International aid from the recipient perspective: public or private good input assistance?

This article proposes a theoretical model from the recipient perspective that considers what type of assistance a donor country should provide: public good assistance or private good assistance. We investigate the effects of migration and free riders under both types of assistance. We empirically apply this model to the rapidly growing economies and a large official development assistance disbursement for East Asia.     

Job creation and job types – New evidence from Danish entrepreneurs

We extend earlier analyses of the job creation of start-ups versus established firms by considering the educational content of the jobs created and destroyed. We define education-specific measures of job creation and job destruction at the firm level, and we use these measures to construct a measure of “surplus job creation”, defined as jobs created on top of any simultaneous destruction of similar jobs in incumbent firms in the same region and industry. Using Danish employer-employee data from 2002–2007 that identify the start-ups and that cover almost the entire private sector, these measures allow us to provide a more nuanced assessment of the role of entrepreneurial firms in the job-creation process than in previous studies. Our findings show that although start-ups are responsible for the entire overall net job creation, incumbents account for more than one-third of net job creation within high-skilled jobs. Moreover, start-ups “only” create approximately half of the surplus jobs and even less of the high-skilled surplus jobs. Finally, our approach allows us to characterise and identify differences across industries, educational groups and regions.     

Environmental market creation: saviour or oversell?

In recent years considerable attention has been paid to the notion of market creation for the conservation of environmental assets. Market creation establishes a market in the external benefit or cost in question (e.g. biodiversity or pollution reduction) and leaves the relevant parties to adjust their behaviour accordingly. While most attention has been paid to market creation through tradable permits and taxes (the polluter-pays), it is less easy to secure a perspective on beneficiary-pays initiatives. Both polluter-pays and beneficiary-pays initiatives are examples of modified Coaseian bargains in which governments intervene in the bargains to lower transactions costs, establish property rights, deal with public goods issues, or act on behalf of disadvantaged groups. This paper reviews four major initiatives in this respect - debt-for-nature swaps, bioprospecting and the Global Environment Facility at the global level, and the Costa Rican Forest Law at the local level. It finds that while there is much to applaud in initiatives in these new markets, serious questions remain about the modest flows of funds associated with such global bargains, and the extent to which they secure environmental improvements relative to the baseline of business-as-usual.JEL Classification: D49, D62, H41, O19, Q57, Q2I am indebted to members of the Wildlife Conservation Research Unit at Oxford University and to David Simpson of Resources for the Future and University College London for valuable comments on an earlier version of this paper. Any remaining mistakes are entirely my responsibility.     

What is an Australian Job Worth?

The value of a job is an important issue for management, human resources, law and public policy, yet we lack good empirical estimates of this value. This article presents a theoretical framework for valuing jobs and estimates the average economic value of an Australian job at approximately $104,000. However, judges awarding compensation for unfair dismissal under the Fair Work Act implicitly value a job at around $10,000. If the economic value estimate is correct then workers place a high value on keeping their job, which has important human resources management implications, such as worker commitment and risk-taking.     

Courses or individual counselling: does job search assistance work?

How does labour market policy affect welfare recipients and long-term unemployed people? We investigate whether job search assistance (JSA) helps disadvantaged individuals to find jobs and whether courses or individual counselling is more successful in reaching this goal. To evaluate individual employment effects, we apply a quasi-experimental design and construct suitable comparison groups using propensity score matching methods. We compare participants to nonparticipants as well as participants of both schemes directly. Our article benefits from access to rich administrative data from the German Federal Employment Agency. When comparing participants to nonparticipants, results suggest that the individual JSA does not affect participants’ employment prospects at all and that the course JSA even decreased their employment chances. At the same time, differences in these effects can be ascribed to programme design differences and to differences in the groups of participants. Therefore, we compare both programmes directly to each other, that is, we use the other programme participants as a comparison group, respectively. We found some evidence that individual JSA performs better than course JSA.     

Does the use of professional legal assistance bring measurable benefits?

In this paper, the first attempt to quantify measurable effects of using legal advisory services is made with the use of a random sample and advanced econometric methods (robust MM-estimator). The estimates of parameters of an extended Mincer equation indicate that the appearance of legal problems results in lower earnings per person in a household and the choice of an active reaction to this legal problem results in a substantial reduction of losses.     

What deters labor-owned firm creation? Evidence from Italian manufacturing sectors

We analyze the determinants of labor-owned versus capital-owned firm creation. We match firm-level information on a large sample of new manufacturing firms with available industry-level proxies of the main determinants of ownership structures according to existing economic theories. We estimate a logit model and quantify the empirical contribution of each argument to explain labor-owned versus capital-owned firm entry. Our results show that human capital specificity and workers heterogeneity largely explain labor-owned firm entry, while other dimensions, such as limited worker wealth, have a weaker statistical relevance. These findings are robust to different estimation methods and are unlikely to be affected by endogeneity concerns. Our results contribute to the general understanding of the endogenous dynamics of ownership rights distribution in manufacturing firms and to the elaboration of policy initiatives aimed at supporting cooperative modes of firm organization.     

Are banks public utilities? Evidence from Europe

The regulatory response to the global financial crisis has been to instal a myriad of new rules in order to improve bank capital and liquidity, as well as to reduce systemic risks through structural reform. All these new rules place a straightjacket around banker’s activities and inhibit their operational freedom. This new environment has made European banks look less like private free-wheeling profit-maximising firms and more like public utilities. The utility services banks provide to society means that they should be overseen even more heavily. This includes greater regulatory oversight of bank pricing, profitability and service provision.     

Should public policy respond to positional externalities?

A nice suit is one that compares favorably with those worn by others in the same local environment. More generally, a positional good is one whose utility depends strongly on how it compares with others in the same category.¹A positional externality occurs when new purchases alter the relevant context within which an existing positional good is evaluated.² For example, if some job candidates begin wearing expensive custom-tailored suits, a side effect of their action is that other candidates become less likely to make favorable impressions on interviewers. From any individual job seeker's point of view, the best response might be to match the higher expenditures of others, lest her chances of landing the job fall. But this outcome may be inefficient, since when all spend more, each candidate's probability of success remains unchanged. All may agree that some form of collective restraint on expenditure would be useful.In such cases, however, it is often impractical to negotiate private solutions. Do positional externalities then become legitimate objects of public policy concern? In attempting to answer this question, I employ the classical libertarian criterion put forth by John Stuart Mill³, who wrote the state may not legitimately constrain any citizen's freedom of action except to prevent harm to others. I argue that many positional externalities appear to meet Mill's test, causing not just negative feelings but also large and tangible economic costs to others who are ill-equipped to avoid them. I also discuss an unintrusive policy remedy for positional externalities, one modeled after the use of effluent charges to curb environmental pollution.The paper is organized as follows. Section 1 notes the deep similarity between the conditions that give rise to positional arms races and those that give rise to conventional military arms races. Section 2 follows with a review of evidence concerning the strength of concerns about relative position. Section 3 describes some of the tangible economic costs that people experience as a result of positional externalities arising from such concerns. Section 4 takes up the question of whether collective action directed against positional externalities is consistent with respect for individual rights. Section 5 describes how a progressive consumption tax could neutralize many of the most costly effects of positional externalities.     

Does trade creation by social and business networks hold in services?

Recent literature on the border effect has shown that the intensity of trade in goods is positively correlated with the migration stocks between any pair of countries/regions. The number of references for business networks is more limited, but they are also related with a reduction on information costs. In this article we investigate whether such a relation holds also for Spanish domestic trade flows in consumer services. To this end, we use a gravity model rooted in the Dixit–Stiglitz–Krugman theoretical framework and a unique data set on interregional trade flows for some of the main tourism service sectors, namely, accommodations and restaurants. Our industry-specific analysis finds a large positive effect for restaurants but a more limited effect for accommodations. Forces driving the demand in each sector explain this result and suggest the idea that although social networks can act as a substitute of firms in some sectors at the same time they can enhance trade flows in other sectors. We perform the same kind of analysis with a data set (obtained by a similar method) for domestic trade in goods and discover a different response to social and business networks. Finally, we treat the potential endogeneity by taking the instrumental-variable approach of the Poisson pseudo-maximum likelihood estimator and thus obtain consistent results.     

R&D activities in start-up firms: What can we learn from founding resources?

Research and development is critical in promoting innovation and firm development. While many studies have been discussing how firms’ R&D behaviour is affected by the internal factors and external factors, little has been done to link it to firms’ founding conditions. Using resource-based view theory, this study suggests the firms’ R&D activities in their later stages are partly determined by firms’ starting resource bundle. We propose that the financing structure, entrepreneurs’ education background and intellectual property of the new firms will affect their R&D behaviour. The study examines the performance of a random sample of firms established in 2004 using data from the Kauffman Firm Survey. The result shows a mixing impact of firms’ starting resources. The founders’ education and the ownership of intellectual property have a positive and long-lasting impact, while firms’ financial capital matters mostly in the short term. The study also finds subsequent resource development is highly reliant on the initial resource bundle.     

Should mobile capital pay for public infrastructure investment?

The paper contributes to the discussion of fiscal competition with infrastructure goods. We explicitly focus on the costs of providing public infrastructure capital that appear in the public budget as investment. Thus we analyse the problem in a dynamic framework. Public infrastructure is considered as a marginal product complement to private capital. A central result of the model is that the fact that public capital is a complement to private capital, so that an increase in the supply of public capital ceteris paribus improves the marginal productivity of private capital, cannot be used as an argument to support a source tax. The so-called indirect productivity effect on private capital induced by public inputs does not justify the taxation of mobile capital. Rather, the efficiency of a source tax on mobile capital income depends on the question of whether or not the public input generates a factor rent to private capital.

How do financial cycles affect public debt cycles?

We employ the duration framework to study determinants of public debt cycles in 57 advanced and emerging economies over the 1960–2014 period, with a particular focus on the impact of financial cycles. The results suggest that the association between financial and debt cycles is asymmetric. Debt expansions preceded by overheating in credit and financial markets tend to last longer than other expansions, but there is no significant association between financial cycles and debt contractions. There is strong evidence of duration dependence in both phases of the cycle, with the likelihood of expansions and contractions to end increasing with the length of their respective spells. Higher initial level of debt increases the spell of contractions (persistence of adjustment effort hypothesis) and reduces the spell of expansions (debt sustainability hypothesis). The results are robust to the inclusion of global factors, openness, political stability, and debt crisis indicators as additional controls.     

Aiding regional instability? The geopolitical paradox of Japanese development assistance to China

During the past decade, Japan established itself as the largest bilateral donor of development aid in the world, with more of it directed toward projects in China than any other recipient. Japan sees its aid flows to China as maintaining economic stability in East Asia, particularly as China's raw material and energy resources are articulated into regional markets. In this article, I argue that Japan's aid to China may unintentionally diminish Japan's and the East Asian region's long‐term security for two reasons. First, similar to other nations receiving such assistance, this aid may allow China to reallocate scarce capital to military modernisation. Such military modernisation may enable China to both better suppress internal dissent and carry out a more aggressive foreign policy. Second, this aid does not address the fundamental structural aspects of China's present instability. Long‐term structural instability has many sources, but the two discussed here are socio‐economic inequality (both interregional and intraregional), and sustainable production and environmental problems. Taken together these have important regional and geopolitical implications and repercussions. This article fills a gap in the existing literature on East Asian geopolitics. Namely, that by attending only to relatively short‐term corporate and perceived state interests of China and Japan, Japanese aid to China does little to ameliorate and potentially exacerbates long‐term structural social and environmental problems for China's vast majority living in rural hinterlands. The potential for internal turmoil springing from this uneven and unsustainable development inside China is the real basis for China's ‘threat’ to East Asian security. Thus what appears to make good development and geopolitical sense at first look, Japan's current aid regime with China, paradoxically may actually be the worst path to follow.     

IMF’s assistance: Devil’s kiss or guardian angel?

This paper contributes to the debate on the efficacy of IMF’s catalytic finance in preventing financial crises. Extending Morris and Shin (J Int Econ 70: 161–177, 2006), we consider that the IMF’s intervention policy usually exerts a signaling effect on private creditors and that several interventions in sequence may be necessary to avert an impending crisis. Without the IMF’s signaling ability, our results state that repeated intervention is required to bail out a country, whereby additional assistance may induce moral hazard on the debtor side. Contrarily, if the IMF exerts a strong signaling effect, one single intervention suffices to avoid liquidity crises.      

How does a public innovator license a foreign rival?

This paper uniquely considers the optimal two‐part fee of a public firm innovator licensing to a more efficient foreign rival. This is both theoretically interesting and empirically relevant. While previous research emphasises the importance of fixed fees for public firms, we show that, in this case, ad valorem fees typically dominate both fixed fees and per unit royalties. This domination carries over when a private domestic competitor is also added to the market.