PERSISTENCE OF TECHNOLOGICAL LEADERSHIP: EMERGING TECHNOLOGIES AND INCREMENTAL INNOVATION*

In a model of competitive innovation, I derive theoretical conditions for an entrant to displace the incumbent firm by innovating in an undeveloped, substitute (emerging) technology. The main result presents conditions on profitability and innovation speed that yield a Markov Perfect Equilibrium in which the entrant pursues the emerging technology, while the incumbent chooses to persist with the established technology and collect short‐run profits. Notably, this result does not require the entrant's superiority to the incumbent for innovation. Finally, when the model is calibrated to hard drive industry data, its predictions are consistent with the observed outcomes.     

Ratings Quality and Borrowing Choice

Past studies document that incentive conflicts may lead issuer‐paid credit rating agencies to provide optimistically biased ratings. In this paper, we present evidence that investors question the quality of issuer‐paid ratings and raise corporate bond yields where the issuer‐paid rating is more positive than benchmark investor‐paid ratings. We also find that some firms with favorable issuer‐paid ratings substitute public bonds with borrowings from informed intermediaries to mitigate the “lemons discount” associated with poor quality ratings. Overall, our results suggest that the quality of issuer‐paid ratings has significant effects on borrowing costs and the choice of debt.     

THE ECONOMIC EFFECTS OF THE MARATHON‐ASHLAND JOINT VENTURE: THE IMPORTANCE OF INDUSTRY SUPPLY SHOCKS AND VERTICAL MARKET STRUCTURE*

This study measures the effects of the Marathon/Ashland Petroleum (MAP) joint venture on rack and retail reformulated (RFG) gasoline prices in the four cities where both firms sold RFG before the joint venture. MAP was an early transaction in the recent era of petroleum mergers and resulted in large regional increases in concentration. While wholesale (rack) prices increased in the two cities experiencing the largest change in market structure in the year following the transaction, retail prices did not increase. Our results also highlight the importance of identifying the marginal source of supply in correctly identifying merger effects.     

Optimal Taxation of International Income Flows*

Double taxation of international income flows has been regarded as undesirable and international tax agreements have been negotiated to avoid it. The questions asked are whether double taxation is appropriate and whether cooperation is required to reach the optimal solution. The results are that generally some double taxation is desirable, as long as taxes are applied at the appropriate rates, and that an efficient solution can be attained in the absence of explicit cooperation using a deduction rule, instead of the now commonly used credit rule. A rationale for the current system of tax agreements and their emphasis of the credit rule is discussed.     

THE INDUSTRIAL ORGANIZATION OF THE CHINESE FOOD ECONOMY: SOCIALISTIC OR CAPITALISTIC?

The controversy over the transformation of socialism recently has focused on China. The analysis here uses an industrial ORGANIZATION framework to portray the key features of "Socialism with Chinese Characteristics." The structures of ownership, supply, and demand and the process of price formation are analyzed to explicate the ramifications of the reform process and the changing patterns of government intervention and market forces in the Chinese food economy. An examination of this. fusion reveals a number of implications for international socialism.     

Decoding Inside Information

Exploiting the fact that insiders trade for a variety of reasons, we show that there is predictable, identifiable “routine” insider trading that is not informative about firms’ futures. A portfolio strategy that focuses solely on the remaining “opportunistic” traders yields value‐weighted abnormal returns of 82 basis points per month, while abnormal returns associated with routine traders are essentially zero. The most informed opportunistic traders are local, nonexecutive insiders from geographically concentrated, poorly governed firms. Opportunistic traders are significantly more likely to have SEC enforcement action taken against them, and reduce trading following waves of SEC insider trading enforcement.     

Atypical Work and Employment Continuity

Atypical employment arrangements have long been criticized as offering more precarious and unstable work than regular employment. Using data from the Contingent and Alternative Employment Arrangement Supplement and the National Longitudinal Survey of Youth, 1979 Cohort, we determine whether workers who take such jobs rather than regular employment, or the alternative of continued job search, experience greater or lesser employment continuity. Controlling for unobserved individual heterogeneity, the advantage of regular work over atypical work and atypical work over continued joblessness dissipates.