Managerial incentives for process innovation

Cost‐reducing investments by firms are often not publicly observable. This lack of observability would preclude a strategic use of process innovation. However, we show that an observable and verifiable contract that provides direct monetary incentives for cost reductions — an innovation incentive contract — can act as a strategic commitment device. Our model predicts that manager‐led firms are more innovative than owner‐led firms and that these contracts become less prevalent as product market competition intensifies. Both predictions are consistent with recent empirical evidence. Copyright © 2008 John Wiley & Sons, Ltd.     

Contractual solutions to hold-up problems with quality uncertainty and unobservable investments

Consider a seller and a buyer who write a contract. After that, the seller produces a good. She can influence the expected quality of the good by making unobservable investments. Only the seller learns the realized quality. Finally, trade can occur. It is always ex post efficient to trade. Yet, it may be impossible to achieve the first best, even though the risk-neutral parties are symmetrically informed at the contracting stage and complete contracts can be written. The second best is characterized by distortions that are reminiscent of adverse selection models (i.e., models with precontractual private information but without hidden actions).     

经销关系中双边道德风险的一种契约解决机制

对于需要进行专用性资产投资或通过契约安排形成专用性资产投资的经销关系中,往往会存在双边道德风险:一是生产商敲竹杠的道德风险;二是经销商隐蔽行为的道德风险。本文通过一个简单的不完全契约安排试图解决这种双边道德风险,以取得社会最优投资,促使交易的完整进行。     

我国保税区发展绩效评价

使用相关数据对我国各个保税区在招商引资、进出口方面的成就进行了具体分析,并按照保税区所处的不同经济区域分别对其进行评价,发现保税区在吸引外资方面的贡献十分显著,同时,那些综合环境适合吸引外资地区的保税区对母城吸引外资的作用较小,并且不是所有的保税区都很好地利用了邻近的港口发展外贸和物流业。     

Contract Formalization and Governance of Exporter–Importer Relationships

abstract    Exporting relationships between manufacturers and foreign importers pose unique coordination problems because, on the one hand, transactions are recurrent and both firms make non-trivial relationship-specific investments, but at the same time, the exchange partners maintain separate legal entities with individual profit claims. This study examines the role of contracts as a governance mechanism in these relationships that are neither market-based discrete transactions, nor can be governed through ownership-based hierarchies. Drawing upon recent research on contract law and interorganizational relationships, we develop and empirically test a model that incorporates both the antecedents and performance implications of the nature of contract governing exporter–importer relationships.     

Bayesian inference for the gravity model

This paper seeks to empirically extend the gravity model, which has been widely used to analyze volumes of trade between pairs of countries. We generalize the basic threshold tobit model by allowing for the inclusion of country‐specific effects into the analysis and also show how one can explore the relationship between trade volumes and a given covariate via a non‐parametric approach. We use our derived methodology to investigate the impact of a particular aspect of institutions—the enforcement of contracts—on bilateral trade. We find that contract enforcement matters in predicting trade volumes for all types of goods, that it matters most for the trade of differentiated goods, and that the relationship between contract enforcement and trade in our threshold tobit exhibits some nonlinearities. Copyright © 2007 John Wiley & Sons, Ltd.     

Supplier incentives and resource constraints under uncertainty

Procurement in environments of cost uncertainty and asymmetric information require special arrangements such as the linear incentive contract. Usually the buyer is motivated to make investments that can relieve temporary supplier resource constraints during the procurement. Special problems arise, however, due to interactions between investments in suppliers and the risk-incentive trade-off achieved by the incentive contract. A cost signaling model is proposed to overcome these problems, where a supplier offers an equity share in the profit from the incentive contract to the buyer in return for a priori investment. The equity share signals the supplier's private cost information, and forms the basis for the buyer's investment decision. Under equilibrium the buyer can expect to recover the entire amount provided to the supplier through his or her share of the profit.     

外商直接投资与中国对外贸易间关系的实证研究

在中国的对外经济活动中,东亚的新兴工业化国家和美国都是中国的重要伙伴。文章把新加坡和泰国作为新兴工业化国家的代表与高度发达的美国相对应,采用协整分析和误差修正模型研究了中国对这些国家的贸易与其在华直接投资两者间的关系。研究结果显示,这种关系在两类不同国家间存在较大差异,长期以来,美商在华直接投资与我国对美出口之间具有双向格兰杰因果关系,而另外两个国家则只具有单向的格兰杰因果关系。     

Estimating the determinants of stock price changes

I develop an approach for estimating the determinants of stock price changes that uses all eligible trade data and other observable parameters of market activity. This approach backs out the unobserved continuous price change distribution from the observable discrete price changes, and does not constrain the determinants to be proportions of the traded bid-ask spread. I show that theoretically impermissible results and skewed estimates of cost components are obtained when the model used for estimating the determinants of stock price changes does not attempt to uncover the mapping between the observed price changes and the underlying unobserved continuous price change process, and does not effectively use all eligible trade data.     

The psychological contract in Chinese-African informal labor relations

This qualitative study analyzes Chinese-Ghanaian employment in trade as an example of South-South cross-cultural labor relations. Based on ethnographic fieldwork, employment practices and labor conflicts are discussed with regard to psychological contract and equity. The analysis is guided by a process model of psychological contract that has been adjusted and extended in consideration of the dimensions of foreignness and cross-cultural communication. After briefly introducing the situation in Ghana we elaborate that under conditions of foreignness, employment relations are conflict prone because of contradictory equity expectations of employers and employees. We discuss how Ghanaian employees perceiving their psychological contract as violated attempt to restore equity by means of voice, silence, retreat or destruction and often fail due to lack of mutual cultural understanding between employers and employees. We conclude that exit in contrast to expectations is a viable option for employers rather than employees, but most employment relations, though defective, are perpetuated.     

CHILDREN AND THEIR PARENTS: A REVIEW OF FERTILITY AND CAUSALITY

Childbearing decisions are not made in isolation. They are taken in concert with decisions regarding work, marriage, health investments and stocks, as well as many other observable and non‐observable considerations. Drawing causal inferences regarding the effect of additional children on family outcomes is complicated by these endogenous factors. This paper lays out the issues involved in estimating the effect of additional child births on family outcomes, and the assumptions underlying the range of estimators and methodologies proposed in the economic literature. The common pitfalls of these estimators are discussed, as well as their potential to bias our interpretation of the effect additional births have on children and parents, both in the existing literature and in future work in the face of changing patterns of childbearing and child‐rearing.     

Renegotiation Design and Contract Solutions to the Hold-Up Problem

Abstract.  This paper surveys the literature on contractual solutions to the hold-up problem which has addressed the issue of how to design the optimal contractual arrangement to achieve efficient investments in the presence of contract incompleteness. Although scholars have argued that renegotiation design is a necessary condition to avoid the hold-up problem, some recent papers have seriously questioned this condition. We mainly show that renegotiation design remains a necessary condition to implement efficient investments.     

Supplier relationship-specific investments and the role of safeguards for supplier innovation sharing

The vast majority of the supplier innovation literature has focused on how buying firms can effectively “pull” innovations from their suppliers. Yet, we know remarkably little about the factors that contribute to a supplier voluntarily “pushing” innovations to its customers. The present study addresses this research gap in the context of industrial buyer–supplier relationships and with a specific focus on relationship-specific investments. Drawing on theory from the relationship-marketing literature and on transaction cost theory, we devise and test a proposed theoretical model that links the level of a supplier's relationship-specific investments to its sharing of innovative ideas regarding products and processes with customers. The model also considers the role of contract length, relationship age, and buyer–supplier cooperation as possible safeguards. The empirical results suggest that a supplier's relationship-specific investments encourage a supplier to suggest ideas of process innovations but to refrain from suggestions about product innovations. The latter effect, however, can be attenuated by appropriate formal and informal safeguards.     

Trade credit versus bank credit: Evidence from corporate inventory financing

In this study, I introduce capital market imperfections into a structure framework of inventory investments and investigate impacts of trade credit on firms’ inventory dynamics and analyze the relationship between trade credit and bank loans. As a result, firms end up using a mix of trade credit and bank loans. I find that the use of trade credit and bank credit can be either complements or substitutes. During tight monetary periods, trade credit operates mainly as a substitute for bank borrowing while during looser monetary episodes even when the economy is weak, trade credit and bank loans are dominated by a complementary effect.     

Relational Contracting in Partnerships

When performance is not verifiable, firms in a long-term relationship may rely on incentive contracts that are self-enforced or "relational." This paper studies the optimal design and performance of relational contracts in partnerships such as joint ventures or buyer-seller alliances. Optimal contracts look the same in each period as long as the relationship continues, but may require termination of the relationship after bad outcomes. Payments between the partners depend on their relative performance. In the special case of bilateral trade with specific investments, optimal relational contracting results in a price that varies with cost and demand conditions but is more stable than under spot market bargaining. Parallels are drawn with "Japanese style" subcontracting.     

Information management with specific investments and cost-based transfer prices

Abstract

We analyse information flows in a profit-centre organisation with internal trade between two risk-neutral divisions. Prior to production, the divisions make unverifiable investments in intrafirm synergies. After investments are made, the selling division announces a cost-based transfer price which includes a mark-up on variable costs. The buying division then decides what quantity to purchase at that unit cost. From the head office's perspective, the key issues are to influence both, divisional investments and the seller's manipulation of the mark-up. To do so, the head office can fund a pre-decision information system before divisional investments are made. The system produces forward-looking information that can be used to improve the divisions' investment decisions, but which cannot be used in evaluating their performance. Our analytical framework allows us to identify cost and revenue structures for which pre-decision information either supports or destroys intrafirm synergies by motivating or discouraging divisional investments, thereby resulting in an increase in, decrease in or in no impact whatsoever on, firm profit. Among our most interesting findings is the counterintuitive result that pre-decision information can undermine the incentives of risk-neutral agents to invest specifically. Our results add to earlier agency models that found different, albeit equally dysfunctional effects of pre-decision information. Contrary to these studies, our findings are not driven by either risk aversion or rent extraction.     

Bank capital regulation,loan contracts,and corporate investment

This paper studies the link between bank capital regulation, bank loan contracts and the allocation of corporate resources across firms’ different business lines. Credit risk is lower when firms write contracts that oblige them to invest mainly into projects with highly tangible assets. We argue that firms have an incentive to choose a contract with overly safe and thus inefficient investments when intermediation costs are increasing in banks’ capital-to-asset ratio. Imposing minimum capital adequacy for banks can eliminate this incentive by putting a lower bound on financing costs.     

Family Size and Educational Investments in Children: Evidence from Private Tutoring Expenditures in South Korea*

Relying on private tutoring expenditures in South Korea, this paper examines whether large family size has a strong negative impact on educational investments in children. To deal with endogeneity of family size, the paper employs a non‐parametric bounding method as well as an instrumental variables method. Our primary finding is that quantity–quality trade‐offs in educational investments function in a way that varies by the sex of the child. While there is a non‐negligible negative effect of large family size on educational investments for girls, there is little if any impact on those for boys. Son preferences traditionally shown by Korean parents seem to underlie such empirical findings.     

The Role of Debt in Procurement Contracts

This paper develops a theory of capital structure based on the attempts of a firm to alleviate a holdup problem that arises in its bilateral relationship with a buyer. It is shown that by issuing debt to outsiders, the firm can improve its ex post bargaining position vis-a-vis the buyer and capture a larger share of the ex post gains from trade. Debt, however, is costly because the buyer may find the required price too high and refuse to trade. Since debt raises the payoff of claimholders, it strengthens the firm's incentive to make relationship-specific investments, and therefore alleviates the well-known underinvestment problem. A comparative static analysis yields a number of testable hypotheses regarding the firm's financial strategy.     

Dynamic agency with persistent observable shocks

This paper studies a continuous-time hidden-action model with persistent observable shocks. In this model, I develop a method to characterize the optimal contract with history-dependent effort exertion and shirking decisions. Temporal shirking is always optimal after some histories as long as a positive persistent shock is expected. As a result, my model gives rise to a mechanism through which the moral hazard problem amplifies macroeconomic fluctuations. I also show the pattern of the agent’s utility adjustments with respect to persistent shocks and its implications for compensation design.