A Perplexed Economist Confronts 'too Big to Fail'

This paper examines premises and data underlying the assertion that some financial institutions in the U.S. economy were "too big to fail" and hence warranted government bailout. It traces the merger histories enhancing the dominance of six leading firms in the U. S. banking industry and he sharp increases in the concentration of financial institution assets accompanying that merger wave. Financial institution profits are found to have soared in tandem with rising concentration. The paper advances hypotheses why these phenomena might be related and surveys relevant empirical literature on the relationships between market concentration, interest rates received and charged by banks, and economies of scale in banking.systemic risk, market concentration, mergers, scale economies

Parallel R&D Paths Revisited

This paper revisits the logic of pursuing parallel R&D paths when there is uncertainty as to which approaches will succeed technically and/or economically. Previous findings by Richard Nelson and the present author are reviewed. A further analysis then seeks to determine how sensitive optimal strategies are to parameter variations and the extent to which parallel and series strategies are integrated. It pays to support more approaches, the deeper the stream of benefits is and the lower is the probability of success with a single approach. Higher profits are obtained with combinations of parallel and series strategies, but the differences are small when the number of series trial periods is extended from two to larger numbers. A "dartboard experiment" shows that when uncertainty pertains mainly to outcome values and the distribution of values is skew-distributed, the optimal number of trials is inversely related to the cost per trial.

A note on global warfare in pharmaceutical patenting

This paper revisits the question of whether global welfare is higher under a uniform world-wide system of pharmaceutical product patents or with international rules allowing low-income nations to free-ride on the discoveries of firms in rich nations. Key variables include the extent to which free-riding reduces the discovery of new drugs, the rent potential of rich as compared to poor nations, the ratio of the marginal utility of income in poor as compared to rich nations, and the competitive environment within which R&D decisions are made. Global welfare is found to be higher with free-riding over plausible discovery impairment and income utility combinations, especially when rent-seeking behavior leads to an expansion of R&D outlays exhausting appropriable rents.Pharmaceutical industry ; Patents

Standard Oil as a Technological Innovator

A century ago, in 1911, the U.S. Supreme Court issued its path-breaking decision in the monopolization case against the Standard Oil Companies. Standard pleaded inter alia that its near-monopoly position was the result of superior innovation, citing in particular the Frasch-Burton process for refining the high-sulphur oil found around Lima, Ohio. This paper examines the role of Hermann Frasch in inventing and developing the desulphurization process, showing that Standard failed to recognize his inventive genius when he was its employee and purchased his rights and services only after he had applied the technique in his own Canadian company.

Mergers and Innovation in the Pharmaceutical Market

The U.S. pharmaceutical industry has experienced in recent years two dramatic changes: stagnation in the growth of new molecular entities approved for marketing, and a wave of mergers linking inter alia some of the largest companies. This paper explores possible links between these two phenomena and proposes alternative approach to merger policy. It points to the high degree of uncertainty encountered in the discovery and development of new pharmaceutical entities and shows how optimal strategies entail the pursue of parallel research and development paths. Uncertainties afflict both success rates and financial gains contingent upon success. A new model simulating optimal strategies given prevalent market uncertainties is presented. Parallelism can be sustained both within individual companies' R&D programs and across competing companies. The paper points to data showing little parallelism of programs within companies and argues that inter-company mergers jeopardize desirable parallelism across companies.

Compatible orders and fermion-induced emergent symmetry in Dirac systems

We study the quantum multicritical point in a (2+1)-dimensional Dirac system between the semimetallic phase and two ordered phases that are characterized by anticommuting mass terms with $O(N_1)$ and $O(N_2)$ symmetry, respectively. Using $\epsilon$ expansion around the upper critical space-time dimension of four, we demonstrate the existence of a stable renormalization-group fixed point, enabling a direct and continuous transition between the two ordered phases directly at the multicritical point. This point is found to be characterized by an emergent $O(N_1+N_2)$ symmetry for arbitrary values of $N_1$ and $N_2$ and fermion flavor numbers $N_f$, as long as the corresponding representation of the Clifford algebra exists. Small $O(N)$-breaking perturbations near the chiral $O(N)$ fixed point are therefore irrelevant. This result can be traced back to the presence of gapless Dirac degrees of freedom at criticality, and it is in clear contrast to the purely bosonic $O(N)$ fixed point, which is stable only when $N < 3$. As a by-product, we obtain predictions for the critical behavior of the chiral $O(N)$ universality classes for arbitrary $N$ and fermion flavor number $N_f$. Implications for critical Weyl and Dirac systems in 3+1 dimensions are also briefly discussed.Comment: 5+2 pages, 1 figure, 1 tabl

Fermion-induced quantum criticality in two-dimensional Dirac semimetals: Non-perturbative flow equations, fixed points and critical exponents

We establish a scenario where fluctuations of new degrees of freedom at a quantum phase transition change the nature of a transition beyond the standard Landau-Ginzburg paradigm. To this end we study the quantum phase transition of gapless Dirac fermions coupled to a $\mathbb{Z}_3$ symmetric order parameter within a Gross-Neveu-Yukawa model in 2+1 dimensions, appropriate for the Kekul\'e transition in honeycomb lattice materials. For this model the standard Landau-Ginzburg approach suggests a first order transition due to the symmetry-allowed cubic terms in the action. At zero temperature, however, quantum fluctuations of the massless Dirac fermions have to be included. We show that they reduce the putative first-order character of the transition and can even render it continuous, depending on the number of Dirac fermions $N_f$. A non-perturbative functional renormalization group approach is employed to investigate the phase transition for a wide range of fermion numbers. For the first time we obtain the critical $N_f$, where the nature of the transition changes. Furthermore, it is shown that for large $N_f$ the change from the first to second order of the transition as a function of dimension occurs exactly in the physical 2+1 dimensions. We compute the critical exponents and predict sizable corrections to scaling for $N_f =2$.Comment: 12+5 pages, 5 figure