The long-run performance of diversifying firms

The corporate diversification literature presents a puzzle. Short-horizon event studies report positive abnormal returns around the announcement of a diversifying event, while studies that examine diversified firms find evidence that diversified firms are worth less than specialized firms (a diversification discount). If diversification is value destroying, perhaps the destruction occurs over longer periods than have been previously tested. This paper tests the hypothesis that diversifying firms have negative long-run abnormal performance following diversification by examining a sample of specialized firms that have a diversifying event from 1978 through 1998. The firms are tracked for up to five years past their diversification year. There is evidence that value is destroyed for small firms that diversify but enhanced for larger firms that diversify.

Asymmetric information as a barrier to knowledge spillovers in expert markets

This paper investigates barriers to effective knowledge spillovers for markets in which the product can be characterized as a credence good, i.e. its complexity impedes the evaluation of quality by customers both ex-ante and ex-post. We focus on the German market for energy efficiency consultants, as an emerging and subsidized sector in which the service offered has strong credence good properties. Based upon in-depth interviews with stakeholders, we analyze the determinants and barriers to knowledge spillovers. We find that the incentive to foster spillovers to increase suppliers’ knowledge is limited by the difficult commercialization of additional capabilities. The implementation of a public certification scheme has failed to increase the sectoral knowledge spillovers. By contrast, the participation in formal knowledge networks has been more effective in prompting companies to foster knowledge spillovers, which has also led to a higher degree of specialization. We conclude that access to certification schemes should be further restricted to increase market transparency and private networks should be supported to achieve the aim of increasing knowledge spillovers.     

Effect of exploitation and exploration on the innovative as outcomes in entrepreneurial firms

The main aim of this study is to establish the effect of the Exploitation and Exploration; and the influence of these learning flows on the Innovative Outcome (IO). The Innovative Outcome refers to new products, services, processes (or improvements) that the organization has obtained as a result of an innovative process. For this purpose, a relationship model is defined, which is empirically contrasted, and can explains and predicts the cyclical dynamization of learning flows on innovative outcome in knowledge intensive firms. The quantitative test for this model use the data from entrepreneurial firms biotechnology sector. The statistical analysis applies a method based on variance using Partial Least Squares (PLS). Research results confirm the hypotheses, that is, they show a positive dynamic effect between the Exploration and the Innovative as outcomes. In the same vein, they results confirm the presence of the cyclic movement of innovative outcome with the Exploitation.     

Community-Based Tradable Permits for Localized Pollution

This paper considers the assignment of tradable permits—representing property rights of an environmental good—to community members who are harmed by pollution generated by firms. These community members can in turn sell permits to polluters according to their personal preferences. For a special case with a sole household, market transactions between the household and polluters achieve an efficient pollution level. However, for a group of households, the decentralized market solution fails to yield social efficiency because of competitive consumption of the environmental goods. We design a revenue-sharing mechanism akin to unitization, under which market transactions also achieve efficient resource allocation. Importantly, in some cases, efficiency can be achieved even when regulators are ignorant of the private valuation of the environmental good.     

Selecting Social Goals: J. M. Keynes and the Emergence of Ontological Rationality in Economics

In this paper we discuss the fundamental inconsistency that results from employing the two traditional concepts of rationality as the basis of selecting social goals. We then consider the possibility that the selection of social goals must be based on explicitly ethical criteria. To do so a third concept of rationality namely, ontological rationality, should be adopted. Moreover, we argue that J. M. Keynes in A Tract Monetary Reform based his public policy recommendations on a modified version of ontological rationality, thereby introducing ontological rationality into economics as the basis for selecting social goals.A previous version of this paper was presented at the Fifty-Eighth International Atlantic Economic Conference, October 7–10, 2004. The authors are grateful to session participants for their helpful suggestions, though the authors alone are responsible for the contents of the paper.     

Monetary policy before and after the euro: evidence from Greece

We model Greek monetary policy in the 1990s and use our findings to address two interrelated questions. First, how was monetary policy conducted in the 1990s so that the hitherto highest-inflation EU country managed to join the euro by 2001? Second, how compatible is the ECB monetary policy with Greek economic conditions? We find that Greek monetary policy in the 1990s was: (i) primarily determined by German/ECB interest rates, though still influenced by domestic fundamentals; (ii) involving non-linear output gap effects; (iii) subject to a deficit of credibility culminating in the 1998 devaluation. On the question of compatibility our findings depend on the value assumed for the equilibrium post-euro real interest rate and overall indicate both a reduction in the pre-euro risk premium and some degree of monetary policy incompatibility. Our analysis has policy implications for the new EU members and motivates further research on fast-growing EMU economies.     

Pollution Abatement Subsidies and the Eco-Industry

This paper considers the combination of pollution taxes and abatement subsidies when some polluting firms procure their abatement goods and services from an oligopolistic eco-industry. The regulator must here cope with two simultaneous price distortions: one that comes from pollution and the other which is caused by the eco-industry’s market power. In this context, we show that taxing emissions while subsidizing polluters’ abatement efforts cannot lead to first-best, but the opposite occurs provided it is the eco-industry’s output which is subsidized. When public transfers also create distortions, welfare can be higher if the regulator uses only an emission tax, but subsidizing abatement suppliers while taxing emissions remains optimal when the eco-industry is concentrated.