A public contracting evolutionary game with corruption

In this paper, firms are randomly matched from a continuous population to play a public contracting game (say, building a bridge). Price is given, so firms compete in quality; the higher the quality offer, the less the profit. According to the official rules of the contest, the firm bidding the highest quality wins; however, we consider the possibility that firms attempt to corrupt the public officer in charge in order to be sure to win even if bidding a lower quality (quality bids are not publicly observable). Whether or not firms attempt to corrupt depends on how rewarding corruption is w. r. t. being honest. Within a dynamic evolutionary framewark, we investigate how social conventions with or without corruption are established under various assumptions concerning the corruptability of the public officer and the possibility of an external monitoring of the officer's decisions by a super partes authority.     

A note on the diffusion of innovation

The paper deals with the process of substitution between technologies in a framework of increasing returns to scale. The approach stresses the interaction between capacity expansion and market demand as explanations of the diffusion of technologies into their niches. The demand and supply sides of the diffusion process are therefore brought together to determine simultaneously patterns of output and prices.It analyzes the dynamics of the substitution path, where a logistic diffusion process for the new technology is assumed, and determines the substitution curve between the old technology and the new one.     

Prudence and precautionary saving

Households save income for various reasons, including the need to plan for the future, the intention to leave a bequest, and the desire to guard against unforeseen expenditures and income fluctuations. Although it is widely believed that prudent individuals engage in precautionary saving, the extent of such saving is not well understood. This paper develops a model of saving with an explicit role for the Leland-Kimball measure of prudence. Estimation of the model using household-level data from Italy suggests an average value of relative prudence near 4 or 5, with approximately 15 to 36 percent of total saving being precautionary. The authors are grateful to an anonymous referee for helpful comments.     

Are elite universities losing their competitive edge?

We study the location-specific component of research productivity for economics and finance faculty over the last three decades. We find that there was a positive effect of being affiliated with a top 25 university in the 1970s; this effect weakened in the 1980s and disappeared in the 1990s. The decline in elite university fixed effect is due to the reduced importance of physical access to productive research colleagues, which in turn seems due to innovations in communication technology. One implication is that knowledge-based organizations should find it more difficult to capture rents vis-à-vis workers. We find that faculty salaries increased the most where the estimated spillover dropped the most. Despite the loss in local spillovers, elite universities still enjoy an edge in average productivity because of agglomeration of top researchers in prestigious institutions with high long-term research reputations.     

Technology and incentive regulation in the Italian motorways industry

Making use of an original dataset containing information on 20 Italian motorways concessionaires over the 1992–2004 period, we study the technology prevailing in the motorways industry in Italy. We focus on the estimation of the technical progress for the years covered by our sample, and on the measurement of the economies of scale and density. We find that the industry has experienced significant technical progress and that there are sizeable economies of density and scale (at least up to a medium-large network size). These results provide valuable insights for regulatory purposes, notably for the definition of the optimal dimension of the network of a concessionaire and the correct setting of the X factor in the price cap formula, which is used to regulate the toll levels. We also control for the effects on the performance of the concessionaires due to the changes in the ownership structure and the regulatory regime, both introduced by the recent reform of the industry. We find that the productivity of the concessionaires has not increased with the adoption of a price cap regime, while it has benefited from the privatization process.      

Norms as emergent properties of adaptive learning: The case of economic routines

Interaction among autonomous decision-makers is usually modelled in economics in game-theoretic terms or within the framework of General Equilibrium. Game-theoretic and General Equilibrium models deal almost exclusively with the existence of equilibria and do not analyse the processes which might lead to them. Even when existence proofs can be given, two questions are still open. The first concerns the possibility of multiple equilibria, which game theory has shown to be the case even in very simple models and which makes the outcome of interaction unpredictable. The second relates to the computability and complexity of the decision procedures which agents should adopt and questions the possibility of reaching an equilibrium by means of an algorithmically implementable strategy. Some theorems have recently proved that in many economically relevant problems equilibria are not computable. A different approach to the problem of strategic interaction is a “constructivist” one. Such a perspective, instead of being based upon an axiomatic view of human behaviour grounded on the principle of optimisation, focuses on algorithmically implementable “satisfycing” decision procedures. Once the axiomatic approach has been abandoned, decision procedures cannot be deduced from rationality assumptions, but must be the evolving outcome of a process of learning and adaptation to the particular environment in which the decision must be made. This paper considers one of the most recently proposed adaptive learning models: Genetic Programming and applies it to one the mostly studied and still controversial economic interaction environment, that of oligopolistic markets. Genetic Programming evolves decision procedures, represented by elements in the space of functions, balancing the exploitation of knowledge previously obtained with the search of more productive procedures. The results obtained are consistent with the evidence from the observation of the behaviour of real economic agents.     

The (Failed) Development of a Biotechnology Cluster: The Case of Lombardy

This paper discusses the development of the biotechnology industry in an Italian region, Lombardy. It asks why significant innovative activities in biotechnology did not emerge in what might have been considered at the outset a promising area for the growth of this industry and why in very recent years some timid symptoms of dynamism seem to be appearing. After an overview of the patterns of the development of biotechnology in Italy, the specific case of Lombardy, is described. Then, the paper discusses what kind of factors might explain the lagging behind of the Italian (and more generally, European) biotechnology industry vis-à-vis the United States.     

Birth of the Modern Corporation: From Servant of the State to Semi‐Sovereign Power

It is widely known that large business corporations have accumulated enormous political and economic power since the early 20^th century. They not only create barriers to entry to small firms in the economic domain, they also pose a serious threat to democracy by dominating public discourse and occupying a wide range of public spaces. Efforts to halt or reverse the growth of corporate power have been largely ineffective, in large part because they have been entirely reactive. In order for citizens to reclaim the economy and politics, a new strategy is necessary, one that starts by analyzing the source of corporate power. The method of analysis in this article is historical, specifically the history of changes in the United States of the legal instruments of incorporation and their relationship to emerging conditions in the economy and business. In the first half of the 19^th century, corporations were chartered by state governments to carry out public benefit activities, particularly infrastructure projects. These mixed corporations lost favor during the depression of the 1840s and were replaced by private for‐profit corporations that continued using the same debt financing instruments employed by states. They were also still regulated by the states that issued their charters. When corporations sought to avoid competition by creating cartels, they had difficulty maintaining discipline and discovered they needed new rights in order to gain permanent control of markets. In the 1890s, they were granted the status of “natural persons,” with the legal protections of citizens, but they also gained the right to buy other corporations, thereby solidifying their market power and making them largely autonomous from public control. Each transition was contested, but when it was completed, it seemed to the public as if corporations had always had their new powers. In order to regain the power to hold corporations accountable to the public, those old contested issues need to be brought back into public discourse, so that citizens might decide for themselves how much power corporations should have.     

Trust and trustworthiness in organizations: The role of monitoring and moral suasion

We ask whether the corporate law provisions establishing that the conduct of the manager is subject to review by the investors (monitoring) and that managers are held to an honorable behavior (moral suasion) can increase trust and trustworthiness in organizations. We answer this question through a laboratory experiment. We find that moral suasion increases the investors' trust. Monitoring also increases trust but only when the manager is not aware of the experimental identity of the monitor. The manager returns more to those investors who trust more but appropriates around 50% of the available resources. The trustworthiness of the manager is, however, unaffected by monitoring or moral suasion. We discuss possible causes of the difference between the investors' expectations regarding the behavior of the manager and the observed behavior of the manager.     

PRICE DYNAMICS WITH CUSTOMER MARKETS

Using microdata from a U.S. retailer we document that customer turnover responds to pricing. We study the optimal price setting of a firm when its demand has an extensive margin that is elastic to price due to customers' opportunity to search for an alternative supplier. The price pass‐through of idiosyncratic productivity shocks is incomplete, with the most productive firms passing through more. Firm demand is more persistent than price. Higher demand is associated with lower markups due to higher search intensity, despite flexible prices. We find empirical support for these predictions in microdata from the retail industry.