On the evolution of the spatial economy with multi-unit · multi-plant firms: the impact of IT development

This paper examines how the decline of communication costs between management and production facilities within firms and the decrease in trade costs of manufactured goods affect the spatial organization of a two-region economy with multi-unit·multi-plant firms. The development of information technology decreases the costs of communication and trade costs. Thus, the fragmentation of firms is promoted. Our result indicates that, with decreasing communication costs, firms producing low trade-cost goods (such as electronics products) tend to concentrate their manufacturing plants in low wage countries. In contrast, firms producing high trade-cost products (such as automobiles) tend to have multiple plants serving to segmented markets, even in the absence of wage differentials.Received: November 2004, Accepted: March 2005, JEL Classification: F12, L13, R13Masahisa Fujita: Correspondence toWe are very grateful to J. Vernon Henderson, J. Pedro Pontes and Koumei Sasaki for helpful comments.     

Evolution of market shares with repeated purchases and heterogeneous network externalities

We investigate how market shares change when a new, superior technology exhibiting network externalities is introduced in a market initially dominated by an old technology. This is done under the assumption that consumers are heterogeneous in their valuation of technology quality and network externalities and that goods are not (perfectly) durable and thus have to be bought repeatedly. When both technologies are unsponsored, the old technology dominates when the quality difference is small, and it disappears when the quality difference is large. When the new technology is sponsored, the relationship between the quality difference and the long-run market share of the new technology is non-monotonic and the old technology always continues to exist.

Social network and private provision of public goods

Using a simple model with interdependent utilities, we study how social networks influence individual voluntary contributions to the provision of a public good. Departing from the standard model of public good provision, we assume that an agent’s utility has two terms: (a) ‘ego’-utility derived from the agent’s consumption of public and private goods, and (b) a social utility which is the sum of utility spillovers from other agents with whom the agent has social relationships. We establish conditions for the existence of a unique interior Nash equilibrium and describe the equilibrium in terms of network characteristics. We show that social network always has a positive effect on the provision of the public good. We also find that, in networks with “small world”-like modular structures, ‘bridging’ ties connecting distant parts of social network play an important role inducing an agent’s contribution to public good. Assumptions and results of the model are discussed in relation to the role of social capital in community-level development projects and to the effect of innovation networks on firms’ R&D investments.     

Productivity drivers of infrastructure companies: Network industries utilizing economies of scale in the digital era

What drives the productivity dynamics of infrastructure companies? Using a panel of firms in 14 countries, we study total factor productivity (TFP) enhancers of utility and network services companies. We find that moving TFP closer to the technological frontier drives productivity growth at higher speeds in Asian countries than in European countries. We also find that financial leverage exerts a positive effect on TFP growth for larger infrastructure firms and that more financially developed countries utilize economies of scale through better use of financial resources. Large utility and transportation companies display a higher rate of TFP growth, indicating that a competition policy to encourage M&As would be prudent for the utility/transportation sectors to maximize economies of scale. In contrast, we find diseconomies of scale for energy companies in some countries. Moreover, young network firms improve TFP growth faster than their peers in countries with fewer product market regulations. Therefore, policies should remove entry barriers while facilitating the departure of old and low-productivity firms from network markets. Finally, policymakers should offer well-targeted fiscal incentives for intangible investments to boost TFP because the accumulation of intangible assets such as digital technology promotes more scale economies through network effects.     

The Financing of Regulatory Agencies

This paper examines the financing of monitoring agencies deriving the welfare-improving combinations of public revenue, industry fees, and penalties that should be used to finance quality regulations. The model shows that if some firms are not expected to comply with quality standards, penalties are optimal to cover the agencys regulatory exposure though these need to be augmented with other instruments as monitoring costs increase. If all firms are expected to comply with the quality standards, a per-firm fee is the optimal method of regulatory financing but needs to be augmented with a lump-sum tax as monitoring costs increase.Jel classification: H21, L51The authors extend their thanks to Editor Michael Crew and two anonymous reviewers for helpful comments and suggestions. All errors are ours.     

Demand,innovation, and the dynamics of market structure: The role of experimental users and diverse preferences

The history of a number of industries is marked by a succession of eras, associated with different dominant technologies. Within any era, industry concentration tends to grow. Particular eras are broken by the introduction of a new technology which, while initially inferior to the established one in the prominent uses, has the potential to become competitive. In many case new entrants survive and grow, and the large established firms do not make the transition. In other cases, the established firms are able to switch over effectively, and compete in the new era. This paper explores a model which generates this pattern and has focused on the characteristics of the demand. We argue that the ability of the new firms exploring the new technology to survive long enough to get that technology effectively launched depends on the existence of fringe markets which the old technology does not serve well, or experimental users, or both. Established firms initially have little incentive to adopt the new technology, which initially is inferior to the technology they have mastered. New firms generally cannot survive in head-to-head conflict with established firms on the market well served by the latter. The new firms need to find a market that keeps them alive long enough so that they can develop the new technology to a point where it is competitive on the main market. Niche markets, or experimental users, can provide that space.

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Franco MalerbaEmail:

     

Efficiency measurement using a latent class stochastic frontier model

Efficiency estimation in stochastic frontier models typically assumes that the underlying production technology is the same for all firms. There might, however, be unobserved differences in technologies that might be inappropriately labeled as inefficiency if such variations in technology are not taken into account. We address this issue by estimating a latent class stochastic frontier model in a panel data framework. An application of the model is presented using Spanish banking data. Our results show that bank-heterogeneity can be fully controlled when a model with four classes is estimated. This paper was written during Luis Oreas visit to Binghamton University in the summer of 2002. We would like to thank an associate editor of the journal and two anonymous referees for their detailed comments. However, we alone are responsible for any remaining errors.     

网络效应市场的技术创新障碍及策略分析

在网络效应市场,技术创新对企业竞争力有着重要的影响。然而由于网络效应的作用,需求曲线发生改变,使市场均衡表现出"赢者通吃"的特征。这意味着,如果一项新技术的用户规模达不到临界容量,正反馈效应的存在将会使该技术被市场所抛弃。静态博弈和动态博弈的分析结果都表明,用户为了避免网络规模减小带来的效用损失,对新技术的采用往往采取观望态度,这将导致新技术难以达到最小网络规模要求的临界容量,也就无法取代旧技术的统治地位。为了加快新技术的扩散速度并成功战胜旧技术,企业在进行技术创新时应采取有效的技术创新策略:一是要采取合适的技术兼容策略;二是要鼓励和授权其他厂商使用自己的技术标准;三是要吸引辅助配套厂商共同进行技术研发。     

Satiation in an evolutionary model of structural economic dynamics

This paper presents the problem of satiation of consumption and technology in relation to a model of evolutionary endogenous growth. The model represents an attempt to provide an evolutionary economic micro foundation to Pasinetti's scheme of the structural economic dynamics of an economy that is based on only labour and knowledge. The micro foundation is based on a set of rules that makes endogenous the demand coefficients, the labour coefficients, and the number of available sectors. Through process innovations firms increase their productivities with respect to individual goods, but a growth slowdown takes place unless the benefits from specialisation are exploited at still higher levels. Another cause for slowdown is related to an Engelian hierarchy of goods. As the standard of living grows, existing sectors and consumption goods satiate, so new sectors need to be provided by product innovations in a sufficient pace to keep up with the labour that is displaced from old sectors.     

Budget constraint of a firm and economic theory

Summary Firms in reality are subject to budget constraints which general equilibrium theorists have paid little attention. Using Morishima (1950, 1992) model, this paper deals with firms that are subject to budgets pertaining to sales and investment decisions, and proves the existence of a general equilibrium. We show that an economy with firms subject to budgets does not necessarily satisfy the efficiency proposition, and clarify how the total profit maximum condition in the Arrow-Debreu (1954) type economy ensures an efficiency in a limited dynamic sense.The author is grateful to Professors J. Iritani, H. Nagatani, and K. Urai who gave useful comments on occasions of Saturday Workshop on Economic Theory and Mathematics. He is also grateful to Professor M. Kaneko for his useful comments on an earlier version of the paper Kuga (1993), to which this article is closely related.     

Population Genetics and Economic Growth

This paper builds an age-structured model of human population genetics in which explicit individual choices drive the dynamics via sexual selection. In the model, agents are endowed with a high-dimensional genome that determines their cognitive and physical characteristics. Young adults optimally search for a marriage partner, work for firms, consume goods, save for old age and, if married, decide how many children to have. In accord with the fundamental genetic operators, children receive genes from their parents. An agent's human capital (productivity) is an aggregate of the received genetic endowment and environmental influences so that the population of agents and the economy co-evolve. After calibrating the model, we examine the impact of physical, social, and economic institutions on population growth and economic performance. We find that institutional factors significantly impact economic performance by affecting marriage, family size, and the intergenerational transmission of genes. The principal novel findings are that i) genetic diversity has a nonmonotone causal impact on population size and economic performance; ii) an endogenous population threshold exists which, absent frictions, causes societies with declining populations and output to reverse course and grow; and iii) that the emotion love substantially accelerates economic growth by increasing genetic diversity just enough, which we term The Goldilocks Principle.     

Fair division with no information

Summary. We consider a situation in which a central authority must allocate non-tradeable and non-marketable goods between a group of individuals in a fair way. There are exogenous divisibility constraints imposed on the goods to be allocated. The authority has absolutely no information on the preferences of the recipients; moreover, no interaction is allowed among recipients or between the authority and the recipients. Envy-freeness is the equity criterion adopted. Using a remarkable property of simplices (which we introduce and prove) we argue that assigning bundles of equal expected value (forming what is called in this paper the class of balanced allocations) is hardly fair unless extra effort is made to discriminate between these proposed allocations.Received: 7 April 2003, Revised: 9 October 2003JEL Classification Numbers: C65, D63, D89. Correspondence to: J. LerouxThe authors wish to thank Marc Fleurbaey, Alan Kirman, Serge-Christophe Kolm, Hervé Moulin and the late Louis-André Gérard-Varet for stimulating discussions, as well as an anonymous referee for comments on an earlier draft.     

Knowledge diffusion dynamics and network properties of face-to-face interactions

This paper aims to understand some of the mechanisms which dominate the phenomenon of knowledge diffusion in the process that is called interactive learning. We examine how knowledge spreads in a network in which agents interact by word of mouth. The social network is structured as a network graph consisting of agents (vertices) and connections (edges) and is situated on a wrapped cellular automata grid forming a torus. The target of this simulation is to test whether knowledge diffuses in a homogeneous way or whether it follows some biased path towards convergence or divergence.JEL Classification: D63, O30, R10Corespondence to: Piergiuseppe MoronePiergiuseppe Morone, Richard Taylor: The authors are grateful to Nick von Tunzelmann, Scott Moss, Robin Cowan and Ed Steinmueller for helpful comments in different stages of the work. The usual disclaimers apply.     

‘Just one of us’: consumers playing oligopoly in mixed markets

Consumer cooperatives represent a highly successful example of democratic form of enterprises operating in developed countries. They are usually medium to large-scale companies competing with the profit-maximizing firms in the retail sector. This paper describes this situation as a mixed oligopoly in which consumer cooperatives maximize the utility of consumer-members and, in return, refund them with a share of the profits corresponding to the ratio of their individual spending to the cooperative’s total sales. We show that when consumers possess quasi-linear preferences over a bundle of symmetrically differentiated goods, and companies operate using a linear technology, the presence of consumer cooperatives positively affects total industry output, as well as welfare. The effect of cooperatives on welfare proves to be even more significant when goods are either complements or highly differentiated, and when competition is à la Cournot rather than à la Bertrand.     

Ramsey pricing and competition: The consequences of myopic regulation

This paper addresses the welfare consequences of applying the Ramsey rule when the regulated firm is not a monopolist in all of its markets. The partially regulated optimum and the outcome of myopic regulation, the Short-Sighted Ramsey Equilibrium (SSRE), are examined in a differentiated duopoly model. In the optimum, the markup of competitive substitute goods is relatively high. In the SSRE, the regulator is likely to set the price of competitive substitute goods lower than optimal, and complementary goods higher than optimal. Strategic reactions by a competitor may reverse the result.I thank Kenneth Train, Michael Crew (the editor), seminar participants at the University of California, Berkeley, and an anonymous referee for comments and suggestions. The usual disclaimer applies.     

A term structure model with preferences for the timing of resolution of uncertainty

Summary In this paper we present a model of the term structure of interest rates with imperfect information and stochastic differential utility, a form of non-additive recursive utility. A principal feature of recursive utility, that distinguishes it from time-separable expected utility, is its dependence on the timing of resolution of uncertainty. In our model, we parametrize the nonlinearity of recursive utility in a way that corresponds to preferences for the timing of resolution. This way we show explicitly the dependence of prices on the rate of information, as a consequence of the nature of utilities. State prices and the term structure of interest rates are obtained in closed form, and are shown to have a form in which derivative asset pricing is tractable. Comparative statics relating to the dependence of the term structure on the rate of information are also discussed.We thank Bob Hodrick and Matt Jackson for their comments. Darrell Duffie is grateful for support from the National Science Foundation under NSF SBR-9409567. This paper presents the first model of an earlier, preliminary working paper titled: Two models of price dependence on the timing of resolution of uncertainty.     

How does reciprocal behaviour of workers influence the wage setting of unions?

Traditional wage setting models assume that unions maximise the total income of workers, whereas actually they should maximise worker utility. These models implicitly equate utility with income, but this is not valid if workers’ utility depends on their sense of fairness and includes a non-pecuniary benefit from work. This paper presents a model combining efficiency wages with bargaining theory, drawing inspiration from the gift-exchange approach by Akerlof [Q J Econ 97(4):543–569, 1982]. It shows that the mutual gift exchange between firms and workers generates a non-pecuniary benefit which contributes to the workers’ utility in a non-monotonic way depending on the strength of workers’ sense of fairness. The model shows that if an employment subsidy is paid to workers it generates more jobs than when paid to firms. This paper is based on research which was performed while the author was employed at the University of Maastricht (The Netherlands). The author wishes to thank Thomas Ziesemer, Erik de Regt, Sabine Fuss and Kristin Vetter for many helpful comments and assumes full responsibility for any remaining flaws.     

Optimal mixed taxation,public goods and the problem of high-skilled emigration

The optimal income tax model under the threat of migration of Simula and Trannoy (J Public Econ 94:163–173, 2010; Soc Choice Welf 39(4):751–782, 2012) is extended to include indirect taxes and public goods. This enables us to conclude that: (1) optimal income tax rates are higher than in the absence of indirect taxation, and may be positive at the top of the skills distribution; (2) indirect taxes, à la Corlett and Hague, may help mitigate the loss of redistributive capacity arising from income taxation caused by migration threats; (3) migration encourages the provision of the public goods preferred by the most productive workers; (4) optimal tax and public goods provision policies against the emigration of the highly-skilled are connected through the conditions for Pareto efficiency; (5) if the number of potential migrators is large, it may be desirable to violate classical tax rules to retain the most able in the home country; (6) when migration costs are exogenously given and utility is weakly separable, Simula and Trannoy’s results are restored; (7) if migration costs are endogenous, the Atkinson and Stiglitz theorem breaks down and the taxation of country-specific goods becomes desirable, even if utility is strongly separable.     

Privatization of state holding corporations

Many countries have privatized part of their state holding corporations in recent years. However, the literature on this issue has analyzed mainly the privatization of uniproduct public firms. We consider a state holding corporation with two plants that may produce complement or substitute goods. Assuming that private firms are more efficient than the state holding corporation we find the following: If the marginal cost of the state corporation is low, it is not privatized either if goods are substitutes or if they are complements. However, if the marginal cost of the state corporation is high the two plants of the state holding corporation are sold to a single private investor if goods are complements, and to different investors if goods are substitutes. If goods are close substitutes and the marginal cost of the state corporation takes an intermediate value only one plant is privatized. We extend the model to consider that firms are equally efficient, that they face quadratic cost functions and that there are n uniplant private firms producing each good. We find two differences with the previous result: The government never privatizes just one plant of the state corporation, and when goods are complements the two plants of the state corporation are sold to different investors if n is high.