Cross-border Mergers and Hollowing-out

The purpose of our paper is to examine the profitability and social desirability of both domestic and foreign mergers in a location-quantity competition model, where we allow for the possibility of hollowing-out of the target firm. We refer to hollowing-out as the situation where the target firm is shut down following a merger with a domestic or foreign acquirer. Our analysis shows that mergers have ambiguous effects on the profitability of merged firms and on social welfare. Hollowing-out occurs in very few instances in our framework. One such instance is the case of firms located side-by-side in the same cluster and only if it is very costly to transfer the more efficient technology of the acquirer to the domestic target firm. This happens regardless of the origin of the acquirer, domestic or foreign. We also show that there are instances when a cross-border merger with hollowing out is not profitable but it is socially desirable.Economic models; International topics; Market structure and pricing

A Search Model of Venture Capital, Entrepreneurship, and Unemployment

The authors develop a search model of venture capital in which the number of successful matches of entrepreneurs and venture capitalists (VCs) at any moment in time is a function of the number of entrepreneurs searching for funds, the number of VCs searching for entrepreneurs, and the number of vacancies posted by each VC. The authors extend the literature by incorporating search unemployment and they explicitly model the occupational choice of individuals to become workers or entrepreneurs. Their analysis shows that, in the market equilibrium, the level of advice VCs offer is inefficiently low compared with the social optimum. Furthermore, the number of vacancies, the level of employment, and the number of potential entrepreneurs are generally either too low or too high relative to their socially optimal level. Policy to achieve the social optimum consists of a capital gains subsidy, an employment tax or subsidy, and an investment tax or subsidy.Financial markets; Fiscal policy; Labour markets

Intergovernmental relations in Nigeria: improving service delivery in core sectors

According to the Nigerian constitution, main public sector responsibilities are split across various government levels. Thus, no sole government could deliver radical improvements in service delivery on its own, which means that coordination and cooperation are pre-requisites. However, the existing mechanisms and institutions for inter-governmental policy coordination are weak and need strengthening. This paper suggests the following priority directions for reforming inter-governmental financing arrangements in Nigeria: a. more attention to the equity dimension of revenue sharing b. strengthening government accountability for utilization of public money in general, and for use of a common pool of funds such as the Federation Account in particular, and c. introduction of specific grant schemes directly linked to expansion of sub-national government financing in key sector

Commitment and the time structure of taxation of foreign direct investment

F21, H25, H32, foreign direct investment, tax incentives, commitment,