On the performance of tests by Wu and by Hausman for detecting the ordinary least squares bias problem

We first consider the performance of the Wu (1973) - Hausman (1978) (W-H) specification error test as a test for the existence of ordinary least squares (OLS) bias. We discuss power properties of the test under alternative null hypotheses, one of which has not previously been considered. We next consider how the W-H test performs as an indicator of the extent (rather than the existence) of an OLS bias problem, since this usage of the test seems common in applied studies. Finally Monte Carlo methods are used to evaluate Wu's two-step estimation procedure involving the W-H test as a pretest.     

Business Groups and the Big Push: Meiji Japan's Mass Privatization and Subsequent Growth

Paul Rosenstein-Rodan argues that economic development requirescoordinated investment in many interdependent industries, andprescribes a flood of state-controlled investment across allsectors—a so-called big push. Widespread government failuredefeated twentieth-century ‘big push’ schemes. Butspillovers across firms and industries, and from public goods,hold-up problems, and capital market limitations are real, andjustify coordinated growth across sectors if it can be donewithout government failures. Large, extensively diversifiedpyramidal business groups of listed firms dominate the historiesof developed economies and the economies of developing economies.Arguing that such groups provided this coordination in prewarJapan after a state-run big push failed, we propose that pyramidalbusiness groups are private-sector mechanisms for coordinatingbig push growth, and that competition between rival groups inducesefficiency unattainable in a state-run big push. We postulatethat a successful business-group led big push requires economicopenness, basic public goods, rule of law, separation of thestate from business, and a timely demise of business groupswhen the big push phase is complete. Where these criteria arenot met, growth stalls and oligarchic families become too powerfulto dislodge.     

Dynamic Investment Strategies to Reaction–Diffusion Systems Based upon Stochastic Differential Utilities

We study the dynamic investment strategies in continuous-time settings based upon stochastic differential utilities of Duffie and Epstein (Econometrica 60:353–394, 1992). We assume that the asset prices follow interacting Itô-Poisson processes, which are known to be the so-called reaction–diffusion systems. Stochastic maximum principle for stochastic control problems described by some backward-stochastic differential equations that are driven by Poisson jump processes allows us to derive the optimal investment strategies as well as optimal consumption. We shall furthermore propose a numerical procedure for solving the associated nested quasi-linear partial differential equations.     

On the Hoggard–Whalley–Wilmott Equation for the Pricing of Options with Transaction Costs

The Hoggard–Whalley–Wilmott equation is introduced to model portfolios of European type options incorporating transaction costs. The model gives rise to a nonlinear parabolic partial differential equation (PDE), whose nonlinearity reflects the presence of transaction costs. We show analytically the existence of solutions which are not necessarily convex nor concave. Numerical treatments are also given, which are devised to effectively handle an infinite domain and unbounded solutions.      

Dynamic models of the labor force behavior of married women which can be estimated using limited amounts of past information

This paper examines the extent of the inadequacy of standard cross-sectional models of US labor force behavior and considers the abilities of alternative models to capture the observed continuity in the hours of work and earnings of individuals as well as in their employment histories. Both of the alternatives to the standard cross-sectional model considered in this study incorporate limited amounts of information about past work behavior that could easily be collected as part of a national population census. Using a population of 21 to 64 year old married working women taken from a 1969 through 1978 Michigan Panel Study of Income Dynamics, the variables included in the Z vector age: 1) age of the wife; 2) education of the wife; 3) state average hourly wage in manufacturing measured in 1967 dollars; and 4) unemployment rate for the state in which the wife lives. Results show that by using information about a women's hours of work and wage rate in the previous year, it may be feasible to improve on forecasts of a woman's employment and earnings behavior. For each model a separate estimate is made for wives aged 21 through 46, and for those aged 47 through 64. The dummy and difference models perform much better than the standard model, with the dummy model having the higher pseudo-chi-square statistic. These models show that systematic errors made in determining which individuals work, what they earn per hour, or how many hours they work, should result in prediction errors of the same sort year after year in the computation of annual earnings. These findings with respect to years of work and nonwork, years of part time versus full time work, and cumulative earnings over a 10 year period, confirm and extend Heckman's findings; thus, forecasting models of the work behavior of individuals should not be estimated using pure cross-sectional data. It would be important if researchers could identify what observable factors, if any, increase the likelihood that wives will alter their work behavior from what it has been in the immediate past, even if they are not able to fully understand or explain this previous work behavior.     

A Continuous-Time Analysis of Optimal Restructuring of Contracts with Costly Information Disclosure

This paper studies the role of restructuring, as compared to the one of liquidation, in valuation of long-term debt contracts in a continuous-time model with costly information disclosure. In asset-pricing literature, Merton??s (J Finance 29:449?C470, 1974) contingent-claim models have been long used for valuation of corporate securities and loans. However, since they basically assume sufficiently complete security structures in markets, the literature is not necessarily suitable for examining costly-information problems. On the other hand, in corporate-finance literature, it has been well known that agency costs (i.e., conflicts of interest among agents) distort corporate capital structure under costly-information problems. However, the effect of the distortion on valuation of securities and loans has not been explicitly studied either in theory or in practice. This paper bridges such a gap between the two literatures. This paper shows that, under a costly-information problem, corporate leverage ratios are higher when restructuring is expected to be accepted in default than otherwise. The risk of a jump to liquidation increases the default probability in short term, and decreases the probability of restructuring over time.     

Price competition in the spatial real estate market: allies or rivals?

This paper examines whether real estate firms can avoid price competition when properties in the vicinity are priced by allies. An oligopoly model with differentiated products generally suggests that real estate firms engage in price competition with their spatially closest rivals. Yet, they can raise property prices when the market share of their allies increases. To test this prediction, a spatial autoregressive model with spatial autoregressive disturbances, including a share of allies in the vicinity, is estimated using data on the prices of residential condos in central Tokyo, Japan. The model prediction is supported by the empirical results. In the data set, the magnitude of the market share on property prices increases with the expansion of the size of the spatial market.     

A Continuous-Time Optimal Insurance Design with Costly Monitoring

We provide a theoretical and numerical framework to study optimal insurance design under asymmetric information. We consider a continuous-time model where neither the efforts nor the outcome of an insured firm are observable to an insurer. The insured may then cause two interconnected information problems: moral hazard and fraudulent claims. We show that, when costly monitoring is available, an optimal insurance contract distinguishes the one problem from the other. Furthermore, if the insured’s downward-risk aversion is weak and if the participation constraint is not too tight, then a higher level of the monitoring technology can mitigate both problems.     

Firms' open innovation policies,laboratories' external collaborations,and laboratories' R&D performance

The value of the open innovation approach is now widely recognized, and the practice has been extensively researched, but still very little is known about the relative impact of firm‐level and laboratory‐level open innovation policies and practices on R&D performance. This study attempts to measure that impact by analyzing a sample of 203 laboratories of Japanese firms located in Japan. It examines simultaneously the effects of firm‐level open innovation policy and laboratory‐level external collaborations on laboratory R&D performance. The study aims to go beyond a general understanding of the importance of open innovation; it shows how an open innovation policy can have a positive and significant effect on collaborations between a laboratory and local universities or business organizations. The results also show how an open innovation policy can contribute to the laboratory's R&D performance by facilitating external collaborations by the laboratories. It demonstrates how these factors affect R&D performance in different ways, depending on the type of R&D tasks. Our findings suggest several theoretical and practical implications in the field of R&D management.