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Booms, Recessions and Financial Turmoil: A Fresh Look at Investment Decisions under Cyclical Uncertainty
Get PDFThe paper studies the interaction between cyclical uncertainty and investment in a stochastic real option framework where demand shifts stochastically between three different states, each with different rates of drift and volatility. In our setting the shifts are governed by a three-state Markov
switching model with constant transition probabilities. The magnitude of the link between cyclical uncertainty and investment is quantified using simulations of the model. The chief implication of the
model is that recessions and financial turmoil are important catalysts for waiting. In other words, our model shows that macroeconomic risk acts as an important deterrent to investments
Entrepreneurial Orientation, Intangible Assets and Firm Growth: the impact of ‘Spirit and Material’ on the growth of Chinese private firms
No full textThis paper has three contributions. First, it shows how field work within small firms in
PR Chinese has provided new evidence which enables us to measure and calibrate
Entrepreneurial Orientation (EO), as ‘spirit’, and Intangible Assets (IA), as ‘material’, for use in models of small firm growth. Second, it uses inter-item correlation analysis and both exploratory and confirmatory factor analysis to provide new measures of EO and IA, in index and in vector form, for use in econometric models of firm growth.
Third, it estimates two new econometric models of small firm employment growth in
PR China, under the null hypothesis of Gibrat’s Law, using our two new index-based
and vector-based measures of EO and IA. Estimation is by OLS with adjustment for
heteroscedasticity, and for sample selectivity.
Broadly, it finds that EO attributes have had little significant impact on small firm
growth, and indeed innovativeness and pro-activity paradoxically may even dampen
growth. However, IA attributes have had a positive and significant impact on growth,
with networking, and technological knowledge being of prime importance, and
intellectual property and human capital being of lesser but still significant importance.
In the light of these results, Gibrat’s Law is generalized, and Jovanovic’s learning
theory is extended, to emphasise the importance of IA to growth.
These findings cast new empirical light on the oft-quoted national slogan in PR
China of “spirit and material”. So far as small firms are concerned, this paper suggests that their contribution to PR China’s remarkable economic growth is not so much attributable to the ‘spirit’ of enterprise (as suggested by propaganda) as, more prosaically, to the pursuit of the ‘material’
Bargaining and Conflict with Incomplete Information
Get PDFThis paper studies bargaining and conflict under incomplete information, provides an overview and a critical account of the literature on the topic and contributes with original research. We first revise models
of mechanism design and sequential bargaining that take confrontation
as final. Conflict and inefficiencies are to be expected in these models whenever parties have optimistic prospects on the outcome of the all-out conflict. After examining the causes and reasons for this optimism, we
move to the analysis of the recent literature that considers the existence
of limited confrontations that allow bargaining to resume. In the presence
of private information, these limited conflicts convey information and thus
become a bargaining instrument. The paper closes with a discussion on the related empirical literature, the challenges that it faces and some potential avenues for further research
Growth and Survival Determinants of Chinese Private Firms: Fieldwork evidence and econometric estimates
Get PDFThis paper reports on one of the first empirical attempts to investigate small
firm growth and survival, and their determinants, in the Peoples’ Republic of China.
The work is based on field work evidence gathered from a sample of 83 Chinese
private firms (mainly SMEs) collected initially by face-to-face interviews, and
subsequently by follow-up telephone interviews a year later. We extend the models
of Gibrat (1931) and Jovanovic (1982), which traditionally focus on size and age
alone (e.g. Brock and Evans, 1986), to a ‘comprehensive’ growth model with two
types of additional explanatory variables: firm-specific (e.g. business planning); and
environmental (e.g. choice of location). We estimate two econometric models: a
‘basic’ age-size-growth model; and a ‘comprehensive’ growth model, using
Heckman’s two-step regression procedure. Estimation is by log-linear regression on
cross-section data, with corrections for sample selection bias and heteroskedasticity.
Our results refute a pure Gibrat model (but support a more general variant) and
support the learning model, as regards the consequences of size and age for growth;
and our extension to a comprehensive model highlights the importance of location
choice and customer orientation for the growth of Chinese private firms. In the latter model, growth is explained by variables like planning, R&D orientation, market competition, elasticity of demand etc. as well as by control variables. Our work on small firm growth achieves two things. First, it upholds the validity of ‘basic’ size-age-growth models, and successfully applies them to the Chinese economy.
Second, it extends the compass of such models to a ‘comprehensive’ growth model
incorporating firm-specific and environmental variables
Policy Shocks and Contract Renegotiation: Who Gets Raked Over the Coals?
Get PDFChanges in climate policy have large influence on businesses. Firms anticipate
and respond to such changes, but what if they have already engaged in a longterm
relationship with other firms or customers at the time of policy change?
For example, coal supply to power stations is typically based on long-term contracts,
while the nature of the buyer-supplier relationship may well be affected substantially by climate regulations. However, there has been little evidence on whether or how firms amend their contractual agreements in response to a change in policy
The Budget 2009 Tax Proposals and Activity in the UK Continental Shelf (UKCS)
Get PDFNORTH SEA STUDY OCCASIONAL PAPER
No. 11
The demand for intensity versus frequency of alcohol consumption: Evidence from rural Australia
Get PDFThis paper develops a theoretical model for the demand of alcohol where intensity and
frequency of consumption are separate choices made by individuals in order to maximize
their utility. While distinguishing between intensity and frequency of consumption may be
unimportant for many goods, this is clearly not the case with alcohol where the likelihood of
harm depends not only on the total consumed but also on the pattern of use. The results from
the theoretical model are applied to data from rural Australia in order to investigate the
factors that affect the patterns of alcohol use for this population group. This research can play
an important role in informing policies by identifying those factors which influence
preferences for patterns of risky alcohol use and those groups and communities who are most at risk of harm
Are two tax rates better than one?
Get PDFAbstract: Should two–band income taxes be progressive given a general income
distribution? We provide a negative answer under utilitarian and max-min welfare
functions. While this result clarifies some ambiguities in the literature, it does not rule out progressive taxes in general. If we maximize total or weighted utility of the poor, as often intended by the society, progressive taxes can be justified, especially when the ‘rich’ are very rich. Under these objectives we obtain new necessary conditions for progressive taxes, which only depend on aggregate features of income distributions. The validity of these conditions is examined using plausible income distributions
Measuring Avoidable Health Inequality with Realization of Conditional Potential Life Years (RCPLY)
Get PDFIn a series of papers (Tang, Chin and Rao, 2008; and Tang, Petrie and Rao 2006 & 2007), we have tried to improve on a mortality-based health status indicator, namely age-at-death (AAD), and its associated health inequality indicators that measure the distribution of AAD. The main contribution of these papers is to propose a frontier method to separate avoidable and unavoidable mortality risks. This has facilitated the development of a new indicator of health
status, namely the Realization of Potential Life Years (RePLY). The RePLY measure is based on the concept of a “frontier country” that, by construction, has the lowest mortality risks for each age-sex group amongst all countries. The mortality rates of the frontier country are used as a proxy for the unavoidable mortality rates, and the residual between the observed mortality rates and the unavoidable mortality rates are considered as avoidable morality rates.
In this approach, however, countries at different levels of development are benchmarked against the same frontier country without considering their heterogeneity. The main objective
of the current paper is to control for national resources in estimating (conditional) unavoidable and avoidable mortality risks for individual countries. This allows us to construct a new indicator of health status – Realization of Conditional Potential Life Years (RCPLY). The
paper presents empirical results from a dataset of life tables for 167 countries from the year 2000, compiled and updated by the World Health Organization. Measures of national average health status and health inequality based on RePLY and RCPLY are presented and compared