R&D in Markets with Network Externalities

We study how network externalities affect research and development (R&D) investments by a non-cooperative duopoly that offers compatible products. We find that multiple R&D equilibria may arise when network externalities are non linear in the number of consumers. The lowest R&D equilibrium corresponds to the case where network externalities are absent. However, even in the presence of network externalities, firms may be trapped in a low-R&D equilibrium where output, and therefore consumers' valuation of the network size, is low. We derive the conditions under which the highest-R&D equilibrium Pareto dominates.Network Externalities

Horizontal R&D Cooperation and Spillovers: Evidence from France

We use the French portion of the 2002 Community Innovation Survey to test how spillovers a®ect the likelihood that ¯rms cooperate in R&D. Unlike most existing empirical studies, our results clearly support well-established theoretical predictions of the industrial organization literature. We find that a firm which benefits from higher spillovers from her rivals is more likely to cooperate horizontally in R&D. Moreover, the impact of incoming spillovers on the likelihood of horizontal R&D cooperation is positive and statistically significant only when they are above a threshold. Both the value, and the precision of the estimates, increase with the information flow which firms report receiving from their competitors.cooperation ; research and development ; spillovers

Compulsory and Voluntary Remittances: Evidence from Child Domestic Workers in Tunisia

Based on a survey we conducted among domestic workers in Tunisia, we find that slightly more than half are younger than 18 years old. Most live with their employer and have their wages remitted directly to their parents. We define such remittances as compulsory as opposed to voluntary, and establish that having more young sisters means a higher likelihood of observing compulsory remittances, but that voluntary remittances increase with the number of young brothers. Parents who own some farm assets, or their house, can extract more compulsory remittances from their daughters than other parents. Older domestic workers face lower compulsory remittances, and voluntarily remit less. Finally, we reject the standard tobit model in favour of a type-2 tobit or Gragg's specification.Domestic Workers, Child Labor, Compulsory and Voluntary Remittances, Tunisia.

R&D Delegation in a Duopoly with Spillovers

There is evidence that competing firms delegate R&D to the same independent profit-maximizing laboratory. We draw on this stylized fact to construct a model where two firms in the same industry offer transfer payments in exchange of user-specific R&D services from a common laboratory. Inter-firm and within-laboratory externalities affect the intensity of competition among delegating firms on the intermediate market for technology. Whether competition is relatively soft or tight is reflected by each firm’s transfer payment offers to the laboratory. This in turn determines the laboratory’s capacity to earn profits, R&D outcomes, delegating firms’ profits, and social welfare. We compare the delegated R&D game to two other one where firms (i) cooperatively conduct in-house R&D, and (ii) non-cooperatively choose in-house R&D. The delegated R&D game Pareto dominates the other two games, and the laboratory earns positive profits, only if within-laboratory R&D services are sufficiently complementary, but inter-firm spillovers are sufficiently low. We find no room for policy intervention, because the privately profitable decision to delegate R&D, when the laboratory participates, always benefits consumers.Research and development, externalities, common agency.

Horizontal R and D cooperation and spillovers: evidence from France

We test the theoretical prediction that inter-firm spillovers must necessarily be large for the profit differential between cooperation and non-cooperation in R and D to be monotone increasing with them. By using the French data from the 2002 Community Innovation Survey, we find that spillovers have a significant positive impact on the likelihood that competitors cooperate horizontally in R and D only if these spillovers exceed a threshold. Both the value and the significance of estimates increase with the flow of information firms report receiving from competitors.Cooperation

Economic Development and HIV/AIDS Prevalence

There is a strong negative relationship between economic development and HIV/AIDS prevalence throughout the world. However in Sub-Saharan Africa where the epidemic is worst, this relationship does not hold. Some of the wealthier countries in this region have some of the highest rates of HIV/AIDS prevalence in the world. In order to explain these observations, we set up a two-period model where individuals derive utility from consumption and sexual encounters. Those who expect their second-period consumption to be sufficiently low may engage in unsafe sex, despite the possibility of contracting HIV, if it provides higher instantaneous utility. We show that poorer countries will feature a higher share of the population engaging in unsafe sex, and therefore a higher prevalence of HIV. In economies where the external effect of human capital is high, additional equilibria exist in which even wealthier individuals choose unsafe sex if they expect a large share of the population to do so. This is because if many people engage in unsafe sex, there will be a lower level of aggregate human capital (due to AIDS deaths) and hence lower second-period income, and consumption. Economies featuring multiple equilibria may select one in which a large fraction of the population is engaged in unsafe sex because of beliefs about the transmission of HIV/AIDS. Nous documentons une forte relation négative entre le taux de prévalence du VIH/SIDA et le niveau de développement économique au niveau mondial. Cependant, cette relation ne tient pas en Afrique Sub-Saharienne qui est paradoxalement la région la plus touchée par le VIH/SIDA. Plusieurs pays parmi les plus riches de cette région ont des taux de prévalence très élevés. Afin d'expliquer ce phénomène, nous construisons un modèle où chaque individu vit pendant deux périodes et où son utilité est fonction de sa consommation et de son activité sexuelle. Ceux qui s'attendent à obtenir un revenu relativement faible pendant le reste de leur vie peuvent décider d'avoir des rapports sexuels non protégés en dépit du risque de contracter le VIH. Ce choix est motivé par l'utilité instantanée plus élevée qu'ils obtiennent en ayant un rapport sexuel sans préservatif. Nous démontrons que le taux de prévalence du VIH/SIDA devrait être plus élevé dans les pays pauvres car une plus grande part de la population choisirait d'avoir des rapports sexuels non protégés. Cependant, il peut exister des équilibres multiples dans les économies où les externalités associées au capital humain sont élevées. Dans ce cas, même ceux qui sont relativement riches peuvent choisir d'avoir des relations sexuelles non protégées s'ils anticipent qu'une part importante de la population ferait de même. Si telles sont les anticipations, alors le niveau de capital humain anticipé est faible en raison de la mortalité due au SIDA. Ceci a un effet négatif sur le revenu et la consommation futurs. Ceci explique pourquoi même ceux qui sont relativement riches peuvent choisir d'avoir des relations sexuelles sans préservatif. Si les conditions sont requises pour qu'il y ait des équilibres multiples dans une économie, alors l'équilibre où la prévalence du VIH/SIDA est le plus élevé pourrait être choisi en raison des croyances sur les modes de transmission du VIH/SIDA.HIV/AIDS, human-capital externalities, Sub Saharan Africa, VIH/SIDA, capital humain, Afrique Sub-Saharienne

Inter-Sectorial Risk Pooling and Wage Distributions

This paper develops a model where two agents in different sectors face uncorrelated income risks and mutually self-insure. We discuss how the rent arising from risk pooling modifies the wage distribution in the sector where the employer behaves as a monopsonist.risk pooling, family transfers

Working Paper 93 - The Impact of High Oil Prices on African Economies

On the one hand the high price of oil is a unique opportunity for African oil producers to use the windfall gains to speed up their development. On the other hand, it is having adverse effects on net-oil importing countries, in particular those which cannot access international capital markets to smooth out the shock. We construct a dynamic stochastic general equilibrium model, which is tailored to reflect the characteristics of African economies, to quantify the effect of the increase in the price of oil on the main macro economic aggregates. The model is general enough that it imbeds both oil producing and oil importing countries. Our results indicate that a doubling of the price of oil on world markets with complete pass through to oil consumers would lead to a 6 per cent contraction of the median net-oil importing African country in the first year. If that country were to adopt a no-pass through strategy, output would not be significantly affected but its budget deficit would increase by 6 per cent. As for the median net oil exporting country, a doubling in the price of oil would mean that its gross domestic product would increase by 4 percent under managed-float and by 9 percent under a fixed exchange rate regime. However, inflation would increase by a much greater magnitude under managed than a fixed exchange rate regime in a median net oil exporting country.

Does Human Capital Protect Workers against Exogenous Shocks? South Africa in the 2008-2009 Crisis

The financial and economic crisis of 2008 and 2009 has taken its toll on the South African economy. The economy contracted for the first time since 1998, and entered recession during the fourth quarter of 2008. The GDP contraction was soon transmitted to the labor market. Between the second quarters of 2008 and 2009, employment fell by 3.8 percent. However, not all individuals were hit with the same intensity. Using labor force survey data unique in the African context, we find that human capital provided a buffer against the shock. After controlling for observable characteristics, education and experience showed the potential to entirely offset the effect of the recession on the likelihood of employment. This has important policy implications, as it strengthens the case for strategic investments in human capital, and helps identifying the unskilled as those with the highest need for social safety net interventions during the recession.labor markets, South Africa, financial crisis, human capital, business cycle, emerging economies

Working Paper 106 - Does Human Capital Protect Workers against Exogenous Shocks? South Africa in the 2008 - 2009 Crisis

The financial and economic crisis of 2008and 2009 has taken its toll on the SouthAfrican economy. The economy contractedfor the first time since 1998, and enteredrecession during the fourth quarter of 2008.The GDP contraction was soon transmittedto the labor market. Between the secondquarters of 2008 and 2009, employment fellby 3.8 percent. However, not all individualswere hit with the same intensity. Using laborforce survey data unique in the Africancontext, we find that human capital provideda buffer against the shock. After controllingfor observable characteristics, education andexperience showed the potential to entirelyoffset the effect of the recession on thelikelihood of employment. This has importantpolicy implications, as it strengthens thecase for strategic investments in humancapital, and helps identifying the unskilled asthose with the highest need for social safetynet interventions during the recession.