The effects of ambiguity on entrepreneurship

We incorporate ambiguity (Knightian uncertainty) into a classic model of entrepreneurship to analyze, among other things, its effects on the optimal level of business startups, the relation between total assets and the size of the entrepreneurial investment, the effects of increasing ambiguity on developing new ventures, and the decision to self‐select into entrepreneurship for an indifferent decision maker. We first show that, under the monotone‐likelihood ratio property, the introduction of ambiguity negatively affects the optimal entrepreneurial investment, something that is consistent with most experimental evidence about entrepreneurial choice under ambiguity. Then, we show that the classical explanations for the positive correlation between total assets and business startups based on decreasing absolute risk aversion preferences and prudent behavior can be challenged when ambiguity is incorporated into the analysis, and we provide the conditions that guarantee that the traditional comparative static result under risk is replicated under ambiguity. We also show that increases in ambiguity aversion reduce entrepreneurial activities. Finally, we discuss our results under alternative ways of modeling ambiguity.     

Embracing invention similarity for the measurement of vertically overlapping claims

ABSTRACT

Clear and well-defined patent rights can incentivize innovation by granting monopoly rights to the inventor for a limited period of time in exchange for public disclosure of the invention. However, with cumulative innovation, when a product draws from intellectual property held across multiple firms (including fragmented intellectual property or patent thickets), contracting failures may lead to suboptimal economic outcomes. However, an alternative theory, developed by a variety of scholars, contends that patent thickets have a more ambiguous effect. Researchers have developed several measures to gauge the extent and impact of cumulative innovation and the various channels of patent thickets. This paper contends that mis-measurement may contribute to the incoherence and overall lack of consensus within the patent thickets literature. Specifically, the literature is missing a precise measure of vertically overlapping claims. We propose a new measure of vertically overlapping claims that incorporates invention similarity to more precisely identify inventive overlap. The measure defined in this paper will enable more accurate measurement, and allow for novel economic research on cumulative innovation, fragmentation in intellectual property, and patent thickets within and across all patent jurisdictions.     

Investigating the solvency of brazilian credit unions using a proportional hazard model

Abstract ** : Due to high interest rates and bank spreads, the number of credit unions in Brazil has increased over recent years. As financial institutions, these cooperatives need tools to signal impending financial problems. This paper focuses on one tool that can be used to evaluate credit union solvency: the Cox Proportional Hazards Model. A sample of 80 credit unions from the Brazilian state of Minas Gerais was selected to supply data. The analysis period is between December 2001 and June 2003. The results indicate that the relevant indicators for insolvency prediction are, in descending order of predictive ability, General Liquidity, Salary and Benefit Expenses, and the Loan/Equity Ratio. In general, results produced using the delineated theoretical model were in consonance with international literature .     

THE EFFECTS OF STATUTORY RAPE LAWS ON NONMARITAL TEENAGE CHILDBEARING

Many policy makers view the enforcement of statutory rape laws as a way to reduce teenage childbirths. This article considers whether unmarried teenage girls covered by a state statutory rape law are less likely to give birth than girls who are not covered by a statutory rape law. The presence of statutory rape laws is negatively correlated with nonmarital birthrates for white females but is not a significant predictor for black or Hispanic females. In contrast, the enforcement of statutory rape laws has a deterrent effect on teen childbearing for blacks and Hispanics but not for whites. (JEL J13, K14 )     

Understanding the microenterprise sector to design a tailor-made microfinance policy for Cape Verde

Two of the central challenges faced by Cape Verde at the present are the high level of unemployment and the increasing proportion of the population living in (relative) poverty. Microenterprise development can be an effective means of addressing both problems in a developing country like Cape Verde, where microenterprises account for about 50% of employment. In this paper we provide a detailed profile of Cape Verdean microenterprises and microentrepreneurs and investigate the relationship between their characteristics and the resort to outside seed capital. We find a cluster of factors—the microentrepreneur’s age, gender, level of education and reason for being self-employed—which influence significantly the probability of being in need for external start-up capital. The policy implications of these findings for the design of a specific microfinance program for Cape Verde are discussed.

Wall Street and Main Street: the macroeconomic consequences of New York bank suspensions, 1866–1914

Before the formation of the Federal Reserve, banking panics were routine events in the United States. During the most severe episodes, banks in cities across the country would often suspend or restrict the par convertibility of their demand deposit liabilities. In diagnosing the causes of the Great Depression, Friedman and Schwartz famously regard these local initiatives as a second best solution, which in the absence of an effective lender of last resort would have prevented the rash of bank failures during the early 1930s and their dire monetary and real impacts. Recent research in macroeconomics though has raised the possibility that banks’ suspension of payments might also have negative real effects albeit through changes in aggregate supply such as the financing of working capital. We would expect to observe these negative shocks during the pre-Fed era, because the decentralized, private interbank payments network was especially vulnerable to systemic disruptions such as suspensions by New York and other money center banks. Reports in national trade periodicals and local newspapers during suspension periods offer many accounts of factories closing because of the inability to obtain currency for weekly payrolls and “domestic exchange” to finance internal trade. We corroborate these observations with more systematic econometric evidence at the national and regional levels. Our results show that controlling for the overall contraction and bank failures, suspension periods were associated with a statistically significant and quantitatively large decline in real activity, on the order of 10–20 %.     

“Greening” the marketing mix: do firms do it and does it pay off?

Growing concern about the sustainability of the natural environment is rapidly transforming the competitive landscape and forcing companies to explore the costs and benefits of “greening” their marketing mix. We develop and test a theoretical model that predicts (1) the role of green marketing programs in influencing firm performance, (2) the impact of slack resources and top management risk aversion on the deployment of such programs, and (3) the conditioning effects that underpin these relationships. Our analyses show that green marketing programs are being implemented by firms, and we find evidence of significant performance payoffs. Specifically the results indicate that green product and distribution programs positively affect firms’ product-market performance, while green pricing and promotion practices are directly positively related to firms’ return on assets. In addition, industry-level environmental reputation moderates the links between green marketing program components and firms’ product-market and financial performance. Finally, we find that slack resources and top management risk aversion are independently conducive to the adoption of green marketing programs—but operate as substitutes for each other.     

Institutions and the financial development–economic growth nexus in sub-Saharan Africa

Using a sample splitting approach that does not impose an exogenous quadratic term, we examine the effect of financial development on economic growth in sub-Saharan Africa by allowing the link to be mediated by the level of institutions. Our findings reveal a disproportionate growth-enhancing effect of finance, given countries’ distinct level of institutional quality. More specifically, when the International Country Risk Guide-based measure of institutions is used as the threshold variable, below the optimal level of institutional quality, financial development does not significantly promote economic growth. For countries with institutional quality above the threshold, higher finance is associated with growth. However, when institutions are measured by World Governance Indicators proxy, we find a significant effect of financial development, irrespective of whether a country is below or above the threshold. Interestingly, the growth-enhancing effect of finance is greater for low-institution countries relative to high-institution countries. Thus, through its ability to provide some crucial roles, the well-developed financial sector may also perform the function of sound institutions in influencing economic growth.     

PROBLEMS IN THE COMPILATION OF INPUT-OUTPUT TABLES IN THE NETHERLANDS

This article deals with some aspects of the compilation of input-output tables (I.O. tables). A global view is given of the way in which I.O. tables are compiled in The Netherlands. It is indicated that in The Netherlands a number of developments are in progress that have led to an extension of the uses that are made of I.O. tables. The changing demands on I.O. tables that result from these developments can be met in future to an important degree. This has been made possible by extending and improving basic statistics and by increasing the uses made of automation facilities. Some problems remain, however, and one of these problems takes a central place in this article. This is the problem of accuracy and continuity: how can yearly I.O. tables be compiled that combine accuracy with consistency over time. Accuracy means here that the tables should be as complete as possible and in optimal accordance with all available information. Consistency over time means that estimates of details of I.O. tables compared with the same estimates for previous years reflect real economic developments. It is obvious that those two demands may conflict, particularly for years in which new information becomes available. It then must be decided whether accuracy or consistency in time deserves priority. What problems result from this decision and what are the consequences for the yearly I.O. tables? The problems arising from the conflicting demands of accuracy and continuity apply to the Netherlands in the last few years. This led to a revision of I.O. tables and national accounts for 1977. This revision resulted in an increase of estimated national income of more than 6 percent. For some components the adjustments have been much larger; this is particularly true for the services sector. More information on the 1977 revision is given in an annex.