Information acquisition,coordination, and fundamentals in a financial crisis

This paper reconciles the two explanations of a financial crisis, the self-fulfilling prophecy and the fundamental causes, in an empirically-relevant framework, by explicitly modeling the costly voluntary acquisition of information about fundamentals in a variant of Diamond and Dybvig [Diamond, D., Dybvig, P., 1983. Bank runs, deposit insurance, and liquidity. Journal of Political Economy 91, 401–419]. The model exhibits strategic complementarity in information acquisition. In the “partial run” equilibrium investors engage in costly evaluation of projects, so that banks with lower-return projects fail. There also exist the classic “full-run” and “no-run” equilibria in which there is no project evaluation. Investors’ coordination on a specific equilibrium is triggered by a self-fulfilling prophecy. So, financial crises are seen as both fundamentals-based and self-fulfilling prophecies-based phenomena.     

Deterrence, Lawsuits, and Litigation Outcomes Under Court Errors

This article presents a strategic model of liability and litigationunder court errors. Our framework allows for endogenous choiceof level of care and endogenous likelihood of filing and disputes.We derive sufficient conditions for a unique universally divinemixed-strategy perfect Bayesian equilibrium under low courterrors. In this equilibrium, some defendants choose to be grosslynegligent; some cases are filed; and some lawsuits are dropped,some are resolved out of court, and some go to trial. We findthat court errors in the size of the award, as well as damagecaps and split awards, reduce the likelihood of trial but increasefiling and reduce the deterrence effect of punitive damages.We derive conditions under which the adoption of the Englishrule for allocating legal costs reduces filing.     

Sustainable tourism implementation in urban areas: a case study of London

Sustainable tourism is a concept widely embraced by managers and planners of tourist destinations. However, it has received little attention in the context of urban tourism, an area of research that has until recently been largely neglected by academics. This paper contributes to the body of knowledge on sustainable tourism implementation in large cities, by using London as an exploratory case study. Through the collection and analysis of both primary and secondary data (online survey, semi-structured interviews and document analysis), it seeks to explore whether local authorities have implemented policies towards sustainable tourism in the capital. The findings indicate that although the concept of sustainable tourism is perceived as important by policy makers, only a few local authorities in London promote its principles in their policy documents and even fewer have initiatives to put them in practice. Most of these initiatives are isolated activities which address limited aspects of sustainable tourism. The paper concludes that despite some progress made to date, in the current economic climate, growth and development remain the main objectives of governments and local authorities, while social and environmental issues are often left behind.     

Trajectories of Russian manufacturing firms’ growth after the global financial crisis of 2008–2009: the role of restructuring efforts and regional institutional environment

The aim of this article is to conduct an empirical investigation and reveal which types of modernisation strategies and characteristics of regional institutional environment are likely to be associated with patterns of the performance of Russian manufacturing firms in 2007–2012. In addition to estimating the impact of ex-ante behaviour on the rate of sales growth, we use hierarchical cluster analysis to reveal the typical trajectories of firms’ sales growth. We find that the dynamic of sales for more than 90% of firms can be described by just two types of performance curve: (a) crisis decline with recovery and growth; and (b) crisis decline with weak recovery and stagnation. Firms that invested more prior to the crisis and implemented active restructuring were more likely to have positive post-crisis dynamics of sales. We find evidence that firms in the regions with lower levels of corruption (both administrative and everyday) were more likely to recover successfully after the crisis.     

R&D policy with layers of economic integration

This paper examines whether the optimal unilateral R&D policy for an open economy is a subsidy or a tax. It constructs a general equilibrium model with three successive layers of international integration: (a) trade in goods, (b) trade in technologies with international R&D spillovers and (c) internationally-coordinated R&D policy. Trade in technologies introduces the possibility that an R&D subsidy will have such strong, negative terms-of-trade effects that it harms domestic welfare. Numerical simulations of the OECD show this is a possibility for the US and Japan. With international R&D spillovers a domestic R&D subsidy may reduce domestic innovation.     

Preemptive entry in differentiated product markets

Summary. Models of spatial competition are typically static, and exhibit multiple free-entry equilibria. Incumbent firms can earn rents in equilibrium because any potential entrant expects a significantly lower market share (since it must fit into a niche between incumbent firms) along with fiercer price competition. Previous research has usually concentrated on the zero-profit equilibrium, at which there is normally excessive entry, and so an entry tax would improve the allocation of resources. At the other extreme, the equilibrium with the greatest rent per firm normally entails insufficient entry, so an entry subsidy should be prescribed. A model of sequential firm entry (with an exogenous order of moves) resolves the multiplicity problem but raises a new difficulty: firms that enter earlier can expect higher spatial rents, and so firms prefer to be earlier in the entry order. This tension disappears when firms can compete for entry positions. We therefore suppose that firms can commit capital early to the market in order to lay claim to a particular location. This temporal competition dissipates spatial rents in equilibrium and justifies the sequential move structure. However, the policy implications are quite different once time is introduced. An atemporal analysis of the sequential entry process would prescribe an entry subsidy, but once proper account is taken of the entry dynamics, a tax may be preferable. Received: April 26, 1999; revised version: September 22, 1999     

Information revelation in competitive markets

This paper analyzes a market with multiple sellers and horizontally differentiated products. We investigate the sellers’ incentives to reveal product relevant information that affects the buyer’s private valuation. The main finding is that if the number of sellers is sufficiently large, there is a unique symmetric equilibrium with full information disclosure. Thus, unlike the results by Lewis and Sappington (Int Econ Rev 35:309–327, 1994) and Johnson and Myatt (Am Econ Rev 93:756–784, 2006) for monopoly, which state that the monopolist reveals either full information or no information, intense competition results in a single extreme with respect to information disclosure. We show that the market is always inefficient, but the magnitude of inefficiency converges to zero at a high rate as competition intensifies.     

Public reception of scientific uncertainty in the endocrine disrupter controversy: the case of male fertility

Scientific controversies are associated with significant uncertainty. Despite this uncertainty, available knowledge must be communicated to the public, who are potentially at risk. There are contradictions in the existing literature about the value of communicating uncertainty associated with science. Some scientists and decision-makers believe that communicating uncertainty to the public will produce panic and confusion, and will discredit science. Others believe that uncertainty must be communicated to increase trust in science. We tested reactions to communication about uncertainty related to the controversial link between exposure to endocrine disrupters and a decline in human male fertility. Our empirical setup used focus groups and qualitative analysis of participants’ perceived uncertainty and their emotions. The results show that laypeople raise more and different uncertainties than those communicated by researchers. Moreover, laypeople did not react to uncertainty ‘globally;’ they had different reactions to the different sources of uncertainty. Uncertainty did not elicit panic in this case study. Rather, uncertainty was reassuring, except when it was associated with an inability to precisely identify and, therefore, control the cause of male reproductive disorders. We discuss the emotions expressed and their relationships with communication about scientific uncertainty (powerlessness, guilt, outrage, etc.). We also note that feelings of confusion increase after uncertainty has been communicated.     

Choosing the Quality of the Fit between Complementary Products

In this paper, I examine how firms should position their complementary products. I assume that there are two competing firms, each producing two complementary products. Each firm decides whether to employ strategies that enhance the quality of the fit (the degree of complementarity) between its pair of complementary products before competing in prices. The consumers have heterogeneous tastes for the four possible bundles. They are willing to pay a price premium in order to purchase a bundle from the same firm if this firm chose to make such bundle more attractive. I find that increasing the degree of complementarity between a firm's complementary products intensifies price competition and often leads to smaller profits. Only when complementarity‐enhancing strategies significantly increase the demand for a firm's matching bundle, does the firm benefit from employing them. The highest profits for both firms are obtained when both firms do not employ complementarity‐enhancing strategies. Deteriorating the quality of the fit between one's own and a rival's complementary products is never profitable.     

Ownership,Access, and Sequential Investment

We extend the property‐rights framework to allow for a separation of the ownership rights of access and veto and for sequential investment. Parties investing first do so before contracting is feasible. It is possible, however, that parties investing second can share (at least some of) their investment costs. Along with this cost‐sharing effect, the incentive to invest is affected by a strategic effect generated by sequential investment. Together these effects can overturn some of the predictions of the property‐rights literature. For example, the most inclusive ownership structure might not be optimal, even if all investments are complementary.