Quality differentiation and product innovation licensing

Evidence reveals that there are more than 50% product innovation licensings applied within industries. We study product innovation licensing (quality-enhancing licensing) in both exclusive and non-exclusive schemes each under unit/revenue royalty and fixed fee in a vertically differentiated Cournot oligopoly, where a quality-leading firm is an internal licensor. We show that, under a non-exclusive licensing, royalty licensing is the superior policy for the licensor if quality difference within firms is small, regardless of whether a unit or revenue royalty scheme is offered. Under an exclusive licensing, a two-part tariff is optimal. If fixed fee licensing is practicable, the licensor favors an exclusive licensing. Furthermore, an increase in quality difference within firms increases the optimal rates. Using the simulated results, we examine that licensing improves social welfare in all schemes, and the number of licensees will influence the magnitude of welfare enhancement.     

Does the disclosure of unsolicited sovereign rating status affect bank ratings?

This paper integrates three themes on regulation, unsolicited credit ratings, and the sovereign-bank rating ceiling. We reveal an unintended consequence of the EU rating agency disclosure rules upon rating changes, using data for S&P-rated banks in 42 countries between 2006 and 2013. The disclosure of sovereign rating solicitation status for 13 countries in February 2011 has an adverse effect on the ratings of intermediaries operating in these countries. Conversion to unsolicited sovereign rating status transmits risk to banks via the rating channel. The results suggest that banks bear a penalty if their host sovereign does not solicit its ratings.     

A SMOOTH AMBIGUITY MODEL OF THE COMPETITIVE FIRM

This paper examines the optimal production decision of the competitive firm under price uncertainty when the firm's preferences exhibit smooth ambiguity aversion. Ambiguity is modeled by a second‐order probability distribution that captures the firm's uncertainty about which of the subjective beliefs govern the price risk. Ambiguity preferences are modeled by the (second‐order) expectation of a concave transformation of the (first‐order) expected utility of profit conditional on each plausible subjective distribution of the price risk. Within this framework, we derive necessary and sufficient conditions under which the ambiguity‐averse firm optimally produces less in response either to the introduction of ambiguity or to greater ambiguity aversion when ambiguity prevails. In the case that the price risk is binary, we show that ambiguity and greater ambiguity aversion always adversely affect the firm's production decision.     

Measuring public agricultural research and extension and estimating their impacts on agricultural productivity: new insights from U.S. evidence

This article provides new estimates of the marginal product of public agricultural research and extension on state agricultural productivity for the U.S., using updated data and definitions, and forecasts of future agricultural productivity growth by state. The underlying rationale for a number of important decisions that underlie the data used in cost‐return estimates for public agricultural research and extension are presented. The parameters of the state productivity model are estimated from a panel of contiguous U.S. 48 states from 1970 to 2004. Public research and extension are shown to be substitutes rather than complements. The econometric model of state agricultural TFP predicts growth rates of TFP for two‐thirds of states that is less than the past trend rate. The results and data indicate a real social rate of return to public investments in agricultural research of 67% and to agricultural extension of 100+%. The article concludes with guidance for TFP analyses in other countries.     

A Fiscal Stimulus and Jobless Recovery

We analyze the effects of a government‐spending expansion in a dynamic stochastic general equilibrium model with Mortensen–Pissarides labor‐market frictions, deep habits in private and public consumption, investment adjustment costs, a constant elasticity of substitution (CES) production function, and adjustments in employment at both intensive and extensive margins. The combination of deep habits and CES technology is crucial. The presence of deep habits magnifies the responses of macroeconomic variables to a fiscal stimulus, while an elasticity of substitution between capital and labor in the range of available estimates allows the model to produce a scenario compatible with the observed jobless recovery.     

Enforcement,Socioeconomic Diversity,and Tax Filing Compliance in the United States

In this article, we examine the determinants of tax filing compliance in the United States. We use county‐level data on non‐filing rates for the tax year 2000, obtained directly from the Internal Revenue Service. We include explanatory variables identified in the “rational compliance” framework, including an enforcement index against identified non‐filers, the audit rate of filers, and the average penalty rate for both filers and non‐filers. We also examine the role of socioeconomic diversity on tax compliance, testing whether within‐county heterogeneity in household income, language, race, and religion can help explain variation in non‐filing rates. We find that non‐filing is increasing with heterogeneity by race, although not by income or language, and that non‐filing is decreasing with heterogeneity by religious membership. As for enforcement variables, we find that non‐filing rates tend to fall with the enforcement index. Other variables have somewhat mixed results.     

Is direct seeded rice a boon for economic performance? Empirical evidence from India

The direct-seeded rice (DSR) establishment method can improve productivity and labor efficiency while taking into account the soil and hydrologic conditions of the field, the availability of appropriate land equipment, and irrigation-drainage systems. Using plot- and household-level data, we analyze the impacts of DSR adoption in two rice-growing states of India. We account for observed and unobserved heterogeneity using endogenous switching regression. We analyze the yield and costs effects of DSR adoption. Our study shows a small but significant effect of DSR adoption on yield and costs. We find increase in rice yields (by 3.74%) for DSR adopters; an increase in rice yields (by 6.79%) if the DSR method were adopted on puddled transplant rice (PTR) parcels. We find a 7.51% reduction in total costs for DSR adopters; a decrease in total costs (by 3.71%) if the DSR method was adopted on PTR parcels. DSR farmers can significantly reduce their fertilizer and land preparation costs. Hence, the decision to adopt DSR may help households with limited resources to reduce their cost of production without compromising the yield.     

Picking “Lemons” or Picking “Cherries”? Domestic and Foreign Acquisitions in Norwegian Manufacturing*

We compare the performance in employment, wages and productivity for domestic plants acquired by new domestic and foreign owners. Prospective foreign owners pick large, high‐wage, high‐productivity plants, while new domestic owners choose average performers of above‐average size. Employment, labour productivity, and total factor productivity decline in domestic acquisition targets before acquisitions; only wages recover afterwards. Employment, wages and labour productivity increase after foreign acquisitions. The sample selection introduced by long‐term comparisons and a focus on unique events introduces a downward bias into the results for domestic acquisitions and an upward bias for the foreign acquisitions.     

Determinacy under Inflation Targeting Interest Rate Policy in a Sticky Price Model with Investment (and Labor Bargaining)

In a sticky price model with investment spending, recent research shows that inflation-forecast targeting interest rate policy makes determinacy of equilibrium essentially impossible. We examine a necessary and sufficient condition for determinacy under interest rate policy that responds to a weighted average of an inflation forecast and current inflation. This condition demonstrates that the average-inflation targeting policy ensures determinacy as long as both the response to average inflation and the relative weight of current inflation are large enough. We also find that interest rate policy that responds solely to past inflation guarantees determinacy when its response satisfies the Taylor principle and is not large. These results still hold even when wages and hours worked are determined by Nash bargaining.     

Analyst characteristics, timing of forecast revisions, and analyst forecasting ability

We first examine whether analysts with certain characteristics that prior research has identified are related to superior forecasting ability systematically time their forecast revisions later in the fiscal quarter. We then examine whether this superior ability persists after controlling for the timing advantage by using relative forecast error, a measure that largely eliminates the timing advantage of recent forecasts. Using a sample of quarterly earnings forecast revisions over the 20-year period from 1990 to 2009, we find that analysts with more firm-specific and general experience and more accurate prior-period forecasts, analysts employed by larger brokerage firms, and analysts who follow fewer industries and companies tend to revise forecasts later in the quarter. We also find that analyst characteristics that are positively correlated with revision timing are negatively related to relative forecast errors. These results are consistent with analyst characteristics being useful proxies for analyst forecasting ability and analysts with greater ability revising forecasts later in the quarter.