Foreign investors' activities in the context of East German privatisation: Motivations and strategies

4. Conclusions Privatisation in East Germany has not been a closed-shop event but has successfully set the stage for international integration of the East German economy. The degree of foreign participation, though fairly modest in the beginning, has risen considerably over the course of time. Foreign investors, who have proved to be sensitive both to market signals and to policy created incentives, will contribute a good deal to restructuring and modernising the East German economy. However, the importance of foreigners' participation has to be assessed in qualitative terms. Its main merit in privatisation has been to strengthen competition. In many cases, bidding among potential investors became more competitive when the Treuhand Agency succeeded in inviting foreigners to participate. However, investors' competition has been low in cases where maintaining old production sites was politically pre-determined. Political decisions to maintain production were motivated mainly by the need to secure employment. This policy has had a high cost which it has not been possible to shift to foreign investors — or to Germans — but which has had to be covered by the Treuhand Agency and other public bodies.     

Profit maximization mitigates competition?

Summary. We consider oligopolistic markets in which the notion of shareholders’utility is well-defined and compare the Bertrand-Nash equilibria in case of utility maximization with those under the usual profit maximization hypothesis. Our main result states that profit maximization leads to less price competition than utility maximization. Since profit maximization tends to raise prices, it may be regarded as beneficial for the owners as a whole. Moreover, if profit maximization is a good proxy for utility maximization, then there is no need for a general equilibrium analysis that takes the distribution of profits among consumers fully into account and partial equilibrium analysis suffices.     

New trends in urban development and public policy in eastern Germany: dealing with the vacant housing problem at the local level

Supported by federal funds, many eastern German cities have started to address their acute vacant housing problem, and the new strategies attempt to pursue revitalization in especially consistent and comprehensive forms. This article offers evidence that current policies are not meeting their main objectives. Very little is being done in the older, inner‐city neighbourhoods, although these have been given a top political priority in the planning process since they are perceived as one of the greatest economic and cultural assets of eastern Germany. Rather, the policies have been effective only in the large‐scale housing estates, where local administrations and city governments meet ‘big partners’ with resources for action. Further, it is argued that present policy strategies focus too tightly on housing market issues alone. Many housing problems cannot be solved using housing market policy tools alone as vacancy is caused by the general trends of depopulation and deindustrialization in the region. Avec l'aide de financements fédéraux, de nombreuses grandes villes est‐allemandes se sont attaquées à leur grave problème de logements inoccupés, et les nouvelles stratégies tentent une relance par des formules particulièrement vastes et cohérentes. Cet article démontre que les politiques actuelles n'atteignent pas leurs objectifs principaux. Très peu est fait dans les quartiers anciens déshérités, même si on leur a donné une priorité politique élevée dans le processus d'aménagement puisqu'ils sont en bonne place, dit‐on, dans le patrimoine économique et culturel de l'Allemagne de l'Est. En revanche, les politiques publiques n'ont été efficaces que dans les projets de logements à grande échelle lorsque les administrations locales et autorités de la ville rencontrent des ‘partenaires de poids’ ayant des ressources pour agir. De plus, les stratégies politiques présentes s'attachent trop aux seuls aspects liés au marché du logement. Bien des problèmes d'habitat ne peuvent être résolus à l'aide d'outils de politique de marché puisque la vacance tient aux tendances générales à la dépopulation et à la désindustrialisation de la région.     

Coherent hedging in incomplete markets

In incomplete financial markets, not every contingent claim can be perfectly replicated by a self-financing strategy. In this paper, we minimize the risk that the value of the hedging portfolio falls below the payoff of the claim at time T. We use a coherent risk measure, introduced by Artzner et al., to measure the risk of the shortfall. The dynamic optimization problem of finding a self-financing strategy that minimizes the coherent risk of the shortfall can be split into a static optimization problem and a representation problem. We will deduce necessary and sufficient optimality conditions for the static problem using convex duality methods. The solution of the static optimization problem turns out to be a randomized test with a typical 0–1 structure. Our results improve those obtained by Nakano. The optimal hedging strategy consists of superhedging a modified claim that is the product of the original payoff and the solution to the static problem.     

Modelling Policy Issues in a World of Imperfect Competition

General equilibrium theory constitutes a sound basis for the discussion of policy issues if firms do not have market power. However, if firms influence prices strategically, the concept of profits loses its meaning due to the price normalization problem. Hence, it is unclear how to model the behavior of oligopolistic firms. In order to provide a conceptual foundation for the analysis of policy issues in the case of imperfect competition, we discuss ways to formulate the objective of a strategic firm. In particular, we investigate the concept of real wealth maximization that is based on profits as well as on shareholders' aggregate demand.     

Disentangling the impact of infrastructure on trade using a new index of infrastructure

Making use of considerably improved measures of infrastructure, the study assesses the impact of infrastructure on bilateral trade for a panel of 150 developed and emerging economies during the period 1992–2011. The authors make use of a gravity approach to disentangle the impact of infrastructure on trade and trade costs. Improving infrastructure endowments and quality decreases trade costs and increases international trade flows. Countries with improved infrastructure reduce not only bilateral trade costs but also multilateral trade costs. The decomposition of effects indicates that better infrastructure encourages higher export flows relative to domestic trade flows. Main results of the study prove to be robust, also when considering distinct trade categories (consumption goods, intermediates, and capital goods) for a smaller sample.     

The fuzzy front end of Japanese new product development projects: impact on success and differences between incremental and radical projects

This study of Japanese New Product Development (NPD) projects explores the fuzzy front end of innovation. The goal of the paper is twofold: First, we analyse the impact of the fuzzy front end on the success of all the NPD projects. We develop a conceptual model based on the information-processing approach. A structural equation model was fitted to data from 497 NPD projects in Japanese manufacturing firms to test the proposed model. The empirical analysis suggests that an early reduction of market and technical uncertainty as well as an initial planning before development have a positive impact on NPD project success. The model accounts for 17% of the variance of the efficiency and 24% of the variance of the effectiveness-dependent variable. Thus, the front end phase is an important driver of NPD project success. Second, we compare the fuzzy front end of incremental to radical NPD projects. Although these projects differ in many aspects of newness, we found only a few differences with regard to the fuzzy front end. For instance, it was more difficult to estimate the market size and price sensitivity of the customers during the fuzzy front end of the radical NPD projects compared with the incremental projects. Implications of the empirical results and limitations of the study are discussed.     

Empirical Evidence on the Success of R&;D Cooperation—Happy Together?

In this paper we analyse the effect of past R&D cooperation on current firms’ innovation performance. Success measures are: sales of innovative products, distinguishing between products new to the firm and new to the market, and cost reductions due to innovative processes. Particular attention is paid to the impact of different cooperation partners. The analysis rests on firm-level data of the annual German innovation survey. We find that R&D cooperation with competitors leads to greater cost reductions that are attributable to innovative processes. R&D cooperation with research institutes has a positive influence on a firm’s economic success with market novelties.