Equalizing tax bases or tax revenues under tax competition? The role of formula apportionment

This paper contributes to the literature on fiscal equalization and corporate tax competition. The innovation is that we explicitly model multinational enterprises and a corporate tax system that is designed according to formula apportionment. Two main results are obtained. First, in contrast to previous studies we identify cases where tax revenue equalization is better in mitigating detrimental tax competition than tax base equalization. Second, tax base equalization nevertheless has the advantage that it may render tax rates efficient, depending on the shape of the apportionment formula. A pure payroll formula does not ensure efficiency, but a back‐of‐the‐envelope calibration of our model to Canadian provinces suggests that a pure sales formula may be optimal.     

A MODEL OF MONOPOLISTIC COMPETITION WITH PERSONAL INCOME DISPERSION

We introduce non‐homothetic preferences in the Dixit–Stiglitz model of monopolistic competition, and enquire about the effects of a change in income dispersion on the firms’ optimal decisions and market equilibrium. Income dispersion, modeled as a mean preserving spread, is shown to affect only the degree of product differentiation under the standard negligibility hypothesis on the firms’ decision making process, while it generates a positive co‐movement of demand and demand elasticity, when this assumption is removed and the price index effect is taken into account.     

The implementation and structuring of divestitures: the unit's perspective

Existing literature on value creation of divestitures focuses on their antecedents, typically relating them to the parent company's financial performance. Whether and how divestitures can create value for the divested unit remains unclear. This paper presents an exploratory study based on multiple cases, to examine which factors of the implementation and structuring of a divestiture may increase the performance of a divested unit. The emergent granular framework consists of previously unreported aspects of the divesting process and provides new insights into divestitures and their outcomes. Results indicate that antecedents alone may be insufficient for understanding the outcomes of divestitures. Different combinations of understanding of the rationale for the divestiture and perceived capabilities in the divesting process affect perceptions of divestiture feasibility. Sense of opportunity emerges as the key element of the divesting process for the success of divested units. Factors that participate with sense of opportunity in determining the success of divested units are further considered in the theoretical framework. Copyright © 2010 John Wiley & Sons, Ltd.     

Why Do Some Multinational Firms Respond Better Than Others to the Hostility of Host Governments? Proximal Embedding and the Side Effects of Local Partnerships

Using a multiple-case study of alleged expropriations reported before the World Bank, we examine how multinational companies (MNC) react to the escalating hostility of host governments. Our study reveals how different choices regarding the interaction with local nonmarket stakeholders – which we refer to as proximal vs. mediated embedding – shape how managers respond to these disputes by affecting their ability to collect, process and interpret information, and to act upon it in a way that effectively mobilizes local and international support. In contrast to the prevailing view that local partners in international joint ventures shelter MNCs from abuse from political authorities, our findings show that primary reliance on local partners to manage the local nonmarket environment can actually reinforce a liability of outsidership and even create a ‘liability of insidership’, to the extent that relying on local partners prevents the MNC from establishing quality connections with a broad range of nonmarket stakeholders, reducing its alertness and responsiveness to hostile acts from host governments.     

VERTICAL DIFFERENTIATION AND THE DISTRIBUTION OF INCOME

The paper analyses the effects of income concentration on the behaviour of a duopoly with vertical product differentiation and uncovered market. By using a trapezoid distribution, we solve explicitly for market equilibrium as a function of a mean preserving spread of the income distribution. We show that overall more concentrated incomes imply stronger product differentiation, as the presence of a large share of middle‐income consumers stimulates a price competition, whose effects are dampened through an enlargement of the quality spread. While the high‐quality advantage and market coverage increase unambiguously in the degree of income concentration, the behaviour of prices is non‐monotone in the distribution parameter.     

The Nonparametric Approach to Applied Welfare Analysis

Changes in total surplus are traditional measures of economic welfare. We propose necessary and sufficient conditions for rationalizing individual and aggregate consumer demand data with individual quasilinear and homothetic utility functions. Under these conditions, consumer surplus is a valid measure of consumer welfare. For nonmarketed goods, we propose necessary and sufficient conditions on input market data for efficient production, i.e. production at minimum cost. Under these conditions we derive a cost function for the nonmarketed good, where producer surplus is the area above the marginal cost curve. We are greatful to helpful remarks and comments of the referees and the editor. The work is partially supported by the Spanish Ministry of Science and Technology, through Grant BEC2002-2130, the Generalitat de Catlaunya, through Grant 2005SGR-00454 and the Barcelona Economics Program (CREA).     

Value creation through stakeholder synergy

Our “stakeholder synergy” perspective identifies new value creation opportunities that are especially effective strategically because a single strategic action (1) increases different types of value for two or more essential stakeholder groups simultaneously, and (2) does not reduce the value already received by any other essential stakeholder group. This result is obtainable because multiple potential sources of value creation exist for each essential stakeholder group. Actions that meet these criteria increase the size of the value “pie” available for essential stakeholder groups, and thereby serve to attract exceptional stakeholders and obtain their increasing effort and commitment. The stakeholder synergy perspective extends stakeholder theory further into the strategy realm, and offers insights for realizing broader value creation that is more likely to produce sustainable competitive advantage. Copyright © 2014 John Wiley & Sons, Ltd.     

Misclassifications in financial risk tolerance

This paper analyses the empirical risk tolerance of individuals and the role of physiological measures of risk perception. By using a test that mimics the financial decision process in a laboratory setting (N?=?445), we obtained an ex-post empirical measure of individual risk tolerance. Predictive classification models allow us to evaluate the accuracy of two alternative risk-tolerance forecasting methods: a self-report questionnaire and a psycho-physiological experiment. We find that accuracy of self-assessments is low and that misclassifications resulting from questionnaires vary from 36 to 65%: individuals asked to self-evaluate their risk tolerance reveal a high probability of failing their judgement, i.e. they behave as risk takers, even if, before the task, they define themselves as risk averse (and vice versa). Conversely, when the risk-tolerance forecast is obtained from individuals’ physiological arousal, observed via their somatic activation before risky choices, the rate of misclassification is considerably lower (~17%). Emotions are confirmed to influence the financial risk-taking process, enhancing the accuracy of the individual risk-tolerance forecasting activity. Self-report questionnaires, conversely, could lead to inadequate risk-tolerance assessments, with consequent unsuitable investment decisions. Bridging these results from the individual to the institutional level, our findings should enhance cautiousness, among regulators and financial institutions, on the (ab)use of risk tolerance questionnaires as tools for classifying individuals’ behaviour under risk.     

Poverty and its many dimensions: The role of income as an indicator

Abstract

In this paper we analyse the choice of the dimension in which poverty is to be measured by reviewing some implications arising from the debate on the concept of welfare. By discussing Sen's capability approach, in particular, it is suggested that income or consumption are not necessarily the only indicators of interest in a poverty analysis. We then explore how comprehensive a picture of poverty can be gained by focusing on an income‐based measure, using Chilean data from 1992. We analyse the role of income both as having a direct impact on a set of indicators of well‐being and as proxying the relevant factors affecting them. In both cases the link is found to be weak. This suggests that poverty analysis is highly conditional on the indicators chosen and that the approach should be kept as broad as possible in order to capture more fully the multidimensional nature of such a complex phenomenon.     

R&D intensity of investment across Europe before and after the crisis

In this paper we investigate the comovements between the R&D intensity of private investment and GDP growth in different European Union (EU) areas over the period 1999–2014. Our empirical analysis shows that only core countries display a common countercyclical mechanism leading to an increased intensity of R&D over prolonged downturns. The lack of an effective countercyclical pattern of R&D intensity over the evolution of GDP growth in periphery countries makes this area highly vulnerable to persistent recessions, with potentially harmful consequences for long‐term growth. For recent EU members the evidence of acyclicality should be evaluated in the light of the catching‐up process still at work in this area. Our analysis suggests that any successful EU innovation policy should not disregard the potential divergence in R&D performance due to the dispersion of the countercyclical properties of the investment intensity in productivity enhancing activities in the different EU areas.