Choice of Ownership Structure and Firm Performance: Evidence from Estonia

This article uses panel data for a representative sample of Estonian enterprises to analyse diverse issues related to the determinants of ownership structures and ownership changes after privatisation. A key focus is to determine whether ownership changes are related to economic efficiency. While employee-owned firms are found to be much more prone than other firms to switch ownership categories, often ‘employee-owned’ firms remain ‘insider-owned’ as ownership passes from current employees to managers and former employees. Logit analysis of the determinants of ownership structures and ownership changes provides mixed support for several hypotheses. As predicted: (i) wealth and resource constraints play a crucial role in the determination of ownership, with foreigners buying firms with the highest equity levels and insiders buying firms with the lowest equity valuations; (ii) risk aversion explains subsequent ownership changes, especially away from employee ownership; (iii) allocation of ownership depends on the pre-privatisation origin and location of the firm, and these factors also influence subsequent ownership changes. Our findings provide mixed support for the hypothesis that ownership changes are related to economic efficiency.     

What is Antidumping Policy Really About?

Dumping is whatever you can get the government to act against under the antidumping law. J. Michael Finger (1993, p.viii). Antidumping policy has become one of the most important instruments for protection in the international trade system, but at the same time it is the subject of an intense, though rather chaotic, debate. This paper provides an overview of the antidumping literature and the current issues. First it describes the origins of antidumping policy and provides some basic statistics on its current use drawn from several empirical studies. Next the paper discusses the economic foundations of antidumping law by examining the traditional and modern theories of dumping, as well as the industrial organization literature on price discrimination and predatory pricing. It is demonstrated that those economic foundations are weak. The paper also considers the fairness rationales for antidumping policy. Finally, it addresses the criticisms of antidumping laws, in particular in the context of the current antidumping versus competition policy debate, and discusses a variety of proposals for reform that have been made. The paper shows that the 1997 'cease fire' agreement between Canada and Chile is a promising approach toward reform of antidumping policy.     

Optimum organization of the labor market in a small open economy

In Denmark labor has been organized in independent but cooperating craft unions for more than a century. Within an extremely simple model of a small open economy facing imperfect competition, we analyze four different ways of organizing the labor market and show that the Danish model (partial centralization of the wage setting process) may be accounted for as the outcome of a two-stage Nash bargaining game, being robust in relation to changes in market conditions, and likely close to optimum from the point of view of society as a whole.     

On Learning to Cooperate

This paper shows that experimentation can have the effect of inducing outcomes that are “far” from Nash in a learning model similar to that studied by D. Fudenberg and D. K. Levine (1993, Econometrica61, 547-573). The game under consideration is a version of a finitely repeated prisoner's dilemma, and the average length of players' lifetimes is arbitrarily large, but fixed. If the number of stages in the prisoner's dilemma is sufficiently large, then experimentation induces cooperation within the society on an arbitrarily large scale, even though the beliefs of almost all players are eventually within an arbitrary η>0 of being correct at all of the information sets in the game. Journal of Economic Literature Classification Numbers: C72.     

Information Structure and the Tragedy of the Commons in Resource Extraction

Synopsis This paper considers the well-known Levhari-Mirman discrete-time model of resource extraction, and investigates the effects of the information structure of the dynamic game – open-loop, Markovian or history-dependent – on the equilibrium consumption path and the overall utility of the agents. Due to the special structure of the model, the open-loop regime yields a Pareto-optimal outcome. The Markovian regime leads to the most pronounced version of the tragedy of the commons. History-dependent behavior yields an outcome set that is intermediate between the other two cases, and that may include the Pareto-optimal outcome in some cases. The level of efficiency of equilibrium behaviour is thus U-shaped as a function of the level of information the agents’ extraction strategies are based on. The analysis suggests that in environments characterized by a dynamic (and no market) externality, forcing agents to commit to open-loop behavior would constitute welfare-improving regulation.     

Business Cycles, the Exchange Rate, and Demand for Antidumping Protection in Mexico

Antidumping actions in the US and EU are known to be linked to macroeconomic conditions. In part, this is because positive injury findings may be easier to make in a downturn, increasing the chance of success for complainants. We explore the evidence for Mexico, one of the main “new” antidumping regimes. Injury determination is also critical in Mexico’s antidumping policy, as a majority of unsuccessful complaints have been rejected because of negative injury findings rather than negative findings of dumping. Working with data from 1987 to 2000, we provide evidence for a relationship between macroeconomic factors and antidumping complaints, including current account and exchange rate movements, and both local and global general macroeconomic conditions.     

Strategic Environmental Policy Under Incomplete Information

This paper introduces incomplete information into recent analyses of strategic environmental policy. It is shown how asymmetric information between planners and producers affects national incentives to impose strategic environmental standards on domestic industries in international oligopolistic competition. Relative to the full-information case, incomplete information is likely to mitigate allocative distortions originating from strategic behaviour. A countervailing effect, tending to raise distortion, is however revealed from the analysis. This effect is absent when governments intervene in free trade through direct production subsidies. The results suggest that incentives to capture foreign rents are less reduced due to private information, when environmental standards, rather than direct production subsidies, are the strategic instrument.     

Capital investment and determinants of financial constraints in Estonia

Unlike previous empirical work concerning investment behavior and the determinants of liquidity constraints, we use a switching regression framework when sample separation is unknown and endogenous and firms are assumed to operate either in the financially constrained or in the financially unconstrained regime. By using new panel data for Estonian companies during 1993–2002 we find that: (i) investment behavior is characterized by two distinct regimes; (ii) the likelihood of being financially constrained is higher in firms that are recently privatized, small and where ownership is concentrated in the hands of insiders and the state; (iii) the actual probabilities of operating in the financially constrained regime are quite high and essentially stable during the whole period under consideration; (iv) ownership structure affects investment beyond its indirect effects through financial constraints.