Should countries block foreign takeovers of R&D champions and promote greenfield entry?

Abstract In R&D intensive industries, governments promote greenfield foreign investments, while being sceptical towards foreign acquisitions of domestic high‐quality firms. We develop a theoretical model that shows that foreign acquisitions are conducive to high‐quality targets because of strategic effects on the sales price. However, foreign firms ‘cherry pick’ high‐quality targets to expand R&D rather than to downsize. Otherwise, rivals expand R&D, making the acquisition unprofitable. Thus, our model predicts that acquired affiliates invest more in R&D than greenfield affiliates. Using affiliate data, we find evidence that acquired affiliates have a higher level of sequential R&D intensity than greenfield affiliates.     

Life cycle saving: Insights from the perspective of bounded rationality

This paper provides a new life cycle model that takes into account key elements of bounded rationality. The paper shows that the model can account for patterns in the data that are hard to explain by the standard life cycle model. Among other patterns, the model predicts that, typically, the young either hold no equity or their equity portfolio share is rather low and then increases over working life. The analytical solution of the model demonstrates its high degree of tractability.     

The role of leadership in salespeople’s price negotiation behavior

Salespeople assume a key role in defending firms’ price levels in price negotiations with customers. The degree to which salespeople defend prices should critically depend upon their leaders’ influence. However, the influence of leadership on salespeople’s price defense behavior is barely understood, conceptually or empirically. Therefore, building on social learning theory, the authors propose that salespeople might adopt their leaders’ price defense behavior given a transformational leadership style. Furthermore, drawing on the contingency leadership perspective, the authors argue that this adoption fundamentally depends on three variables deduced from the motivation–ability–opportunity (MAO) framework, that is, salespeople’s learning motivation, negotiation efficacy, and perceived customer lenience. Results of a multi-level model using data from 92 salespeople and 264 salesperson–customer interactions confirm these predictions. The first to explore contingencies of salespeople’s adoption of their transformational leaders’ price negotiation behaviors, this study extends marketing theory and provides actionable guidance to practitioners.     

Do time limits in the sickness insurance system increase return to work?

This article analyzes the effect of stricter enforcement of the eligibility criteria in the Swedish sickness insurance (SI) system. In 2008, time-restricted assessments of the individual’s working capacity on the 91st and 181st sick day was introduced. Taking advantage of the quasi-experimental feature of the intervention, I find a large and significant increased exit rate around the 181-day assessment. The impact is the result of longer spells outside SI-benefits, indicating that the stricter rules create disincentives to report sick.     

The warnings puzzle: an upstream explanation

Enforcement agencies issuing warnings are an empirical regularity in the enforcement of laws and regulations, but a challenge to the standard economic theory of public enforcement. A number of recent contributions explain the popularity of warnings as a response to information asymmetries between regulator and regulatee. We offer a distinct, but complementary explanation: Warnings can serve as a signaling device in the interaction between the enforcement agency and its budget-setting authority. By using costly warnings for minor offenses that would otherwise not be pursued, the agency can generate observable activity to escape budget cuts in subsequent periods. We show in a stylized model that warnings may indeed occur in an equilibrium of a game in which warnings are entirely unproductive in the agency-regulatee interaction, and thereby derive a testable hypothesis on regulatory agency behavior.     

Information acquisition in conflicts

This paper considers incentives for information acquisition ahead of conflicts. First, we characterize the (unique) equilibrium of the all-pay auction between two players with one-sided asymmetric information where one player has private information about his valuation. Then, we use our results to study information acquisition prior to an all-pay auction. If the decision to acquire information is observable, but not the information received, one-sided asymmetric information can occur endogenously in equilibrium. Moreover, the cut-off values of the cost of information that determine equilibrium information acquisition are higher than those in the first best. Thus, information acquisition is excessive. In contrast, with open or covert information acquisition, the equilibrium cut-off values are as in the first best.     

The Complementary Relationship Between Institutional and Complexity Economics: The Example of Deep Mechanismic Explanations

Analyzing economic systems from an evolutionary-institutional or a complexity perspective are two complementary approaches to economic inquiry. I discuss three arguments in favor of this hypothesis: (i) eminent institutional economists have examined the economy as what today could be considered a complex system; (ii) complexity economists lack meta-theoretical foundations which could be provided by institutionalist theory; and (iii) institutional economists could benefit from using methods of complexity economics. In this context, I argue that scholars considering the economy to be complex should seek to explain it by discovering social mechanisms instead of focusing on prediction. In order to distinguish between alternative explanations, scholars should refer to the deepness of an explanation, rather than to Occam’s razor.     

Information Cascades in the Labor Market

A model of herding behavior in the labor market is presented where employers receive signals with limited precision about the workers types, and can observe previous employers decisions. Both the employer and the worker can influence the signal probabilities. In particular, the employer tries to increase the precision of the signal about the workers type whereas the worker wants to get a good signal, independent of her type. In a two-period model, we derive conditions for an equilibrium in which only down-cascades occur, i.e., the second employer does not hire a worker with a bad history even if he receives a favorable private signal about the workers type, but he follows his own signal if the workers history is good.     

Evaluating Projects and Assessing Sustainable Development in Imperfect Economies

We are interested in three related questions:(1) How should accounting prices be estimated?(2) How should we evaluate policy change in animperfect economy? (3) How can we check whetherintergenerational well-being will be sustainedalong a projected economic programme? We do notpresume that the economy is convex, nor do weassume that the government optimizes on behalfof its citizens. We show that the same set ofaccounting prices should be used both forpolicy evaluation and for assessing whether ornot intergenerational welfare along a giveneconomic path will be sustained. We also showthat a comprehensive measure of wealth,computed in terms of the accounting prices, canbe used as an index for problems (2) and (3)above. The remainder of the paper is concernedwith rules for estimating the accounting pricesof several specific environmental naturalresources, transacted in a few well knowneconomic institutions.     

Firms,public good provision and institutional uncertainty: Evidence from Russia

Enterprises in post-socialist and transition economies often participate in providing infrastructure and social services to the surrounding community which in the Russian legal setting should be local authorities’ responsibility. We propose that this bundling of social and infrastructure goods provision with firm's core operations is a fully rational choice in an uncertain institutional environment. A unique survey data suggest that this manifests itself through more reliable infrastructure, stronger employee attachment to the firm and, most interestingly, through better relations with the authorities. Relationship with authorities is a two-way game where the firm gains from the arrangement but on the other faces sanctions if it decided to depart from it. Firm's participation in the arrangement is clearly enhanced by inherited fixed capital assets from the Soviet era.