11,090 research outputs found

    Foreign Investment in Infrastructure, Limited Public Funds, and Renegotiation

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    We examine the interplay between limited public funds and renegotiation when a foreign firm invests in social infrastructure. It is found that the critical factor is how the finance constraint alters the threat point for the government in renegotiation. Through its effect on this threat point, a mild restriction on finance results in higher domestic welfare and total surplus, but a tighter restriction deters entry, even with the finance available being sufficient to cover the investor's total costs. Domestic welfare and the total surplus are non-monotonic in the availability of finance, with implications, for example, for project aid policy.

    Formality, Informality, and Social Welfare

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    An industry is modeled in which entrepreneurs, who are heterogeneous in ability, may produce formally or informally. It is shown how the formalinformal mix depends on the distribution of ability, product demand and various parameter values. The industry equilibrium is compared to one in which informality is prohibited. With relatively high product demand, the effect of entrepreneurs being free to choose informality is that consumer surplus and total employment are reduced, but profit is redistributed towards more able entrepreneurs. With relatively low product demand the opposite effects obtain. We also show that informality may be a built-in stabilizer or destabilizer.

    Informal Firms in Developing Countries: Entrepreneurial Stepping Stone or Consolation Prize?

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    We analyse potential dynamic benefits for a firm from having the option of adopting informal status. Informality may be a stepping stone, without which formality might never be achieved. This result obtains for a broad range of realistic parameter values, suggesting a potential dynamic case for government support of informal firms. Informality may alternatively play a converse role as a consolation prize, a firm only entering an industry (formally) because it recognizes that if profitability is disappointing, it can switch to informality. However, this result obtains for a range of parameter values so narrow to be of no practical significance.informality; entrepreneurship

    IAF: Examples of Institutions Organizing on Behalf of Families

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    In 1997, Samsung received an 80milliontaxabatementtobuildaplantinAustin,Texasamidthepromiseofhighpayingjobs.Peoplewereexcitedaboutthecompanycomingtotownandtherewasgreatbuzz,butthentheylearnedthatmostofthejobswouldpayminimumwage.AtameetingofnonprofitsgatheredtolearnmoreabouttheSamsungjobsandtohelpthemrecruit,thecompanysaidthattheyalsoneeded80 million tax abatement to build a plant in Austin, Texas amid the promise of “high paying jobs.” People were excited about the company coming to town and there was great buzz, but then they learned that most of the jobs would pay minimum wage. At a meeting of non-profits gathered to learn more about the Samsung jobs and to help them recruit, the company said that they also needed 1 million to train an advance group of 100 workers for six weeks. In addition to forgoing $80 million in tax revenue that this growing city needed, and creating an uneven playing field with direct competitors in the tech industry, now the city of Austin and Travis county were being asked to come up with an additional million dollars. This angered Fr. John Korcsmar, pastor of Dolores Catholic Church. He had come to the meeting in hopes of hearing how his parishioners could work one job to provide for their families instead of two or three. Angry that most jobs would pay minimum wage and that this was not what was promised, Fr. John Korcsmar stood up and said, “We will fight you on this!

    Contracting Out Public Service Provision to Not-for-Profit Firms

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    In an incomplete contract setting, we analyze the contracting out of public service provision, comparing the performance of for-profit and notfor-profit firms (NPs). Two institutional arrangements are considered, with control rights lying either with the firm (’PPP’) or the government (’traditional procurement’). The use of an NP with traditional procurement is found never to be the preferred option in terms of social welfare. But for a range of parameter values an NP in a PPP is the preferred option. The development of PPP provision has thus created opportunities for the advantageous use of NPs in public services.

    Regulatory Barriers and Entry in Developing Economies

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    We model entry by entrepreneurs into new markets in developing economies with regulatory barriers in the form of licence fees and bureaucratic delay. Because laissez faire leads to ‘excessive’ entry, a licence fee can increase welfare by discouraging entry. However, in the presence of a licence fee, bureaucratic delay creates a strategic opportunity, which can result in both greater entry by first movers and a higher steady-state number of firms. Delay also leads to speculation, with entrepreneurs taking out licences to obtain the option of immediate entry if they later observe the industry to be profitable enough.

    Regulatory Barriers & Entry in Developing Economies

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    We model entry by entrepreneurs into new markets in developing economies with regulatory barriers in the form of licence fees and bureaucratic delay. Because laissez faire leads to ‘excessive’ entry, a licence fee can increase welfare by discouraging entry. However, in the presence of a licence fee, bureaucratic delay creates a strategic opportunity, which can result in both greater entry by first movers and a higher steady-state number of firms. Delay also leads to speculation, with entrepreneurs taking out licences to obtain the option of immediate entry if they later observe the industry to be profitable enough.Entry, Entry Barriers, Developing Economy.

    Informality as a Stepping Stone: Entrepreneurial Entry in a Developing Economy

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    We model decisions with respect to formality or informality for entrepreneurs in a new industry for a developing economy. We show that informality allows a leader to explore, without significant sunk costs, the potential profitability of the industry; that is, informality may be a stepping stone, enabling an entrepreneur to experiment cheaply in an uncertain environment. There are circumstances under which, without this option, the industry would not become established. We analyse the roles of parameters such as a minimum wage rate and we show that the existence of finance constraints can actually encourage entry in this context.

    Corruption and Bureaucratic Structure in a Developing Economy

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    We address the impact of corruption in a developing economy in the context of an empirically relevant hold-up problem - when a foreign firm sinks an investment to provide infrastructure services. We focus on the structure of the economy’s bureaucracy, which can be centralized or decentralized, and characterize the ‘corruptibility’ of bureaucrats in each case. Results are explained in terms of the noninternalization, under decentralization, of the ‘bribe externality’ and the ‘price externality.’ In welfare terms, decentralization is favoured, relatively speaking, if the tax system is less inefficient, funding is less tight, bureaucrats are less venal, or compensation for expropriation is ungenerous.Corruption, Bureaucratic Structure, Developing Economy

    Building and Managing Facilities for Public Services

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    We model public-private partnerships in building and managing facilities for the provision of public services. In particular, we analyze both the desirability of bundling the building and management operations, and the optimal allocation of ownership between the public sector and private firms. When a positive externality exists across stages of production, bundling is always optimal; but unbundling tends to be preferred when the externality is negative. Whether public ownership is preferred to private ownership depends on the extent of the externality, the market value of the facility and the effect of the firms' investments on social benefits.
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