The incidental parameter problem in a non-differentiable panel data model

We consider a panel quantile model with fixed effects. It is shown that the maximum likelihood estimator is numerically equivalent to the least absolute deviations estimator of the differenced model, and as a consequence, there is no incidental parameter problem.     

Not measuring sustainable value at all: A response to Kuosmanen and Kuosmanen

In their article in this issue of Ecological Economics, Kuosmanen and Kuosmanen [Kuosmanen, T. and Kuosmanen, N., this issue. How Not to Measure Sustainable Value (and How One Might). Ecological Economics.] aim to criticise the measurement of Sustainable Value as proposed in our previous research. By adopting a production perspective and based on a productive efficiency analysis, they claim that the proposed way of measuring Sustainable Value represents an invalid simplification that rests on restrictive and unrealistic assumptions. Our response is to show that their argument rests on a fundamental misspecification of the Sustainable Value approach. We identify three conceptual misfits: a mismatch in the perspective of the analysis, a misspecification of opportunity costs and the irrelevance of production functions. Ultimately, Kuosmanen and Kuosmanen's train of thought rests entirely within the realm of productive efficiency analysis, whereas Sustainable Value builds on the foundations of financial economics and consequently adopts a macro rather than a firm perspective. It is thus not surprising that the findings of Kuosmanen and Kuosmanen appear to contradict the Sustainable Value approach. However, this is due to their fundamental misspecification of the Sustainable Value approach. As a result, rather than providing novel insights into how Sustainable Value might be measured in a better way, they do not measure Sustainable Value at all.     

The welfare effect of quality degradation in the presence of network externalities

This paper examines how the presence of network externalities affects a monopolist's incentive for quality degradation and its welfare consequence. The software and Internet service industries provide our primary motivation. The network externality may lead to a Pareto-improving quality degradation that would not be realised in the absence of network externalities. However, it may also overturn a potentially Pareto-improving quality degradation to a welfare-reducing one, or result in the realisation of a welfare-reducing quality degradation that would be avoided without network externalities. We also endogenise the firm's forward and backward compatibility decisions between the original and degraded goods.     

FOCUS: The Volkswagen Experience of Investing in Central Europe

The Chairman of Volkswagen's Board of Management made the following presentation in London last November at a Conference on'Business and Moral Standards in Post-Communist Europe', held under the auspices of the Cardinal Archbishop of Westminster and sponsored by the Sedgwick Group and KPMG Peat Marwick. Dr Hahn's lecture is reproduced with permission.     

Characteristics and hedonic pricing of differentiated beef demands

We estimate a CBS system model of U.S. derived demand for meat. We use this model (1) to examine relationships between three quality categories of beef and three other meats and (2) to simulate how taste shifts have affected demands for meats over time. We extend previous studies by disaggregating wholesale beef production into three quality categories: (1) USDA Choice grade or higher, (2) USDA Select or lower, and (3) cow and bull beef. Innovative features of our empirical model include a breakout of ‘table cuts’ into Choice and Select and the use of a hedonic characterization of the two breakouts to value “Choice‐ness” and “beef‐ness.” Our model demonstrates important shifts in separate demands for Choice and Select beef. We show that, separately, the demand for Choice‐grade beef declined in the 1980s and 1990s and the demand for Select beef increased, a departure from the relatively stable demand characterizations of more aggregated measures of combined Choice and Select beef.     

Capability matters: Relating student achievement on the comprehensive business exam to skill and effort

This study is the first to explore how skill and effort drive student achievement using a framework developed by Duckworth, Eichstaedt, and Unger (2015). A statistically significant achievement difference, as measured by Comprehensive Business Exam score during the last semester in college, was identified when students were separated by standard deviations from the ACT score mean, a measure of college entry-level skill. Implications for assurance of learning assessment are presented and possible avenues of remediation are considered.     

Real exchange rate shocks and new product margins in the export market

This study examines the impact of industry real exchange rate (RER) shocks on plant and product exports using a comprehensive dataset for South Korea from 1990 to 1996. We find that RER changes have heterogeneous effects on real exports of existing exporters in terms of their productivity, and the positive RER depreciation effect on exports is more pronounced for less productive plants. At a product level, we find new evidence that a weak home currency prompts exporters to introduce new products to the export market, especially more remarkable for low-productivity plants. In contrast, a strong home currency leads to product exit with less significance.     

Tying in two-sided markets with heterogeneous advertising revenues and negative pricing

We offer a theory of anticompetitive tying in two-sided markets when below-cost or negative pricing is possible. With the coexistence of two consumer groups (one regarding tying and tied goods as complementary and the other as independent), a tying-good monopolist may face difficulties in extracting rent under separate sales and wish to use tying to directly capture the large advertising revenue created in the complementary segment. We uncover two distinct mechanisms by which tying raises monopoly profits but reduces social welfare. Our theory of tying can be applied to real-world antitrust law enforcement, such as the Google Android case.