Union structure and firms incentives for cooperative R&D investments

This paper investigates the impact of alternative unionization structures on firms' incentives to spend on cost-reducing R&D activities as well as to form a Research Joint Venture, in the presence of R&D spillovers. We show that, in contrast to the "hold up" argument, if firms invest non-cooperatively and spillovers are low, R&D investments are higher when an industry-wide union sets a uniform wage rate than under firm-level unions. In contrast, investments are always higher under firm-level unions in the case of RJVs. Firms' incentives to form an RJV are non-monotonic in the degree of centralization of the wage-setting, with the incentives being stronger under an industry-wide union if and only if spillovers are low enough. Finally, centralized wage-setting as well as high unemployment benefits may hinder the formation of costly RJVs and their potential welfare benefits.Unions, Oligopoly, Cost-reducing Innovations, Research Joint Ventures, Spillovers

Market Competition, R&D and Firm Profits in Asymmetric Oligopoly

We investigate a Cournot model with strategic R&D investments wherein efficient low-cost firms compete against less efficient high-cost firms. We find that an increase in the number of high-cost firms can stimulate R&D by the low-cost firms, while it always reduces R&D by the high-cost firms. More importantly, this force can be strong enough to compensate for the loss that arises from more intense market competition: the low-cost firms' profits may indeed increase with the number of high-cost firms. An implication of this result is far-reaching, as it gives low-cost firms an incentive to help, rather than harm, high-cost competitors. We relate this implication to a practice known as open knowledge disclosure, especially Ford's strategy of disclosing its know-how publicly and extensively at the beginning of the 20th century.

Institutional Competition, Political Process and Holdup.

We compare the effect of legal and institutional competition for the design of labor institutions in an environment characterized by holdup problems in human and in physical capital. We compare autarky with the two country case assuming that capital is perfectly mobile and labor immobile. We distinguish two cases. In the first one, the political system is free from capture, while in the second, we examine the case where labor captured the institutional design problem. We find that in the former case, a competition of systems reduces welfare while in the latter case it improves the overall outcome.

When Market Competition Benefits Firms

A conventional wisdom in economics posits that more intense market competition, measured in almost any way, reduces firm profit. In this paper, we challenge this conventional wisdom in a simple Cournot model with strategic R&D investments wherein an efficient firm (dominant firm) competes against less efficient firms (fringe firms). We find that an increase in the number of fringe firms can stimulate R&D by the dominant firm, while it always reduces R&D by each of the fringe firms. More importantly, this force can be strong enough to compensate for the loss that arises from more intense market competition: the dominant firm's profit may indeed increase with the number of fringe firms, quite contrary to the conventional wisdom. An implication of this result is far-reaching, as it gives dominant firms to help, rather than harm, fringe competitors. We relate this implication to a practice know as open knowledge disclosure, especially Ford's strategy of disclosing its know-how publicly and extensively at the beginning of the 20th century.competition, oligopoly, R&D, heterogeneity, entry

FDI in Post-Production Services and Product Market Competition

Post-production services, such as sales, distribution, and maintenance, comprise a crucial element of business activity. We explore an international duopoly model in which a foreign .rm has the option of outsourcing post-production services to its domestic rival or providing those services by establishing its own facilities through FDI. We demonstrate that trade liberalization in goods may hurt domestic consumers and lower world welfare, and that the negative welfare impacts are turned into positive ones if service FDI is also liberalized. This .nding yields important policy implications, given the reality that the progress of liberalization in service sectors is still limited.post-production services, rade liberalization, FDI, outsourcing, international oligopoly

FDI in Post-Production Services and Product Market Competition

Post-production services, such as sales, distribution, and maintenance, comprise a crucial element of business activity. We explore an international duopoly model in which a foreign firm has the option of outsourcing post-production services to its domestic rival or providing those services by establishing its own facilities through FDI. We demonstrate that trade liberalization in goods may hurt domestic consumers and lower world welfare, and that the negative welfare impacts are turned into positive ones if service FDI is also liberalized. This finding yields important policy implications, given the reality that the progress of liberalization in service sectors is still limited.post-production services, trade liberalization, FDI, outsourcing, international oligopoly

The 30 GHz solid state amplifier for low cost low data rate ground terminals

This report details the development of a 20-W solid state amplifier operating near 30 GHz. The IMPATT amplifier not only met or exceeded all the program objectives, but also possesses the ability to operate in the pulse mode, which was not called for in the original contract requirements. The ability to operate in the pulse mode is essential for TDMA (Time Domain Multiple Access) operation. An output power of 20 W was achieved with a 1-dB instantaneous bandwidth of 260 MHz. The amplifier has also been tested in pulse mode with 50% duty for pulse lengths ranging from 200 ns to 2 micro s with 10 ns rise and fall times and no degradation in output power. This pulse mode operation was made possible by the development of a stable 12-diode power combiner/amplifier and a single-diode pulsed driver whose RF output power was switched on and off by having its bias current modulated via a fast-switching current pulse modulator. Essential to the overall amplifier development was the successful development of state-of-the-art silicon double-drift IMPATT diodes capable of reproducible 2.5 W CW output power with 12% dc-to-RF conversion efficiency. Output powers of as high as 2.75 W has been observed. Both the device and circuit design are amenable to low cost production

A Portfolio Approach to Venture Capital Financing

This paper studies the contracting choices between an entrepreneur and venture capital investors in a portfolio context. We rely on the mean-variance framework and derive the optimal choices for an entrepreneur with and without the presence of different kinds of venture capitalists. In particular, we show that the entrepreneur always has the incentive to share the risk and benefits of the venture whenever possible. On the basis of their objectives and characteristics, we distinguish the situations of the corporate, independent, and bank-sponsored venture capital funds. Our framework enables us to derive the optimal contract design for the entrepreneur, featuring the choice of investor, the entrepreneur’s investment in the venture, and her dilution in the project’s equity as a function of her bargaining power. This result allows us to characterize the choice of the investor depending on her cost of equity and debt capital. In addition to project size and risk, entrepreneur’s risk aversion turns out to be a critical determinant of VC investor choice –a finding which is strongly supported by a panel analysis of VC fund flows for 5 European countries over the 2002-2009 period.Venture capital, Portfolio choice, Entrepreneur, Risk aversion

Dividend and Capital Gains Taxation in a Cross-Section of Firms

I reconsider the effect of capital income taxation on firm size and firm growth by embedding the nucleus theory of firm development of Sinn (1991) into a framework of monopolistic competition with new firm creation. In a turnover of firms, firm destruction is counterbalanced by a permanent creation of new firms. Young firms are set up using an initial capital infusion of new equity and undergo an intermediate stage of internal growth until they finally reach a steady payout stage. The cross-section then contains firms of all ages and development stages. Dividend and capital gains tax have important effects on initial firm size and growth but also on the creation of new firms and thus on diversity in the economy. First, a differential treatment of dividends and capital gains introduces a distortion in the allocation of capital across firms. Second, dividend as well as capital gains tax are anticipated at the start-up stage of firms. While leaving the firm specific capital stock unaffected, the capitalisation is shown to depress firm creation and aggregate capital accumulation.capital income taxation, investment, firm creation, aggregate production.

Overreporting Oil Reserves

An increasing number of oil market experts argue that OPEC members substantially overstate their oil reserves. While the economic implications could be dire, the incentives for overreporting remain unclear. This paper analyzes these incentives, showing that oil exporters may overreport to raise expected future supply, thereby discouraging oil-substituting R&D and improving their own future market conditions. In general, however, overreporting is not costless: it must be backed by observable actions and therefore induces losses through supply distortions. Surprisingly, these distortions offset others that arise when suppliers internalize the buyers' motives for R&D. In this case, overreporting is rational, credible, and cheap.Exhaustible Resource, Substitution Technology, Signaling