Nonparametric identification and estimation of random coefficients in multinomial choice models

We show how to nonparametrically identify the distribution of unobservables, such as random coefficients, that characterizes the heterogeneity among consumers in multinomial choice models. We provide general identification conditions for a class of nonlinear models and then verify these conditions using the primitives of the multinomial choice model. We require that the distribution of unobservables lie in the class of all distributions with finite support, which under our most general assumptions, resembles a product space where some of the product members are function spaces. We show how identification leads to the consistency of a nonparametric estimator.     

Why do venture capital firms exist? theory and canadian evidence

This paper investigates the role of venture capitalists. We view their “raison d’être” as their ability to reduce the cost of informational asymmetries. Our theoretical framework focuses on two major forms of asymmetric information: “hidden information” (leading to adverse selection) and “hidden action” (leading to moral hazard). Our theoretical analysis suggests four empirical predictions.1. Venture capitalists operate in environments where their relative efficiency in selecting and monitoring investments gives them a comparative advantage over other investors. This suggests strong industry effects in venture capital investments. Venture capitalists should be prominent in industries where informational concerns are important, such as biotechnology, computer software, etc., rather than in “routine” start-ups such as restaurants, retail outlets, etc. The latter are risky, in that returns show high variance, but they are relatively easy to monitor by conventional financial intermediaries.2. Within the class of projects where venture capitalists have an advantage, they will still prefer projects where monitoring and selection costs are relatively low or where the costs of informational asymmetry are less severe. Thus, within a given industry where venture capitalists would be expected to focus, we would also expect venture capitalists to favor firms with some track records over pure start-ups. To clarify the distinction between point 1 and point 2, note that point 1 states that if we look across investors, we will see that venture capitalists will be more concentrated in areas characterized by significant informational asymmetry. Point 2 says that if we look across investment opportunities, venture capitalists will still favor those situations which provide better information (as will all other investors). Thus venture capitalists perceive informational asymmetries as costly, but they perceive them as less costly than do other investors.3. If informational asymmetries are important, then the ability of the venture capitalist to “exit” may be significantly affected. Ideally, venture capitalists will sell off their share in the venture after it “goes public” on a stock exchange. If, however, venture investments are made in situations where informational asymmetries are important, it may be difficult to sell shares in a public market where most investors are relatively uninformed. This concern invokes two natural reactions. One is that many “exits” would take place through sales to informed investors, such as to other firms in the same industry or to the venture’s own management or owners. A second reaction is that venture capitalists might try to acquire reputations for presenting good quality ventures in public offerings. Therefore, we might expect that the exits that occur in initial public offerings would be drawn from the better-performing ventures.4. Finally, informational asymmetries suggest that owner-managers will perform best when they have a large stake in the venture. Therefore, we can expect entrepreneurial firms in which venture capitalists own a large share to perform less well than other ventures. This is moral hazard problem, as higher values of a venture capitalist’s share reduce the incentives of the entrepreneur to provide effort. Nevertheless, it might still be best in a given situation for the venture capitalist to take on a high ownership share, since this might be the only way of getting sufficient financial capital into the firm. However, we would still expect a negative correlation between the venture capital ownership share and firm performance.Our empirical examination of Canadian venture capital shows that these predictions are consistent with the data. In particular, there are significant industry effects in the data, with venture capitalists having disproportionate representation in industries that are thought to have high levels of informational asymmetry. Secondly, venture capitalists favor later stage investment to start-up investment. Third, most exit is through “insider” sales, particularly management buyouts, acquisitions by third parties, rather than IPOs. However, IPOs have higher returns than other forms of exit. In addition, the data exhibit the negative relationship between the extent of venture capital ownership and firm performance predicted by our analysis.     

Securitization and distressed loan renegotiation: Evidence from the subprime mortgage crisis

We examine whether securitization impacts renegotiation decisions of loan servicers, focusing on their decision to foreclose a delinquent loan. Conditional on a loan becoming seriously delinquent, we find a significantly lower foreclosure rate associated with bank-held loans when compared to similar securitized loans: across various specifications and origination vintages, the foreclosure rate of delinquent bank-held loans is 3% to 7% lower in absolute terms (13% to 32% in relative terms). There is a substantial heterogeneity in these effects with large effects among borrowers with better credit quality and small effects among lower quality borrowers. A quasi-experiment that exploits a plausibly exogenous variation in securitization status of a delinquent loan confirms these results.     

Customer Satisfaction with E-Retailers: The Role of Product Type in the Relative Importance of Attributes

It is of strategic importance for e-retailers to allocate their resources to various service attributes according to their relative importance. How does one determine the relative importance of different service attributes? Does the relative importance of different service attributes remain the same across different product categories? These questions must be addressed by researchers and e-retailers. Since customer ratings for service attributes are highly correlated, modeling methods other than traditional regression models should be used to analyze the relative importance of service attributes to overall customer satisfaction. As such, this article utilizes neural networks in order to study the relative importance of e-retailer service attributes. Importantly, this article shows that the relative importance of e-retailer service attributes varies across different product categories (i.e., convenience, shopping, and specialty goods).     

Performance Analysis of Lodging REITs in Relation to Market Segments

This article examines the financial performance of lodging real estate investment trusts (REITs) in relation to their market focus. Secondary data were collected for from 2004 to 2008 from lodging REITs that were traded on major U.S. stock exchanges. Data envelopment analysis (DEA) was used to assess the efficiencies of market segments to generate financial performance. The results showed that two lodging REITs were consistently efficient during the study period relative to other lodging REITs. In particular, lodging REITs investing and/or operating in one or more relatively similar market segments and those focusing on the upper-upscale segment were more efficient than others. This study could provide managers, owners, and investors of lodging REITs preliminary evidence of the relationship between market segments and firm performance. This article also proposes a framework for future investigations to assess the performance of REITs.     

Cumulative Discrete Choice

We present a discrete choice model in which a consumer's impression of each alternative is based on her memory of past experience with this choice, and is stochastically updated whenever the alternative is chosen. The consumer remembers a cumulative utility index per alternative, and, when an alternative is chosen, the index is updated by the addition of a random variable, interpreted as instantaneous utility. We prove that the frequencies of choice converge, with probability 1, to limit frequencies, which can be computed from the model's parameters.     

Does diversity matter? A fresh inquiry into the energy,economy and environment nexus

ABSTRACT

The article extends the literature on the nexus among economy, environment and energy by incorporating an index of electricity generation diversity in production and emission functions. The index is mathematically equivalent to Herfindahl–Hirschman index. The index captures substantial information regarding the ongoing energy transition at the global level. The results obtained through pooled mean group estimation, on a dataset of fairly diversified group of countries, indicate that if diversity index increases by a percentage point, per capita income increases by 2.4% and per capita emissions are reduced by 0.71%. This is against the conventional wisdom in favour of specialization. The study has found some interesting long-run causal pathways. Firstly, the causality runs from diversification to income. Secondly, there is a causality running from electricity consumption to specialization. Thirdly, bi-directional causality runs between emissions and specialization. The results have interesting policy implications. The study supports the growth hypothesis that the electricity consumption drives the economy. As this inevitably increases emissions, a better pathway is through diversification. The fossil fuel intensive pathway may have been the preferred choice in the past for countries with low electricity consumption; the diversified portfolio appears to be prudent in the future.     

Learning by hiring and change to organizational knowledge: Countering obsolescence as organizations age

Research summary: This paper investigates the relationship between hiring and the ability of organizations to evolve their capabilities as they age. While prior research establishes that organizations become rigid to change as they age, it underemphasizes measures that they may take to renew their adaptive potential. I address this gap by investigating whether hiring stimulates change to the knowledge organizations possess. Learning by hiring, I argue, helps organizations to evolve their knowledge as they age by disrupting routine, introducing distant knowledge, and facilitating socialization. I test the effectiveness of these mechanisms using 38 years (1970–2007) of data from the U.S. biotechnology industry, and find that hiring stimulates more change as organizations age, enabling them to renew their knowledge and counter the effects of obsolescence. Managerial summary: As organizations age, they become less responsive to the needs of their environment, resulting in a trend for them to become technologically obsolete. Little is known as to how they may reverse this trend and counter obsolescence. I provide evidence that hiring may be used to stimulate change to organizational knowledge and capabilities as they age by disrupting routine activity, introducing new‐to‐the‐firm knowledge, and inducing incumbent members to learn. Copyright © 2015 John Wiley & Sons, Ltd.     

Opening the Pandora's box? Trade openness and informal sector growth

This article constructs a labour transition model combining the features of job loss and job creation in the formal sector of an economy. The theoretical model examines the impact of trade liberalization on net job transition from formal to informal sector. In the light of our model we establish certain pre-conditions based on simulations under which trade liberalization is accompanied by rising informal sector. The model outcome conforms to the empirical evidence of rising informality with openness which we find in 18 Central Eastern European and Former Soviet Union countries.