INTRANATIONAL AND INTERNATIONAL KNOWLEDGE FLOWS: EFFECTS ON THE FORMAL AND INFORMAL SECTORS

This article studies the effects of international and intranational knowledge flows. Contributions include comparing the effects of knowledge flows on the formal and informal sectors and determining multilateral spatial spillovers of innovation. Results show that formal entrepreneurs respect intranational intellectual property rights, but benefit from international spillovers, especially from patents granted. In contrast, informal entrepreneurs somewhat respect intranational patents granted, but not patent applications and citations. International spillovers to the informal sector are mainly from patents granted. Spillover magnitudes are greater internationally than intranationally, and greater in the informal sector than the formal sector (except for trademarks). (JEL O33, L26, K42)     

Foreign direct investment and entrepreneurship: gender differences across international economic freedom and taxation

Using recent cross-national data, this paper examines the impact of foreign direct investment (FDI) on entrepreneurship activity. The impact of FDI on entrepreneurship is not clear a priori, with possibilities of both a negative effect (crowding out) and a positive effect (synergy or complementarity via spillovers). Results find support for the crowding out effect; however, this effect varies across nations with different prevalence of entrepreneurship. Another focus of this work is on gender differences. The crowding out effect is stronger for the full sample rather than the subsample of female entrepreneurship. This finding stands up to a battery of robustness checks. Policy implications are discussed.     

HIGH SCHOOLS AND STUDENTS' INITIAL COLLEGES AND MAJORS

We use statewide administrative data from Missouri to examine the explanatory power of high schools over student sorting to colleges and majors at 4‐year public universities. We develop a “preparation and persistence index” (PPI) for each university‐by‐major cell in the Missouri system that captures dimensions of selectivity and rigor and allows for a detailed investigation of sorting. Our analysis shows that students' high schools predict the quality of the initial university, as measured by PPI, conditional on their own academic preparation, and that students from lower–socioeconomic status high schools systematically enroll at lower‐PPI universities. However, high schools offer little explanatory power over major placements within universities. (JEL I2, J1)     

Returns to networking in academia

This paper examines effects of academic networks in a Stackelberg differential game between journal editors and authors. Authors choose research papers to maximize satisfaction, while editors determine research quality to maximize journal reputation. Verifying the system for stability, results show that academic networks neither affect the number of publications nor the quality of an author’s papers. Networks only affect the number of an author’s citations. Editors’ preferences for publishing an author because of her network membership seem irrelevant. This happens because editors compete to increase their journal’s reputation by publishing high quality papers. Consequently, there is little room for editorial bias. Further, increased journal competition has the potential to erode the citation gains. The equilibrium research quality is below the maximum possible quality. Increases in publication benefits are shown to leave citations unaffected, increase the number of publications, and decrease research quality. The results generally carry through when publishing markets tend to a monopoly.     

Bankruptcy risk,costs and corporate diversification

This paper studies the impact of diversification on firms that file for Chapter 11 bankruptcy. Prior research suggests that diversification affects both the probability and costs of distress. Treating bankruptcy as a special case of distress, we find that diversification reduces the likelihood of bankruptcy and liquidation in Chapter 11, which is consistent with the coinsurance hypothesis. However, we observe higher bankruptcy costs as measured by time spent in Chapter 11 and inefficient segment investment for diversified firms. Our evidence is consistent with the idea that diversification provides benefits to managers in terms of job security rather than to firms. Our findings may help firms to make diversification decisions and creditors determine lending policies toward different forms of organizations.     

On contracting for uncertain R&D

Using a two‐stage model, this paper studies auctions of research and development (R&D) contracts when the outcome of research is uncertain. The agent is contracted by the principal to invent a new product or a new process. The principal selects the most capable agent through an auction and writes an incentive contract with the winning agent to share risks. The main finding of the paper is that the generally superior incentive contracts might not be desirable under plausible conditions in R&D contracting. In particular, we find that the principal prefers a cost‐plus contract in cases of large R&D projects or rising innovation benefits, but would prefer a fixed‐price contract when the number of bidders increases. An alternate elasticity interpretation of results holds promise for empirical analysis. Public policy implications are finally discussed. Copyright © 1999 John Wiley & Sons, Ltd.     

Military spending and entrepreneurship: Spatial effects of cross‐country spillovers

This paper uses a large cross‐country panel data sample to examine the effects of military spending on entrepreneurship. The other major contribution of this work lies in studying the spatial cross‐country influences of military spending on entrepreneurship. Placing the econometric model in the broader literature on the determinants of entrepreneurship, results show that while own military spending crowds out entrepreneurship in a country, bordering military spending promotes entrepreneurship. In other findings, we find interesting contrasts between the effects of government size and government quality, and between economic freedom and political freedom.     

Viral V. Acharya: Quest for restoring financial stability in India

Business Economics -     

Working conditions and factory survival: Evidence from better factories Cambodia

A large and growing literature has identified several conditions, including exporting, that contribute to plant survival. A prevailing sentiment suggests that anti‐sweatshop activity against plants in developing countries adds to the risk of closure, making survival more difficult by imposing external constraints that may interfere with optimizing behavior. Using a relatively new plant‐level panel data set from Cambodia, this paper applies survival analysis to estimate the relationship between changes in working conditions and plant closure. The results find little, if any, evidence that improving working conditions increases the probability of closure. In fact, some evidence suggests that improvements in standards relating to compensation are positively correlated with the probability of plant survival.