A Perpetual Race to Stay Ahead

This paper presents a model of dynamic competition between two firms that repeatedly engage in an innovative activity. The state of competition—measured by the difference between the number of innovations introduced by the firms—evolves stochastically according to their effort level. The structure of Markov perfect equilibria is identified. It is generally not true that competition is fiercest when firms are closest. Rather, firms invest under two distinct circumstances: while sufficiently ahead, to outstrip their rival and secure a durable leadership; while behind, to regain leadership and prevent the situation from worsening to the point where their rival outstrips them.     

Protection for sale with imperfect rent capturing

Abstract .  Grossman and Helpman (1994) explain tariffs as the outcome of a lobbying process. In most empirical implementations of this framework protection is instead measured using non-tariff barriers. Since tariffs allow the government to fully capture the rents from protection, while non-tariff barriers do not, the existing parameter estimates of the protection for sale model are likely to be biased. To address this problem, we augment the framework by considering instruments that allow partial capturing. Our specification is supported by the data, where we find that only 72–75% of the rent from protection is appropriated by the government.     

Retrospective questions: data quality,task difficulty,and the use of a checklist

Data from a national panel study with waves in 1987 and 1991 (N=1257), present evidence of the low accuracy of responses to retrospective questions, concerning both attitudes and behaviour. Applying a split ballot design, it is investigated whether using a checklist improves the response accuracy for a retrospective question about one single event: how respondents (N=363) did obtain the job they had four years ago. Furthermore interaction effects of ‘task difficulty’ are examined. The response accuracy indeed increases by using a checklist; however, this increase is not statistically significant. The expected increase of the checklist effect with higher ‘task difficulty’ appears for longer recall intervals, but not for more frequent changes of jobs. It turned out that for male respondents all the predicted effects are indeed clearly present. But for female respondents the checklist appeared to have no effect, irrespective of the task difficulty. A tentative explanation for this unexpected gender effect is suggested by pointing at indications that the male and female respondents differed in the way they obtained their job.     

Risks in new product development: devising a reference tool

This paper describes the development and applicability of a risk reference framework (RRF) for diagnosing risks in technological breakthrough projects. In contrast to existing risk identification strategies, the RRF centers on an integral perspective on risk (i.e. business, technological and organizational) and the assessment of risks in ongoing projects. The resulting RRF consists of 12 main risk categories and 142 connected critical innovation issues and has been developed for a globally operating company in the fast-moving consumer goods industry. Our analyses show that to some extent different project members identified the same risks and that saturation occurred in the number of new risk-issues brought to light. We conclude that the success of breakthrough innovation projects improves through formal risk-assessment.     

A risk-neutral equilibrium leading to uncertain volatility pricing

We study the formation of derivative prices in an equilibrium between risk-neutral agents with heterogeneous beliefs about the dynamics of the underlying. Under the condition that short-selling is limited, we prove the existence of a unique equilibrium price and show that it incorporates the speculative value of possibly reselling the derivative. This value typically leads to a bubble; that is, the price exceeds the autonomous valuation of any given agent. Mathematically, the equilibrium price operator is of the same nonlinear form that is obtained in single-agent settings with worst-case aversion against model uncertainty. Thus, our equilibrium leads to a novel interpretation of this price.     

Forecasting market turbulence using regime-switching models

We propose an early warning system to timely forecast turbulence in the US stock market. In a first step, a Markov-switching model with two regimes (a calm market and a turbulent market) is developed. Based on the time series of the monthly returns of the S&P 500 price index, the corresponding filtered probabilities are successively estimated. In a second step, the turbulent phase of the model is further specified to distinguish between bullish and bearish trends. For comparison only, a Markov-switching model with three states (a calm market, a turbulent bullish market, and a turbulent bearish market) is examined as well. In a third step, logistic regression models are employed to forecast the filtered probabilities provided by the Markov-switching models. A major advantage of the presented modeling framework is the timely identification of the factors driving the different phases of the capital market. In a fourth step, the early warning system is applied to an asset management case study. The results show that explicit consideration of the models’ signals yields better portfolio performance and lower portfolio risk compared to standard buy-and-hold and constant proportion portfolio insurance strategies.     

Offshoring and the Elasticity of Labour Demand

This paper examines the impact of offshoring on labour demand and labour demand elasticities for a sample of 40 countries over the period 1995–2009 using the World Input–output Database (WIOD). Estimating the conditional labour demand model we find that offshoring impacts negatively labour demand, and in particular the demand for low- and medium-educated labour, with some evidence indicating that offshoring has tended to increase labour demand elasticities. Of particular interest are results for the subsamples of developed and developing countries. Most notably, we find that the negative effects of offshoring in developed countries are largest for high-educated labour, an outcome which we show is due to the offshoring of developed countries with other developed countries.     

Connecting strategic orientation,innovation strategy,and corporate sustainability: A model for sustainable development through stakeholder engagement

This paper aims to enhance our understanding of the relationship between organizations' strategic orientation (i.e., instrumental, equidistant, and stewardship) and their innovational strategy (i.e., organizational ambidexterity and open innovation), and this relationship's influence on their sustainability performance. We expected organizations' strategic orientation to influence their innovational strategy and exhibit better corporate sustainability. We focused on 12 different multinational organizations in the Eurozone and found that inbound open innovation acts as a driver for corporate sustainability while simultaneously positively enabling organizations to pursue both financial and social initiatives. After suggesting open innovation as a new corporate sustainability antecedent, we only found empirical evidence of inbound open innovation. However, we would suggest that if organizations incorporated outbound open innovation in their strategy, they could likely improve their corporate sustainability. Also, we found that achieving an equidistant or stewardship orientation paves the way for sustainability to become an integral part of an organization's innovational culture and actualizes the organization's strategic behavior. Our findings further contribute to a deeper understanding of organizations' characteristics as their sustainability commitment grows and as they move from an instrumental to a stewardship orientation and implement an open innovational strategy.