The Evolving Accidental Information Super-Highway

The technology of the Internet is not static. Although its ‘end-to-end’architecture has made this ‘connection-less’ communicationssystem readily ‘extensible’, and highly encouragingto innovation both in hardware and software applications, thereare strong pressures for engineering changes. Some of theseare wanted to support novel transport services (e.g. voice telephony,real-time video); others would address drawbacks that appearedwith the opening of the Internet to public and commercial traffic—e.g.the difficulties of blocking delivery of offensive content,suppressing malicious actions (e.g. ‘denial of service’attacks), pricing bandwidth usage to reduce congestion. Theexpected gains from making improvements in the core of the networkshould be weighed against the loss of the social and economicbenefits that derive from the end-to-end architectural design.Even where technological ‘fixes’ can be placed atthe networks' edges, the option remains to search for alternative,institutional mechanisms of governing conduct in cyberspace.     

Liberalisation, FDI, and productivity spillovers--an analysis of Indian manufacturing firms

The objective of the intensification of reforms in India's trade,technology and industry policies in 1991 was to make Indianindustry competitive. In the light of these attempted changes,the present paper tested two hypotheses, namely (a) whetherliberalisation has improved the productivity of local firms;and (b) whether the spillovers from technology transfer haveincreased in the liberal regime. To test these, techniques frompanel data and stochastic production frontier were employedon 487 firms belonging to 24 three-digit manufacturing industriesfor the period 1989–90 to 1996–97. The results showedthat after liberalisation, the productivity of Indian industry,especially the foreign owned firms, has improved. The econometricresults suggested that only ‘scientific’ non-FDIfirms have benefited from the liberalisation. For the ‘non-scientific’firms, the impact is found to be productivity depressing. Withrespect to spillovers, only those domestic firms, which investedin R&D to decode the spilled knowledge, could benefit.     

Agricultural productivity, trade, and industrialisation

Traditional development economics states that industrialisationmust be positively correlated with agricultural developmentas in the American and many European cases. However, some recentindustrialisation experiences suggests a negative link whichcan be supported by a simple Ricardian argument Yet this argumentis not consistent with the agricultural ‘leap forward’that often occurred before industrialisation took place. Here,we develop a model in which, for a closed economy, industrialisationfollows rising agricultural productivity. For a small open economy,multiple equilibria are possible and industrialisation tendsto be associated with low agricultural productivity, but istriggered by sudden changes in it.     

Product quality, lender liability, and consumer credit

Under ‘linked credit’ (also known as ‘connectedlending’), the buyer obtains a loan from a lender withthe specific purpose of purchasing a certain product. Creditis arranged directly by the seller, who acts as an intermediaryfor the finance company. Within this form of financing, thelender often accepts a measure of liability for defective products.We show that ‘connected-lender liability’ can workas a signalling device for the reliability of sellers, so asto alleviate the market failure that arises when sellers arebetter informed than consumers about the quality of their products.     

Management Practices, Work--L ife Balance, and Productivity: A Review of Some Recent Evidence

Increasing product-market competition is believed to be a drivingforce behind higher productivity. However, even those criticsof globalization who accept this argument claim that there isa hard trade-off because tougher competition comes at the priceof reducing work—life balance (WLB). Optimists, by contrast,argue that competition can spur better WLB practices and thereforehigher productivity, so there is a ‘win—win’situation. To address this issue we use an innovative surveytool to collect the first international data on management practicesand WLB practices, surveying 732 medium-sized manufacturingfirms in the USA, France, Germany, and the UK. We find thatthe USA has the best management practices but the worst work—lifebalance. When we look within countries, however, we reject thepessimistic ‘trade-off’ model. First, WLB outcomesare significantly associated with better management, so thatwell-run firms are both more productive and offer better conditionsfor their employees. Second, tougher competition increases averagemanagement quality but does not negatively affect employees'working environment. As with many other studies, better WLBpractices are associated with significantly higher productivity.This relationship disappears, however, after controlling forthe overall quality of management. Footnotes ¹ E-mail addresses: nbloom{at}stanford.edu; j.vanreenen{at}lse.ac.uk     

The Assessment: EMU, Four Years On

This paper reviews the functioning of the Economic and MonetaryUnion over the first 4 years of its existence. Monetary policyis viewed as having been of the ‘inflation-targeting’type, but with a tendency towards delay and conservatism inadjustment, which may also reflect over-optimistic output growthforecasts. The resulting pressure on the Stability and GrowthPact (SGP) illustrates the weakness in the ‘consensusview’ of the harmonious interaction of monetary, fiscal,and supply-side policies, which requires policy in all threeareas to be ‘correct’. In discussing reform of theSGP, a looser but still constraining form of fiscal agreementis advocated. The supply-side and balance-of-payments issuesinvolved in inter-country adjustment also interact importantlywith the SGP and are identified as key areas of difficulty ina still ‘immature’ monetary union, with separatelabour-market structures. Here the mechanisms for coordinationare more or less absent.     

'Successes' and 'Failures' in the Markets for Technology

Market-mediated contracts for technology trade are bound byseveral transaction costs. This paper argues that as these transactioncosts become less severe, markets for technology can help improvethree market failures: (i) R&D duplications; (ii) externalitiesin potentially public R&D outcomes; and (iii) deviationsfrom marginal cost pricing in the downstream product markets.In addition, with larger markets of potential users, the technologysuppliers will have incentives to produce more ‘general’technologies which span a wider number of firms or industries.Markets for technology also produce new failures. In particular,they induce deviation from marginal cost pricing in the saleof the technology, and they generate externalities associatedwith complementary R&D and other investments made by theindependent buyers and suppliers that operate in them. The paperconcludes by discussing policy implications.     

Tactical Coordination in Plurality Electoral Systems

Simple plurality election systems (commonly known as ‘firstpast the post’) are often associated with the dominanceof two political parties. Such systems tend to reward leadingparties with a disproportionately large number of seats (the‘mechanical’ effect) and provoke tactical voting,where voters switch away from trailing parties (the ‘psychological’effect). We view tactical voting as a coordination problem.A group of voters wish to prevent a win by a disliked party(such as the Conservatives in recent UK elections) and mustpartially coordinate behind a single challenger (such as Labouror the Liberal Democrats) in order to do this. Crucially, votershave limited information on the situation within their constituencyand hence there is no common knowledge of the game being played—tacticalvoting is a global game. We show that in this setting, voterswill only partially coordinate. Furthermore, tactical votingexhibits negative feedback—tactical voting by others reducesthe incentive for an individual to vote tactically, since theybecome concerned that they may switch in the wrong direction.We calibrate our model, and apply it to the UK General Electionof 1997. Throughout England, we find that the ‘mechanical’and ‘psychological’ effects tend to offset eachother: tactical voting serves to reverse the Conservative biasthat results from the geographic distribution of preferences.     

Building Programme Evaluation into the Design of Public Research-Support Programmes

There is wide agreement that the high social rate of returnto research and innovation justifies government support forresearch. There is, however, only limited evidence on the effectivenessof different public research programmes. Reliable measurementof programme effectiveness is hampered by the ‘selectivity’problem (public funding goes to proposals judged in advanceto be likely to succeed) and the question of ‘additivity’(whether public funding increases total spending on researchor merely displaces funding from other sources). The selectivityproblem can be mitigated by building evaluation into programmedesign, either by partial randomization of the grant process,or by recording the rankings used in grant evaluation and makingthis information available to researchers. The additivity questionreflects the more fundamental problem that the ultimate objectiveof these programmes is to have long-term effects that are inherentlyvery difficult to measure and attribute to particular programmes.     

Wage Inequality and the New Economy

Many economists have argued that the observed increase in wageinequality in developed economies over the past 30 years isdue to skill-biased technical progress. In this paper we putforward a somewhat different technology-based argument, namelythat the increased inequality was caused by technical changelinked to the pervasive innovation wave associated with theNew Economy. This technical change was not skill-biased in theusual sense, but rather raised the reward to adaptability. Thisalternative approach based on the notion of ‘general-purposetechnology’ can shed light on a number of outstandingpuzzles on the evolution of wage inequality both between andwithin educational groups.     

Digital silk road,Silicon Valley and connectivity

In this article, we provide an up-to-date analysis of innovation and the Belt and Road Initiative (BRI). We argue here that the confluence of technology and the Silk Road is not new. During the Ancient Silk Road, China’s indigenous innovations diffused to other economies (the first process of diffusion). What is new this time is that much of the innovations may have originated in Silicon Valley, California. However, China adapted, metamorphosized some such inventions and at the same time independently created many technology business models. Through the New Silk Road, China may carry out a second diffusion process and spread innovations from Silicon Valley to other BRI countries. To enrich the study of the Digital Silk Road, we construct a formal, economic model of a connected region and show how this can affect Internet start-ups and their entrepreneurs.

We are very grateful for many constructive comments provided by two anonymous referees and an editor. We have improved and revised our article according to their very useful suggestions. All errors, however, remain ours.     

Economic integration, wage policies, and social policies

This paper sets up a two country monopolistic competition modelwith intra-industry trade to study the effects of an exogenousdifferential in wage and social policies on the location ofindustry. Two model scenarios are considered. In the traditionalone with physical capital, such a differential induces a relocationeffect which increases with the level of trade integration.The ‘new economic geography’ world assumes mobileentrepreneurs which can relocate thus bringing agglomerationforces into play. The most significant difference between thisworld and the traditional one is that, at high levels of tradeintegration, where one country has emerged as the core and theother as the periphery, the core may have more generous socialpolicies and higher wages than the periphery without inducinga relocation of firms. The scope to have higher wage is constrained,however, and related to the level of trade integration in abell-shaped way.     

Patents and patent policy

A patent is the legal right of an inventor to exclude othersfrom making or using a particular invention. This right is sometimestermed an ‘intellectual property right’ and is viewedas an incentive for innovation. This article surveys the evidenceon patent effectiveness in encouraging innovation and reviewsthe current controversies in patent policy.     

Redesigning Regulation of Pensions and Other Financial Products

We observe that financial regulation is ever-growing, with thelatest area to experience increased supervisory attention beingpensions. Yet this has not made the financial world or consumerssafer, and for pensions in particular there are unexpected andundesired consequences. We explore the current policy approachto supervision, which is ‘bottom up’, i.e. assessmentand regulation of individual institutions, with the aim ofmakingthe financial system safe by making each institution safe. Weshow that this is both damaging (because it stifles innovation)and does not work (because risk will always be squeezed fromthe regulated institutions to the less regulated and less seen).Instead, we advocate a ‘top-down’ approach, whichfocuses on making the system safe first. We conclude that onceyou have made systems safe, detailed supervision of individualinstitutions is less necessary, thus reducing the burden ofsupervision. We believe that this approach will lead to a moresuitable and diverse treatment of different risks that willincrease both systemic and consumer safety. ‘If you haveten thousand regulations you destroy all respect for the law’,Winston Churchill (1931). ‘The ultimate result of shieldingmen from the effects of folly is to fill the world with fools’,Herbert Spencer (1891). Footnotes ¹ E-mail addresses: n.barr{at}lse.ac.uk; john_nugee{at}ssga.com     

蓝色硅谷建设中政府作用机制研究

在蓝色硅谷建设中应当明确政府的功能定位,建立适合蓝色硅谷发展的政府作用机制。文章阐述了蓝色硅谷、政府作用机制等相关概念,在借鉴世界科技园区建设成功经验的基础上,基于我国特有的社会环境和经济制度,设计了在蓝色硅谷建设初期、快速发展时期和可持续发展时期的政府作用机制。     

Open-Source Software Development and Distributed Innovation

Open-source software development is a production model thatexploits the distributed intelligence of participants in Internetcommunities. This model is efficient because of two relatedreasons: it avoids the inefficiencies of a strong intellectualproperty regime and it implements concurrently design and testingof software modules. The hazard of open source is that projectscan ‘fork’ into competing versions. However, open-sourcecommunities consist of governance structures that constitutionallyminimize this danger. Because open source works in a distributedenvironment, it presents an opportunity for developing countriesto participate in frontier innovation.     

The Financing of Research and Development

Evidence on the ‘funding gap’ for R&D is surveyed.The focus is on financial-market reasons for under-investmentin R&D that persist even in the absence of externality inducedunder-investment. The conclusions are that (i) small and newinnovative firms experience high costs of capital that are onlypartly mitigated by the presence of venture capital; (ii) evidencefor high costs of R&D capital for large firms is mixed,although these firms do prefer internal funds for financingthese investments; (iii) there are limits to venture capitalas a solution to the funding gap, especially in countries wherepublic equity markets are not highly developed; and (iv) furtherstudy of governmental seed capital and subsidy programmes usingquasi-experimental methods is warranted.     

An enduring need: multilateralism in the twenty-first century

That the global economy has been hugely successful over thepast 50 years is unquestionable. A major underpinning of thatsuccess has been the open multilateral system, which has enabledthe emergence of a truly international financial system, reciprocalreduction of trade barriers, and the emergence of many previouslypoor countries into the status of ‘emerging markets’or even ‘developed’. The open multilateral system,however, is increasingly under-appreciated and taken for granted.Preferential trading arrangements have proliferated, and withthem the possibility of discriminatory arrangements for capitalflows. The absence of an international regime for capital flowspermits this development and poses a threat to the system, asdo all of the issues on which countries' governments assert‘their’ interests, and ignore their interests inthe overall health of the system. It is to be hoped that thebenefits of multilateralism are more greatly appreciated, andthat the current trend toward increasing regionalism and departuresfrom the post-war system is reversed.     

The New Economy in Europe, 1992-2001

Despite the fast catching up in the diffusion of informationand communication technologies (ICT) experienced by most EUcountries in the last few years, information technologies haveso far delivered few productivity gains in Europe. In the secondhalf of the past decade, the growth contributions from ICT capitalrose in six EU countries only (the UK, Denmark, Finland, Sweden,Ireland, and Greece). Unlike in the USA, this has not generallybeen associated with higher labour or total factor productivity(TFP) growth rates, the only exceptions being Ireland and Greece.Particularly worrying, the large countries in Continental Europe(Germany, France, Italy, and Spain) showed stagnating or mildlydeclining growth contributions from ICT capital, together withdefinite declines in TFP growth compared to the first half ofthe 1990s. It looks as though the celebrated ‘Solow paradox’on the lack of correlation between ICT investment and productivitygrowth has fled the USA and come to Europe.     

An ideal Kyoto protocol: emissions trading, redistributive transfers and global participation

We demonstrate that an interregional policy scheme featuringtrading of carbon dioxide emissions, redistributive resourcetransfers and global participation, a scheme which we call ‘IdealKyoto Protocol’, yields an efficient equilibrium allocationfor a global economy. An altruistic international agency—say,the Global Environment Facility—should operate the resourcetransfer mechanism. In addition, regional governments shouldbe able to make independent policy commitments regarding howto control regional emissions of carbon dioxide in anticipationof the redistributive transfers. Our efficiency result suggeststhat the USA should be ‘bribed’ to reverse its decisionof not participating in the Kyoto Protocol.