Optimal trade policy with quality-differentiated goods

In this article we apply the model of vertically differentiated products to international trade. A foreign firm competes with a domestic firm in the latter's market, producing products of varying quality. We examine the nature of the equilibrium in this case, assuming the firms compete in prices. Contrary to the popular belief, we show that a protectionist policy of imposing a tariff on the foreign firm raises overall welfare in the domestic economy, as well as induces the domestic firm to upgrade the quality of its product, if it produces the lower quality product. Furthermore, if minimum quality standards are imposed on the foreign firm, the domestic firm upgrades quality, and overall welfare in the domestic economy is higher.     

Negligence,capture, and dependence: safety regulation of the design of India’s Prototype Fast Breeder Reactor

This article contributes a case study of regulation of the design of India’s Prototype Fast Breeder Reactor (PFBR). This reactor is the first of its kind in India, and perceived by the nuclear establishment as critical to its future ambitions. Because fast breeder reactors can experience explosive accidents called core disruptive accidents whose maximum severity is difficult to contain, it is difficult to assure the safety of the reactor’s design. Despite the regulatory agency’s apparent misgivings about the adequacy of the PFBR’s design, it eventually came to approve construction of the reactor. We argue that the approval process should be considered a case of regulatory failure, and examine three potential factors that contributed to this failure: institutional negligence, regulatory capture, and dependence on developers and proponents for esoteric knowledge. This case holds lessons for nuclear safety regulation and more generally in situations where specialized, highly technical, knowledge essential for ensuring safety is narrowly held.     

Sedimentation of reservoirs in India

The sedimentation of Indian reservoirs has become a serious problem due to the synergistic action of population growth, intensity of agricultural operations, poor soil conservation and deforestation. This article examines the reasons for and responses to, sedimentation in three Indian reservoirs — Nizamsagar, Tungabhadra and Sriramsagar. The land management practices adopted in each case are analysed with reference to current and future needs. The article highlights particularly the need to monitor methodically the land use changes in the catchments of reservoirs.     

Investment cycles and startup innovation

We find that venture capital-backed startups receiving their initial investment in hot markets are more likely to go bankrupt, but conditional on going public, are valued higher on the day of their initial public offering, have more patents, and have more citations to their patents. Our results suggest that VCs invest in riskier and more innovative startups in hot markets (rather than just worse firms). This is particularly true for the most experienced VCs. Furthermore, our results suggest that increased capital in hot times plays a causal role in shifting investments to more novel startups by lowering the cost of experimentation for early stage investors and allowing them to make riskier, more novel, investments.     

Diasporas and Domestic Entrepreneurs: Evidence from the Indian Software Industry

This study explores the importance of cross‐border social networks for entrepreneurs in developing countries by examining ties between the Indian expatriate community and local entrepreneurs in India's software industry. We find that local entrepreneurs who have previously lived outside India rely significantly more on diaspora networks for business leads and financing. This is especially true for entrepreneurs who are based outside software hubs—where getting leads to new businesses and accessing finance is more difficult. Our results provide micro‐evidence consistent with a view that cross‐border social networks play an important role in helping entrepreneurs to circumvent the barriers arising from imperfect domestic institutions in developing countries.     

A darker side to decentralized banks: Market power and credit rationing in SME lending

We use loan-level data to study how the organizational structure of banks impacts small business lending. We find that decentralized banks—where branch managers have greater autonomy over lending decisions—give larger loans to small firms and those with “soft information.” However, decentralized banks are also more responsive to their own competitive environment. They are more likely to expand credit when faced with competition but also cherry pick customers and restrict credit when they have market power. This “darker side” to decentralized banks in concentrated markets highlights that the level of local banking competition is key to determining which organizational structure provides better lending terms for small businesses.     

Momentum and industry growth

In this paper, we find that individual stock momentum varies almost monotonically with industry growth. Firms in the highest industry growth quintile have significantly higher momentum compared to those in the lowest growth quintile. We find that the above-average growth group within each quintile has significantly higher momentum profits than the below-average group. Further, momentum profits of the highest industry growth quintile are always higher than those for the universe of firms, suggesting an economic benefit to stratifying firms based on industry growth and relative company growth intra-industry, while following a momentum investment strategy.     

Democratizing entry: Banking deregulations,financing constraints,and entrepreneurship

We examine entrepreneurship and creative destruction following US banking deregulations using US Census Bureau data. US banking reforms brought about exceptional growth in both entrepreneurship and business closures. Most of the closures, however, were the new ventures themselves. Although we find evidence for the standard story of creative destruction, the most pronounced impact was a massive increase in churning among new entrants. We argue that creative destruction requires many business failures along with the few great successes. The successes are difficult to identify ex ante, which is why democratizing entry is an important trait of well-functioning capital markets.     

Did bank distress stifle innovation during the Great Depression?

We find a negative relationship between bank distress and the level, quality and trajectory of firm-level innovation during the Great Depression, particularly for R&D firms operating in capital intensive industries. However, we also show that because a sufficient number of R&D intensive firms were located in counties with lower levels of bank distress, or were operating in less capital intensive industries, the negative effects were mitigated in aggregate. Although Depression era bank distress was associated with the stifling of innovation, our results also help to explain why technological development was still robust following one of the largest shocks in the history of the U.S. banking system.