The value of a ‘failed’ R&D project: an emerging evaluation framework for building innovative capabilities1

In literature and R&D organizations alike, project success consists in minimizing the deviations from set targets in terms of quality, cost and time. The main management task is to execute and monitor progress to reduce risks – assuming that project attributes are known, necessary resources can be estimated and a reasonable time table can be agreed upon. In such a context, evaluating project success is easy. However, in an innovative context, setting project targets initially is difficult and the contributions of the projects sometimes are of an unexpected nature. This paper investigates if projects can be evaluated in terms of how they contribute to the building of innovative capabilities of the firm instead of independently. Based on a case study at the Régie Autonome des Transports Parisians and the theoretical framework of innovation fields, a framework for evaluating projects from an additional perspective is proposed. Based on the following four criteria: financial resources, the development of a structured, refined and expanded strategic vision, developed competences (with related suppliers) and identification of knowledge gaps (occasionally with related partners for knowledge production), this framework shows how seemingly failed R&D projects can instead be considered as invaluable to the overall innovation process.     

Heteroscedasticity of deviations in market bubble moments – how the goods and bads lead to the ugly

We conjecture that market bubbles may be the results of the interplay of Goods and Bads (toxic products) which develop through three interlocking moments – herding, swarming and stampeding, with deviations marked by heteroscedasticity. We use our stylized model of financial predation, the Consolidated Model of Financial Predation, and data we have accumulated through in-the-field eight-year research and the study of 30 years of U.S. market history in order to explore the foundations of market crises. We find that blind trust (or the positivity bias) and of the fear to miss out on an opportunity to enter/exit a market impacts the investors’ decisions to invest or retract. We show how markets are driven towards a make-or-break predatory dynamic that creates winners and losers due in part to weak regulations and identify a constant k that permeates market behaviours.     

Informality,public employment and employment protection in developing countries

This paper proposes an equilibrium matching model for developing countries’ labor markets where the interaction between public, formal private and informal private sectors are taken into account. Theoretical analysis shows that gains from reforms aiming at liberalizing formal labor markets can be annulled by shifts in the public sector employment and wage policies. Since the public sector accounts for a substantial share of employment in developing countries, this approach is crucial to understand the main labor market outcomes of such economies. Wages offered by the public sector increase the outside option value of the workers during the bargaining processes in the formal and informal sectors. It becomes more profitable for workers to search on-the-job, in order to move to these more attractive and more stable types of jobs. The public sector therefore acts as an additional tax for the formal private firms. Using data on workers’ flows from Egypt, we show empirically and theoretically that the liberalization of labor markets plays against informal employment by increasing the profitability, and hence job creations, of formal jobs. The latter effect is however dampened or even sometimes nullified by the increase of the offered wages in the public sector observed at the same time.     

Testing evolutionary theory of household consumption behavior in the case of novelty - a product characteristics approach

This article tests and extends the evolutionary theory of household consumption behavior, which is an alternative to neoclassical theory. Evolutionary economists offer novel approaches to the analysis of consumption behavior that emphasize the major role of learning in the evolution of consumer preferences and wants. As a possible inspiration for further progress in evolutionary thought, this paper examines the idea of consumer learning by studying the nature of what consumers should learn in the context of ‘novelty’. Our empirical results regarding novelty during the learning process show that consumers learn the ‘new characteristics’ of consumer goods, contrary to the Lancasterian approach, which suggests that the characteristics space of goods is fixed. We show that during the process of consumption, ‘consumer learning’ extends the characteristics space of consumer goods; this phenomenon is far from negligible and differs across product types. Moreover, our results show that the emergence of new characteristics cannot be modeled as a Poisson process because these new characteristics exhibit clear interdependence over time.     

Discounting and welfare evaluation of policies

We start with the premise that if policy discounting is to have any welfare relevance, one has to accept it being a derivative of a social welfare function (SWF). We show that if that derivative is to have a net present value (NPV) form, then the baseline allocation must be stationary. In addition, we show that at a stationary baseline in an overlapping generations growth economy, the intergenerationally fair discount rate equals the growth rate of per‐capita consumption, which is, roughly, 2% for the United States. This differs from the interest rate, even in the golden rule equilibrium, unless population growth is null. The last result is based on the main theorem in Mertens and Rubinchik (2012) and is demonstrated for a policy space that might naturally arise in applications.     

E-commerce and the market structure of the recorded music industry

In this article, we study the impact of the development of e-commerce on the concentration of the recorded music industry in France, for the period 2003–2010. First, we find that over the whole period, CD sales, measured at the distributor level, are less concentrated online than offline. Second, we find that sales concentration online has increased between the early period of e-commerce (2003–2006) and the later period (2007–2010).     

The Effect of Joint Auditor Pair Composition on Audit Quality: Evidence from Impairment Tests

Using a sample of firms from France, where the law requires the use of two auditors, we study the effect of auditor pair composition on audit quality by examining a specific account, goodwill impairment. We document that firms audited by a Big 4–non‐Big 4 auditor pair (BS) are more likely to book an impairment and book a larger impairment than firms audited by a Big 4–Big 4 auditor pair (BB) when low‐performance indicators suggest a greater likelihood of impairment. Moreover, firms audited by a BB pair reduce impairment disclosures when they book impairments, while firms audited by a BS pair do not, suggesting lower transparency for firms audited by a BB pair. Our results inform investors and firms in mandatory joint audit regimes, as well as regulators who are considering requiring joint audits.