Peer pressure,social spillovers,and reciprocity: an experimental analysis

This study examines whether reciprocity is affected by what others know and do. Two types of social effects are investigated within the framework of a modified investment game. On the one hand, we assess the role played by the awareness that own choices are observed by another trustee—i.e., peer pressure. On the other hand, we measure the interaction between trustees’ choices—i.e., social spillovers. We find that peer pressure fosters reciprocity and, to a lesser extent, so do social spillovers.     

Competition and innovation: an experimental investigation

The paper analyzes the effects of more intense competition on firms’ investments in process innovations. More intense competition corresponds to an increase in the number of firms or a switch from Cournot to Bertrand competition. We carry out experiments for two-stage games, where R&D investment choices are followed by product market competition. An increase in the number of firms from two to four reduces investments, whereas a switch from Cournot to Bertrand increases investments, even though theory predicts a negative effect in the four-player case. The results arise both in treatments in which both stages are implemented and in treatments in which only one stage is implemented. However, the positive effect of moving from Cournot to Bertrand competition is more pronounced in the former case.     

Fragility of information cascades: an experimental study using elicited beliefs

This paper examines the occurrence and fragility of information cascades in two laboratory experiments. One group of low informed participants sequentially guess which of two states has been randomly chosen. In a matched pairs design, another group of high informed participants make similar guesses after having observed the guesses of the low informed participants. In the second experiment, participants’ beliefs about the chosen state are elicited. In equilibrium, low informed players who observe an established pattern of identical guesses herd without regard to their private information whereas high informed players always guess according to their private information. Equilibrium behavior implies that information cascades emerge in the group of low informed participants, the belief based solely on cascade guesses is stationary, and information cascades are systematically broken by high informed participants endowed with private information contradicting the cascade guesses. Experimental results show that the behavior of low informed participants is qualitatively in line with the equilibrium prediction. Information cascades often emerge in our experiments. The tendency of low informed participants to engage in cascade behavior increases with the number of identical guesses. Our main finding is that information cascades are not fragile. The behavior of high informed participants differs markedly from the equilibrium prediction. Only one-third of laboratory cascades are broken by high informed participants endowed with private information contradicting the cascade guesses. The relative frequency of cascade breaks is 15% for the situations where five or more identical guesses are observed. Participants’ elicited beliefs are strongly consistent with their own behavior and show that, unlike in equilibrium, the more cascade guesses participants observe the more they believe in the state favored by those guesses.     

Industry innovativeness,firm size,and entrepreneurship: Schumpeter Mark III?

Emphasizing the dynamics in economies and industries, Schumpeter points to entrepreneurs carrying out ‘new combinations’. His work, and in particular the Theory of Economic Development, is often interpreted as praising individual entrepreneurs setting up new firms to contribute to an industry’s innovativeness. This has come to be referred to as the Schumpeter Mark I perspective. Later, however, in his Capitalism, Socialism, and Democracy, Schumpeter has rather suggested that large incumbents are best positioned to contribute to an industry’s innovativeness (Schumpeter Mark II). In this discussion, however, the possibly different effects of structural as opposed to dynamic industry competitiveness is often not taken into account. In addition, the contribution of new and small firms to industry innovativeness are often conflated. Using New Product Announcements as a measure of innovation, we find that industries dominated by small firms prove consistently and significantly more innovative than industries where large firms dominate. Taking account of industries’ structural and dynamic levels of competition, we find that high existing and increasing levels of new firms entering an industry, exercising what Schumpeter called the ‘entrepreneurial function’, actually decrease industry innovativeness. We conclude that the contribution of small firms in terms of industry innovativeness is different from that of large as well as new firms, suggesting a Schumpeter Mark III perspective.     

An experimental analysis of team production in networks

Experimental and empirical evidence highlights the role of networks on social outcomes. This paper tests the properties of exogenously fixed networks in team production. Subjects make the same decisions in a team work environment under four different organizational networks: the line, the circle, the star, and the complete network. In all the networks, links make information available to neighbors. This design allows us to analyze decisions across networks and a variety of subject types in a standard linear team production game. Contribution levels differ significantly across networks and the star is the most efficient incomplete network. Moreover, our results suggest that subjects act as conditional cooperators with respect to the information received from the network.     

The EKC for SO2: Does firm size matter?

The environmental Kuznets curve hypothesis (EKC) predicts an inverse U-shaped relationship between environmental pollution and per capita income. The literature with respect to the EKC is vast but far from conclusive. This paper adds firm size to the standard EKC reduced form regression and analyses whether firm size matters once income and composition are controlled for. Results suggest that large firm countries are initially associated with higher levels of environmental damage. However, as economies develop, large firm countries find it easier to adopt more stringent environmental legislation. Once environmental damage starts to decrease, the decrease is much larger in large firm countries.     

Capital liquidity and residents’ consumption decision: An asymmetry analysis of economic prosperity

Among the current literatures that discuss the influence exerted on residents’ consumption behavior by capital liquidity, some often independently decide the demarcation point of the liquidity restriction that affects residents’ consumption behavior, without taking into account when the economy is flourishing whether residents will be influenced by the restriction of the liquidity that their consumption behaviors can not be fully carried out. We introduce a threshold model which varies according to the actual GDP and other financial indicators (money supply, average stock index and balance of bank loans) to discuss residents’ consumption behavior in China under different economic states. The empirical results show that when the economy flourishes or resuscitates, residents’ income of the same period have not notable influence on their consumption, which suggests that residents’ consumption behavior does not considerably change according to the fluctuation of the current income, but conforms with the constant income-life cycle hypothesis. Moreover, two estimated values 0.7504 and 0.8597, as economic boom measures, all fall in the boom stable stage—basically consists with the early-warning index of the macro-economy boom issued by National Bureau of Statistics of China. It shows that the macro-economic boom is not notablely influenced by capital liquidity, so is residents’ consumption behavior.     

Monopoly power and the firm’s valuation: a dynamic analysis of short versus long-term policies

Summary. Recent anti-trust cases exacerbated the concerns of investors regarding the effects of a firms monopoly power on its production choice, shareholder value, and the overall economy. We address this issue within a dynamic equilibrium model featuring a large monopolistic firm whose actions not only affect the price of its output, but also effectively influence the valuation of its stock. The latter renders time-inconsistency to the firms dynamic production choice. When the firm is required to pre-commit to its strategy, the ensuing equilibrium is largely in line with the predictions of the textbook monopoly model. When the firm behaves in a time-consistent manner, however, the predictions are strikingly at odds. The trade-off between current profits and the valuation of future profits induces the firm to increase production beyond the competitive benchmark and cut prices. This policy may result in destroying shareholder value, and does indeed fully wipe out the firms profit in the limit of the decision-making interval shrinking to zero, in line with the Coase conjecture.Received: 23 December 2003, Revised: 1 March 2004, JEL Classification Numbers: D42, D51, D92, E20, G12.Correspondence to: Anna PavlovaWe thank Steve Spear and the anonymous referees for helpful suggestions. We are also grateful to Franklin Allen, Dave Cass, Peter DeMarzo, Bernard Dumas, Ron Giammarino, Rich Kihlstrom, Leonid Kogan, Branko Urosevic, Dimitri Vayanos, seminar participants at Boston University, University of Colorado at Boulder, Columbia University, MIT, University of Pennsylvania, Princeton University, American Finance Association Meetings, and European Finance Association Meetings for valuable comments. All errors are solely our responsibility.     

Is inequality harmful for innovation and growth? Price versus market size effects

We introduce non-homothetic preferences into an R&D based growth model to study how demand forces shape the impact of inequality on innovation and growth. Inequality affects the incentive to innovate via a price effect and a market size effect. When innovators have a large productivity advantage over traditional producers a higher extent of inequality tends to increase innovators’ prices and mark-ups. When this productivity gap is small, however, a redistribution from the rich to the poor increases market sizes and speeds up growth.     

Cheating,emotions, and rationality: an experiment on tax evasion

The economics-of-crime approach usually ignores the emotional cost and benefit of cheating. In this paper, we investigate the relationships between emotions, deception, and rational decision-making by means of an experiment on tax evasion. Emotions are measured by skin conductance responses and self-reports. We show that the intensity of anticipated and anticipatory emotions before reporting income positively correlates with both the decision to cheat and the proportion of evaded income. The experienced emotional arousal after an audit increases with the monetary sanctions and the arousal is even stronger when the evader’s picture is publicly displayed. We also find that the risk of a public exposure of deception deters evasion whereas the amount of fines encourages evasion. These results suggest that an audit policy that strengthens the emotional dimension of cheating favors compliance.     

A comparative analysis of Japanese firm productivity： Solow residual and Malmquist productivity index

For some time, two major kinds of Total Factor Productivity （TFP） have existed independently of each other： the Solow residual and the Malmquist Productivity Index （MPI）. The Solow residual was introduced in macro economic growth models, and the MPI has been used in micro economics and management studies. As both indices were developed independently, few studies utilize both together and compare the results. This paper uses the same data to compare the two productivity indices by setting to determine the economic implications of combining the two indices. We discovered that we could decompose TFP with each aspect of the Soiow residual and MPI. We could then interpret their relationship in the business cycle. Our results indicated that the frontier shift in MPI of Japanese firms often occurred when the Solow residual increased, meaning that improving oroductivitv with the Solow residual could be generated by a firm that could shift new production frontiers.     

Exports and firm survival: do trade regime and productivity matter?

This article aims to investigate the role of trade regime and productivity in the link between exporting and firm survival. We use firm-level data from China to examine whether exporters engaged in different trade regimes and with different levels of productivity react differently with regard to survival probability. We find that exporters engaged in all types of trade regimes have higher survival probabilities in comparison with nonexporters; however, the survival probability of exporters engaged in processing trade is less positively affected by productivity.     

Marketed tax avoidance: an economic analysis∗

Recent years have witnessed the growth of mass-marketed tax avoidance schemes aimed at the middle (not top) of the income distribution, with significant implications for tax revenue. We examine the consequences for the structure of income tax, and for tax authority anti-avoidance efforts, of tax avoidance of this type. In a model that allows for both demand- and supply-side considerations, we find that: there is an endogenous threshold income below which taxpayers do not avoid, and above which they avoid maximally; the per-dollar price of tax avoidance is decreasing in income under progressive taxation; endogenous adjustments in the price of avoidance make supply less responsive to anti-avoidance activity than thought previously; and avoidance may drive a non-monotone relationship between tax rates and tax revenue. These findings suggest that new approaches to anti-avoidance, beyond legal enforcement, might be needed.     

‘Social enterprise spin-outs’: an institutional analysis of their emergence and potential

The recent phenomenon of public sector ‘social enterprise spin-outs’ is examined in order to critically assess their nature and innovative potential as providers of public services. The study utilises a theoretical model of institutional creation and change which incorporates key characteristics of ‘corporate spin-outs’ and ‘university spin-outs’ to facilitate the examination of their public sector counterparts, drawing on interview evidence from 30 newly-established social enterprise providers of health and care services in England. A main contribution of the paper is to provide a conceptual framework which sheds light on the strengths and potential vulnerabilities of social enterprise spin-outs as novel organisations that span the public, private and civil society sectors.     

The new millennium and leadership: evolution or entropy?

Health care in the new millennium will be different. We have a wonderful opportunity to live in a new paradigm of leadership and management that opens up myriad possibilities for innovations in health care and leadership. If leaders stand still and don't quickly adapt to the new demands, they will be killed as leaders in this new millennium. The next 20 years are only for those who can act and adapt quickly.     

Knowledge sourcing and firm performance in an industrializing economy: the case of Taiwan (1992–2003)

We examine the impact of R&D and technology imports on firm performance in Taiwan??s manufacturing industry in a policy context of industrial upgrading. To do so, we estimate a Translog production function on two panels (covering 1992?C1995 and 1997?C2003), using stochastic frontier models. We find that the effects of both knowledge inputs become significant in a larger number of industries in the second panel. These results suggest that the policies encouraging innovation implemented from 1991 onwards paid off in the second half of the 1990s, with innovation driving firm sales. In traditional industries, the effect of innovation can be interpreted as an effort to catch up with the global technology frontier. In the electronics and high-technology industries, it rather testifies of the emergence of a new domain of specialization for Taiwan??which was largely enabled by the aforementioned innovation policies.     

Innovation strategies and firm performance: Simple or complex strategies?

This paper analyzes the effect of various innovation strategies (ISs) of firms on their future performance, captured by labor productivity. Using five waves of the Community Innovation Survey in Sweden, we have traced the innovative behavior of firms over a decade, that is, from 2002 to 2012. We defined ISs to be either simple or complex (in various degrees). We call an IS a simple IS when firms engage in only one of the four types of Schumpeterian innovations, that is, product, process, marketing, or organizational, while a complex IS is when firms simultaneously engage in more than one type. The main findings indicate that those firms that choose and afford to have complex ISs are better off in terms of their future productivity in comparison with those firms that choose not to innovative (base group) and also in comparison with those firms that choose simple ISs. The results are mostly robust for those complex innovators that have a higher degree of complexity and also keep the balance between technological (product and process) and non-technological (organizational and marketing) innovations.     

University–industry linkages and absorptive capacity: an empirical analysis of China's manufacturing industry

We analyze the contribution of universities to innovative performance in China's manufacturing sector. Our empirical analysis is based on a matched data set comprising about 20,000 large- and medium-sized companies aggregated at the three-digit industry level and information on university knowledge output for 31 provinces between 1998 and 2004. We show that universities’ impact on commercial innovation varies with the type of activity performed and is contingent on the manufacturing sector's investment in absorptive capacity. In addition, our results confirm organizational theory stating that there is a complementary relationship between capabilities to acquire and assimilate external knowledge on the one hand and the capacity to transform and exploit this knowledge on the other.     

Regulatory Uncertainty and Share Price Volatility: the English and Welsh Water Industry’s Periodic Price Review

This paper models the London stock markets response to the 1994 Periodic Review of prices in the English and Welsh water industry using both GARCH and stochastic volatility models. The results indicate that a significant reduction in the volatility of share prices for eight of the ten water and sewerage companies followed the announcement of revised industry price-caps. Investor expectations adjusted rapidly, reflecting confidence in the credibility and political sustainability of the settlement.