Network Investment and Competition with Access-to-Bypass

This paper examines firms' incentive to make irreversible investments under an open access policy with stochastically growing demand. Using a simple model, we derive an access-to-bypass equilibrium. Analysis of the equilibrium confirms that the introduction of competition in network industries makes a firm's incentive to make investments greater than those of a monopolist. We then show that a change in access charges induces a trade-off in social welfare. That is, a decrease in the access charge expands a social benefit flow in the access duopoly, and deters not only the introduction of a new network facility, but also a positive network externality generated by the construction of an additional bypass network. The feasibility of the socially optimal investment timing is then discussedOpen access policy, Investment, Real options, Network facility, Access charge

Agency Contracts, Noncommitment Timing Strategies, and Real Options

Given an owner's noncommitment timing strategy and a manager's hidden action, we consider how the optimal compensation contract for the manager is designed and how the corresponding timing decisions to launch the project and replace the manager are determined. Using a real options approach, we show that in comparison with the firstbest case, the higher (lower)-quality project is launched later (at the same time as the first-best case), whereas the incumbent manager is replaced earlier. We also indicate that compared with the case of the owner’s commitment timing strategy and the manager's hidden action, the higher (lower)-quality project is launched later (at the same time as the first-best case), whereas the incumbent manager is (is not necessarily) replaced later if the hidden-action problem is severe enough (is not severe enough). Unlike the folklore result of the standard moral hazard model, severance pay may serve to minimize the compensation for the manager's loss of his option value caused by loss of corporate control by committing the owner to delaying replacement of the manager if the hidden-action problem is not too severe.CEO turnover, executive compensation, noncommitment, real options, severance pay.

Debt Policy Rules in an Open Economy

* Revised：Fiscal Sustainability, Macroeconomic Stability, and Welfare under Fiscal Discipline in a Small Open Economy [13-07, 2013

Competition schemes and investment in network infrastructure under uncertainty

Abstract This paper compares two specific types of competition schemes (i.e., service-based competition and facility-based competition) by focusing on a firm's incentive to invest in network infrastructure. We show that when monopoly rent is large, facility-based competition makes the initial introduction of infrastructure earlier than service-based competition. However, when not only monopoly rent but the degree of uncertainty are small, service-based competition makes the initial introduction of infrastructure earlier than facility-based competition. The result indicates the relationship between the timing of infrastructure builiding and the degree of competitiveness in a product market. Other policy implications are also discussed

Tax Evasion and Optimal Corporate Income Tax Rates in a Growing Economy

We explore how tax evasion by firms affects the growth- and welfare-maximizing rates of corporate income tax (CIT) in an endogenous growth model with productive public service. We show that the negative effect of CIT on growth is mitigated in the presence of tax evasion. This increases the benefit of raising the CIT rate for public service provision. Thus, in contrast to Barro (1990), the optimal tax rate is higher than the output elasticity of public service. Through numerical exercises, we demonstrate that the role of tax evasion by firms is quantitatively significant

On the Determinants of Corporate Cash Holdings in Japan: Evidence from Panel Analysis of Listed Companies [in Japanese]

Exploiting dramatic changes in individual corporate behavior as well as macroeconomic environment for the period between 1982 and 2005, this paper empirically investigates the determinants of corporate cash holdings using the panel data of the companies listed at the three major stock exchanges. We find that like in Pinkowitz and Williamson (2001), the rent extraction by banks over industry firms promoted corporate cash holdings in the early 1980s. However, the weakened bank power was not responsible for a drastic decrease in the cash/asset ratio observed during the first half of the 1990s. Instead, the ratio declined as a consequence of the contraction of investment opportunities, the buildup of business credits as an alternative financial instrument, less needs for dividend payments, and higher costs of cash holdings.

B/TI multilayer reactive igniter for micro solid rocket array thruster

MEMS 2007, Kobe, Japan, 21-25 January 200