Developing Technician Skills for Innovative Industries: Theory,Evidence from the UK Life Sciences Industry,and Policy Implications

This article explores how innovative firms attempt to acquire the skilled technicians needed to deploy new technologies. Interviews with 40 employers from the UK life sciences sector reveal that shortages of technicians, an awareness of the importance of practical skills best acquired through work-based learning, and increasing dissatisfaction with the use of graduates, are encouraging employers to turn towards apprenticeship training. However, the rules governing the funding of various kinds of education and training discourage providers from offering the kinds of apprenticeships increasingly sought by employers, giving rise to a ‘system failure’ that manifests itself in shortages of technicians and the use of over-qualified graduates in technician roles.     

Capacity Utilisation and Excess Capacity: Theory, Evidence, and Policy

This paper models capacity utilisation as a cyclical variable that reflects both the value of precautionary capacity and the desire to hold strategic excess capacity. Business unit data from the Profit Impact on Marketing Strategy (PIMS) database of large, predominantly US, companies are used. Separate estimation is carried out for a number of SIC industry groups. Panel data estimation in first difference instrumental variable form is employed. Unlike many previous studies the utilisation variable is well determined. The results show significance for precautionary and strategic effects in particular industries. The paper discusses the reasons for the industry specificity of the results. Policy implications are discussed.     

Competition,Collusion, and Spatial Sales Patterns: Theory and Evidence*

This article studies competition in markets with transport costs and capacity constraints. Using a rich micro-level data set of the cement industry in Germany, we study a cartel breakdown to identify the effect of competition on transport distances. We find that when firms compete, they more often serve more distant customers. Moreover, the transport distance also varies in the ratio of capacity relative to demand, but only if firms compete and not when they coordinate their sales. We provide a theoretical model of spatial competition with capacity constraints that rationalizes the empirical results.     

The Demand for Federal Home Loan. Bank Advances by Thrift Institutions: Some Recent Evidence

This paper develops a model of the demand for Federal Home Loan Bank (FHLB) advances by thrift institutions. It expands on a model developed in Kent [1983] by accounting for net worth in the balance sheet constraint and for borrowing in excess of the "advances limit." The demand equation is estimated using pooled time-series and cross-sectional data for individual thrift institutions over the period 1979–1986. The results indicate that in addition to the traditional use of advances as a source of liquidity, advances are a particularly attractive source of funds for poorly capitalized institutions. Further, thrifts' demand for advances is responsive to the price of advances, mortgage interest rates, the dividend rate on FHLB stock, and rates on substitute sources of funds.     

Holdup,Knowledge Transferability,and Productivity: Theory and Evidence from Knowledge Workers*

This article studies how firing costs affect the productivity of knowledge workers. We develop a holdup model in which workers are essential to knowledge transfer between firms and show that if the worker's knowledge stock is sufficiently transferable to competing firms, an increase in firing costs inhibits the firm's ability to hold up the worker and thereby leads to higher effort. We consider the passage of the wrongful discharge laws in the US as an exogenous increase in firing costs and test our theory using data on patents filed at the United States Patent and Trademark Office (USPTO).     

Housing Price Dynamics,Mortgage Credit and Reverse Mortgage Demand: Theory and Empirical Evidence

This article presents some theoretical and empirical approaches for identifying interactions among fundamental economic variables that determine housing prices. Using home equity conversion mortgage (HECM) loan‐level data, this study quantifies the major risks of reverse mortgages and shows that higher housing prices induce higher demand for reverse mortgages among elderly homeowners. Senior citizens rationally hold pessimistic expectations about future housing price appreciation and lock in their home‐equity gains by obtaining reverse mortgages, which in turn led to the substantial HECM growth prior to the financial crisis of 2008. A novel simulation also forecasts HECM loans under various economic scenarios. From a mortgage credit perspective, these findings generate several policy implications for the implementation of “HECM 3.0.”     

Collusion Along the Learning Curve: Theory and Evidence From the Semiconductor Industry*

I study the effectiveness of collusion during an international cartel in DRAM, a type of semiconductor characterized by learning-by-doing and multiproduct competition. First, by exploiting time and firm-level variation in cartel activity, I estimate that cartel participants cut output more on the oldest product generation than on newer generations. This is consistent with a hypothesis that higher learning rates in newer generations make defection from collusive equilibria more attractive. Second, I formulate a test for defection from collusive equilibria in learning-by-doing industries. Third, I formalize these results in a theoretical framework and discuss implications for antitrust policy in high technology markets.     

Inflation,Taxes, and the Demand For Housing*

Inflation affects homeownership and housing adversely through the “real-payment tilt” of the conventional mortgage. Expectations of additional housing price appreciation, however, may induce households to invest in housing. This paper uses household data to estimate the demand for homeownership and housing, and it takes explicit notice of expectations of housing price appreciation. The results indicate for each 1% increase in the inflation rate that the conditional probability of purchase falls by 3%. Interest rate effects outweigh appreciation and tax effects. Given the decision to purchase, housing appreciation expectations do not have large effects on the amount purchased.     

Cloud Computing: Architectural and Policy Implications

Cloud computing has emerged as perhaps the hottest development in information technology. Despite all of the attention it has garnered, existing analyses focus almost exclusively on the issues surrounding data privacy without exploring cloud computing’s architectural and policy implications. This Article offers an initial exploratory analysis in that direction. It begins by introducing key cloud computing concepts, such as service oriented architectures, thin clients, and virtualization, and discusses the leading delivery models and deployment strategies being pursued by cloud computing providers. It then analyzes the economics of cloud computing in terms of reducing costs, transforming capital expenditures into operating expenditures, aggregating demand, increasing reliability, and reducing latency. It then discusses the architectural implications of cloud computing for access networking (focusing on bandwidth, reliability, quality of service, and ubiquity) and data center interconnectivity (focusing on bandwidth, reliability, security and privacy, control over routing policies, standardization, and metering and payment). It closes by offering a few observations on the impact of cloud computing on the industry structure for data centers, server-related technologies, router-based technologies, and access networks, as well as its implications for regulation.     

Demand-Driven Technical Change and Productivity Growth: Theory and Evidence from the Energy Policy Act

We present novel evidence on the effect of market size on technology adoption and productivity. Our tests exploit a natural experiment in the U.S. corn industry where changes to national energy policy created exogenous increases in demand. Difference-in-difference estimates show that the demand shock caused technical change as corn producers adopted higher quality seeds which in turn raised productivity by 7%. We develop a simple model that formalizes the mechanisms underlying our results.     

Human Capital Theory: Implications for HR Managers

This paper reviews some of the contributions of and challenges to human capital theory. It focuses on the alleged link between earings and education and experience and on competing explanations for observed earning differentis by race and by gender. The review concludes that while human capital theory provides some central insights about the supply side of the labor market, the challenges to this theory suggest that the demand side od the market, i.e., the actions of human resource managers, also play a key role in detemining earnings and employment. Moreover, these challenges suggest that government policies can be instrmental in effecting a more efficient and equitable use of human resources.     

The Relationship between Median and Constant Quality House Prices: Implications for Setting FHA Loan Limits

This paper examines the relationship between the asset price of housing and median sales price. We demonstrate: (1) median house prices (as reported by the National Association of Realtors) overstate the increase in constant-quality house prices by about 2% per year over the 1976–1985 period; and (2) regional differences in median house prices and their rates of increase, respectively, are systematically related to regional differences in real incomes and their rates of increase. We use these results to evaluate the recent proposal to raise the FHA maximum loan limit ceiling from the current ceiling of $124,750 to 95% of the area median house price.     

Interfirm Modularity and Its Implications for Product Development*

Industries characterized by interfirm modularity, in which the component products of different firms work together to create a system, are becoming increasingly widespread. In such industries, the existence of a common architecture enables consumers to mix and match the products of different firms. Industries ranging from stereos, cameras, and bicycles to computers, printing, and wireless services are now characterized by interfirm modularity. While the increasing presence of this context has been documented, the implications for the product development process remain underdeveloped. For the present study, in‐depth field‐based case studies of seven firms experiencing an environment of interfirm modularity were conducted in order to deepen understanding of this important phenomenon. What unique challenges did this context pose and why? What solutions did firms experiment with, and which seemed to work? Based on an inductive process of data analysis from these case studies, three primary categories of challenges raised by this environment were identified. First, firms were frustrated at their lack of control over the definition of their own products. The set of features and functions in products were constrained to a great extent by an architecture that the firm did not control. Second, while an environment of interfirm modularity should in theory eliminate interdependencies among firms since interfaces between products are defined ex‐ante, the present study found, ironically, that interdependencies were ubiquitous. Interdependencies continually emerged throughout the product development process, despite efforts to limit them. Third, firms found that the quantity and variegated nature of external relationships made their management exceedingly difficult. The sheer complexity was daunting, given both the size of the external network as well as the number of ties per external collaborator. Partners with whom control over the architecture was shared often had divergent interests—or at least not fully convergent interests. The solutions to these challenges were creative and in many cases counter to established wisdom. For instance, research has suggested many ways for a firm to influence architectural standards. While the firms in the present sample followed some of this advice, they also focused on a more neglected aspect of architecture—the compliance and testing standards that accompany modules and interfaces. By concentrating their efforts in a different area, even smaller firms in this sample were able to have some influence. Instead of focusing on the elimination of interdependencies, it was found that firms benefited from concentrating on the management of interdependencies as they emerged. Finally, while layers of management and “bureaucracy” are often viewed as unproductive, these firms found that adding structure, through positions such as Relationship Manager, was highly beneficial in handling the coordination and control of a wide range of external relationships.     

Experts,Information, Reviews,and Coordination: Evidence on How Prizes Affect Sales*

Exploiting the award process, we implement a regression discontinuity design to estimate the effect of winning France's main literary prize, the Goncourt. It increases sales, especially for books that sold fewer copies before the announcement, the number of reviews on Amazon, and the probability of them being negative. The effect is partly driven by an increase in word of mouth. Those findings are consistent with a model where the prize provides information on the existence of a book and acts as a quality signal and a coordination device but prompts consumers to read books that are far from their tastes.     

Shopping for Information: Implications of Consumer Learning for Optimal Pricing and Product Design*

I study a seller's pricing problem where consumers perform costly product research about value before purchase. They buy the product when sufficiently optimistic about value and cease research when sufficiently pessimistic. I find that the seller encourages product research when prior belief about value is high, even though he could sell immediately for a high price. The prior affects both expected value and how additional information changes consumers' beliefs. I show that an increase in research cost affects equilibrium price nonmonotonically. Finally, when the seller chooses price and product value dispersion, the optimal level of dispersion need not be extremal.     

Network Effects,Bargaining Power,and Product Review Bias: Theory and Evidence

I construct a theoretical framework for expert product reviews and demonstrate how the existence of positive network effects can make review inflation profitable even when consumers are rational. This finding moreover suggests that product reviews may serve as a coordination mechanism for early adopters. In an empirical application to the video game journalism industry, I find evidence that reviews are inflated for games produced by large firms and for those that are part of pre‐existing game franchises. Additionally, I find variation in inflation across genres that would be inconsistent with common alternative theories of inflation, such as consumer naivete.     

Incentive Mechanisms,Entrepreneurial Orientation,and Technology Commercialization: Evidence from China's Transitional Economy*

Scholars view entrepreneurial orientation as an essential element of high‐performing firms. The extant research has focused extensively on the construct development related to and performance implications of entrepreneurial orientation. Prior research has also identified the significant positive impact of entrepreneurial orientation on technology commercialization. The research community has, however, yet to examine critical antecedents of entrepreneurial orientation and to investigate relevant antecedents and consequences of entrepreneurial orientation in transitional settings such as that of China. Most Chinese firms are embracing significant changes in governance incentive mechanisms as China deepens the economic reform. The extant literature provides limited insight as to how incentive mechanisms such as chief executive officer (CEO) ownership and turnover may affect firm entrepreneurial orientation in China's transitional setting. Furthermore, given the significant changes and uncertainty in the market place, China provides an ideal laboratory to examine the influence of technological turbulence on the relationship between entrepreneurial orientation and technology commercialization. Aimed at filling in these glaring gaps, this study develops a conceptual model, with institutional theory as its underpinning, to examine the relationships among governance incentive mechanisms, entrepreneurial orientation, technological turbulence, and technology commercialization. The empirical results from a sample of 607 Chinese firms reveal several important findings. The CEO ownership has a significant positive effect on entrepreneurial orientation, and CEO turnover frequency has an inverse U curvilinear impact on entrepreneurial orientation. Furthermore, entrepreneurial orientation positively affects technology commercialization, with technological turbulence positively moderating this relationship. This study makes several important contributions. First, the present article brings into sharper focus the differing impacts of CEO ownership and CEO turnover on entrepreneurial orientation. The theoretical deliberation and empirical testing offer useful insights into the formation process of entrepreneurial orientation. Second, the examination of the moderating effect of technological turbulence provides additional richness to the extant literature. In addition, different from prior studies, this study was conducted under China's transitional economy context. By integrating unique institutional arrangements and the turbulent technological environment, two key characteristics of China's transitional economy setting, the study broadened and deepened understanding of key antecedents and consequences of entrepreneurial orientation. The article also discusses managerial implications of the findings and suggests directions for future research.