Optimal policy for FDI incentives : an auction theory approach

A multinational corporation’s (MNC) entry into a host country brings benefits to the economy of that country, some direct (such as increasing production and employment) and some indirect (such as productivity spin-off). Governments that view MNCs as engines for growth and regional development have begun to encourage the flow of foreign investment into their country in hopes of increased local employment, market production and export capacity. MNCs consider first the maximization of profit when selecting a site to establish their subsidiaries. An MNC examines possible investment sites and indicates those that are best fitted for the investment. The countries that remain at this stage are similar in terms of their economic characteristics, and they compete with each other for receiving the foreign investment. In this paper we use tools from auction theory to analyze the competition between host countries and MNCs and investigate the existence of Nash equilibrium strategies. The characteristics of this equilibrium are considered and assessed. We developed a general model for examining the incentive competition between two countries and then apply it for several subgroups according to the number of MNCs and the availability of information. It turns out that the characteristics of the equilibrium depend on the number of MNCs as well as on the structure of their contribution to the host country economy.peer-reviewe

The Role of Employment Protection During An Exogenous Shock To An Economy

This paper explores the role of employment protection when powerful external crises reduce demand for products. We first present a theoretical framework that shows that employment protection has a U-shaped effect on abnormal unemployment during a negative exogenous shock to an economy. Using data from the 33 OECD countries, we analyze how the level of employment protection affected the stability of unemployment rates during the recent global economic crisis. The results suggest that countries with an intermediate level of employment protection will have more stable unemployment rates during a world crisis. The policy implication of our paper is that countries should seek a medium level of employment protection that may act as an automatic stabilizer of the economy on the macro level.

Zavajajoče dojemanje in gospodarska učinkovitost regionalnega sistema

Novost, ki jo prinaša ta članek, je uporaba učinka napačnega dojemanja na modelu središče-obrobje. Na podlagi teoretičnega modela bomo pokazali, da na prostem trgu ob uvedbi učinka napačnega dojemanja v model pride do napačne porazdelitve podjetij med središčem in obrobjem. Anketa z vprašalnikom je potrdila, da obstaja napačno dojemanje kakovosti proizvodnih dejavnikov, in sicer v korist središča. To napačno dojemanje lahko najdemo tako v pogledih središča na obrobje kot v pogledih obrobja nase. Za spremembo teh napačnih dojemanj bi se moralo obrobje bolj tržiti, obenem pa tudi krepiti svojo vlogo in svoj položaj v državi

Misleading perceptions and economic efficiency in a regional system

This paper’s innovation is the introduction of a misperception effect to the core-periphery model. Using a theoretical model, we show that the free market will lead to distorted spatial distribution of firms between the core and the periphery when a misperception effect is introduced into the model. Based on a questionnaire, we found that a misperception regarding the quality of the production factor exists in favour of the core compared to the periphery. This misperception is found not only in the eyes of the core with regard to the periphery, but also in the periphery regarding itself. We suggest marketing and empowerment of the periphery as a policy tool to alter these misperceptions

A re-examination of value-creation through strategic alliances

This paper uses a sample of 335 firms participating in strategic alliances in order to re-examine the value creation through strategic alliances. We show that the immediate positive response of stock markets to new strategic alliances is followed by negative abnormal returns. Twenty days after announcements, cumulative positive abnormal return is only evident for the firms with the highest stock market’s response to the announcement. We relate the positive abnormal returns reported in previous research to the presence of short-run over-reaction in stock markets and conclude in the market’s ability to identify the more valuable alliances.Strategic alliance; over-reaction; momentum

Worth the risk? Terrorism-induced fear of flying

We conducted two bi-national experiments regarding emotional and behavioral responses to a terrorist plot against commercial flights, examining both feelings and projected action. The studies employed hypothetical scenarios in which terrorists attacked airplanes with shoulder-fired missiles as they were landing or taking off from an international airport. The scenarios were built around two factorially crossed manipulated variables, each with three levels: (1) government announcements or actions (2) social norm, expressed as variation in airline ticket sales. Each respondent read a questionnaire containing only one of the nine scenarios. Experiment 1 was conducted in Spain and California (n = 360, 50% female), Experiment 2 in Israel and California (n = 504, 50% female). In both studies, fear and flight plans were not differentially affected by governmental response or social norm. Women expressed more fear than men. Experiment 1 examined the purpose of the trip. Most respondents would not change a planned flight to attend a close friend’s wedding or important job interview, but a substantial number would postpone a vacation or drive to a different location. Experiment 2 featured escalating attacks. These yielded increased fear and more canceled trips. Within both studies, responses were similar across countries despite national differences in direct experience with terrorism

¿Vale la pena el riesgo? Miedo inducido por el terrorismo a volar

We conducted two bi-national experiments regarding emotional and behavioral responses to a terrorist plot against commercial flights, examining both feelings and projected action. The studies employed hypothetical scenarios in which terrorists attacked airplanes with shoulder-fired missiles as they were landing or taking off from an international airport. The scenarios were built around two factorially crossed manipulated variables, each with three levels: (1) government announcements or actions (2) social norm, expressed as variation in airline ticket sales. Each respondent read a questionnaire containing only one of the nine scenarios. Experiment 1 was conducted in Spain and California (n = 360, 50% female), Experiment 2 in Israel and California (n = 504, 50% female). In both studies, fear and flight plans were not differentially affected by governmental response or social norm. Women expressed more fear than men. Experiment 1 examined the purpose of the trip. Most respondents would not change a planned flight to attend a close friend’s wedding or important job interview, but a substantial number would postpone a vacation or drive to a different location. Experiment 2 featured escalating attacks. These yielded increased fear and more canceled trips. Within both studies, responses were similar across countries despite national differences in direct experience with terrorism.Se realizaron dos experimentos bi-nacionales con respecto a las respuestas emocionales y conductuales a un plan terrorista contra vuelos comerciales, examinando ambas cosas: sentimientos y proyectos de acción. Los estudios emplearon escenarios hipotéticos en los que los terroristas atacaron los aviones con misiles disparados desde el hombro, ya que estaban aterrizando o despegando desde un aeropuerto internacional. Los escenarios fueron construidos alrededor de dos variables factoriales cruzadas, cada uno con tres niveles: (1) los anuncios o acciones del gobierno (2) norma social, expresada como la variación en la venta de billetes de avión. Cada encuestado leyó un cuestionario que contenía sólo uno de los nueve escenarios. El experimento 1 se realizó en España y California (n = 360, 50% mujeres), el experimento 2 en Israel y California (n = 504, 50% mujeres). En ambos estudios, el miedo y los planes de vuelo no fueron diferencialmente afectados por la respuesta gubernamental o la norma social. Las mujeres expresaron más miedo que los hombres. El experimento 1 examinó el propósito del viaje. La mayoría de los encuestados no cambiarían un vuelo planeado para asistir a la boda de un amigo cercano o para una importante entrevista de trabajo, pero un número considerable de participantes podrían posponer unas vacaciones o ir en coche a un lugar diferente. El experimento 2 contó con la escalada de los ataques. Estas aumentaron el temor y la cantidad de viajes cancelados. En ambos estudios, las respuestas fueron similares en todos los países a pesar de las diferencias nacionales y la experiencia directa con el terrorismo.Depto. de Economía Aplicada, Estructura e HistoriaFac. de Ciencias Económicas y EmpresarialesTRUEpu

Going ESG: The Economic Value of Adopting an ESG Policy

Does having an environmental, social, and governance (ESG) policy have an impact on stakeholders? This research presents a unique model that allows us to measure the economic value of adopting an ESG policy for financial institutions’ stakeholders. Using the results of a questionnaire distributed among financial institution employees and customers, we find that, on average, employees are willing to forgo 11% of their salary to work for a company that has adopted and implemented such a policy. In addition, customers are willing to pay 47% more in management fees to do business with financial institutions that have such a policy. To our knowledge, this is the first study that quantifies the benefits for financial institutions stakeholders of adopting an ESG policy

Going ESG: The Economic Value of Adopting an ESG Policy

Does having an environmental, social, and governance (ESG) policy have an impact on stakeholders? This research presents a unique model that allows us to measure the economic value of adopting an ESG policy for financial institutions’ stakeholders. Using the results of a questionnaire distributed among financial institution employees and customers, we find that, on average, employees are willing to forgo 11% of their salary to work for a company that has adopted and implemented such a policy. In addition, customers are willing to pay 47% more in management fees to do business with financial institutions that have such a policy. To our knowledge, this is the first study that quantifies the benefits for financial institutions stakeholders of adopting an ESG policy

Optimal policy for FDI incentives: An auction theory approach

A multinational corporation’s (MNC) entry into a host country brings benefits to the economy of that country, some direct (such as increasing production and employment) and some indirect (such as productivity spin-off). Governments that view MNCs as engines for growth and regional development have begun to encourage the flow of foreign investment into their country in hopes of increased local employment, market production and export capacity. MNCs consider first the maximization of profit when selecting a site to establish their subsidiaries. An MNC examines possible investment sites and indicates those that are best fitted for the investment. The countries that remain at this stage are similar in terms of their economic characteristics, and they compete with each other for receiving the foreign investment. In this paper we use tools from auction theory to analyze the competition between host countries and MNCs and investigate the existence of Nash equilibrium strategies. The characteristics of this equilibrium are considered and assessed. We developed a general model for examining the incentive competition between two countries and then apply it for several subgroups according to the number of MNCs and the availability of information. It turns out that the characteristics of the equilibrium depend on the number of MNCs as well as on the structure of their contribution to the host country economy.FDI, multinational corporations, FDI incentives, auction theory