Agency Contracts,Noncommitment Timing Strategies and Real Options

Given that an owner lacks the ability to commit to his or her timing decisions under a manager's hidden action, we consider the optimal design of the contract and the owner's optimal timing decisions. Using a real options approach, we show that, compared with the full commitment case, a higher (lower)‐quality project is launched later than (at the same time as) the first‐best case, whereas the replacement of the manager is (is not necessarily) made later if the hidden‐action problem is severe enough (is not severe enough). Severance pay may serve to minimize the compensation for the manager's loss of corporate control.     

The magnification effect in global value chains

We examine the “magnification effect,” which demonstrates that as the number of separable production stages increases, trade increases dramatically as trade costs decline. We empirically investigate the existence of this magnification effect by estimating gravity-type equations for worldwide trade to obtain the tariff elasticity of trade per industry. We find that tariff elasticity is higher in industries with a greater degree of global value chain participation. These results are observed for both gross and value-added trade. Furthermore, we find that tariff elasticity is higher in intra-Asian trade, especially in machinery industries.     

Using managers' expectations for ex-ante policy evaluation: Evidence from the COVID-19 crisis

Evaluation of the impacts of government policies during an economic crisis is often delayed until the outcomes are realized. Policies can be better guided if they can be evaluated amid a crisis, before the realization of outcomes. This study examines whether survey data on the expectations of small business managers can help evaluate two high-stake subsidies for firms amid the COVID-19 crisis in Japan, namely, Subsidy Program for Sustaining Businesses (SPSB) and Employment Adjustment Subsidy (EAS). We evaluate the accuracy of managers' expectations, estimate the impact of subsidies on the expected firm survival, and compare it with the estimated impact on realized survival. We find that the managers' expectations on their future sales, survival rate, and the possibility of receiving these subsidies predict the realized outcomes, although they were highly pessimistic about their survival rates. We find that the estimated impacts of the SPSB on the expected survival rates have the same sign as the estimated impact on the realized survival rates, but the size is more than twice because of the pessimism on survival. The estimated impacts of the EAS are both insignificant. Therefore, although its impact may be overestimated, managers' expectations are useful for selecting an effective policy.     

Which is better for durable goods producers,exclusive or open supply chain?

We explore the supply chain problem of a downstream durable goods monopolist, who chooses one of the following trading modes: an exclusive supply chain with an incumbent supplier or an open supply chain, allowing the monopolist to trade with a new efficient entrant in the future. The expected retail price reduction in the future dampens the profitability of the original firms. An efficient entrant's entry magnifies such a price reduction, causing a further reduction of original firms' joint profits. In equilibrium, the downstream monopolist chooses the exclusive supply chain to escape further price reductions, although it expects efficient entry.     

Cyclical dynamics in a Kaleckian model with demand and distribution regimes and endogenous natural output

We analyse the interaction of demand and income distribution in a dynamic Kaleckian model with endogenous natural output. Endogenous changes of the natural output level to changes in the demand-determined actual output level have featured prominently in discussions of hysteresis after the crisis of 2008. We consider wage-led and profit-led demand (PLD) regimes and goods market-led and labour market-led income distribution regimes. The stability of the steady state is related to the endogeneity of natural output level in certain regimes. Limit cycles arise when the strong flexibility of prices or wages to the output gap is combined with moderate natural output hysteresis. A Kaleckian model with a wage-led demand regime and anticyclical profit share is less unstable and pseudo-Goodwin cycles can arise in the PLD regime with a procyclical profit share.     

OPTIMAL CONSUMPTION AND PORTFOLIO SELECTION WITH INCOMPLETE MARKETS AND UPPER AND LOWER BOUND CONSTRAINTS

We study an optimal consumption and portfolio selection problem for an investor by a martingale approach. We assume that time is a discrete and finite horizon, the sample space is finite and the number of securities is smaller than that of the possible securities price vector transitions. the investor is prohibited from investing stocks more (less, respectively) than given upper (lower) bounds at any time, and he maximizes an expected time additive utility function for the consumption process. First we give a set of budget feasibility conditions so that a consumption process is attainable by an admissible portfolio process. Also we state the existence of the unique primal optimal solutions. Next we formulate a dual control problem and establish the duality between primal and dual control problems. Also we show the existence of dual optimal solutions. Finally we consider the computational aspect of dual approach through a simple numerical example.     

Bounds on the efficiency of the residual design of extended BIB designs

This gives a complete proof for bounds of the efficiency, conjectured by Das and Kageyama (1992), on robustness of extended balanced incomplete block designs against the unavailability of any number of observations in a block.     

The Role of Network Effects in the US VCR Market, 1978–1986

This paper estimates the importance of indirect network effects in the US video cassette recorder (VCR) market between 1978 and 1986. Estimation reveals the significant role of networks in the format competition between VHS and Beta. The paper also finds that if Sony, the system sponsor of Beta, had aggressively introduced its VCRs at the early stage of competition, Beta would likely have dominated the market in 1985; instead, the format disappeared in 1989. Finally, the paper measures consumer welfare for the value of network effects in VCRs, and assesses the consumer welfare effect of standardization.