Can overpricing of technology stocks be good for welfare? Positive spillovers vs. equity market losses

This paper examines the real impact of booms-and-busts of equity prices of technology-intensive firms, such as the late 1990s episode. We emphasize that what makes such episodes different from booms-and-busts related to other assets is the presence of knowledge spillovers. Such spillovers imply underinvestment in R&D at the aggregate level. Therefore, when temporarily high equity prices create incentives to invest more in R&D there are permanent wage and productivity gains. Sufficient conditions for these gains to always offset the direct negative effects from losses of equity trading and firm-level overinvestment are that overpricing is small and lasts longer

Holdup and Comparative Advantage

We consider a setting where fims need to make irreversible investments to exploit a countrys comparative advantage. Firms are then susceptible to ex-post rent extraction by a transit country or by other agents that are able to limit access to world markets. We develop a general equilibrium model where this potential holdup problem makes such countries poorer and less likely to invest in technology that generates their comparative advantage. The predictions of the model are examined using gravity equations and a new measure of distances that explicitly considers the location of the closest ports. The evidence is consistent with less trade by landlocked countries as a result of the holdup problem we examine

4-Decyl­phenyl 4-benz­yloxy-3-methyl­benzoate

In the title compound, C31H38O3, the central benzene ring makes dihedral angles of 66.06 (9) and 65.21 (8)°, respectively, with the benzyl and 4-decyl­phenyl rings

Activity Overinvestment: The Case of R&D

The literature on corporate diversification has often argued for and established the case that companies often overdiversify in a product market sense – i.e. enter into unrelated product markets where they may not fully cover their cost of capital. Yet, even without engaging in unrelated diversification, managers need to make resource allocation decisions to a variety of activities that a company conducts to consummate its business. In this article we focus on Research and Development (R&D) activity and we discuss the effects that the uncertainty, boundary ambiguity, feedback latency, R&D lumpiness and legitimacy that characterize technological contexts can have in making overinvestment in R&D likely. Specifically, in this article we a) draw attention to the construct of activity overinvestment, and specifically R&D overinvestment, b) use the received literature to argue that there exists a prima facie case for examining this construct and its antecedents in order to evaluate the extent and implications of R&D overinvestment, and c) make the more general case that the resource allocation literature needs to study the issue of activity overinvestment systematically

Oxygen as a Driver of Early Arthropod Micro-Benthos Evolution

BACKGROUND: We examine the physiological and lifestyle adaptations which facilitated the emergence of ostracods as the numerically dominant Phanerozoic bivalve arthropod micro-benthos. METHODOLOGY/PRINCIPAL FINDINGS: The PO(2) of modern normoxic seawater is 21 kPa (air-equilibrated water), a level that would cause cellular damage if found in the tissues of ostracods and much other marine fauna. The PO(2) of most aquatic breathers at the cellular level is much lower, between 1 and 3 kPa. Ostracods avoid oxygen toxicity by migrating to waters which are hypoxic, or by developing metabolisms which generate high consumption of O(2). Interrogation of the Cambrian record of bivalve arthropod micro-benthos suggests a strong control on ecosystem evolution exerted by changing seawater O(2) levels. The PO(2) of air-equilibrated Cambrian-seawater is predicted to have varied between 10 and 30 kPa. Three groups of marine shelf-dwelling bivalve arthropods adopted different responses to Cambrian seawater O(2). Bradoriida evolved cardiovascular systems that favoured colonization of oxygenated marine waters. Their biodiversity declined during intervals associated with black shale deposition and marine shelf anoxia and their diversity may also have been curtailed by elevated late Cambrian (Furongian) oxygen-levels that increased the PO(2) gradient between seawater and bradoriid tissues. Phosphatocopida responded to Cambrian anoxia differently, reaching their peak during widespread seabed dysoxia of the SPICE event. They lacked a cardiovascular system and appear to have been adapted to seawater hypoxia. As latest Cambrian marine shelf waters became well oxygenated, phosphatocopids went extinct. Changing seawater oxygen-levels and the demise of much of the seabed bradoriid micro-benthos favoured a third group of arthropod micro-benthos, the ostracods. These animals adopted lifestyles that made them tolerant of changes in seawater O(2). Ostracods became the numerically dominant arthropod micro-benthos of the Phanerozoic. CONCLUSIONS/SIGNIFICANCE: Our work has implications from an evolutionary context for understanding how oxygen-level in marine ecosystems drives behaviour

Man or Machine? Rational trading without information about fundamentals.

Systematic trading contingent on observed prices by agents uninformed about fundamentals has long been considered at odds with efficient markets populated by rational agents. In this paper we show that price-contingent trading is the equilibrium strategy of rational agents in efficient markets in which there is uncertainty about whether a large trader is informed. In this environment, knowing his own type and past trades (or lack of them) will be enough for a large trader to retrieve some private information about the fundamental indirectly even if he does not observe fundamental information directly. Such trader pursues price-contingent trading which remains profitable in a (semi-strong) efficient market. Our results generalize to a large variety of distributional assumptions. We then provide conditions under which price-contingent trading is positive-feedback or contrarian. On average both positive-feedback and contrarian trading help prices converge faster to fundamentals, although they can occasionally trigger divergence

Blockchain and the future of optimal financing contracts

Blockchain technology makes it possible to create immutable smart contracts that are based on reliable and timestamped records of transactions. For this reason, it can eliminate standard frictions such as the need for costly verification, and make raising external financing more accessible. At the same time, it does not eliminate moral hazard, which can even become more severe with the trend towards more faster data analysis and more frequent decision making. I analyse optimal financial contracting in this new environment. I show that whenever there is learning, borrowers and lenders generally benefit from contracts that depend on not just whether, but also on when, cash flows occur -- a feature that timestamped records and blockchain can easily enable. In contrast to some earlier theoretical results which argue that contracting on aggregates is sufficient, I identify conditions when contracting on the cash flow sequence matters. I show that the optimal contract can be expressed as a dynamically adjusting cash flow splitting rule between the lender and the borrowers. Under the optimal contract, external capital is as cheap as internal capital, and more accessible to agents with no internal funds. Equity is optimal only when the potential cash flows are independently distributed over time, and becomes relatively more expensive when there is more learning. Debt is always a sub-optimal contract in this environment and becomes increasingly expensive with more frequent decision making

Learning Through Crowdfunding

We develop a model where reward-based crowdfunding enables firms to obtain a reliable proof of concept early in their production cycle. The information gathered from a subsample of backers through a fixed length pre-selling campaign enables firms to update their beliefs about the preferences of all future consumers. This creates a valuable real option as firms invest only if updated demand is high. Further, such updating mitigates moral hazard: the higher the funds raised, the lower the firms' incentives to divert them. Our results are consistent with stylized facts and provide new testable implications

How wise are crowds on crowdfunding platforms?

While firms have obtained outside financing from large numbers of investors on financial markets for centuries, online crowdfunding platforms have only emerged as a major source of funding for start-ups and new projects for a decade. The information available to backers on crowdfunding platforms is generally coarse. This paper surveys the existing literature on the extent to which crowdfunding harnesses the wisdom of crowds. We discuss two broad categories of crowdfunding. Reward-based crowdfunding platforms such as Kickstarter, where backers typically have private and independent valuations, appear to offer environments that may harness the wisdom of crowds. In contrast, initial coin offerings (ICOs) offering services with network externalities and security-based platforms with common values appear to exhibit some results eliciting valuable information, but several results appear to point to informational cascades

Learning through Crowdfunding

We develop a model where reward-based crowdfunding enables Örms to obtain a reliableproof of concept early in their production cycle: they learn about total demand from a limitedsample of target consumers pre-ordering a new product. Learning from the crowdfunding samplecreates a valuable real option as Örms invest only if updated expectations about total demandis su¢ ciently high. This is particularly valuable for Örms facing a high degree of uncertaintyabout consumer preferences, such as developers of innovative consumer products. Learning alsoenables Örms to overcome moral hazard. The higher the funds raised, the lower the Örmsíincentives to divert them, provided third-party platforms limit the sample size by restrictingcampaign length. While the probability of campaign success decreases with sample size, theexpected funds raised are maximized at an intermediate sample size. Our results are consistentwith stylized facts and lead to new empirical implications