International Outsourcing,Tax, and Patent Protection

We show the implications of strengthening patent protection in a developing country in the presence of a vertical technology transfer, which, despite its empirical relevance, did not get due attention in the literature. We show that if there is imperfect knowledge spillover under a weak patent protection, a strong patent protection in the developing country increases the profit of the developed‐country firm if there is a uniform tax rate in the developing country. However, if there is either perfect knowledge spillover under weak patent protection or discriminatory tax policy in the developing country, the profits of the developed‐country firms are the same under weak and strong patent protections in the developing countries.     

Optimal employment contracts and the returns to monitoring in a principal-agent context

Abstract. In this paper we study a two-person firm consisting of a principal and an agent. The principal hires the agent to provide some input into the production process. The output of the production process is determined by the agent's input and an exogenous state realization. Subsequent to joining the firm, but prior to choosing his input, the agent privately observes the state realization. The principal employs an imperfect monitoring system that publicly reports on the state realization. Our purpose in studying this model is to better understand the effects of monitoring on the design of the optimal employment contract and the determinants of the value of monitoring in a model with asymmetric information. Résumé. Les auteurs étudient une entreprise constituée de deux personnes, un mandant et un mandataire. Le mandant embauche le mandataire pour sa contribution au processus de fabrication. Le résultat du processus de fabrication est déterminé par la contribution du mandataire et par la réalisation d'un état exogène. Après s'être joint à l'entreprise, mais avant de déterminer quelle sera sa contribution, le mandataire observe, en privé, la réalisation de cet état exogène. Le mandant a recours à un système de suivi imparfait qui fait le point, à l'intention du public, sur la réalisation de l'état en question. L'étude de ce modèle permet une meilleure compréhension des conséquences du suivi sur la nature de contrat d'emploi optimal et des déterminants de la valeur du suivi dans un modèle caractérisé par une information asymétrique.     

JOINT VENTURE BUY‐OUTS UNDER UNCERTAINTY*

This paper provides a theory of joint venture buy‐outs in the presence of demand uncertainty. In an infinite horizon framework with demand uncertainty, we consider a foreign firm's decision on whether to form a joint venture or to open a fully owned subsidiary. Without the possibility of future share adjustment, the foreign firm enters the market through a joint venture if the host‐country firm helps to reduce the uncertainty significantly. Consequently, the firm enters at an earlier point in time compared to the situation in which opening a fully owned subsidiary is the only option to the firm. The possibility of future share adjustment in the joint venture further increases the incentive to speed up foreign investment. Although the possibility of share adjustment results in a joint venture buy‐out and can reduce the future profits of the host‐country firm, it may increase host‐country welfare by attracting foreign investment at an earlier point in time. We show the implications of learning in the joint venture.     

The Political Economy of India's Economic Reforms*

This paper analyzes the history of the relationship between the state and the private sector in India. It concludes that India's economic reforms, which made development policy more dependent on international trade and private initiative, depended on the evolution of technocratic and political conviction. Reformers needed the support of financial crises for overcoming the powerful vested interests opposed to reforms. Successful reforms involved largely homegrown strategies of policy and institutional change. They have produced impressive growth rates and have benefited the rich and the middle class. The challenge for development and sustainable reforms is to make it more inclusive for poor farmers and unorganized workers.     

A Note on the Adverse Effect of Competition on Consumers

It is usually believed that higher competition, implying more active firms, benefits consumers. We show that this may not be the case in an industry with asymmetric cost firms. A rise in the number of more cost‐inefficient firms makes the consumers worse off in the presence of a welfare‐maximizing tax/subsidy policy. A rise in the number of more cost‐inefficient firms also reduces social welfare.