Endogenous protection of R&D investments

Abstract .  We examine firms' incentives to protect their non-cooperative R&D investments from spilling over to competitors. We show that, contrary to findings in most of the literature, the lack of full appropriability can lead to an increase in R&D investments. Consequently, as long as the R&D spillovers are not too strong, firms decide to let their R&D knowledge flow. Since, as we show, welfare is higher when R&D spillovers are present, it follows that public policies that promote the dissemination of technological knowledge could be welfare-enhancing.     

Learning from private and public observations of othersʼ actions

We study the diffusion of dispersed private information in a large economy, where agents learn from the actions of others through two channels: a public channel, such as equilibrium market prices, and a private channel, for example local interactions. We show that, when agents learn only from the public channel, an initial release of public information increases agents? total knowledge at all times and increases welfare. When a private learning channel is present, this result is reversed: more initial public information reduces agents asymptotic knowledge by an amount in order of $\log (t)$ units of precision. When agents are sufficiently patient, this reduces welfare.     

Comparison of deep integration in the Melitz,Krugman and Armington models: The case of The Philippines in RCEP

We estimate the welfare effects of a modern mega-preferential trade agreement--the Regional Comprehensive Economic Partnership--with three versions of market structure: (i) perfect competition, Armington style; (ii) monopolistic competition based on Krugman (1980); and (iii) monopolistic competition in the style of Melitz (2003). We develop a new numerical model of foreign direct investment (FDI) with heterogeneous firms and extension of the Krugman model that allows small countries to impact the number of varieties. We hold both the trade and FDI responses constant across the three market structures. We find that in all three market structures, there are substantial gains from deep integration, but virtually no gains from preferential tariff reduction. Both our Krugman and Melitz style models produce significantly larger welfare gains than the Armington structure, especially if third countries benefit at least partially from the deep integration reforms via either spillovers or wider liberalization.     

Multi-product firms in monopolistic competition: The role of scale-scope spillovers

We develop a monopolistic competition model where firms are multi-product, and the elasticity of substitution on the consumption side is variable. The cost function, otherwise very general, is such that expanding firm-level product range (scope) reduces marginal costs of production of existing varieties. This captures scale-scope spillovers, i.e. within-firm spillovers between the scale at which firms operate and their choices of scope. Firm-level product ranges and the mass of firms are endogenously determined. We show how an increase in market size affects the market outcome. A larger market leads to lower prices, larger outputs, and a wider industry-level product range. Firm-level product ranges expand (shrink) under sufficiently strong (weak) scale-scope spillovers. Last, under strong (weak) spillovers, the number of firms increases less (more) than proportionally to the market size.     

DEFECTING FROM R&D COOPERATION

This paper introduces defection into the strategic R&D model. In defecting, a firm cheats by choosing its R&D expenditures to maximise its own profits, instead of maximising the joint profits of the cooperating firms. Two cooperative environments are considered: R&D cartelisation, where firms coordinate R&D activities; and RJV cartelisation, where firms coordinate R&D activities and share information. Under R&D cartelisation, defection entails an increase (decrease) in R&D and effective spillovers for low (high) spillovers; whereas under RJV cartelisation, defection always entails a decrease in R&D and effective spillovers. Under R&D cartelisation, consumer surplus and total welfare increase (decrease) with defection when spillovers are low (high). Whereas consumer surplus and welfare always decrease with defection under RJV cartelisation. Under R&D cartelisation, the incentives for defection first decrease then increase with spillovers; they also increase with the size of the market, but decline with production costs and R&D costs. Moreover, the incentives for defection are higher under RJV cartelisation. With low spillovers under RJV cartelisation, a firm prefers to be subject to defection by the other firm, to not cooperating at all. Punishment for defection is considered, under the form of abstaining from information sharing.     

Host-country policy – commitment or no-commitment: a theoretical analysis

This paper develops a model of foreign entry strategy and examines welfare of the host-country under two situations - (i) where host-country government commits to the tax policy, (ii) where host-country government does not commit to the tax policy. It turns out that under the non-committed government policy the foreign firm does not prefer to hold equity share in the domestic project. The host-country welfare, however, is more under the committed government policy than the non-committed government policy when the foreign firm has sufficiently higher bargaining power. The possibility of technology choice by the foreign firm reduces the range of bargaining power of the foreign firm over which the host-country welfare is more under the committed policy compared to the non-committed policy.     

B股向境内居民开放对A、B股市场分割的影响

从信息流动的角度 ,研究了B股向境内居民开放前后的A、B股两个市场之间的分割程度 ,并与同期的A股和H股市场的分割程度作比较。实证结果显示 ,在B股向境内居民开放之前 ,A、B股市场之间基本上处于完全分割状态 ,而开放之后两个市场趋于半分割状态 ;A股和H股之间一直处于完全分割状态。研究结论表明 ,投资主体的不同是造成A、B股市场分割的关键因素 ,B股向境内居民开放一定程度上缓和了两个市场的分割局面 ,但离一体化还有相当差距。     

On the possibility of welfare-enhancing hard core cartels

The conventional wisdom is that cartels which merely lead to lower production levels and higher prices are detrimental to social welfare. This paper explores the extent to which this is generally valid. We derive necessary and sufficient conditions for the existence of a hard core cartel that is beneficial for firms and society at large. Considering both strong (with side payments) and weak (without side payments) hard core cartel contracts, we find that (i) both strong and weak welfare-enhancing cartels exist when at least one firm makes a loss on part of its sales in competition, (ii) a welfare-enhancing strong cartel exists whenever there is a difference in unit cost at competitive production levels, and (iii) a welfare-enhancing weak cartel exists when the profit margin on all sales is positive and the cost difference is sufficiently large.     

Inflation bias and markup shocks in a LAMP model with strategic interaction of monetary and fiscal policy

This paper investigates the effects generated by limited asset market participation on optimal monetary and fiscal policy, where monetary and fiscal authorities are independent and play strategically. It shows that: (i) both the long run and the short run equilibrium require a departure from zero inflation rate; (ii) in response to a markup shock, fiscal policy becomes more aggressive as the fraction of liquidity constrained agents increases and price stability is no longer optimal even under Ramsey; (iii) overall, optimal discretionary policies imply welfare losses for Ricardians, while liquidity constrained consumers experience welfare gains with respect to Ramsey.     

Strategic Pricing, Consumer Search and the Number of Firms

We examine an oligopoly model where some consumers engage in costly non-sequential search to discover prices. There are three distinct price-dispersed equilibria characterized by low, moderate and high search intensity. The effects of an increase in the number of firms on search behaviour, expected prices, price dispersion and welfare are sensitive (i) to the equilibrium consumers' search intensity, and (ii) to the status quo number of firms. For instance, when consumers search with low intensity, an increase in the number of firms reduces search, does not affect expected price, leads to greater price dispersion and reduces welfare. In contrast, when consumers search with high intensity, increased competition results in more search and lower prices when the number of competitors in the market is low to begin with, but in less search and higher prices when the number of competitors is large. Duopoly yields identical expected price and price dispersion but higher welfare than an infinite number of firms.     

Project Mechanisms and Technology Diffusion in Climate Policy

The paper deals with the diffusion of GHG mitigation technologies in developing countries. We develop a model where an abatement technology is progressively adopted by firms and we use it to compare the Clean Development Mechanism (CDM) with a standard Cap and Trade scheme (C&T). In the presence of learning spillovers, we show that the CDM yields a higher social welfare than C&T if the first adopter receives CDM credits whereas the followers do not. The analysis leads us to suggest two CDM design improvements: relaxing the additionality constraint for projects which generate significant learning externalities, and allowing collective CDM projects which could internalize learning externalities.     

Spillover feedback loops and strategic complements in R&D

This paper studies, in a two‐period model, the effects of knowledge spillovers among product market competitors on R&D levels. It argues that when firms' R&D decisions are strategic complements, in industries in which spillovers increase the marginal productivity of a firm's R&D, both incoming and outgoing spillovers spur R&D in equilibrium. Outgoing spillovers can foster innovation even in a homogeneous‐product industry. In these industries, the intellectual property law should be such that facilitates knowledge diffusion. If firms have power in deciding the level of knowledge spillovers, we show that a firm will choose to disclose its knowledge to its product market competitors.     

Growth, Competition and Welfare

The impact of competition on growth and welfare is analysed by developing a model in which the number of firms, profit margins and innovation rates are endogenous. Different regimes of oligopolistic competition are distinguished. The tougher the price competition, the lower the profit margins for a given rate of concentration. This reduces the number of firms and product variety in a free entry equilibrium. Consequently, tougher competition implies larger firm size and higher rates of innovation since new technologies can be applied in a larger market. Oligopolistic pricing leads to underinvestment in firm-specific knowledge, even if inter-firm knowledge spillovers are neglected.     

Optimal renewable-energy promotion: Capacity subsidies vs. generation subsidies

We derive optimal subsidization of renewable energies in electricity markets. The analysis takes into account that capacity investment must be chosen under uncertainty about demand conditions and capacity availability, and that capacity as well as electricity generation may be sources of externalities. The main result is that generation subsidies should correspond to externalities of electricity generation (e.g., greenhouse gas reductions), and investment subsidies should correspond to externalities of capacity (e.g., learning spillovers). If only capacity externalities exist, then electricity generation should not be subsidized at all. Our results suggest that some of the most popular promotion instruments cause welfare losses. We demonstrate such welfare losses with data from the German electricity market.     

COOPERATIVE MANAGERIAL DELEGATION,R&D AND COLLUSION

Existing literature on managerial delegation indicates that collusive outcomes can be obtained in an oligopoly game through cooperative managerial delegation. In contrast, this paper shows that, if managers are delegated to choose R&D, in addition to choosing production levels, full‐collusive outcomes cannot be achieved through cooperative delegation. Moreover, (i) under cooperative delegation, semi‐collusion always yields lower profit, higher R&D, higher price and lower social welfare than that in the case of competition and (ii) cooperative delegation leads to a higher profit lower R&D, higher price and lower social welfare than the no delegation case, irrespective of product market conduct.     

Competition and regulation with product differentiation

We consider a market for differentiated products, where one good is supplied by a regulated monopolist and competitive firms operate in an unregulated segment. In this setting we investigate the issue of whether to allow the monopolist to diversify into the unregulated segment by owning a competitive firm. Under asymmetric cost information, if goods are substitutes a diversified monopolist, which exaggerates its costs in the regulated segment to charge a higher regulated price, stimulates the demand for the competitive affiliate. This strengthens the firm??s incentive to inflate costs, since doing so generates a positive informational spillover to its profits in the competitive segment. Consequently, a regime of separation, which prevents the firm from operating in the competitive segment, is welfare-enhancing. Conversely, with complements, cost exaggeration in the regulated monopoly reduces the demand and harms profits in the competitive segment, and allowing the monopolist to diversify into the competitive segment therefore generates countervailing incentives, which weaken the firm??s interest in cost manipulation and improve social welfare.     

Infra-industry spillovers and R&D cooperation: Theory and evidence

We analyse both the theoretical and the empirical side of the issue of R&D spillovers. Each firm's R&D costs are increasing in the amount of information transmitted to other firms, and we account for the possibility that firms control spillovers. We consider both Cournot-Nash and Cournot-Stackelberg behavior. The empirical analysis suggests that (i) firms' control on spillovers is relatively low; (ii) the cost-saving effect associated to joint ventures or R&D cartels is confirmed for industries where firms rely mainly upon own R&D as a source of innovation; (iii) R&D cooperation may increase information sharing, thereby enhancing spillovers.     

International R&D Spillovers: Trade,FDI, and Information Technology as Spillover Channels*

With the rapid pace of economic integration, the productivity of a country depends not only on domestic R&D, but also on foreign R&D through technology diffusion across countries. The advancement of information technology (IT) has made the international transmission of knowledge faster and more efficient, providing an important channel for international R&D spillovers. This paper investigates three channels of international R&D spillovers: trade, FDI, and information technology. Applying panel cointegration and dynamic OLS analysis to the data for 21 OECD countries plus Israel during the period from 1981 to 1998, we find that bilateral trade remains an important conduit for international R&D spillovers. Although bilateral FDI is found to be positively related to international R&D spillovers, their impact on productivity growth is relatively small. We also find that the development of information technology has played a more important role in international R&D spillovers and productivity growth in recent years.     

Country of Origin Labeling (C.O.O.L.): How cool is it?

This paper develops a partial-equilibrium model of a small open-economy trading an unsafe product. The model is used to analyze the welfare effects of trade with and without a country-of-origin labeling (COOL) program. The welfare gains from trade in the absence of COOL are ambiguous, may justify the imposition of a trade ban. Even if a full ban does not improve welfare and some restriction of trade is always welfare-enhancing. Under a tariff regime, more COOL trade is better than less trade. Independently of domestic market power, free trade coupled with a COOL program maximizes national welfare.     

Monetary Institutions,Monopolistic Competition,Unionized Labor Markets and Economic Performance*

Recent literature on the interactions between labor unions and monetary institutions features either a supply or a demand channel of monetary policy, but not both. This leads to two opposing views about the effects of central bank conservativeness. We evaluate the relative merits of those conflicting views by developing a unified framework. We find that: (i) the effect of conservativeness on employment depends on unions’ relative aversion to unemployment versus inflation, and (ii) for plausible values of this relative aversion (and more than one union), social welfare is maximized under a highly conservative central bank. We also evaluate the effects of centralization of wage bargaining and product market competition on unemployment and inflation.