Strategies to prevent economic recessions from causing business failure

An average of more than 500,000 businesses failed in the United States during each of the 10 recessions that have occurred since the end of World War II. Yet, scholar and practitioner understanding of how to prepare for and respond to the challenges of an economic downturn remains extremely limited. This article analyzes and synthesizes the information from academic theory and business experience on managing through an economic recession. To assist firms in successfully navigating economic recessions, we suggest a program that involves positioning by investing in multiple markets and geographies, planning by developing a turnaround plan for facing sharply declining sales, promoting by maintaining marketing initiatives, and preparing by acting in anticipation of economic recovery.     

A Tale of Two Rigidities: Sticky Prices in a Sticky‐Information Environment

Macroeconomic models with microeconomic foundations allow for comparisons with macro and micro empirical evidence. This paper proposes a model wherein firms: (i) acquire information infrequently, generating sticky information ( Mankiw and Reis 2002 ) and (ii) face menu costs, producing state‐dependent sticky prices. I estimate parameters via indirect inference and show that under considerable real rigidity, sticky prices in a sticky‐information environment are consistent with micro and macro evidence. Sticky prices not only help match micro data on price changes’ size and durations between adjustments; they also improve the model's fit with the macro data, as embodied in an empirical Phillips curve.     

Sustainability and forest transitions in the southern Yucatán: The land architecture approach

Consistent with the challenges of sustainability science, land architecture offers a comprehensive approach to land system dynamics useful for numerous types of assessments, ranging from the vulnerability of coupled human–environment systems to forest transitions. With antecedents in several research communities, land architecture addresses the tradeoffs within and between the human and environmental subsystems of land systems in terms of the kind, magnitude, and pattern of land uses and covers. This approach is especially cogent for changes in tropical forests, given the broad-ranging forces acting on them and the equally broad-ranging consequences of their loss. The rudiments of the land architecture approach are illustrated for changes in seasonal tropical forests in the southern Yucatán of Mexico, the pivot of which is the Calakmul biosphere reserve. Simplifying the dynamics involved, the region-wide land architecture is the collective design of stakeholders with different land-use goals that favor tradeoffs in subsystem outcomes serving better either the reserve and related programs or the smallholder farmers that populate the region. A major tradeoff involves forest cover per se, which holds implications for forest transition theory. Evidence for an incipient transition involves the scale of analysis taken. The dynamics involved hold too much uncertainty to forecast a permanent transition to more forest cover and imply that more complex but robust versions of the theory are required.     

Adding a freight network to a national interstate input–output model: a TransNIEMO application for California

The state of the nation’s infrastructure is the subject of widespread discussion and comment because it is thought to include many deteriorating and unsafe bridges. Ever since the terrorist attacks of 9/11, there has been increasing concern over the extent to which an attack on infrastructure could result in serious economic disruption. This research develops a model to analyze the economic consequences of an attack on a major element of the highway network. We add a freight network to a national multiregional economic impact model and make freight traffic flows endogenous. The use of a sub-national interstate model recognizes that most infrastructure planning is at the state level and most political leaders’ interest is local. We base our approach on the National Interstate Economic Model (NIEMO) and refer to an elaboration that we name Transportation network and the National Interstate Economic Model (TransNIEMO). The new model enables us to study the state-specific and industry-specific economic impacts of some significant changes in the nature of highway freight movements. We tested the model for selected freight movements in and out of California. The results are entirely plausible and encourage us to elaborate and test the model for hypothetical disruptions of freight traffic throughout the US.     

The New Deal and Modern Memory

The “Great Recession,” which began at year‐end 2007, was precipitated by plunging real estate values, followed by borrower defaults and financial crisis for the public and private institutions that supplied loanable funds to the mortgage market. With economic growth not yet returned to trend, three years on more than 9% of the American labor force remains unemployed. Current macroeconomic events, perhaps inevitably, have been compared to those of the Great Depression of 1929–1933, both in terms of severity and of the efficacy of the public policies adopted ostensibly to restore prosperity. In this article, I review the literature on the New Deal, paying particular attention to modern scholarship emphasizing the role of presidential politics and antibusiness political rhetoric in deepening and prolonging the Great Depression. The parallels between then and now suggest that the two economic contractions had similar causes and elicited equally counterproductive policy responses.     

Innovation and the opportunity cost of monopoly

Innovation enables monopolists to lower their costs, expand their outputs, and reduce their prices. It is conventional to conclude that social welfare unambiguously increases as a result. Assuming linear demand and marginal cost, this paper shows, however, that innovation raises the opportunity cost of monopoly: as a firm enjoying market power becomes more efficient, greater amounts of surplus are sacrificed by consumers because of the progressive monopolist's failure to produce the new, larger competitive output. Innovation, in other words, increases the social value of competition by raising the deadweight cost of monopoly. Copyright © 2008 John Wiley & Sons, Ltd.