Influence and inefficiency in the internal capital market

I model inefficient resource allocations in M-form organizations due to influence activities by division managers that skew capital budgets in their favor. Corporate headquarters receives two types of signals about investment opportunities: private signals that can be distorted by managers, and public signals that are undistorted but noisy. Headquarters faces a tradeoff between the cost of attaining an accurate private signal and the value of the information the signal provides. In contrast to existing models of “socialism” in internal capital markets, I show that investment sensitivity to Tobin's Q is higher than first-best in firms where division managers hold equity (a result consistent with evidence presented in Scharfstein, 1998). When managers face high private costs from distorting information (equity holdings), headquarters may commit to investment contracts that place “too little” weight on private signals and “too much” weight on public signals (i.e. Q). This result has implications for managers in the design of capital budgeting processes and incentive compensation systems.     

Disruptive technology roadmaps

Disruptive technologies create growth in the industries they penetrate or create entirely new industries through the introduction of products and services that are dramatically cheaper, better, and more convenient. These disruptive technologies often disrupt workforce participation by allowing technologically unsophisticated individuals to enter and become competitive in the industrial workforce. Disruptive technologies offer a revolutionary change in the conduct of processes or operations.Disruptive technologies can evolve from the confluence of seemingly diverse technologies or can be a result of an entirely new technological investigation. Existing planning processes are notoriously poor in identifying the mix of sometimes highly disparate technologies required to address the multiple performance objectives of a particular niche in the market. For a number of reasons, especially the inability to look beyond short-term profitability, and the risk/return tradeoff of longer term projects, it is suggested that current strategic planning and management processes promote sustaining technologies at the expense of disruptive technologies.We propose a systematic approach to identify disruptive technologies that is realistic and operable and takes advantage of the text mining literature. This literature-based discovery process is especially useful in identifying potential disruptive technologies that may require the input from many diverse technological and management areas. We believe that this process holds great potential for identifying projects with a higher probability of downstream success. Further, we suggest a process to take the identified potential disruptive technology from the “idea stage” through to the development of a potentially feasible product for the market. This second stage makes use of workshops and roadmapping to codify the ideas of technological and management experts, who were identified in the literature-based discovery stage. Our goal is to describe and explain the pragmatic steps suggested by our innovative and practical process.The proposed process could identify technologies whose eventual development and application to specific problems would generate innovative products. The goal is to isolate technologies that have the potential to redefine an industry, or alternatively, have the potential to create an entirely new industrial setting. Use the text-mining component of literature-based discovery to identify both the technical disciplines that are likely candidates for disruptive technological products, and experts in these critical technical and managerial disciplines. While we know that this is but one way to investigate nascent disruptive technologies we feel it is imperative that the representatives of these potentially critical technical disciplines are included in the roadmap development process, either as implementers or as consultants.Every firm is looking for “the next great thing”. Literature-based discovery offers a starting point for identifying at least a portion of the major contributory technical and managerial disciplines necessary for potential disruptive technologies and discontinuous innovations. Combining literature-based discovery with a practical workshop/roadmap process dramatically enhances the likelihood of success.     

Technological generalizations and leitbilder—the anticipation of technological opportunities

Recent national technology foresight studies as well as the Millennium Project of the American Council for the United Nations University are very much based on “nodes of discussion.” These short statements are called, e.g., topics, issues, or developments. This article provides a framework for the classification and analysis of nodes related to future technological development. Key concepts of the article are “technological generalization” and “leitbild.” The topics in the technology foresight Delphi studies can be seen as different kinds of generalizations from already realized technological developments. Leitbild is a German word. Its most general meaning is a guiding image. Like a common vision, a leitbild creates a shared overall goal, offers orientation toward one long-term overall goal, and provides a basis for different professions and disciplines to work in the same direction. The analysis of leitbilder and emerging technological paradigms might contribute to the construction of topics and issues and to the argumentation processes related to them.     

In defense of health-based standards

This paper explores the utilitarian ethical foundations underlying two standards for pollution control: an efficiency standard and a health-based standard. The main point is that a health-based standard can be defended quite easily on utilitarian grounds; safety proponents need not be self-serving, irrational nor ignorant. Criticism of health-based standards as “too costly” is not always persuasive since material consumption is not the only component of social welfare, nor do consumption increases necessarily increase social welfare.     

CPI bias and real living standards in Russia during the transition

The economies of the former Soviet Bloc experienced large declines in output during the decade of transition which began with the collapse of the Soviet Union in 1991. Yet there are many reasons to believe that measured output and official deflators provide a poor proxy for the change in real living standards in transition economies. This paper uses the Engel curve methodology developed by Hamilton [Hamilton, B. 2001. “Using Engel's Law to Estimate CPI Bias” American Economic Review 91(3): 619–630] to examine changes in real living standards in Russia during the transition period and to provide an estimate of how much the official Russian CPI has overstated consumer inflation. We also examine changes in consumer durables, home production, and subjective well-being to further evaluate changes in living standards. Our findings indicate that CPI bias has caused a substantial understatement of the growth performance of the Russian economy during the transition. Even just allowing household final consumption to be deflated with bias, we find that the level of real per capita GDP in 2001 may be understated by up to 30% compared with using a bias-corrected deflator. Our analysis of consumer durables, home production, and subjective well-being supports the conclusion that the decline in living standards has been substantially less than what is inferred by looking at official statistics on real output.     

Globally evolutionarily stable portfolio rules

The paper examines a dynamic model of a financial market with endogenous asset prices determined by short-run equilibrium of supply and demand. Assets pay dividends that are partially consumed and partially reinvested. The traders use fixed-mix investment strategies (portfolio rules), distributing their wealth between assets in fixed proportions. Our main goal is to identify globally evolutionarily stable strategies, allowing an investor to “survive,” i.e., to accumulate in the long run a positive share of market wealth, regardless of the initial state of the market. It is shown that there is a unique portfolio rule with this property—an analogue of the famous Kelly rule of “betting your beliefs.” A game theoretic interpretation of this result is given.     

Interdisciplinary problems in doing impact assessment : The case of Lake Shelbyville

A multidisciplinary team of biologists, economists, engineers, planners, and sociologists were assembled to do an ex-post facto analysis of a flood control reservoir ten years after initial operations. Within the context of a research university, the authors suggest ways to 1) improve project administration, 2) combat disciplinary chauvinism, 3) facilitate the understanding and exchange of data across disciplines, 4) reward the work of graduate students in a fair and equitable manner, and 5) assist the principal investigator in achieving the goal of an interdisciplinary study. The importance of project associates in the day-to-day operation of the study is reviewed in detail.This paper details the administrative problems of the University of Illinois' interdisciplinary effort to examine the “real” environmental impacts of the Lake Shelbyville reservoir 10 years after it had begun operation. Lake Shelbyville is a U.S. Army Corps of Engineers reservoir located in east-central Illinois. Land acquisition began in 1962 and the reservoir was in operation by 1971. While not implying that “apples and oranges” don't mix, problems do result when we try to bring together a group of disciplinary researchers. We write with the hope that the suggestions outlined here will keep environmental impact assessment research interdisciplinary. One of the reasons for the present “environmental fix” is the single discipline approach to environmental problems.A true interdisciplinary effort is necessary for a comprehensive assessment of the impacted physical and social environments, yet “interdisciplinary” can easily become a false label. If the principal investigator and researchers are not attentive to project administration on a day-to-day basis, the old saying about integrating findings “with a staple” can easily result. Rather than integrated assessment, the study report may resemble a series of miniature discipline based projects that read like the list of university departments.     

Enhancing the user role in the development of technical standards for telecommunications

The paper examines the actual and potential roles of business users of telecommunications services in influencing the development of technical standards. Variours institutional structures in the user community are examined as they relate to user particioation in formally constituted standards development arganizations. Discreparcies between users and suppliers in participatory motivations, strategies and resources are noted. The standardization process in telecommunications emerges as a technology-push initiative led by the suplly industries. However, structural changes in the telecommunications industries have resulted in new approaches to standards making. As a result, standards have acquired a new significane in terms of user control user technical and service evolution. Using the development of European standards for digital wireless telephony as an example, it is argued that this new standardization environment mandates a much more active role for users. However, it is also argued that the user stake in telecommunications standards is not of an equivalent nature to the supplier stake. Thus, a theortical framework is presented which that effective user involvement will require the development of a parallel institutional structure for the user community.     

Consistent representative democracy

We study axioms which define “representative democracy” in an environment in which agents vote over a finite set of alternatives. We focus on a property that states that whether votes are aggregated directly or indirectly makes no difference. We call this property representative consistency. Representative consistency formalizes the idea that a voting rule should be immune to gerrymandering. We characterize the class of rules satisfying unanimity, anonymity, and representative consistency. We call these rules “partial priority rules.” A partial priority rule can be interpreted as a rule in which each agent can “veto” certain alternatives. We investigate the implications of imposing other axioms to the list specified above. We also study the partial priority rules in the context of specific economic models.     

Optimal redistricting under geographical constraints: Why “pack and crack” does not work

We show that optimal partisan redistricting with geographical constraints is a computationally intractable (NP-complete) problem. In particular, even when voter's preferences are deterministic, a solution is generally not obtained by concentrating opponent's supporters in “unwinnable” districts (“packing”) and spreading one's own supporters evenly among the other districts in order to produce many slight marginal wins (“cracking”).     

Are environmental concerns drivers of innovation? Interpreting Portuguese innovation data to foster environmental foresight

The relationship between environmental concerns and innovation is analyzed in the context of Portuguese manufacturing firms, with the ultimate goal to foster measures of environmental foresight.Based on data from the Community Innovation Survey in Portugal, simple statistical tests, including Chi², t, and Levene's tests and contingency tables (adjusted standardized residuals), were used to study the relationship between firms' characteristics and the introduction of innovation aiming to reduce environmental damage. Environmental foresight is discussed based on three groups of variables that allow considering the industrial context that frames firm's actions, the economic performance of the firm and its innovation patterns.Results show that the development of innovation due to environmental concerns is positively associated with the firm's size and exports share, and negatively associated with its technological content. Moreover, it is shown that the firms that introduced innovations due to environmental concerns are likely to belong to an economic group, to have performed continuous R&D, or received public support. It is also shown that “lack of organizational flexibility” and “lack of receptivity by customers” are the two most relevant innovation barriers for these firms.     

On the value of human resources

One challenge for planners is to discover conditions under which a society has a positive and growing “net worth” in terms of its human resources and to bring about and maintain those conditions. We discuss the utility and validity of the concept of people as “assets” or “liabilities”, the structure and cultural contexts for a proposed model of the dynamics of value that account for opportunity costs; and links between information technologies and human resources management, including planned development of these resources.     

When does the majority become a majority? Empirical analysis of the time at which main market adopters purchase the bulk of our sales

The idea of a dual-market structure in the early stages of a product's life cycle has become one of the most widely accepted ideas among new product marketing practitioners in the past decade. Concepts such as “Early Market/Main Market” and “Visionaries/Pragmatists” have entered the lexicon of high-tech executives to express the notion that the market for new products is composed of early and main markets with a discontinuity in the diffusion process in between them. Moreover, these concepts have been at least partially tested and verified in the marketing academic literature in the past few years.We extend this branch of research by investigating the timing issues in dual-market cases. We define Change-of-Dominance Time (CD-Time) as the number of years it takes main market adopters to outnumber early market adopters. We empirically investigate this timing issue on a comprehensive data set of new product sales in the consumer electronics industry. We find that regarding explanatory determinants of CD-Time, external influence, such as advertising, to the early market is the most important explanatory variable.We examine the relationship between CD-Time and other early product life cycle phenomena: Takeoff, Saddle, and Rogers' size of adopter categories. We found relatively high correlations between these phenomena and CD-Time.The answer to the question “When does the majority become a majority?” is indeed “at 16%”! In a dual-market setting, the average time at which the main market outnumbers the early market is when 16% of the market has already adopted the product. In terms of time, in 75% of the cases the majority becomes a majority in 5 to 10 years.     

Bargaining Outcomes with Double-Offer Arbitration

Increasingly, arbitration is becoming used to resolve bargaining disputes in a variety of settings. Reducing dispute rates is often listed as a main goal in designing arbitration mechanisms. Conventional arbitration and final-offer arbitration are two commonly used procedures, but theoretical examinations of these arbitration procedures show that disputants’ final bargaining positions do not converge and disagreement is likely. This article contains results from a set of experiments designed to compare bargaining outcomes under the two commonly used arbitration procedures with outcomes under an innovative procedure called “double-offer” arbitration (Zeng et al., 1996). This procedure requires that disputants make two final offers at impasse: a primary and a secondary offer. The arbitrator evaluates the pairs of offers using a linear criterion function, and theory suggests the secondary offers converge to the median of the arbitrator’s preferred settlement distribution. Because the procedure’s rules are that convergence of offers generates a settlement at those offers, this theoretical convergence result implies that arbitration is not needed in the end. Experimental results indicate that dispute rates in double-offer arbitration are, on average, about the same as dispute rates in conventional arbitration. However, other results show reason to favor double-offer arbitration. Specifically, in repeated bargaining, there is concern over whether use of an arbitration procedure becomes addictive and makes bargainers more likely to use the procedure in the future-a “narcotic effect.” The data show that double-offer arbitration is non-addictive, whereas both conventional and final-offer arbitration are.     

The Simple Welfare Economics of Network Externalities and the Uneasy Case for Subscribership Subsidies

The goal of universal service has dominated the telecommunications policy landscape for at least the past half century. This policy objective has been promoted with cross subsidies from long-distance telecommunications services to subscribers to local telecommunications service. The economic rationale for these cross subsidies is network externalities. In this paper, we show that: (1) the presence of network externalities, even if substantial in overall magnitude, does not generally justify a subscribership subsidy, even a well-designed one; and (2) the empirical realities of telecommunications markets make it unlikely that subscribership subsidies of any kind will increase social welfare.     

Tax revenues, fiscal corruption and “shame” costs

In this paper we explore tax revenues in a regime of widespread fiscal corruption in a static framework. We prove that the relationship between the tax rate and tax revenues depends on the relevance of the “shame effect” of being detected in a corrupt transaction. In countries with a “low shame” effect, tax revenues grow as the tax rate increases. Moreover, there is a critical tax rate where the growth rate of tax revenues begins to reduce. In countries with a high “shame effect” tax revenues increase up to a threshold value and then decrease.     

Quasi-weightings, Trading, and Desirability Relations in Simple Games

We investigate the problem of simultaneously characterizing various classes of simple games in three different ways: (i) the existence of “quasi-weightings” in which smaller numerical values are assigned to losing coalitions than are assigned to winning ones, (ii) the robustness of “winningness” with respect to trades involving groups of players, and (iii) the acyclicity of certain strict “orderings” that intuitively correspond to the idea of one player being more desirable than another.Journal of Economic LiteratureClassification Number: C71.     

Exact arbitrage, well-diversified portfolios and asset pricing in large markets

For a market with an atomless continuum of assets, we formulate the intuitive idea of a “well-diversified” portfolio, and present a notion of “exact arbitrage”, strictly weaker than the more conventional notion of “asymptotic arbitrage”, and necessary and sufficient for the validity of an APT pricing formula. Our formula involves “essential” risk, one based on a specific index portfolio constructed from factors and factor loadings that are endogenously extracted to satisfy an optimality property involving a finite number of factors. We illustrate how our results can be translated to markets with a large but finite number of assets.     

A model of adjuncts in higher education

We examine the phenomenon of the expanded use of non-tenure-track positions (“adjuncts”) and construct a supply-side Harris–Todaro model. Low adjunct wages are attributable to a “Hope Rent” from the gap between private opportunities and tenure-track utility.