Options Trading and the CAPM

This article studies equilibrium asset pricing when agents facenonnegative wealth constraints. In the presence of these constraintsit is shown that options on the market portfolio are nonredundantsecurities and the economy's pricing kernel is a function ofboth the market portfolio and the nonredundant options. Thisimplies that the options should be useful for explaining riskyasset returns. To test the theory, a model is derived in whichthe expected excess return on any risky asset is linearly related(via a collection of betas) to the expected excess return onthe market portfolio and to the expected excess returns on thenonredundant options. The empirical results indicate that thereturns on traded index options are relevant for explainingthe returns on risky asset portfolios.     

Social networks in the global banking sector

We show that banks with shared social connections partner more often in the global syndicated loan market and that central banks in the network play dominant roles in various interbank transactions, indicating that social connections facilitate business connections. However, more centralized banks in the network also contribute significantly to the global systemic risk. Moreover, we find the soft information generated by social networks is particularly valuable when potential partners operate under different accounting and regulatory standards. Finally, we show that the recent banking crisis significantly limited the positive soft information effects of social networks in the global banking system.     

Leveraging External Sources of Innovation: A Review of Research on Open Innovation

This paper reviews research on open innovation that considers how and why firms commercialize external sources of innovations. It examines both the “outside‐in” and “coupled” modes of open innovation. From an analysis of prior research on how firms leverage external sources of innovation, it suggests a four‐phase model in which a linear process—(1) obtaining, (2) integrating, and (3) commercializing external innovations—is combined with (4) interaction between the firm and its collaborators. This model is used to classify papers taken from the top 25 innovation journals, complemented by highly cited work beyond those journals. A review of 291 open innovation‐related publications from these sources shows that the majority of these articles indeed address elements of this inbound open innovation process model. Specifically, it finds that researchers have front‐loaded their examination of the leveraging process, with an emphasis on obtaining innovations from external sources. However, there is a relative dearth of research related to integrating and commercializing these innovations. Research on obtaining innovations includes searching, enabling, filtering, and acquiring—each category with its own specific set of mechanisms and conditions. Integrating innovations has been mostly studied from an absorptive capacity perspective, with less attention given to the impact of competencies and culture (including “not invented here”). Commercializing innovations puts the most emphasis on how external innovations create value rather than how firms capture value from those innovations. Finally, the interaction phase considers both feedback for the linear process and reciprocal innovation processes such as cocreation, network collaboration, and community innovation. This review and synthesis suggests several gaps in prior research. One is a tendency to ignore the importance of business models, despite their central role in distinguishing open innovation from earlier research on interorganizational collaboration in innovation. Another gap is a tendency in open innovation to use “innovation” in a way inconsistent with earlier definitions in innovation management. The paper concludes with recommendations for future research that include examining the end‐to‐end innovation commercialization process, and studying the moderators and limits of leveraging external sources of innovation.     

Detecting Linguistic Traces of Destructive Narcissism At-a-Distance in a CEO’s Letter to Shareholders

Destructive narcissism is recognized increasingly as a serious impairment to good corporate leadership and ethical conduct. The Chief Executive Officer’s letter to shareholders (an important formal corporate communications medium) has potential to provide linguistic traces of destructive narcissism and insight to aspects of corporate leadership and the ambient ethical culture of a company. We demonstrate this potential through selective analyses of the letters of the Chief Executive Officers of Enron, Starbucks, and General Motors.     

The Economic Value of Water Quality

Stated preference values for water quality ratings based on the US Environmental Protection Agency National Water Quality Inventory ratings provide an operational basis for benefit assessment. Iterative choice survey results for a very large, nationally representative, Web-based panel imply an average valuation of $32 for each percent increase in lakes and rivers in the region for which water quality is rated “Good.” Valuations are skewed, with the mean value more than double the median. Sources of heterogeneity in benefit values include differences in responses to average water quality information and the base level of water quality. Conjoint estimates are somewhat lower than the iterative choice values. The annual economic value of the decline in inland US water quality from 1994 to 2000 is over $20 billion.      

Beyond Regulation: Towards a Cultural Political Economy of Complexity and Emergence

Drawing on and contributing to materialist state theory, the regulation approach and institutional economics for more than three decades, Bob Jessop can certainly be considered one of the foremost Marxist political economists of our time. Recently, he has taken on board the cultural turn in social analysis by developing a highly original cultural political economy of the knowledge-based economy. As a contribution to the further development of a cultural political economy that is sensitive to the cultural dimensions of social life while retaining an emphasis on capital accumulation and state regulation, this article directs attention to the limits of Jessop's approach and suggests possible amendments to the theory. In particular, the article highlights the need to move beyond a concern with regulation towards a cultural political economy of complexity and emergence.     

Finn Organisation and Spatial Dynamics

For the past three years the world economy has suffered a recession. In contrast to earlier global, as well as national,recessions when manufacturing industries were most vulnerable,business services have been signijicantly affected. Not surpris-ingly, this has revived old doubts about the role of services in modern economies. The papers in this section re-examine the problematics associated with the efficiency and productivity of service organisations. Even if the social division of labour is a strong argument to support the growth of service industries, attempts to understand better the connection between service firm location and different ways of internally organising and coordinating production might be one useful direction for future research.     

A General Model of the Behavioral Response to Taxation

This paper generalizes the standard model of how taxes affect the labor-leisure choice by allowing individuals to change both their labor supply and avoidance effort in response to tax changes. Doing so reveals that the income and substitution effect of taxes depend on both preferences and the avoidance technology. Econometric analysis will not in general allow one to separately identify the two influences, unless one can specify observable determinants of the cost of avoidance. The effective marginal tax rate on working must be modified by the addition of an avoidance-facilitating effect, which measures how the cost of avoidance changes with higher income. This model provides a conceptual structure for evaluating to what extent, and in what situations, the opportunities for tax avoidance mitigate the real substitution response to taxation.     

Are property rights enough?Re‐evaluating a big‐bang claim1

We investigate the claim made by proponents of the big‐bang strategy that the establishment of property rights in an economy in transition creates its own demand for the enforcement of laws to protect those rights. Our model contains a government engaging in activities to accomplish objectives that depend on public support for the enforcement of the rule of law and agents who interpret the level of activities of the government as indications of the government's intent to enforce the rule of law. Agents, using the level of government activities as an input to their decisions, choose whether to support the government's objectives. We establish conditions under which the level of activities chosen by the government maximizes its benefits, and simultaneously induces the constituency to support enforcement of the rule of law. These conditions provide a basis for the argument for the implementation of the big‐bang policy. When these conditions do not hold, however, we show that the level of activities that maximizes the government's benefits may have only a minor impact on support for the enforcement of the rule of law. Two characteristics play an important role in these conditions: the initial level of crime and the types of activities the government chooses to undertake. We present examples showing that the initial level of crime has the more dramatic effect on subsequent support for the rule of law.