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Abstract:
How could such industries as software, semiconductors, and computers have been so innovative despite historically weak patent protection? We argue that if innovation is both sequential and complementary--as it certainly has been in those industries--competition can increase firms' future profits thus offsetting short-term dissipation of rents. A simple model also shows that in such a dynamic industry, patent protection may reduce overall innovation and social welfare. The natural experiment that occurred when patent protection was extended to software in the 1980?s provides a test of this model. Standard arguments would predict that R&D intensity and productivity should have increased among patenting firms. Consistent with our model, however, these increases did not occur. Other evidence supporting our model includes a distinctive pattern of cross-licensing in these industries and a positive relationship between rates of innovation and firm entry.

Abstract:
We model an organization as a hierarchy of managers erected on top of a technology (here consisting of a collection of plants). In our framework, the role of a manager is to take steps to reduce the adverse consequences of shocks that affect the plants beneath him. We argue that different organizational forms give rise to different information about managers'performance and
therefore differ according to how effective incentives canbe in encouraging a good performance. In particular, we show that, undercertain assumptions, the M-form (multi-divisional form) is likely to provide better incentives than the U-form (unitary form) because it promotes yardstick competition (i.e. relative
performance evaluation) more effectively. We conclude by presenting evidence that the assumptions on which this comparison rests are satisfied for Chinese data.

Abstract:
Evidence from the United States, Britain, and France suggests that recent growth in wage inequality has been accompanied by greater segregation of high- and low-skill workers into separate firms. A model in which workers of different skill-levels are imperfect substitutes can simultaneously account for these increases in segregation and inequality either through technological change, or, more parsimoniously, through observed changes in the skill-distribution.

Abstract:
The paper characterises the choice rules that can be implemented when agents are unable to commit themselves not to renegotiate the mechanism.

Abstract:
This paper surveys the theoretical literature on the effect of soft budget constraints on economies in transition from centralization to capitalism; it also reviews our understanding of soft budget constraints in general. It focuses on the conception of the soft budget constraint syndrome as a commitment problem. We show that the two features of soft budget constraints in centralized economies ? ex post renegotiation of firms? financial plans and a close administrative relationship between firms and the centre ? are intrinsically related. We examine a series of theories (based on the commitment-problem approach) that explain shortage, lack of innovation in centralized economies, devolution, and banking reform in transition economies. Moreover, we argue that soft budget constraints also have an influence on major issues in economics, such as the determination of the boundaries and capital structure of a firm. Finally, we show that soft budget constraints theory sheds light on financial crises and economic growth.

soft budget constraint, renegotiation, theory of the firm, banking and finance, transition, centralized economy

Abstract:
This Paper surveys the theoretical literature on the effect of soft budget constraints (SBC) on economies in transition from centralization to capitalism; it also reviews our understanding of SBC in general. It focuses on the conception of the SBC syndrome as a commitment problem. We show that the two features of SBC in centralized economies ex post renegotiation of firms? financial plans and a close administrative relationship between firms and the centre are intrinsically related. We examine a series of theories (based on the commitment-problem approach) that explain shortage, lack of innovation in centralized economies, devolution, and banking reform in transition economies. Moreover, we argue that SBC also bear on major issues in economics, such as the determination of the boundaries and capital structure of a firm. Finally, we show that SBC theory sheds light on financial crises and economic growth.

Banking and finance, centralized economy, renegotiation, soft budget constraint, theory of the firm, transition

Abstract:
We review theoretical work studying the effect of soft budget constraints (SBC) on economies in transition from centralization to capitalism. We also examine the connection of SBC to corporate finance, banking, and financial crises.

Abstract:
No abstract is available for this paper.

Abstract:
A theory is outlined for why an expansion of international trade may aggravate inequality in developing countries such as China.

Inequality, China, matching

Abstract:
Auctions, normally considered as devices facilitating trade, also provide a way to probe mechanisms governing one's valuation of some good or action. One of the most intriguing phenomena in auction behavior is the winner's curse - the strong tendency of participants to bid more than rational agent theory prescribes, often at a significant loss. The prevailing explanation suggests that humans have limited cognitive abilities that make estimating the correct bid difficult, if not impossible. Using a series of auction structures, we found that bidding approaches rational agent predictions when participants compete against a computer. However, the winner's curse appears when participants compete against other humans, even when cognitive demands for the correct bidding strategy are removed. These results suggest the humans assign significant future value to victories over human but not over computer opponents even though such victories may incur immediate losses, and that this valuation anomaly is the origin of apparently irrational behavior.

auctions, winner's curse, bounded rationality

Abstract:
There is a voluminous theoretical literature on sealed high-bid auctions (auctions in which bids are sealed and the high bidder pays his bid). See for example, Vickery (1961), Myerson (1981), riley and Samuelson (1981), Milgrom and Weber (1982), Mathews (1983), Maskin and Riley (1984), Holt(1980) Cox, Smith and Walker (1988). A critical property on which this literature relies is the existence of equilibrium in which buyers? bidding strategies are monotonic in their types. This enables the analyst to perform comparative statics as the distribution of types changes, and to compare the welfare properties of the high-bid auction with those of other auction institutions.

Abstract:
The revenue-equivalence theorm for auctions predicts that expected seller revenue is independent of the bidding rules, as long as equilibrium has the properties that the buyer with the highest reservation price wins and any buyer with the lowest possible reservation price has zero expected surplus. Thus, in particular, the two most common auction institutions-the open 'English' and the sealed high-bid auction-are equivalent despite their rather different strategic properties.

Abstract:
We study a model where capacity installation by an incumbent firm serves to deter others from entering the industry. We argue that uncertainty about demand or costs forces the incumbent to choose a higher capacity level than it would under certainty. This higher level diminishes the attractiveness of deterrence (Proposition 1) and, therefore, the range of parameter values for which deterrence occurs (Proposition 2).

Abstract:
The soft budget constraint syndrome, first identified and studied by Janos Kornai, arises when a seemingly unprofitable enterprise is bailed out by the government or the enterprise's creditors. In other words, the enterprise is not held to a fixed budget, but finds its budget constraint "softened" by the infusion of additional credit when it is on the verge of failure. In this paper I examine some recent theoretical analyses of this phenomenon.

Abstract:
We scrutinize the conceptual framework commonly used in the incomplete contract literature. This literature usually assumes that contractual incompleteness is due to the transaction costs of describing - or of even foreseeing - the possible states of nature in advance. We argue, however, that such transaction costs need not interfere with optimal contracting (i.e., transaction costs need not be relevant), provided that agents can probabilistically forecast their possible future payoffs (even if other aspects of the state of the nature cannot be forecast). In other words, all that is required for optimality is that agents be able to perform dynamic programming, an assumption always invoked by the incomplete contract literature. Under weak assumptions, this conclusion remains true even if contract renegotiation cannot be ruled out. We also reexamine the literature on assignment of property rights and conclude with some suggestions for future research.

Abstract:
We model organization as the command-and-communication network of managers erected on top of technology (which is modeled as a collection of plants). In our framework, the role of a manager is to deal with shocks that affect the plants that he oversees directly or indirectly. Organizational form is then an instrument for (a) economizing on managerial costs, and (b) providing managerial incentives. We show that two particular organizational forms, the M-form (multi-divisional form) and the U-form (unitary form), are the optimal structures when shocks are sufficiently "big". We argue however that, under certain empirical assumptions, the M-form is likely to be strictly preferable once incentives are taken into account. We conclude by showing that the empirical hypotheses on which this comparison rests are satisfied for Chinese data.