is allowed to change endogenously over time in response to unexpected excess returns under evolutionary forces. The same model, under constant risk aversion, would instead generate returns that are essentially Gaussian. We conclude that an endogenous time-varying risk aversion represents a very parsimonious way to make the model match real data on key statistical properties, and therefore deserves careful consideration from economists and practitioners alike.     

Completing the technology transfer process: M&As of science-based IPOs

This paper investigates the valuation and merger and acquisition (M&A) dynamics of the population of 254 biotech firms that went public in Europe between 1990 and 2009. Among these, we identify a high proportion (40%) of firms affiliated with a university or another public research organization. After controlling for intellectual capital and other possible determinants, we find that affiliation with a university is recognized as beneficial by investors. This affiliation enhances the valuation of the firms and the probability of being targeted in subsequent M&As, particularly in cross-border deals. We conclude that following the initial public offering acquisitions by incumbent firms are mechanisms to finalize the technology transfer process started in a research institute. Our findings allow us to derive implications for venture investors, academic entrepreneurs, university managers, and policymakers.     

On Exporting by Import State Traders and Peculiar Effects of Negotiated Minimum Access Commitments

It has been alleged that exportation by import state trading enterprises (ISTEs) must involve unfair trade practices. We show that such exporting may result from a rational use of market power by a sufficiently protected price discriminating ISTE. We argue that the flawed design and implementation of the tarffication process initiated in the last GATT agreement is providing ISTEs with incentives to export. The tariffication of import quotas and other related import restrictions was dirty in the sense that it permitted the setting of prohibitively high tariffs on many commodities. More importantly, it failed to eliminate quantitative trade barriers as the previous import quotas were replaced by minimum access commitments (MACs). In this paper, we use a simple partial equilibrium framework to explore the trade and welfare consequences of trade liberalization through tariff reductions and MAC enlargements under the small country assumption when domestic production and imports are controlled by an ISTE. We show that tariff reductions and MAC enlargements have very different effects on the behavior of the ISTE. MAC enlargements induce inefficient trade by encouraging the profit maximizing ISTE to increase its exports. In terms of welfare, MAC enlargements are immiser-izing. We conclude that tariff reductions are to be preferred to MAC increases as a means to liberalize trade .     

Dominant Currencies and the Future of the Euro

The paper's thesis is that the US dollar, despite the inevitable erosion of market share that it will suffer at the hands of the euro, will remain the most important international currency. The transaction domain of an international currency depends on its ability to lower transaction costs relative to alternative currencies. The EMU financial markets will not be as integrated, and thus as liquid, as the US financial markets for quite some time, thus favoring the use of the dollar as a medium of exchange. Inertia and reputational considerations further favor the dollar. The future value of the exchange rate dollar-euro will depend on economic fundamentals more than on portfolio shifts. Portfolio shifts argue for an appreciation of the euro; but fundamentals can swamp the effects of portfolio shifts. Should the EMU fundamentals reflect the spirit of the Maastricht Treaty and the Growth and Stability Pact, the chances for a euro appreciation will increase. Some caution, however, is in order because the ECB is a new and untested central bank where consensus for a conservative policy may be harder to achieve than can be gleaned from a literal reading of the Maastricht Treaty.