Endogenous productivity of demand‐induced R&D: evidence from pharmaceuticals

We examine trends in the productivity of the pharmaceutical sector over the past three decades. Motivated by Ricardo's insight that productivity and rents are endogenous to demand when inputs are scarce, we examine the industry's aggregate Research and Development (R&D) production function. Using exogenous demand shocks to instrument investments, we find that demand growth can explain a large portion of R&D growth. Returns to scale have been stable, whereas total factor productivity has declined significantly. Predicted rents based on our estimates and Ricardo's theory closely match the trends we observe.     

Pricing To Signal Product Line Quality

This paper offers a general characterization of the optimal product line prices for a monopolist whose quality of products is initially unknown to consumers. In the focal equilibrium, a monopolist signals a high-quality product line by pricing as if quality were known to be high, but costs of production were higher than they truly are. In a rich set of environments, this characterization implies that the prices of all products are initially distorted upward, with the price distortion being largest for products with the most inelastic demands and/or quality-sensitive production costs. These implications yield predictions for the time path of prices flint are broadly consistent with evidence from the marketing literature. The multidimensional signaling problem is made tractable by the satisfaction of a very simple and powerful single crossing property.     

Between Markets and Hierarchies: Towards a Better Taxonomy of Hybrid Organizational Forms?

In this paper, the authors attempt to better classify and characterize hybrid organizational forms. They proceed by briefly discussing some general principles of taxonomy and then they critically evaluate extant taxonomic schemas of hybrid forms that typically use as their reference point the dichotomous ideal types of market and hierarchy. The problem of classifying hybrids in relation to these ideal types is demonstrated, and it is pointed out that these ideals have contested meanings and governance modes are treated as 'natural givens'. The paper concludes with the observation that if we sharpen our definition of what constitutes firms and markets, the task in accounting for what lies in between is made much easier. Specifically, and following Hodgson, it is concluded that by returning to a conceptualization of firms as legal entities, much analytical confusion can be averted. In addition, it is suggested that theorizing needs to be accompanied by empirical work that focuses on the actual practices that are used to control and coordinate exchange relationships.     

Dating structural changes: An illustration from financial deregulation

Recent developments in econometrics emphasize the importance of testing for structural breaks in time series analysis. The typical event study of financial economics examines abnormal stock market returns around arbitrarily established dates. The paper has two objectives. The first aim is to present an application of the switching regression methodology to date structural changes in the return-generating function of financial firms. The second objective is to assess the effectiveness of the conventional event methodology in dating regime shifts associated with regulatory changes in the financial services industry. (JEL C52, G21)     

Stereotypes and perceived solidarity in ethnic enclave tourism

This study considers how ethnic attitudes or stereotypes held by Japanese residents (as the majority ethnic group) of Brazilian residents (as the minority ethnic group) factor into the former’s perceived emotional solidarity with the latter. The aim of this work is to (1) initially assess the factor structure of the Ethnic Attitude Scale (EAS) and Emotional Solidarity Scale (ESS) and (2) to determine if underlying factors of the EAS serve to explain factors of the ESS. Following a multistage sampling scheme, 456 Japanese households within Oizumi completed an on-site, self-administered questionnaire. Confirmatory factor analyses of the EAS and ESS revealed consistent two- and three-factor structures with extant findings in the literature. Japanese residents tended to indicate they perceived Brazilian residents slightly favorably on items from each of the EAS factors (i.e. character and intelligence and social evaluation), while responding with ambivalence to items within the ESS factors (i.e. welcoming nature, emotional closeness, and sympathetic understanding). Structural paths (in five of six scenarios) revealed that EAS factors explained between 27% and 59% of the variance in the ESS factors. Implications, limitations, and future research are discussed at the close of the paper.     

Did capital infusions enhance bank recovery from the great recession?

This paper investigates the long-run recovery experience of US banks that received capital infusions under the Capital Purchase Program (CPP), a part of the Troubled Asset Relief Program (TARP). Based on a dynamic recovery model, our results show that recovering CPP banks tended to be in better financial condition than other CPP banks. Long-run event study analyses of common stock prices reveal that, in the quarter after repayment of TARP funds, CPP banks experienced economically large and significant buy-and-hold wealth gains of 14%, equivalent to approximately $329 billion. We conclude that TARP was successful in fostering bank financial and stock price recovery.     

Evaluating the U.S. Wheat Protein Complex

This paper models the economic linkages between a commodity (wheat gluten) and a commodity characteristic (wheat protein). The purpose of this research is to address several issues in the wheat protein complex including the impact of the U.S. gluten import quota on producer protein premiums. Four important conclusions are found. First, the hard red winter (HRW) protein market strongly influences wheat gluten market but the wheat gluten market has its greatest influence on the hard red spring (HRS) protein market. Second, the demand for intrinsic protein is estimated to be very elastic. Thus, the returns to breeding or biotechnology programs designed to raise protein levels of wheat are likely to remain stable in response to small increases in wheat protein content. Third, the U.S. import quota on wheat gluten is estimated to provide a 14% increase in the price of wheat gluten in the first year. By the third year, prices are only 5% above the prequota price. U.S. gluten supplies increase about 15% in the first year and remain at about that level for the next two years. Although these are small estimated impacts, they are not far from what the USITC had anticipated. Finally, the three‐year quota increases protein premiums and provides about $500 ($1000) in additional revenue for an average 1000‐acre farm producing HRW (HRS) wheat. Les auteurs ont modélisé les liens économiques entre un produit (le gluten de blé) et une de ses caractéristiques (les protéines). L'objectif était de répondre à plusieurs questions associées au complexe des protéines du blé, notamment l'incidence du contingentement des importations de gluten par les États‐Unis sur les primes consenties aux producteurs en fonction de la valeur protéique du blé. De leur étude, les auteurs tirent quatre grandes conclusions. La premiére est que le marché des protéines du blé roux vitreux d'hiver (BRVH) exerce une forte influence sur le marché du gluten qui, lui, influe principalement sur le marché des protéines du blé roux vitreux de printemps (BRVP). Deuxiémement, on estime que la demande de protéines intrinséques est trés élastique. De petites hausses de la teneur en protéines du blé devraient donc se traduire par un rendement stable des programmes d'hybridation ou de biotechnologie destinés à augmenter la concentration de protéines dans le blé. En troisième lieu, on estime que le contingentement des importations de gluten par les États‐Unis a entraîné une majoration de 14 % du prix de ce produit la premiére année. Deux ans plus tard, les cours s'étaient stabilisés à 5 % au‐dessus du prix en vigueur avant le contingentement. L'offre américaine de gluten augmentera d'environ 15 % la premiére année et se maintiendra à peu prés au même niveau les deux années suivantes. Même si elles ne sont guère importantes, pareilles retombées se rapprochent de celles anticipées par l'USITC. Enfln, les trois années de contingentement ont donné lieu à un relèvement des primes versées pour la concentration en protéines et débouché sur une hausse moyenne de 500 $ (1 000 $) du revenu des exploitations de 1 000 acres qui produisent du BRVH (BRVP).     

Exporting under trade policy uncertainty: Theory and evidence

I provide novel evidence for the impact of trade policy uncertainty on exporters. In a dynamic, heterogeneous firms model, trade policy uncertainty will delay the entry of exporters into new markets and make them less responsive to applied tariff reductions. Policy instruments that reduce or eliminate uncertainty, such as binding trade policy commitments at the WTO, increase entry. The predictions are tested on disaggregated, product-level Australian imports with model-consistent measures of uncertainty. The estimates show that growth of exporter–product varieties would have been 7% lower between 1993 and 2001 without the binding commitments implemented after the WTO was formed in 1996. If Australia reduced all its tariffs and bindings to zero, more than half of predicted product growth is accounted by removing uncertainty. These results illuminate and quantify an important new channel for trade creation.     

Size and investment performance: a research note

This article examines the performance of actively managed Australian equity funds and the extent to which both fund size and manager size are related to risk-adjusted returns. Larger investment managers, by definition, engage in higher trade volume. The literature documents that transaction costs and trade difficulty increase with trade size, given difficulties associated with 'large' trades and their potential market impact on security prices. Therefore, ceteris paribus , large orders are consistent with lower levels of efficiency in trade execution and higher transaction costs. While larger investment managers may experience material disadvantages relative to their smaller counterparts, the Australian literature to date has largely ignored the issues of asset size and the long run performance of investment offerings. This article, employing returns and fund size data that control for survivorship bias, documents that while large retail active equity funds earn higher risk-adjusted returns (after expenses) than small funds, the difference in mean performance is not significantly different. In the institutional sphere, the study also finds no statistically significant performance differences (net of expenses) between funds on the basis of portfolio size. These findings suggest the hypothesis that performance declines with fund size is not supported empirically.     

Capital markets' assessment of airline restructuring following deregulation

The Airline Deregulation Act of 1978 propelled the industry into a constant state of change, even turmoil, that prevails 14 years later. The purpose of this paper is to examine the capital markets' reactions to the dramatic restructuring of the airline industry. The results of an event study of 24 merger announcements indicates that stockholders of target firms experience positive abnormal returns of 14.5% over a three-day period around the merger announcement date. Bidding firms experience a 3.7% increase over the same time window. Clearly, the capital markets viewed this restructuring of the industry as positive.