An Incomplete Contract Perspective on Public Good Provision

Abstract.  This paper surveys what can be learned from recent advances in the incomplete contract literature to understand how public goods are or should be provided. The paper starts with a section on the full information case that presents and discusses the classical Samuelson condition on the optimal provision of public goods. The rest of the paper presents results under asymmetric information. It is constituted of two main parts. In the first one, the social planner has complete contracting ability. We discuss the basic setting and assumptions of this comprehensive contracting approach and study the trade-offs it generates. The second part of the paper is devoted to the study of contracting incompleteness. Such incompleteness can emerge from various sources, which we present and discuss. We then study the case of a politically chosen decision-maker and the consequences of its inability to commit for more than one period and of the ability for individuals to form groups. Finally, we address the problem of the choice between public and private forms of public good provision. The concluding section summarizes the main policy lessons.     

Open Source Software: Private Provision of a Public Good

A simple model of open source software (as typified by the GNU-Linux operating system) is presented. Individual user-programmers decide whether to invest their own effort to develop a software enhancement that will become a public good if so developed. The effect of changing the population size of user-programmers is considered; finite and asymptotic results are given. Welfare results are presented. It is shown that whether development will increase when applications have a modular structure depends on whether the developer base exceeds a critical size. Potential explanations of several stylized facts are given, including why certain useful programs don't get written.     

Tax Competition with Heterogeneous Firms

Abstract

This paper studies tax competition in an economic geography model that allows for agglomeration economies with trade costs and heterogeneous firms. We find that the Nash equilibrium involves a large country charging a higher tax than a small nation. Lower trade costs lead to an intensification of competition, a drop in Nash tax rates and a narrowing of the gap. Since large, productive firms are naturally more sensitive to tax differences in our model, large firms are the crux of tax competition in our model. This also means that tax competition has consequences for the average productivity of big and small nations' industries; by lowering tax rates, a small nation can attract high-productivity firms.     

Product Market Competition,Skill Shortages and Productivity: Evidence from Canadian Manufacturing Firms

In this paper, we estimate the impacts of product market competition and skill shortages on the productivity level performance of Canadian manufacturing firms. We use firms perceptions of their competitive environment from the Statistics Canada 1999 Survey of Innovation to measure product market competition and skill shortages. We argue in the paper that such perceptions are important for productivity level performance. After controlling for other factors, we find that product market competition has a positive impact on the performance of medium-sized and large-sized firms, and that skill shortages have a negative impact on the performance of small-sized and medium-sized firms.Jel Classification: L0, O0     

Selling to Socially Responsible Consumers: Competition and The Private Provision of Public Goods

We model firms as competing for socially responsible consumers by linking the provision of a public good (environmentally friendly or socially responsible activities) to sales of their private goods. In many cases, too little of the public good is provided, but under certain conditions, competition leads to excessive provision. Further, there is generally a trade-off between more efficient provision of the private and the public good. Our results indicate that the level of private provision of the public good varies inversely with the competitiveness of the private-good market and that the types of public goods provided are biased toward those for which consumers have high participation value.     

Carbon Offset Provision with Guilt‐Ridden Consumers

Carbon offsets allow consumers to mitigate their guilt associated with their carbon footprint. On the one hand, when offsets are purchased in an industry unrelated to the consumption activity, offsets are complements to consumption and the introduction of an offset market causes consumption to rise. On the other hand, when offsets are purchased in a related industry, consumption and offsets are substitutes and consumption falls. In general, however, net emissions decline. We find two exceptions to this rule. First, when offsets are purchased in an unrelated market, if there is no latent demand for offsets in their absence, the introduction of offsets can potentially cause a rise in net emissions when producers of “dirty” consumption goods have market power. Second, when offsets are purchased to fund green energy, emissions can rise if “dirty” producers can engage in pre‐emptive strategic commitments and the price of offsets is chosen endogenously.     

Multiproduct Firms in Hotelling’s Spatial Competition

Oligopoly models are usually analyzed in the context of two firms, anticipating that market outcomes would be qualitatively similar in the case of three or more firms. The literature on Hotelling’s location‐then‐price competition is not an exception. In this paper, we show that the main finding of brand bunching in Hotelling’s duopoly no longer holds once three or more firms are allowed to enter the market. That is, in oligopoly with three or more firms, firms proliferate brands.     

Green Product Innovation in Manufacturing Firms: A Sustainability‐Oriented Dynamic Capability Perspective

Despite environmental sustainability being identified as one of the key drivers of innovation, extant literature lacks a theoretically sound and empirically testable framework that can provide specific insights into green product innovation from a capability perspective. This study develops a theoretical framework from a sustainability‐oriented dynamic capability (SODC) perspective. We conceive SODCs as consisting of three underlying processes (external resource integration, internal resource integration, and resource building and reconfiguration) that influence the change/renewal of sustainability‐oriented ordinary capabilities (SOOCs) (green innovation capability and eco‐design capability). This study answers two key questions: which SODCs are needed to develop green innovation and eco‐design capabilities? Which of these capabilities lead to better market performance of green products? We test a structural model linking SODCs to market performance in 189 Italian manufacturing firms. First, we find that the nature of the SODC–performance link (direct or indirect) depends on the SODC type. Specifically, resource building and reconfiguration is the only SODC with a direct effect on market performance. Second, all three types of SODC affect the eco‐design capability, which mediates the link between SODCs and market performance. Third, we find that external resource integration is the only SODC affecting the green innovation capability, which mediates the link between external resource integration and market performance. Resource building and reconfiguration is the SODC with the overall (direct and indirect) highest impact on market performance. This study, among the first to consider capabilities for green product innovation under a dynamic capability perspective, provides implications for scholars, managers and policy makers. Copyright © 2016 John Wiley & Sons, Ltd and ERP Environment     

产品市场竞争:企业负债融资决策的新视角

20世纪80年代中期以来,企业负债融资对产品市场竞争的影响引起经济学家的广泛关注,并发展成为资本结构理论一项重要内容。本文拟就国外理论界对企业负债融资和产品市场竞争的研究成果进行述评,进而提出了我国深入开展该领域工作的政策建议。     

Whistle‐Blowing and Incentives in Firms

Whistle‐blowing is an important mechanism of corporate governance. We show that whistle‐blowing has negative effects on productive efficiency by undermining the incentives within a corporate hierarchy. In our model, a top manager intends to overreport earnings; a division manager may have evidence about the intended overreporting. We show that the division manager is more likely to have such evidence when the performance of his own division is low. Top management may offer a bribe to prevent the manager from blowing the whistle. This provides the division manager with an additional payoff when his division’s output is low. Therefore, potential whistle‐blowing undermines the division manager’s incentives to exert effort, which results in a less efficient outcome.     

Product Range and Interfirm Competition

We develop a simple model in which there is both interfirm (or intraproduct) and intrafirm (or interproduct) competition. The purpose is to develop a classificatoy framework in order to understand product-range or diversification decisions alongside conventional competition. The equilibrium outcomes commonly involve a limited range of the available goods being produced. Deterrence equilibria and other strategic actions are also examined.     

Competition Between Online and Physical Stores: The Implications of Providing Product Information by Pure‐Play E‐tailer

This paper studies the competition between a single pure‐play e‐tailer and a bricks‐and‐mortar retailer, which are originally spatially differentiated. By utilizing information and communication technology, a pure‐play e‐tailer can strategically control consumers' disutility for online purchase. However, such an action may also raise consumers' motivation to visit the physical store, which causes free‐riding by the bricks‐and‐mortar retailer. We show that in the presence of a high free‐riding effect, the e‐tailer should be willing to provide information only about ‘niche’ products, which also results in improving the welfare of all members in the market. Copyright © 2011 John Wiley & Sons, Ltd.     

Public and Private Provision of Health Care

One of the mechanisms that are implemented in the cost containment movement in the health care sectors in western countries is the definition, by the third-party payer, of a set of preferred providers. The insured patients have different access rules to such providers when ill. The rules specify the copayments patients must pay when using an out-of-plan care provider. This paper studies the competitive process among providers in terms of both prices and qualities. Competition is influenced by the status of providers as in-plan or out-of-plan care providers. Also, there is a moral hazard of provider choice related to the trade-off between freedom to choose and the need to hold down costs. It is possible to achieve the first-best allocation by an appropriate definition of the reimbursement scheme when decisions on prices and qualities are taken simultaneously (as in primary health care sectors). In contrast, some type of regulation is needed to achieve the optimal solution when decisions are sequential (as in specialized health care sectors). We also derive normative conclusions on how price controls should be implemented in some European Union member states.     

Career Concerns and Product Market Competition

This paper studies the effect of increased competition in the product market on managerial incentives. I propose a simple model of career concerns where firms are willing to pay for managerial talent to reduce production costs, but also to subtract talented executives from competitors. This second effect is privately valuable to firms, but is socially wasteful. As a result, equilibrium pay for talent can be inefficiently high and career concerns too strong. Explicit incentive contracts do not solve the problem, but equilibrium pay is reduced if managerial skills have firm‐specific components, or if firms are heterogeneous. In this second case, managers are efficiently assigned to firms, but equilibrium pay reflects the profitability of talent outside the efficient allocation. The effect of increased competition is ambiguous in general, and depends on the profit sensitivity to cost reductions. This ambiguity is illustrated in two examples of commonly used models of imperfect competition.     

Organizational Structure and Product Market Competition

This paper explores the link between delegation of authority and product market competition. It considers a firm that is contemplating entering a market served by an incumbent. The firm can adopt either a decentralized or a centralized authority structure. In the former, authority is delegated to an agent, while in the latter, it is retained by the principal. We address the questions of how the toughness of future product market competition affects the delegation decision, and how this decision in turn affects product market competition. The delegation decision is determined by a trade‐off between inducing the agent to take greater initiative and accepting lower operating profits from a less efficient decision taken by the agent.     

Narrow‐Framing and Risk Preferences in Family and Non‐Family Firms

Building upon prospect theory’s concept of narrow‐framing, we explore family firms’ risk preferences across multiple decisions in corporate entrepreneurship. We argue that family firms’ decisions are less likely to be narrowly framed (more likely to be made as a group rather than in isolation) compared to non‐family firms. Examining the interaction between two risky decisions (internationalization and R&D investment) in two samples of publicly traded firms in the USA and China confirms our hypotheses. Family firms appear more likely than non‐family firms to diversify risk when making multiple decisions concerning corporate entrepreneurship. However, given inferior performance, risk taking across multiple decisions in family firms is positively related.     

Product Market Competition and Returns to Talent

This paper investigates how product market competition influences the wages paid to workers and the distribution of talent across industries. We develop a model where firms facing different competitive conditions bid for workers. The model predicts that wages are increasing in talent, decreasing in competition, and the interaction between talent and competition is positive. In addition, the most talented workers will be concentrated in competitive industries and talent dispersion rises with competition. We use linked employee–employer data to test these predictions.     

Competition for Managers and Product Market Efficiency

We investigate whether competition between two firms to hire managers with different abilities might affect efficiency in the product market, when a manager's effort is his/her private information. We conclude that competition for managers might lead to an improvement in efficiency in the market of the firm that attracts the most efficient manager. Competition for managers might even eliminate the productive efficiency loss due to the asymmetry of information in the firm-manager relationship.     

Internationalization of R&D and Operations in Dominant Product U.S. Firms

Abstract

An empirical study of a sample of 38 U.S. dominant product firms operating in manufacturing industries was undertaken to trace the patterns of internationalization of R&D and operations. First, the results of our analysis revealed that internationalization of R&D and operations were a significant part of the evolving internationalization strategies of the dominant product firms we studied. Second, while internationalization of operations was influenced by international configuration via global standardization, the internationalization of R&D was influenced by international configuration via national responsiveness and by competitive positioning via differentiation. Third, the results highlight the fact that the internationalization moves of dominant product firms are not all similar, but depend on the international configuration and competitive positioning pursued by the firms.