Information Technology As A Factor Of Production: The Role Of Differences Among Firms

Despite evidence that information technology (IT) has recently become a productive investment for a large cross-section of firms, a number of questions remain. Some of these issues can be addressed by extending the basic production function approach that was applied in earlier work. Specifically, in this short paper we: 1) control for individual firm differences in productivity by employing a ‘firm effects’ specification, 2) consider the more flexible translog specification instead of only the Cobb-Douglas specification, and 3) allow all parameters to vary between various subsectors of the economy.

We find that while ‘firm effects’ may account for as much as half of the productivity benefits imputed to IT in earlier studies, the elasticity of IT remains positive and statistically significant. We also find that the estimates of IT elasticity and marginal product are little-changed when the less restrictive translog production function is employed. Finally, we find only limited evidence of differences in IT's marginal product between manufacturing and services and between the ‘measurable’ and ‘unmeasurable’ sectors of the economy. Surprisingly, we find that the marginal product of IT is at least as high in firms that did not grow during 1988–1992 sample period as it is in firms that grew.     

Do Antitrust Laws Facilitate Collusion? Experimental Evidence on Costly Communication in Duopolies*

Bertrand supergames with non‐binding communication are used to study price formation and stability of collusive agreements on experimental duopoly markets. The experimental design consists of three treatments with different costs of communication: zero‐cost, low‐cost and high‐cost. Prices are found to be significantly higher when communication is costly. Moreover, costly communication decreases the number of messages, but more importantly, it enhances the stability of collusive agreements. McCutcheon (1997) presents an interesting application to antitrust policy by letting the cost of communication symbolize the presence of an antitrust law that prohibits firms from discussing prices. Although our experimental results do not support the mechanism of McCutcheon's (1997) argument, the findings point in the direction of her prediction that antitrust laws might work in the interest of firms.     

EXPRESS LANE OR TOLLBOOTH IN THE DESERT? THE SEC'S FRAMEWORK FOR SECURITY ISSUANCE

U.S. companies that need capital may choose between selling securities in the private and public markets. These venues differ in terms of direct issuance costs, the required information disclosed, the liability incurred, and the mechanics of the capital-raising process itself. During the last two decades, the Securities and Exchange Commission (SEC) has deregulated private offerings by broadening their investor base and increasing secondary market liquidity. At the same time, SEC policy has bifurcated the offering process in the public market into two distinct segments based largely on company size and seasoning. Large public issuers have seen a gradual deregulation and acceleration of their capitalraising processes. Important changes for issuers include allowing them to incorporate information into registration statements by reference to Exchange Act reports, to use shelf registration to speed up offers, and to place securities offshore with less regulatory uncertainty. Though small issuers enjoy some of the benefits of these changes, deregulation of their offerings has been somewhat less pronounced. In a Commission report and a subsequent concept release, the SEC indicates it may restructure and unify these three disparate strands of capital raising through an innovative schema of registering companies rather than securities.     

The constant preferences assumption as a specification error in demand analysis

Complete demand systems often are estimated under the assumption that preferences are constant. If preferences do change in reality, this leads to a specification error. This note explores some of the implications of such a specification error.     

Multimarket contact and sales growth: evidence from insurance

Research on pricing, profits, and firm survival has shown that multimarket contact causes mutual forbearance against competition, but has not considered the consequences of imperfect observability of competitive moves. Here, predictions are developed to explain how mutual forbearance occurs—but sometimes fails—in markets with imperfect observability. Mutual forbearance means that firms do not seek to take market share from each other through price cuts or nonprice competition, and thus that sales grow at uniform rates. Firms defect from mutual forbearance, and hence have higher sales growth, if the potential rewards are high and the likelihood of being discovered is low. This theory is tested on a panel of firms operating in the Norwegian general insurance industry. The evidence suggests that sales growth is most rapid in firms that do not meet many multimarket competitors in a given market and firms that are economically troubled. Growing or highly concentrated markets have higher heterogeneity of growth rates. Copyright © 2007 John Wiley & Sons, Ltd.     

The (International) Political Economy of Falling Wage Shares: Situating Working-Class Agency

This paper relates the financial and monetary dimensions of the contemporary economic crisis to working-class agency via a central concern of classical political economy: the distribution of surplus between the chief factors of production. The fall in the wage share of value added is now accepted as a stylised fact in the empirical economic literature. This paper argues that the punctuated pattern of the development validates the regulation theoretical narrative of an epochal shift from Fordism to finance-led accumulation. Furthermore, synthesising econometric studies supports a class-centred explanation. In the last instance, the falling wage share is due to successful transnational class rule in the form of a neoliberal hegemonic paradigm. Crucially, such class rule restructured the environment of trade unions, rendering increasingly ineffective its relational power resources. The paper concludes by considering the contradictory implications for organised labour of the current financial crisis. On the one hand, the financial crisis offers an opportunity to link its particular interests to the general interest of macroeconomic management since low wage share inhibits growth rates. But how might trade unions assert a higher wage share in the face of the structural power of (financial) capital?     

PROPERTIES OF OPTION PRICES IN MODELS WITH JUMPS

We study convexity and monotonicity properties of option prices in a model with jumps using the fact that these prices satisfy certain parabolic integro–differential equations. Conditions are provided under which preservation of convexity holds, i.e., under which the value, calculated under a chosen martingale measure, of an option with a convex contract function is convex as a function of the underlying stock price. The preservation of convexity is then used to derive monotonicity properties of the option value with respect to the different parameters of the model, such as the volatility, the jump size, and the jump intensity.     

Does corruption increase emerging market bond spreads?

We study the relationship between corruption and borrowing costs for governments and firms in emerging markets. Combining data on bonds traded in the global market with survey data on corruption compiled by Transparency International, we show that countries that are perceived as more corrupt must pay a higher risk premium when issuing bonds. The global bond market ascribes a significant cost to corruption: an improvement in the corruption score from the level of Lithuania to that of the Czech Republic lowers the bond spread by about one-fifth. This is true even after controlling for macroeconomic effects that are correlated with corruption. We find little evidence that investors became more sensitive to corruption in the wake of the Asian financial crisis.     

Globalisation and union opposition to technological change

Trade unions have a rational incentive to oppose the adoption of labour-saving technology when labour demand is inelastic and unions care much for employment relative to wages. Trade liberalisation typically increases trade union technology opposition. These conclusions are reached in a model of unionised international duopoly with two-way trade. We also find that the incentive for technology opposition is stronger in the more technologically advanced country and in the country with the larger home market, complementing earlier explanations for technological catch-up and leapfrogging.