Trust and Growth

Why does trust vary so substantially across countries? This paper presents a general equilibrium growth model in which heterogeneous agents transact and face a moral hazard problem. Agents may trust those with whom they transact, but they also have the opportunity to invest resources in verifying the truthfulness of claims made by transactors. We characterise the social, economic and institutional environments in which trust will be high, and show that low trust environments reduce the rate of investment. The predictions of the model are examined empirically for a cross-section of countries and have substantial support in the data.     

Optimal Climate Change Policies When Governments Cannot Commit

We analyse the optimal design of climate change policies when a government wants to encourage the private sector to undertake significant immediate investment in developing cleaner technologies, but the relevant carbon taxes (or other environmental policies) that would incentivise such investment by firms will be set in the future. We assume that the current government cannot commit to long-term carbon taxes, and so both it and the private sector face the possibility that the government in power in the future may give different (relative) weight to environmental damage costs. We show that this lack of commitment has a significant asymmetric effect: it increases the social benefits of the current government to have the investment undertaken, but reduces the private benefit to the private sector to invest. Consequently the current government may need to use additional policy instruments—such as R&D subsidies—to stimulate the required investment.     

Bargaining with Rent Seekers

Consider a rent‐seeking game, which has government bargain with firms over dividing the rents. In period 1, each firm can invest to increase the probability that the rent will appear. In period 2, the parties bargain. In equilibrium, though firms will invest more than the socially optimal level, rent‐seeking expenditures may be low. Firms that collude to restrict investment maximize joint profits by investing at a positive, non‐infinitesimal level, and restrict investment even if the cost of rent‐seeking effort is zero.     

Investment without democracy: Ruling-party institutionalization and credible commitment in autocracies

What explains private investment in autocracies, where institutions that discourage expropriation in democracies are absent? We argue that institutionalized ruling parties allow autocrats to make credible commitments to investors. Such parties promote investment by solving collective-action problems among a designated group, who invest with the expectation that the autocrat will not attempt their expropriation. We derive conditions under which autocrats want to create such parties, and we predict that private investment and governance will be stronger in their presence. We illustrate the model by examining the institutionalization of the Chinese Communist Party.     

Investment coordination in network industries: the case of electricity grid and electricity generation

Liberalization of network industries frequently separates the network from the other parts of the industry. This is important in particular for the electricity industry where private firms invest into generation facilities, while network investments usually are controlled by regulators. We discuss two regulatory regimes. First, the regulator can only decide on the network extension. Second, she can additionally use a “capacity market” with payments contingent on private generation investment. For the first case, we find that even absent asymmetric information, a lack of regulatory commitment can cause inefficiently high or inefficiently low investments. For the second case, we develop a standard handicap auction which implements the first best under asymmetric information if there are no shadow costs of public funds. With shadow costs, no simple mechanism can implement the second best outcome.     

Intertemporal Emission Permits Trading Under Uncertainty and Irreversibility

This paper analyzes the effect of emission permit banking on clean technology investment and abatement under conditions where the stringency of the future cap is uncertain. We examine the problem of heterogeneous firms minimizing the cost of intertemporal emission control in the presence of stochastic future pollution standards and emission permits that are tradable across firms and through time. A firm can invest in clean capital (an improved pollution abatement technology) to reduce its abatement cost. We consider two possibilities: that investment is reversible or irreversible. Uncertainty is captured within a two period model: only the current period cap is known. We show that if banking is positive and marginal abatement costs are sufficiently convex, there will be more abatement and investment in clean technology under uncertainty than there would be under certainty and no banking. These results are at odds with the common belief that uncertainty on future environmental policy is a barrier to investment in clean capital. Moreover, under uncertainty and irreversibility, we find that there are cases where banking enables firms to invest more in clean capital.     

Optimal dynamic risk sharing when enforcement is a decision variable

Societies provide institutions that are costly to set up, but able to enforce long-run relationships. We study the optimal decision problem of using self-governance for risk sharing or governance through enforcement provided by these institutions. Third-party enforcement is modelled as a costly technology that consumes resources, but permits the punishment of agents who deviate from ex ante specified allocations. We show that it is optimal to employ the technology whenever commitment problems prevent first-best risk sharing and fixed costs are sufficiently low, but never optimal to provide incentives exclusively via this technology. Commitment problems then persist and the optimal incentive structure changes dynamically over time with third-party enforcement monotonically increasing in the relative inequality between agents.     

Investment decisions and coordination problems in a market with network externalities: An experimental study

We study decision-making and the associated coordination problems in an experimental setting with network externalities. Subjects decide simultaneously in every round how much to invest out of a fixed endowment; the gain from an investment increases with total investment, so that an investment is profitable iff total investment exceeds a critical mass. The game has multiple, Pareto-ranked equilibria; we find that whether first-round total investment reaches critical mass predicts convergence towards the Pareto optimal full-investment equilibrium. Moreover, first-round investments and equilibrium convergence vary with critical mass and group size in a complex way that is explicable by subtle effects of strategic uncertainty on decision making.     

技术关联、技术转移对区域技术演化的影响——以成渝地区双城经济圈为例

技术演化是区域实现高质量发展的关键动力。基于1999-2019年成渝地区142个县（市区）、637个专利技术领域的面板数据，考察技术关联、技术转移对成渝地区技术演化的影响，并进一步讨论区域发展阶段和技术含量的异质性作用。研究发现，技术关联、技术转移对区域技术演化均存在促进作用，同时，技术关联在先发地区和低技术含量领域的作用更显著，而技术转移在后发地区和高技术含量领域的作用更显著。进一步研究发现，技术关联、技术转移对区域技术演化存在“倒U”型影响，邻近地区技术演化对本地具有溢出效应。基于上述研究结论，建议成渝地区同时发挥技术关联与技术转移的作用，在发达区域技术关联强的领域加大要素投入，鼓励技术落后区域进行技术引进，加强区域协作，破除研发要素流动壁垒。     

ENDOGENOUS JOB CONTACT NETWORKS

We develop a model where workers, anticipating the risk of becoming unemployed, invest in connections in order to access information about available jobs that other workers may have. The investment in connections is high when the job separation rate in the labor market is moderate, whereas it is low for either low or high levels of job separation rate. The equilibrium response of network investment to changes in the labor market conditions generates novel empirical predictions. In particular, the probability that a worker finds a new job via his connections increases in the separation rate when the separation rate is low, whereas it decreases when the separation rate is high. These predictions are supported by the empirical patterns that we document for the U.K. labor market.     

On the strength of corporate cultures

We model corporate culture(s) as production technologies for which employees have to undertake culture-specific investments that improve their effectiveness. At a later date, the organization can adopt cultural changes that make this investment partially redundant. This leads to under-investment. However, as agents invest more, the organization's opportunity cost of a change increases, which in turn increases each agents' incentives to invest. This externality among agents leads to multiple equilibria. Otherwise similar organizations can thus exhibit either high investment levels and low probability of changes (strong culture) or low investment levels and high probability of changes (weak culture). We also explore some implications for the nature and management of corporate culture.     

Entrepreneurship,Financiership, and Selection*

We develop an equilibrium model of the market for entrepreneurial finance, in which all agents have some personal wealth and a project whose quality is their private information. All agents choose whether to invest either as entrepreneurs or financiers, or to invest in storage technology. We find that a binding economy‐level wealth constraint, which renders credit scarce, can create advantageous selection, where productive agents become entrepreneurs and unproductive agents become their financiers. If funding is easier to obtain, entrepreneurship also attracts unproductive agents. In our model, individual wealth and entrepreneurship are positively (negatively) correlated if financial market participation is complete (incomplete).     

Incentives to invest and to give access to non-regulated new technologies

We analyze the incentives of a vertically integrated firm, which is a regulated monopolist in the wholesale market and competes with an entrant in the retail market, to invest and to give access to a new wholesale technology. The new technology represents a non-drastic innovation that produces retail services of a higher quality than the old technology, and is left unregulated. We show that for intermediate values of the access price for the old technology, the vertically integrated firm may decide not to invest. When investment occurs, the vertically integrated firm may be induced to give access to the entrant for a low access price for the old technology. Furthermore, when both firms can invest, investment occurs under a larger set of circumstances, and it is the entrant the firm that invests in more cases. We also discuss the implications for the regulation of the old technology.     

Efficiency and sharing of investment in specific human capital under risk aversion

This paper analyses the investment behavior of a risk-averse worker who searches for other jobs in a two-period model. It will be shown that given an appropriate investment technology, the worker will invest in specific human capital efficiently if his investment costs and return can be shared with some parties. The presence of sharing allows the worker to invest efficiently without being affected by his risk aversion since he can adjust his share of the investment in a way compatible with his attitude towards risk.     

Competitive investing equilibrium under a procurement mechanism

This paper proposes a procurement mechanism for a research and development (R&D) project, in which the stochastic nature of R&D is incorporated, and the potential agents needed to invest prior to the agent are selected. The incentive contract aims to attract the investment of potential agents through a sharing rate. By establishing the stopping time game, an optimal investing strategy for potential agents is derived. Furthermore, the investment equilibria are discussed, and the conditions under which the equilibrium represents preemption or simultaneous investment are presented.     

Outward foreign direct investment and sovereign risks in developing host country

Outward foreign direct investment can affect developing, technology-receiving host countries mainly through tax revenue, technology spillover and the competition effect. With the consideration of these three effects of the outward foreign direct investment on host country, we develop a dynamic game model of interaction between foreign investors and host country from a dynamic perspective, to reveal the dynamic evolution mechanism of the sovereign risk faced by outward foreign direct investment. The result shows that: host governments usually give a specific tax holiday for outward foreign direct investors, and during the period of tax holiday investment decision of investors would be influenced by technology spillover effect, specifically, the greater the technology spillover the slower the growth of investment stock. Once the system reaches a stable state, the host country will impose a tax on multinational corporations. If the equilibrium tax rate of industries or regions which makes it easy to obtain technology spillover is high, then the equilibrium capital stock would be low.     

高校扩招引发教育信号贬值的机理分析

本文运用劳动市场信号发送理论,分析我国高校扩招引发的教育信号贬值的内在机理.扩招降低了进入大学的学习成本,导致了教育信号的过度投资及分离均衡的教育水平提高(即就业门槛提高),文凭的信号作用贬值.扩招后不同群体的信号投资方式和境遇不同,大学生的信号投资激励增强,而高中生缺乏信号分离自己.信号投资的一个重要特点是,通过雇主与雇员的相互博弈过程会产生自增强效应.如果高校不断扩招,会导致信号投资的不断攀升,形成信号投资泡沫.     

Averting economic collapse and the solipsism bias

We study the behavior of experimental subjects who have to make a sequence of risky investment decisions in the presence of network externalities. Subjects follow a simple heuristic—investing after positive experiences and reducing their propensity to invest after a failure. This result contrasts with the theoretical findings of Jeitschko and Taylor [Jeitschko, T.D., Taylor, C., 2001. Local discouragement and global collapse: A theory of coordination avalanches. Amer. Econ. Rev. 91 (1), 208–224] in which even agents who have only good experiences eventually stop investing because they account for the fact that others with worse experiences will quit. This can trigger sudden economic collapse—a coordination avalanche—even in the most efficient Bayesian equilibrium. In the experiment, subjects follow their own experiences and disregard the possible bad experiences of others—thus exhibiting behavior that we term “solipsism bias.” Solipsism results in sustained investment activity and thus averts complete collapse.     

Constitutional Design and Investment in Cooperatives and Investor‐Owned Enterprises

Abstract This paper studies the role of the corporate governance system in cooperatives and in investor‐owned enterprises. We abstract from all possible differences between the two systems except the type of majority needed to take decisions: this is one‐head‐one‐vote for cooperatives and proportional to capital invested in investor‐owned firms. We show that the institutional form chosen matters for the initial investment decision of the agents: in particular we find that members of a cooperative invest less than they would in an investor‐owned enterprise.     

How does the design of international environmental agreements affect investment in environmentally-friendly technology?

In this paper, we investigate how the design of international environmental agreements (IEAs) affects the incentives for the private sector to invest in environmentally-friendly technology. The givens are a transboundary pollution problem involving two asymmetric countries in terms of benefits arising from global abatement. There is a single polluting firm in each country. We account for two types of IEAs: an agreement based on a uniform standard with transfers and an agreement based on differentiated standards without transfers. To carry out this study, we use a two-stage game where the private sector anticipates its irreversible investment given the expected level of abatement standards resulting from future negotiations. Our findings indicate that the implementation of the agreement based on a uniform standard with transfers may be preferable for the two countries, as it creates greater incentives for firms to invest in costly abatement technology. This result arises when this technology’s level of the sunk cost of investment is low. If this level is sufficiently high, the implementation of the same agreement is not beneficial to countries, because it takes away the incentive of each firm to invest in new abatement technology. Moreover, this agreement is not able to generate any positive gains for either country through cooperation, thus no country is motivated to cooperate.