Template-type: ReDIF-Paper 1.0 Author-Name: Gavin C Reid Author-Name: Julia Smith Author-Name: Zhibin Xu Title: Extending Contingency: the impact of strategy, technology, size and business environment on the organisational form of small Chinese firms Abstract: This paper is inspired by articles in the last decade or so that have argued for more attention to theory, and to empirical analysis, within the well-known, and long-lasting, contingency framework for explaining the organisational form of the firm. Its contribution is to extend contingency analysis in three ways: (a) by empirically testing it, using explicit econometric modelling (rather than case study evidence) involving estimation by ordered probit analysis; (b) by extending its scope from large firms to SMEs; (c) by extending its applications from Western economic contexts, to an emerging economy context, using field work evidence from China. It calibrates organizational form in a new way, as an ordinal dependent variable, and also utilises new measures of familiar contingency factors from the literature (i.e. Environment, Strategy, Size and Technology) as the independent variables. An ordered probit model of contingency was constructed, and estimated by maximum likelihood, using a cross section of 83 private Chinese firms. The probit was found to be a good fit to the data, and displayed significant coefficients with plausible interpretations for key variables under all the four categories of contingency analysis, namely Environment, Strategy, Size and Technology. Thus we have generalised the contingency model, in terms of specification, interpretation and applications area. Classification-JEL: D22, M21, M41, L22 Keywords: contingency theory, ordered probit, small firms, Chinese data, contingency variables Number: 1205 Handle: RePEc:san:crieff:1205 File-URL: http://crieff.files.wordpress.com/2012/10/dp1205.pdf File-Format: application/pdf Template-type: ReDIF-Paper 1.0 Author-Name: Gavin C Reid Author-Name: Nicola C Searle Title: What's it worth to keep a secret? IP protection under the Economic Espionage Act Abstract: Protecting intellectual property by trade secrecy has become an increasingly attractive alternative to more conventional modes of IP protection, like patenting and copyright. This paper provides a statistical, econometric and case study analysis of the protection and valuation of trade secrets under the US Economic Espionage Act of 1996 (which criminalised trade secret theft). A new data set is created using EEA prosecutions from 1996 to 2008. By statistical and econometric analysis, it is shown: (a) that both high and low valuations of trade secrets follow a log-normal distribution, supporting Gibrat’s Law; and (b) that, while there is no significant difference in estimates of magnitudes of theft using diverse economic valuation methods (e.g. unjust enrichment, reasonable royalty etc), there is a significant difference between both high and low estimates, and the cross reference value which is often used in sentencing. This suggests, first, that the typical (say, modal) trade secret has quite low value (e.g. $5m.), but some (few) values can be very much larger (e.g. $250m.); and second, that determining sentence values involves other elements than pure economic calculation, like culpability of offenders and proportionality. Classification-JEL: D2, K2, L5, O3 Keywords: Firm size, economic espionage, intellectual property, trade secrets Number: 1204 Handle: RePEc:san:crieff:1204 File-URL: http://crieff.files.wordpress.com/2012/10/dp12041.pdf File-Format: application/pdf Template-type: ReDIF-Paper 1.0 Author-Name: Nicola C Searle Author-Name: Gavin C Reid Title: Firm size and trade secret intensity: evidence from the Economic Espionage Act Abstract: This paper considers trade secrecy as an appropriation mechanism in the context of the US Economic Espionage Act (EEA) 1996. We examine the relation between trade secret intensity and firm size, using a cross section of 95 court cases. The paper builds on extant work in three respects. First, we create a unique body of evidence, using EEA prosecutions from 1996 to 2008. Second, we use an econometric approach to measurement, estimation and hypothesis testing. This allows us comprehensively to test the robustness of findings. Third, we focus on objectively measured valuations, instead of the subjective, self-reported values used elsewhere. We find a stable, robust value for the elasticity of trade secret intensity with respect to firm size, which indicates that a 10% reduction in firm size leads to a 7% increase in trade secret intensity. We find that this result is not sensitive to industrial sector, sample trimming, or functional form. Classification-JEL: D2, K2, L5, O3 Keywords: Firm size, economic espionage, intellectual property, trade secrets Number: 1203 Handle: RePEc:san:crieff:1203 File-URL: http://crieff.files.wordpress.com/2012/09/dp1203.pdf File-Format: application/pdf Template-type: ReDIF-Paper 1.0 Author-Name: Geethanjali Selvaretnam Author-Name: Kannika Thampanishvong Author-Name: David Ulph Title: Saving and Re-building Lives: an Analysis of the Determinants of Disaster Relief Abstract: We analyse both theoretically and empirically, the factors that influence the amount of humanitarian aid which countries receive when they are struck by natural disasters. Our investigation particularly distinguishes between immediate disaster relief which helps the survival of victims and long term humanitarian aid given towards reconstruction and rehabilitation. The theoretical model is able to make predictions as well as explain some of the peculiarities in the empirical results. The empirical analysis, making use of some useful data sources, show that both short and long term humanitarian aid increase with number of people killed, financial loss and level of corruption, while GDP per capita has no effect. Number of people affected had no effect on short term aid, but significantly increased long term aid. Both types of aid increased if the natural disaster was an earthquake, tsunami or drought. In addition, short term aid increases in response to a flood while long term aid increases in response to storms. Classification-JEL: C01, O12, Q54 Keywords: Humanitarian aid, disaster relief, natural disaster Number: 1202 Handle: RePEc:san:crieff:1202 File-URL: http://crieff.files.wordpress.com/2012/09/dp1202.pdf File-Format: application/pdf Template-type: ReDIF-Paper 1.0 Author-Name: Joanna Poyago-Theotoky Author-Name: Ben Ferrett Title: Horizontal Agreements and R&D Complementarities: Merger versus RJV Abstract: We study the decision of two firms within an oligopoly concerning whether to enter into a horizontal agreement to exploit complementarities between their R&D activities and, if so, whether to merge or form a research joint venture (RJV). In contrast to horizontal merger, there is a probability that an RJV contract will fail to enforce R&D sharing. We find that a horizontal agreement always arises. The insiders' merger/RJV choice involves a trade-off: While merger offers certainty that R&D complementarities will be exploited, it leads to a profit-reducing reaction by outsiders on the product market, where competition is Cournot. Greater brand similarity and contract enforceability ("quality") both favour RJV, while greater R&D complementarity favours merger. Interestingly, the insiders may choose to merge even when RJV contracts are always enforceable, and they may opt to form an RJV even when the likelihood of enforceability is negligible. Classification-JEL: O30, L13, D43 Keywords: horizontal merger, research joint venture (RJV), contract enforceability, process R&D, R&D complementarity. Number: 1201 Handle: RePEc:san:crieff:1201 File-URL: http://crieff.files.wordpress.com/2012/08/dp1201.pdf File-Format: application/pdf Template-type: ReDIF-Paper 1.0 Author-Name: Osiris Jorge Parcero Author-Name: Emiliano Villanueva Title: World Wine Exports: What Determined the Success of the ‘New World’ Wine Producers? Abstract: This paper looks at the evolution of the world wine industry in the period 1961-2005. A particular stylized fact is the appearance of non-traditional producing and exporting countries of wine from the beginning of the nineties. We show that the success of these new producing and exporting countries can be explained by the importance of the demand from non-producing countries with little or no tradition of wine consumption, relative to the world demand. This stylized fact is consistent with a testable implication of the switching cost literature and to the best of our knowledge this is the first time that this implication is tested. Classification-JEL: Q13, Q17, N50 Keywords: exports, wine, industry dynamics, switching costs, new entrant. Creation-Date: 2011-07 Number: 1103 Handle: RePEc:san:crieff:1103 File-URL: http://www.st-andrews.ac.uk/~www_crieff/papers/dp1103.pdf File-Format: application/pdf Template-type: ReDIF-Paper 1.0 Author-Name: Walter Briec Author-Name: Emmanuelle Gabillon Author-Name: Laurence Lasselle Author-Name: Hermann Ratsimbanierana Title: On Measuring the Efficiency of Monetary Policy Abstract: Cecchetti et al. (2006) develop a method for allocating macroeconomic performance changes among the structure of the economy, variability of supply shocks and monetary policy. We propose a dual approach of their method by borrowing well-known tools from production theory, namely the Farrell measure and the Malmquist index. Following Färe et al (1994) we propose a decomposition of the efficiency of monetary policy. It is shown that the global efficiency changes can be rewritten as the product of the changes in macroeconomic performance, minimum quadratic loss, and efficiency frontier. Classification-JEL: E52, E58 Keywords: efficiency frontier, inflation variability, Farrell measure, Malmquist index. Creation-Date: 2011-01 Number: 1101 Handle: RePEc:san:crieff:1101 File-URL: http://www.st-andrews.ac.uk/~www_crieff/papers/dp1101.pdf File-Format: application/pdf Template-type: ReDIF-Paper 1.0 Author-Name: Geethanjali Selvaretnam Author-Name: Kannika Thampanishvong Title: Using Effluent Charges in Promoting Investment in Water Pollution Control Technology: A Model of Coordination Failure among Firms Abstract: Untreated wastewater being directly discharged into rivers is a very harmful environmental hazard that needs to be tackled urgently in many countries. In order to safeguard the river ecosystem and reduce water pollution, it is important to have an effluent charge policy that promotes the investment of wastewater treatment technology by domestic ?firms. This paper considers the strategic interaction between the government and the domestic firms regarding the investment in the wastewater treatment technology and the design of optimal effluent charge policy that should be implemented. In this model, the higher is the proportion of non-investing ?firms, the higher would be the probability of having to incur an effluent charge and the higher would be that charge. On one hand the government needs to impose a sufficiently strict policy to ensure that firms have strong incentive to invest. On the other hand, it cannot be too strict that it drives out ?firms which cannot afford to invest in such expensive technology. The paper analyses the factors that affect the probability of investment in this technology. It also explains the difficulty of imposing a strict environment policy in countries that have too many small firms which cannot afford to invest, unless subsidised. Classification-JEL: D8, O3, Q25, Q53. Keywords: water pollution, effluent tax, coordination failure, global games Creation-Date: 2010-11 Number: 1009 Handle: RePEc:san:crieff:1009 File-URL: http://www.st-andrews.ac.uk/~www_crieff/papers/dp1009.pdf File-Format: application/pdf Template-type: ReDIF-Paper 1.0 Author-Name: Maria José Gil-Moltó Author-Name: Joanna Poyago-Theotoky Author-Name: Vasileios Zikos Title: R&D Subsidies, Spillovers and Privatization in Mixed Markets Abstract: We examine the use of subsidies to R&D in a mixed and a private duopoly market. We show that the socially optimal R&D subsidy is increasing in the degree of spillovers but it is lower in the private duopoly. The optimal R&D subsidy leads to an increase in total R&D and production, however, it does not lead to the equalisation of per fi?rm output and therefore to an efficient distribution of production costs. We also find that privatization of the public firm reduces R&D activity and welfare in the duopoly market. This result stands even when optimal R&D subsidies are provided. Classification-JEL: L31, L32, O38, L13, L50. Keywords: Keywords: mixed duopoly, process innovation, R&D subsidies, privatization, spillovers. Creation-Date: 2010-10 Number: 1008 Handle: RePEc:san:crieff:1008 File-URL: http://www.st-andrews.ac.uk/~www_crieff/papers/dp1008.pdf File-Format: application/pdf Template-type: ReDIF-Paper 1.0 Author-Name: Daniel Danau Author-Name: Annalisa Vinella Title: Optimal contracting with private information on cost expectation and variability Abstract: We study the screening problem that arises in a framework where, initially, the agent is privately informed about both the expected production cost and the cost variability and, at a later stage, he learns privately the cost realization. The specifi?c set of relevant incentive constraints, and so the characteristics of the optimal mechanism, depend ?finely upon the curvature of the principal's marginal surplus function as well as the relative importance of the two initial information problems. Pooling of production levels is optimally induced with respect to the cost variability when the principal's knowledge imperfection about the latter is sufficiently less important than that about the expected cost. Classification-JEL: D81, D82, D86 Keywords: Cost uncertainty; Multidimensional screening; Sequential screening Creation-Date: 2010-07 Number: 1007 Handle: RePEc:san:crieff:1007 File-URL: http://www.st-andrews.ac.uk/~www_crieff/papers/dp1007.pdf File-Format: application/pdf Template-type: ReDIF-Paper 1.0 Author-Name: Fabio Aricò Author-Name: Laurence Lasselle Title: Enhancing Interns’ Aspirations towards the Labour Market through Skill-Acquisition: The Second Chance Schools Experience Abstract: Second Change School programmes are active in a number of European countries. These schools offer vulnerable young adults an alternative opportunity to enhance their employability skills by alternating education with work experience. People enrolling in these programmes disengaged from schools at an early age. They already experienced or are at-risk to enter into unemployment. This paper examines the impact of the Second Chance Schools on their participants’ aspirations towards the labour market through skill-acquisition. We are able to identify the perception of Second Chance Schools’ interns regarding entry to the professional life. A third of them, for example, consider their attitude or their surroundings as a barrier preventing them from getting a job. However, our results emphasise the role of the interns’ coach in improving their aspirations towards the labour market. We also show that when compared to male interns, female interns have a stronger (positive) perception of the school as a place where they can gain skills. Classification-JEL: I21 Keywords: Employability, Training, Alternative Education, Aspirations. Creation-Date: 2010-06 Number: 1006 Handle: RePEc:san:crieff:1006 File-URL: http://www.st-andrews.ac.uk/~www_crieff/papers/dp1006.pdf File-Format: application/pdf Template-type: ReDIF-Paper 1.0 Author-Name: Paola Manzini Author-Name: Marco Mariotti Title: Moody choice Abstract: If choices depend on the decision maker's mood, is the attempt to derive any consistency in choice doomed? In this paper we argue that, even with full unpredictability of mood, the way choices from a menu relate to choices from another menu exhibits some structure. We present two alternative models of moody choice. and show that, in either of them, not all choice patterns are possible. Indeed, we characterise both models in terms of consistency requirements of the observed choice data. Classification-JEL: D01 Keywords: Bounded rationality, procedural rationality, utility maximization, choice behavior. Creation-Date: 2010-05 Number: 1002 Handle: RePEc:san:crieff:1002 File-URL: http://www.st-andrews.ac.uk/~www_crieff/papers/dp1002.pdf File-Format: application/pdf Template-type: ReDIF-Paper 1.0 Author-Name: Arnab Bhattacharjee Author-Name: Jie Han Title: Financial Distress in Chinese Industry: Microeconomic, Macroeconomic and Institutional Influences Abstract: TWe study the impact of both microeconomic factors and the macroeconomy on the financial distress of Chinese listed companies over a period of massive economic transition, 1995 to 2006. Based on an economic model of financial distress under the institutional setting of state protection against exit, and using our own firm-level measure of distress, we find important impacts of firm characteristics, macroeconomic instability and institutional factors on the hazard rate of financial distress. The results are robust to unobserved heterogeneity at the firm level, as well as those shared by firms in similar macroeconomic founding conditions. Comparison with related studies for other economies highlights important policy implications. Classification-JEL: E32, D21, C41, L16 Keywords: Financial Distress, Macroeconomic Instability, Cox Proportional Hazards Model, Unobserved Heterogeneity, Emerging Economies. Creation-Date: 2010-03 Number: 1001 Handle: RePEc:san:crieff:1001 File-URL: http://www.st-andrews.ac.uk/~www_crieff/papers/dp1001.pdf File-Format: application/pdf Template-type: ReDIF-Paper 1.0 Author-Name: Gavin C Reid Author-Name: Zhibin Xu Title: Growth and Survival Determinants of Chinese Private Firms: Fieldwork evidence and econometric estimates Abstract: This 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. Classification-JEL: D21, M13, L25, L26 Keywords: Chinese private firms, models of small firm growth, choice of location, customer orientation Creation-Date: 2009-11 Number: 0913 Handle: RePEc:san:crieff:0913 File-URL: http://www.st-andrews.ac.uk/~www_crieff/papers/dp0913.pdf File-Format: application/pdf Template-type: ReDIF-Paper 1.0 Author-Name: Daniel Danau Author-Name: Annalisa Vinella Title: Multi-agent contracting with countervailing incentives and limited liability Abstract: We consider a principal who deals with two privately informed agents protected by limited liability. Their technologies are such that the fixed costs decline with the marginal costs (the types), which are correlated. Because of these technological features, agents display countervailing incentives to misrepresent type. We show that, with high liability, the first-best outcome can be effected for any type if (1) the fixed cost is non-concave in type, under the contract that yields the smallest feasible loss to agents; (2) the fixed cost is not very concave in type, under the contract that yields the maximum sustainable loss to agents. We further show that, with low liability, the first-best outcome is still implemented for a non-degenerate range of types if the fixed cost is less concave in type than some given threshold, which tightens as the liability reduces. The optimal contract entails pooling otherwise.. Classification-JEL: D82 Keywords: Countervailing incentives; Limited liability; Correlation; Pooling Creation-Date: 2009-09 Number: 0911 Handle: RePEc:san:crieff:0911 File-URL: http://www.st-andrews.ac.uk/~www_crieff/papers/dp0911.pdf File-Format: application/pdf Template-type: ReDIF-Paper 1.0 Author-Name: Zhaojun Yang Author-Name: Christian-Oliver Ewald Author-Name: Olaf Menkens Title: Pricing and Hedging of Asian Options: Quasi-Explicit Solutions via Malliavin Calculus Abstract: We use Malliavin calculus and the Clark-Ocone formula to derive the hedging strategy of an arithmetic Asian Call option in general terms. Furthermore we derive an expression for the density of the integral over time of a geometric Brownian motion, which allows us to express hedging strategy and price of the Asian option as an analytic, that is closed form, expression. Numerical computations which are based on this expression are provided. Classification-JEL: G12, G13 Keywords: Asian options, option pricing, hedging, Malliavin calculus. Creation-Date: 2009-09 Number: 0910 Handle: RePEc:san:crieff:0910 File-URL: http://www.st-andrews.ac.uk/~www_crieff/papers/dp0910.pdf File-Format: application/pdf Template-type: ReDIF-Paper 1.0 Author-Name: David Ulph Title: Avoidance Policies – A New Conceptual Framework Abstract: This paper develops a general theoretical framework within which a heterogeneous group taxpayers confront a market that supplies a variety of schemes for reducing tax liability, and uses this framework to explore the impact of a wide range of anti-avoidance policies. Schemes differ in their legal effectiveness and hence in the risks to which they expose taxpayers - risks which go beyond the risk of audit considered in the conventional literature on evasion. Given the individual taxpayer’s circumstances, the prices charged for the schemes and the policy environment, the model predicts (i) whether or not any given taxpayer will acquire a scheme, and (ii) if they do so, which type of scheme they will acquire. The paper then analyses how these decisions, and hence the tax gap, are influenced by four generic types of policy: * Disclosure – earlier information leading to faster closure of loopholes; * Penalties – introduction of penalties for failed avoidance; * Policy Design – fundamental policy changes that design out opportunities for avoidance; * Product Register - the introduction of GAARs or mini-GAARs that give greater clarity about how different types of scheme will be treated. The paper shows that when considering the indirect/behavioural effects of policies on the tax gap it is important to recognise that these operate on two different margins. First policies will have deterrence effects – their impact on the quantum of taxpayers choosing to acquire different types schemes as distinct to acquiring no scheme at all. There will be a range of such deterrence effects reflecting the range of schemes available in the market. But secondly, since different schemes generate different tax gaps, policies will also have switching effects as they induce taxpayers who previously acquired one type of scheme to acquire another. The first three types of policy generate positive deterrence effects but differ in the switching effects they produce. The fourth type of policy produces mixed deterrence effects. Classification-JEL: H26, H30. Keywords: Tax Avoidance; Supply Side; Risks; Tax Schemes; Disclosure; Guidance; Penalties; Tax Policy Creation-Date: 2009-08 Number: 0908 Handle: RePEc:san:crieff:0908 File-URL: http://www.st-andrews.ac.uk/~www_crieff/papers/dp0908.pdf File-Format: application/pdf Template-type: ReDIF-Paper 1.0 Author-Name: Gavin C. Reid Author-Name: Zhibin Xu Title: Entrepreneurial Orientation, Intangible Assets and Firm Growth: the impact of ‘Spirit and Material’ on the growth of Chinese private firms Abstract: This 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’. Classification-JEL: L21, L26, L53, M21 Keywords: entrepreneurial orientation; intangible assets; small business growth; PR China Creation-Date: 2009-07 Number: 0907 Handle: RePEc:san:crieff:0907 File-URL: http://www.st-andrews.ac.uk/~www_crieff/papers/dp0907.pdf File-Format: application/pdf Template-type: ReDIF-Paper 1.0 Author-Name: Suwanee Arunsawadiwong Author-Name: Gavin C. Reid Title: The Estimation of Technical Efficiency Effects Models with an Example Applied to the Thai Manufacturing Sector Abstract: This paper does two things. First, it presents alternative approaches to the standard methods of estimating productive efficiency using a production function. It favours a parametric approach (viz. the stochastic production frontier approach) over a non-parametric approach (e.g. data envelopment analysis); and, further, one that provides a statistical explanation of efficiency, as well as an estimate of its magnitude. Second, it illustrates the favoured approach (i.e. the ‘single stage procedure’) with estimates of two models of explained inefficiency, using data from the Thai manufacturing sector, after the crisis of 1997. Technical efficiency is modelled as being dependent on capital investment in three major areas (viz. land, machinery and office appliances) where land is intended to proxy the effects of unproductive, speculative capital investment; and both machinery and office appliances are intended to proxy the effects of productive, non-speculative capital investment. The estimates from these models cast new light on the five-year long, post-1997 crisis period in Thailand, suggesting a structural shift from relatively labour intensive to relatively capital intensive production in manufactures from 1998 to 2002. Classification-JEL: C21, L64, N65, L69, L85 Keywords: productive efficiency, stochastic production frontier, Thai manufacturing sector Creation-Date: 2009-06 Number: 0906 Handle: RePEc:san:crieff:0906 File-URL: http://www.st-andrews.ac.uk/~www_crieff/papers/dp0906.pdf File-Format: application/pdf Template-type: ReDIF-Paper 1.0 Author-Name: Felix R. FitzRoy Author-Name: Jim Y. Jin Title: Are Two Tax Rates Better Than One? Abstract: 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. Classification-JEL: H20, D40. Keywords: optimal taxation, progressive tax, utilitarian, max-min, help the poor. Creation-Date: 2009-05 Number: 0905 Handle: RePEc:san:crieff:0905 File-URL: http://www.st-andrews.ac.uk/~www_crieff/papers/dp0905.pdf File-Format: application/pdf Template-type: ReDIF-Paper 1.0 Author-Name: Marco Faravelli Author-Name: Oliver Kirchkamp Author-Name: Helmut Rainer Title: Social welfare versus inequality aversion in an incomplete contract experiment Abstract: We present the first laboratory study showing that concerns for social welfare are key determinants of investment behavior in a world of incomplete contracting. Two equally productive players simultaneously decide how much to invest into a joint production process. The total monetary benefit from joint production is split according to a sharing rule which may be symmetric or asymmetric. Standard equilibrium predictions imply inefficiently low investments and unequal payoff distributions. We show that concerns for social welfare and inequality aversion call for opposite investment choices. In the experiment, participants reveal a concern for social welfare but appear not to care about inequality. As a consequence, observed investments are larger than equilibrium investments in a selfish world. Surprisingly, even materially disadvantaged players care more for social welfare than for equality. Social welfare therefore increases but so does inequality. We also study conditions under which players give an advantageous sharing rule. Power-sharing can be successful in the experiment, even when it is not in a selfish world. Classification-JEL: C91, D23, D86. Keywords: Experiments, Incomplete Contracts, Relationship-Specific Investment, Allocation of Power, Social Preferences. Creation-Date: 2009-02 Number: 0902 Handle: RePEc:san:crieff:0902 File-URL: http://www.st-andrews.ac.uk/~www_crieff/papers/dp0902.pdf File-Format: application/pdf Template-type: ReDIF-Paper 1.0 Author-Name: Marco Cucculelli Author-Name: Giacinto Micucci Title: The Age Effect in Entrepreneurship: Founder’s Tenure, Firm Performance, and the Economic Environment Abstract: This paper tests the effect of founder’s tenure on firm performance by taking into account the impact of the changes occurring in the economic environment. We use a large dataset of founder-run firms that includes, in addition to financial data, company data directly collected through a survey of about 2,000 Italian firms. Unlike the negative relationship reported in most empirical papers, we found an inverted U-shaped relationship between founder-CEO tenure and firm performance. This relationship is strongly influenced by the characteristics of the environment in which the company competes: while experience plays a key role in fostering performance in less innovative- and less competitive sectors, a dynamic environment makes the performance of the firm less responsive to the benefits of founder tenure. From the viewpoint of policy, growing environment dynamism calls for greater efficiency of the market for corporate control, in order to assure a continued match between skills of CEOs and the external environment Classification-JEL: L25, J24, G34 Keywords: ageing, entrepreneurship, founder-run firms, changing environment Creation-Date: 2009-03 Number: 0903 Handle: RePEc:san:crieff:0903 File-URL: http://www.st-andrews.ac.uk/~www_crieff/papers/dp0903.pdf File-Format: application/pdf Template-type: ReDIF-Paper 1.0 Author-Name: Marco Francesconi Author-Name: Helmut Rainer Author-Name: Wilbert van der Klaauw Title: Unintended Consequences of Welfare Reform: The Case of Divorced Parents Abstract: This paper formulates a model to examine the effects of changes in tax-benefit policy on the behavior of divorced parents and the well-being of children in single-parent households. Noncustodial parents choose the level of a child support payment to transfer to custodians. These, in turn, decide over child good expenditures and the allocation of time between market work and parenting. In general, ex-spouses fail to achieve an efficient allocation of their resources. On the custodial side, there are inefficiently high levels of labor supply and inefficiently low levels of expenditures on child goods, while on the noncustodial side child support payments are suboptimally low. Our results rationalize the adverse effects that welfare reforms might have on divorced parents and their children. Such adverse effects may arise because an increase in the custodian’s effective wage, either through lower marginal income tax rates or higher childcare subsidies, reinforces the inefficiencies of divorced parents’ decisions; that is, such an increase further depresses child support transfers from noncustodial parents and induces custodial parents to work even more. We explore several extensions of this model, link our findings to the existing empirical literature on the impacts of welfare reform, and discuss the implications of our results for policy and further economic analysis. Classification-JEL: D13, H31, J22 Keywords: Non-intact families; In-work benefit reform; Child care; Child support; Noncooperation Creation-Date: 2009-01 Number: 0901 Handle: RePEc:san:crieff:0901 File-URL: http://www.st-andrews.ac.uk/~www_crieff/papers/dp0901.pdf File-Format: application/pdf Template-type: ReDIF-Paper 1.0 Author-Name: Helmut Rainer Author-Name: Thomas Siedler Title: Social Networks in Determining Migration and Labor Market Outcomes: Evidence from the German Reunification Abstract: This paper empirically examines social network explanations for migration decisions in the context of the German reunification. Using longitudinal data from the German Socio-Economic Panel, we first show that the presence of family and friends in West Germany is an important predictor for the migration hazard rate of East Germans. We then explore whether pre-migration networks have a discernible impact on the economic and social assimilation of East German immigrants in West Germany. We find that East German immigrants are more likely to be employed, and to hold higher-paying jobs, when socially connected to the West prior to emigrating. East Germans immigrants with pre-migration networks also appear to be more integrated into their Western host communities than movers without preexisting social ties. Classification-JEL: C23, J61 Keywords: mergers and acquisitions, abnormal returns, value-ambiguity, unlisted firms, method of payment. Creation-Date: 2008-11 Number: 0811 Handle: RePEc:san:crieff:0811 File-URL: http://www.st-andrews.ac.uk/~www_crieff/papers/dp0811.pdf File-Format: application/pdf Template-type: ReDIF-Paper 1.0 Author-Name: Leonidas Barbopoulos Author-Name: Krishna Paudyal Author-Name: Gioia Pescetto Title: Value Ambiguity and Gains from Acquisitions of Unlisted Targets Abstract: This paper examines the announcement period and the post acquisition gains of UK acquirers of unlisted targets that are subject to value-ambiguity. The evidence shows that target’s age, size, intangibility of assets, and investments can explain the variations in bidding firm’s abnormal returns both in the short- and in the long-run. The findings further show that the gains to bidding firms acquiring unlisted targets are associated with the difficulty in valuing unlisted targets and the means of payment used. Classification-JEL: D81, D82, D83, G14, G34 Keywords: mergers and acquisitions, abnormal returns, value-ambiguity, unlisted firms, method of payment. Creation-Date: 2008-10 Number: 0810 Handle: RePEc:san:crieff:0810 File-URL: http://www.st-andrews.ac.uk/~www_crieff/papers/dp0810.pdf File-Format: application/pdf Template-type: ReDIF-Paper 1.0 Author-Name: GAVIN C REID Author-Name: JULIA A SMITH Title: Why is it so Hard to Value Intangibles? Evidence from Investments in High-Technology Start-Ups Abstract: The paper uses a range of primary-source empirical evidence to address the question: ‘why is it to hard to value intangible assets?’ The setting is venture capital investment in high technology companies. While the investors are risk specialists and financial experts, the entrepreneurs are more knowledgeable about product innovation. Thus the context lends itself to analysis within a principal-agent framework, in which information asymmetry may give rise to adverse selection, pre-contract, and moral hazard, post-contract. We examine how the investor might attenuate such problems and attach a value to such high-tech investments in what are often merely intangible assets, through expert due diligence, monitoring and control. Qualitative evidence is used to qualify the more clear cut picture provided by a principal-agent approach to a more mixed picture in which the ‘art and science’ of investment appraisal are utilised by both parties alike. Classification-JEL: G11, G24, M41, O3 Keywords: venture capital, high technology, accounting information, intangible assets, financial reporting. Creation-Date: 2008-06 Number: 0806 Handle: RePEc:san:crieff:0806 File-URL: http://www.st-andrews.ac.uk/~www_crieff/papers/dp0806.pdf File-Format: application/pdf Template-type: ReDIF-Paper 1.0 Author-Name: Mikel Larreina Title: Financial centres in peripheral regions: the effect of the financial services industry on regional economy - the case of the Scottish Financial cluster Abstract: In recent times the financial services industry has experienced a major transformation, in which markets and players have been globalised and consolidated. Certain financial centres have concentrated on financial firms and markets, engendering considerable research on the foundations of their pre-eminence. Nevertheless, the growth of financial centres in peripheral regions has not been conveniently analysed, despite the fact that financial activity may play a major role in some economies. This paper provides a thorough survey of state-of-the-art literature, both on the transformation of the financial marketplace, and on the rise of global financial centres, devoting especial attention to the appearance of peripheral financial centres. The Scottish case is studied, among other aspects, through the use of Input-Output multipliers, to determine the dramatic role financial services have to play in this region’s economy. This approach advanced may be adapted to other locations, to help to assess the specific impact of financial centres and to draw attention to possible problems arising from overdependence on their activity. Classification-JEL: R11, R15, G29 Keywords:Financial centres, Scotland, financial cluster, Input-Output, regional economy. Creation-Date: 2008-06 Number: 0805 Handle: RePEc:san:crieff:0805 File-URL: http://www.st-andrews.ac.uk/~www_crieff/papers/dp0805.pdf File-Format: application/pdf Template-type: ReDIF-Paper 1.0 Author-Name: Gavin C. Reid Author-Name: Vandana Ujjual Title: Firms in Scottish High Technology Clusters: software, life sciences, microelectronics, optoelectronics and digital media – preliminary evidence and analysis on firm size, growth and optimality Abstract: This paper reports on: (a) new primary source evidence on; and (b) statistical and econometric analysis of high technology clusters in Scotland. It focuses on the following sectors: software, life sciences, microelectronics, optoelectronics, and digital media. Evidence on a postal and e-mailed questionnaire is presented and discussed under the headings of: performance, resources, collaboration & cooperation, embeddedness, and innovation. The sampled firms are characterised as being small (viz. micro-firms and SMEs), knowledge intensive (largely graduate staff), research intensive (mean spend on R&D GBP 842k), and internationalised (mainly selling to markets beyond Europe). Preliminary statistical evidence is presented on Gibrat’s Law (independence of growth and size) and the Schumpeterian Hypothesis (scale economies in R&D). Estimates suggest a short-run equilibrium size of just 100 employees, but a long-run equilibrium size of 1000 employees. Further, to achieve the Schumpeterian effect (of marked scale economies in R&D), estimates suggest that firms have to grow to very much larger sizes of beyond 3,000 employees. We argue that the principal way of achieving the latter scale may need to be by takeovers and mergers, rather than by internally driven growth Classification-JEL: O18, O31, O34, O38 Keywords: High technology, Scottish firms, Gibrat’s Law, the Schumpeterian Hypothesis. Creation-Date: 2008-05 Number: 0804 Handle: RePEc:san:crieff:0804 File-URL: http://www.st-andrews.ac.uk/~www_crieff/papers/dp0804.pdf File-Format: application/pdf Template-type: ReDIF-Paper 1.0 Author-Name: Peter Carr Author-Name: Christian-Oliver Ewald Author-Name: Yajun Xiao Title: On the Qualitative Effect of Volatility and Duration on Prices of Asian Options Abstract: We show that under the Black Scholes assumption the price of an arithmetic average Asian call option with fixed strike increases with the level of volatility . This statement is not trivial to prove and for other models in general wrong. In fact we demonstrate that in a simple binomial model no such relationship holds. Under the Black-Scholes assumption however, we give a proof based on the maximum principle for parabolic partial differential equations. Furthermore we show that an increase in the length of duration over which the average is sampled also increases the price of an arithmetic average Asian call option, if the discounting effect is taken out. To show this, we use the result on volatility and the fact that a reparametrization in time corresponds to a change in volatility in the Black-Scholes model. Both results are extremely important for the risk management and risk assessment of portfolios that include Asian options. Classification-JEL: G11, G31, G39, G63 Keywords: Asian Options, Volatility, Vega, Duration, Qualitative Riskmanagement. Creation-Date: 2008-02 Number: 0803 Handle: RePEc:san:crieff:0803 File-URL: http://www.st-andrews.ac.uk/~www_crieff/papers/dp0803.pdf File-Format: application/pdf Template-type: ReDIF-Paper 1.0 Author-Name: Marco Faravelli Title: The Important Thing Is not (Always) Winning but Taking Part: Funding Public Goods with Contests Abstract: This paper considers a public good game with heterogeneous endowments and incomplete information affected by extreme free-riding. We overcome this problem through the implementation of a contest in which several prizes may be awarded. We identify a monotone equilibrium, in which the contribution is strictly increasing in the endowment. We prove that it is optimal for the social planner to set the last prize equal to zero, but otherwise total expected contribution is invariant to the prize structure. Finally, we show that private provision via a contest Pareto-dominates public provision and is higher than the total contribution raised through a lottery. Classification-JEL: D44, H41 Keywords: Contests; Public Goods; Prizes. Creation-Date: 2008-01 Number: 0802 Handle: RePEc:san:crieff:0802 File-URL: http://www.st-andrews.ac.uk/~www_crieff/papers/dp0802.pdf File-Format: application/pdf Template-type: ReDIF-Paper 1.0 Author-Name: Yongyuan Qiao Title: Analysis into IPO Underpricing and Clustering in Hong Kong Equity Market Abstract: This paper focuses on the time series properties of the level of underpricing of IPO shares and volume of initial selling in Hong Kong equity market. Strong autocorrelation among the level of underpricing has been identified. Evidence suggests that the initial selling volume plays an important role in the relationship. The links between underpricing and clustering of IPOs within different industries are weak, suggesting the reasons for underpricing are rather related to the market liquidity than industry specific risk characteristics Classification-JEL: G14, G11, G24, G32 Keywords: Underpricing of IPO shares, Hong Kong equity market, the volume of initial selling, Market liquidity. Creation-Date: 2007-12 Number: 0716 Handle: RePEc:san:crieff:0716 File-URL: http://www.st-andrews.ac.uk/~www_crieff/papers/dp0716.pdf File-Format: application/pdf Template-type: ReDIF-Paper 1.0 Author-Name: Luca Corazzini Author-Name: Marco Faravelli Author-Name: Luca Stanca Title: A Prize to Give for: An Experiment on Public Good Funding Mechanisms Abstract: This paper investigates fund-raising mechanisms based on a prize as a way to overcome free riding in the private provision of public goods, under the assumptions of income heterogeneity and incomplete information about income levels. We compare experimentally the performance of a lottery, an all-pay auction and a benchmark voluntary contribution mechanism. We find that prize-based mechanisms perform better than voluntary contribution in terms of public good provision after accounting for the cost of the prize. Comparing the prize-based mechanisms, total contributions are significantly higher in the lottery than in the all-pay auction. Focusing on individual income types, the lottery outperforms voluntary contributions and the all-pay auction throughout the income distribution Classification-JEL: C91, D44, H41 Keywords: Auctions; Lotteries; Public Goods; Laboratory Experiments. Creation-Date: 2007-12 Number: 0714 Handle: RePEc:san:crieff:0714 File-URL: http://www.st-andrews.ac.uk/~www_crieff/papers/dp0714.pdf File-Format: application/pdf Template-type: ReDIF-Paper 1.0 Author-Name: Tak Kuen Siu Author-Name: Hailiang Yang Unim Author-Name: John W Lau Title: Option Pricing When the Regime-Switching Risk is Priced Abstract: Recently, there has been considerable interest in investigating option valuation problem in the context of regime-switching models. However, most of the literature consider the case that the risk due to switching regimes is not priced. Relatively little attention has been paid to investigate the impact of switching regimes on the option price when this source of risk is priced. In this paper, we shall articulate this important problem and consider the pricing of an option when the price dynamic of the underlying risky asset is governed by a Markov-modulated geometric Brownian motion. We suppose that the drift and volatility of the underlying risky asset switch over time according to the state of an economy, which is modeled by a continuous-time hidden Markov chain. We shall develop a two-stage pricing model which can price both the diffusion risk and the regime-switching risk based on the Esscher transform and the minimization of the maximum entropy between an equivalent martingale measure and the real-world probability measure over different states. The latter is called a min-max entropy problem. We shall conduct numerical experiments to illustrate the effect of pricing regime-switching risk. The results of the numerical experiments reveal that the impact of pricing regime-switching risk on the option prices is significant. Classification-JEL: G10, G12 Keywords: Option valuation; Regime-switching risk; Two-stage pricing procedure; Esscher trans- form; Martingale restriction; Min-max entropy problem. Creation-Date: 2007-11 Number: 0713 Handle: RePEc:san:crieff:0713 File-URL: http://www.st-andrews.ac.uk/~www_crieff/papers/dp0713.pdf File-Format: application/pdf Template-type: ReDIF-Paper 1.0 Author-Name: Andrew Vivian Title:The Equity Premium: 100 Years of Empirical Evidence from the UK Abstract: We examine the UK equity premium over more than a century using dividend growth to estimate expectations of capital gains employing the approach of Fama and French (2002). Over recent decades estimated equity premia implied by dividend growth have been much lower than that produced by average stock returns for the UK market as a whole; a finding corroborated by all economic sub-sectors. Our empirical analysis suggests this is primarily due to a declining discount rate, during the latter part of the 20th Century, which would rationally stimulate unanticipated equity price rises during this period. Thus, we conclude that historical stock returns over recent decades have been above investors’ expectations. Classification-JEL: G10; G12 Keywords: Equity Premium; Expected Returns; Dividend Growth Predictability Creation-Date: 2007-09 Number: 0711 Handle: RePEc:san:crieff:0711 File-URL: http://www.st-andrews.ac.uk/~www_crieff/papers/dp0711.pdf File-Format: application/pdf Template-type: ReDIF-Paper 1.0 Author-Name: Aihua Zhang Title: A closed-form solution to the continuous-time consumption model with endogenous labor income Abstract: In this paper, we study an intertemporal maximization problem of an infinitely-lived individual who faces both labor income and asset return uncertainty. Given the growth rate of wage, the uncertainty of labor income is caused by the stochastic labor supply which is to be determined upon the available market information. Closed forms of consumption, labor supply and portfolio are obtained analytically by means of the martingale method. The Euler equation under uncertainty is established. Classification-JEL: C61; C73; G1; J22 Keywords: Consumption, Labor Supply, Portfolio, Euler equation, Martingale Creation-Date: 2007-09 Number: 0710 Handle: RePEc:san:crieff:0710 File-URL: http://www.st-andrews.ac.uk/~www_crieff/papers/dp0710.pdf File-Format: application/pdf Template-type: ReDIF-Paper 1.0 Author-Name: Marco Francesconi Author-Name: Helmut Rainer Author-Name: Wilbert van der Klaauw Title:The Effects of In-Work Benefit Reform in Britain on Couples: Theory and Evidence Abstract: This paper examines the effects of theWorking Families’ Tax Credit (WFTC) on couples in Britain. We develop a simple model of household decisions which explicitly accounts for the role played by the tax and benefit system. Its main implications are then tested using panel data from the British Household Panel Survey collected between 1991 and 2002. Overall, the financial incentives of the reform had negligible effects on a wide range of married mothers’ decisions, such as eligible (working at least 16 hours per week) and full-time employment (working at least 30 hours per week), employment transitions, childcare use, and divorce rates. Women’s responses, however, were highly heterogeneous, depending on their partners’ labour supply and earnings. Mothers married to low- income men showed larger responses in employment, especially if they had younger children. They were more likely to remain in the labour force and had higher rates at which they entered it. While more likely to receive the tax credit, they also experienced a greater risk of divorce. We find virtually no effect for women with higher-income husbands. Likewise, there are no statistically significant responses among married men. Classification-JEL: D19 Keywords: Tax credit, household labour supply, intrahousehold bargaining, divorce Creation-Date: 2007-09 Number: 0709 Handle: RePEc:san:crieff:0709 File-URL: http://www.st-andrews.ac.uk/~www_crieff/papers/dp0709.pdf File-Format: application/pdf Template-type: ReDIF-Paper 1.0 Author-Name: Gavin C. Reid Author-Name: Torcail M. Stewart Title: Independents Abroad: the pursuit of expansion by independent oil companies into non-traditional petroleum countries Abstract: This paper looks at oil Independents, and potential disabilities on organizational performance which may arise when internationalization is contemplated. The evidence used is field work based, and uses sub-samples of British and North American oil Independents. It is argued, on the basis of grounded evidence, from field work interviews, that companies which do not internationalize, may be constrained by resource weaknesses, rather than by satisfactory strength within domestic territories alone. These weaknesses may rise from an unwillingness to confront the ambiguity of rules, regulations and mores of non-Western countries. Personal attitudes, beliefs, political affiliations, spheres of influence, and so on, may be more important to success in non-Western territories, than more familiar notions of business strategy and organizational competence. This is because, in the ‘non-ideal’ functioning of the non-Western context, decisions are relationship based, rather than based on formal modes of selection. It is shown how Independents have an advantage over Majors in decision-making speed, the authority to commit, the seniority of personnel and the establishment of relationships. This translates into relative success in applying for licenses in non-Western countries. Because of such capabilities, the Independents are more able to target non-traditional, under-explored overseas areas. Indeed, they display an active willingness to engage with countries in which they will encounter relatively high political and/or security risks (e.g. as rated by the IMF Political Stability index). Classification-JEL: D8; L1; L7; L71; M21 Keywords: independent oil companies; petroleum industry; negotiation; non-traditional contracting; political risk Creation-Date: 2005-06 Number: 0507 Handle: RePEc:san:crieff:0507 File-URL: http://www.st-andrews.ac.uk/~www_crieff/papers/dp0507.pdf File-Format: application/pdf Template-type: ReDIF-Paper 1.0 Author-Name: Arnab Bhattacharjee Author-Name: Chris Jensen-Butler Title: A Model of Regional Housing Markets in England and Wales Abstract: We propose and estimate an economic model of regional housing markets in England andWales, incorporating both the macroeconomic relationships between prices, demand and supply and a microeconomic model of search, matching and price formation. The empirical model, estimated separately for each of the 10 government office regions in England and Wales, validates the economic model. However, we find substantial heterogeneity across the regions, which is potentially useful in informing housing and land-use policies. In addition, the model allows completely unrestricted inter-regional spatial relationships. The estimated spatial autocorrelations imply different drivers of spatial diffusion in different regions, the understanding of which can be improved by further work. Classification-JEL: R21; R31; R33; C31 Keywords: Housing markets; Search and matching; Spatial diffusion; Housing demand; Housing Supply. Creation-Date: 2005-06 Number: 0508 Handle: RePEc:san:crieff:0508 File-URL: http://www.st-andrews.ac.uk/~www_crieff/papers/dp0508.pdf File-Format: application/pdf Template-type: ReDIF-Paper 1.0 Author-Name: Bernadette Power Author-Name: Gavin C. Reid Title: A Test of Real Options Logic Abstract: The main hypothesis examines whether real options logic is applied by entrepreneurs in undertaking key organisational change (e.g. ownership, technology, location, line of business etc.). This is explored in a model of firm performance using data collected in face-to-face interviews with entrepreneurs on the level and timing of precipitating influences of organisational change and the level and timing of consequential adjustments following organisational change. Two econometric estimation techniques (e.g. Box-Cox regression with WLS correction and Heckman sample selectivity correction) were employed. Firm performance is explained in terms of a count of real options exercised, measures of the level and timing of precipitators and consequential adjustments, plus interactions between these measures to capture firm behaviour through a real options lens. Evidence was found of the value of holding real options until uncertainties are resolved. At this point the value of waiting is at its lowest Classification-JEL: C21; C42; D21; G31; L25; M13; M21 Keywords: Real Options, Strategic Flexibility, Performance, Small Firms Creation-Date: 2005-06 Number: 0509 Handle: RePEc:san:crieff:0509 File-URL: http://www.st-andrews.ac.uk/~www_crieff/papers/dp0509.pdf File-Format: application/pdf Template-type: ReDIF-Paper 1.0 Author-Name: Gavin C. Reid Author-Name: Julia A. Smith Title: Venture Capital Investor Behaviour in the Backing of UK High Technology Firms: Financial Reporting and the Level of Investment Abstract: This paper is an empirical investigation into the ways in which venture capitalists value (and invest in) high technology firms, focusing on financial reporting, risk disclosure and intangible assets. It is based on questionnaire returns from UK investors in diverse sectors, ranging from biotechnology, through software/ computer services, to communications and medical services. This evidence is used to examine: (a) the usefulness of financial accounts; (b) the implications of technopole investment; (c) the extent of investor control over the investee’s AIS; and (d) the role of investor opinion (e.g. on disclosure, due diligence and risk reporting) in determining the level of equity provision. Classification-JEL: D81; D82; G24; G32; M13; M41; O31 Keywords: venture capital, high technology, accounting information, intangible assets Creation-Date: 2005-06 Number: 0510 Handle: RePEc:san:crieff:0510 File-URL: http://www.st-andrews.ac.uk/~www_crieff/papers/dp0510.pdf File-Format: application/pdf Template-type: ReDIF-Paper 1.0 Author-Name: Andreas Humpe Author-Name: Peter D. Macmillan Title: Can macroeconomic variables explain long term stock market movements? A comparison of the US and Japan. Abstract: Within the framework of a standard discounted value model we examine whether a number of macroeconomic variables influence stock prices in the US and Japan. A cointegration analysis is applied in order to model the long term relationship between industrial production, the consumer price index, money supply, long term interest rates and stock prices in the US and Japan. For the US we find the data are consistent with a single cointegrating vector, where stock prices are positively related to industrial production and negatively related to both the consumer price index and a long term interest rate. We also find an insignificant (although positive) relationship between US stock prices and the money supply. However, for the Japanese data we find two cointegrating vectors. We find for one vector that stock prices are influenced positively by industrial production and negatively by the money supply. For the second cointegrating vector we find industrial production to be negatively influenced by the consumer price index and a long term interest rate. These contrasting results may be due to the slump in the Japanese economy during the 1990s and consequent liquidity trap. Classification-JEL: C22; G12; E44 Keywords: Stock Market Indices, Cointegration, Interest Rates Creation-Date: 2005-08 Number: 0511 Handle: RePEc:san:crieff:0511 File-URL: http://www.st-andrews.ac.uk/~www_crieff/papers/dp0511old.pdf File-Format: Application/pdf File-Function: First version, 2005 File-URL: http://www.st-andrews.ac.uk/~www_crieff/papers/dp0511.pdf File-Format: Application/pdf File-Function: Revised version, 2007 Template-type: ReDIF-Paper 1.0 Author-Name: Helmut Rainer Title: Gender Discrimination and Efficiency in Marriage: the Bargaining Family under Scrutiny. Abstract: This paper criticizes the view that discrimination limits the disadvantaged sex to undertaking housework and thus ensures that gains from specialization at the household level are not wasted. Our framework gives attention to causal links between labor market discrimination and the strategic behavior of women and men within families. We consider a repeated family bargaining model that links the topics of employment and households. A key aspect of the model is that marital bargaining power is determined endogenously: the amount of money a person earns—in comparison with a partner’s income—establishes relative marital bargaining power. Gender discrimination can alter household behavior in surprising and sometimes unfortunate ways. We show that: (i) the efficiency of household decisions is sometimes inversely related to the prevailing degree of gender discrimination in labor markets; (ii) discriminated against females have difficulty enforcing cooperative household outcomes since they may be extremely limited to credibly punish opportunistic behavior by their male partners; (iii) the likelihood that sharing rules such as “equal sharing” are maintained throughout a marriage relationship is highest when men and women face equal opportunities in labor markets. A key policy implication obtained from our analysis is that efforts to promote greater gender equality in labor markets can also contribute to increasing the likelihood of fully cooperative outcomes at the household level. Classification-JEL: D13; J71; J82; C78 Keywords: Gender Roles, Discrimination, Marital Negotiations, Reputation. Creation-Date: 2005-09 Number: 0512 Handle: RePEc:san:crieff:0512 File-URL: http://www.st-andrews.ac.uk/~www_crieff/papers/dp0512.pdf File-Format: application/pdf Template-type: ReDIF-Paper 1.0 Author-Name: Helmut Rainer Author-Name: Thomas Siedler Title: O Brother, Where Art Thou? The Effects of Having a Sibling on Geographic Mobility and Labor Market Outcomes Abstract: In most industrialized countries, more people than ever are having to cope with the burden of caring for elderly parents. This paper formulates a model to explain how parental care responsibilities and family structure interact in affecting children’s mobility characteristics. A key insight we obtain is that the mobility of young adults crucially depends on the presence of a sibling. Our explanation is mainly, but not exclusively, based on a sibling power effect. Siblings compete in location and employment decisions so as to direct parental care decisions at later stages towards their preferred outcome. Only children are not exposed to this kind of competition. This causes an equilibrium in which siblings not only exhibit higher mobility than only children, but also have better labor market outcomes. Using data from the German Socio-Economic Panel Study (SOEP) and from the American National Survey of Families and Households (NSFH), we find strong evidence that confirms these patterns. The implications of our results are then discussed in the context of current population trends in Europe and the United States. Classification-JEL: D19; J14; C13 Keywords: Geographic Mobility, Intergenerational Relationships, Care of the Elderly, Family Bargaining. Creation-Date: 2005-09 Number: 0513 Handle: RePEc:san:crieff:0513 File-URL: http://www.st-andrews.ac.uk/~www_crieff/papers/dp0513.pdf File-Format: application/pdf Template-type: ReDIF-Paper 1.0 Author-Name: Jim Y. Jin Author-Name: Tatiana Damjanovic Author-Name: Osiris J.Parcero Title: Price and Output Comparison under Alternative Duopoly Structures. Abstract: Duopoly competition can take different forms: Bertrand, Cournot, Bertrand-Stackelberg, Cournot-Stackelberg and joint profit maximization. In this paper we find a clear price ranking among these five markets when goods are substitutes and an output ranking when goods are complements. Moreover, the ranking can be explained by different levels of conjectural variation associated with those markets. Classification-JEL: L11; L13; D43 Keywords: Bertrand, Cournot, Stackelberg, monopoly, ranking, conjectural variation Creation-Date: 2005-09 Number: 0516 Handle: RePEc:san:crieff:0516 File-URL: http://www.st-andrews.ac.uk/~www_crieff/papers/dp0516.pdf File-Format: application/pdf Template-type: ReDIF-Paper 1.0 Author-Name: Arnab Bhattacharjee Author-Name: Chris Jensen-Butler Title: Estimation of Spatial Weights Matrix in a Spatial Error Model, with an Application to Diffusion in Housing Demand Abstract: This paper proposes a methodology for estimation of spatial weights matrices which are consistent with a given or estimated pattern of spatial autocovariance. This approach is potentially useful for applications in urban, environmental, development, growth and other areas of economics where there is uncertainty regarding the nature or spatial (or cross-sectional) interaction between regions (or economic agents). The proposed methodology is applied to housing markets in England and Wales and several new hypotheses are advanced about the social and economic forces that determine spatial diffusion in housing demand. Classification-JEL: C14; C15; C30; C31; R21; R31. Keywords: Spatial econometrics; Spatial autocorrelation; Spatial weights matrix, Spatial error model; Housing demand Creation-Date: 2005-12 Number: 0519 Handle: RePEc:san:crieff:0519 File-URL: http://www.st-andrews.ac.uk/~www_crieff/papers/dp0519.pdf File-Format: application/pdf Template-type: ReDIF-Paper 1.0 Author-Name: Osiris J.Parcero Title: Inter-jurisdiction Subsidy Competition for a New Production Plant: What is the Central Government Optimal Policy? Abstract: This paper models inter-jurisdiction competition for foreign direct investment and optimal government policy intervention to protect the national interest. The inter-jurisdiction competition for a multinational has the potential of favouring the multinational and of becoming detrimental for the host country. The central government wants to limit such competition but it cannot tax-discriminate between different types of multinationals. We find that the central government would use tax policy to create asymmetries even when the underlying structure is symmetrical. This offers a novel explanation for the creation of ‘Special Economic Zones’ in many countries, which are well known to be aimed at the attraction of foreign direct investment. Classification-JEL: F23; H25; H71. Keywords: Bargaining, subsidy, regional, competiton, FDI Creation-Date: 2006-05 Number: 0601 Handle: RePEc:san:crieff:0601 File-URL: http://www.st-andrews.ac.uk/~www_crieff/papers/dp0601.pdf File-Format: application/pdf Template-type: ReDIF-Paper 1.0 Author-Name: Oliver Kirchkamp, Author-Name: Eva Poen, Author-Name: Philipp Reiß Title: Outside options: Another reason to choose the first-price auction. Abstract: In this paper we derive equilibrium bidding functions for first-price and second-price auctions with private values when bidders have outside options. We then study bidding behaviour with the help of experiments. We find that bidders respond to outside options and to variations of common knowledge about competitors’ outside options, though bidders in first-price auctions show more overbidding with outside options than without. In second-price auctions overbidding is not affected by outside options. As expected first-price auctions yield more revenue than second-price auctions. This revenue-premium is higher in the presence of outside options. Classification-JEL: C72; C92; D44 Keywords: Auction, Experiment, Outside Option Creation-Date: 2006-06 Number: 0605 Handle: RePEc:san:crieff:0605 File-URL: http://www.st-andrews.ac.uk/~www_crieff/papers/dp0605.pdf File-Format: application/pdf Template-type: ReDIF-Paper 1.0 Author-Name: Oliver Kirchkamp, Author-Name: Philipp Reiß Title: Another explanation for overbidding and another bias for underbidding in first-price auctions. Abstract: First-price auction experiments find often substantial overbidding which is typically related to risk aversion. We introduce a model where some bidders use constrained linear bids. As with risk aversion this leads to overbidding if valuations are high, but in contrast to risk aversion the model predicts underbidding if valuations are low. We test this model with the help of experiments, compare bidding in first-price and second-price auctions and study revenue under different treatments. We conclude that at least part of the commonly observed overbidding is an artefact of experimental setups which rule out underbidding. Constrained linear bids seem to fit observations better Classification-JEL:C92; D44 Keywords:Auction, Experiment, Overbidding, Underbidding, Risk-Aversion Creation-Date: 2006-06 Number: 0606 Handle: RePEc:san:crieff:0606 File-URL: http://www.st-andrews.ac.uk/~www_crieff/papers/dp0606.pdf File-Format: application/pdf Template-type: ReDIF-Paper 1.0 Author-Name: Oliver Kirchkamp, Title: Less fighting than expected — experiments with wars of attrition and all-pay auctions. Abstract: The paper compares with the help of experiments dynamic and static wars of attrition (i.e. second price all-pay auctions) and first-price all-pay auctions. While most experimental studies find overbidding in first-price all-pay auctions, we find underbidding in a similar institution, the war of attrition, in particular if the bidding process is dynamic. We study bids and revenue in different experimental frames and matching procedures and draw a link to the literature on stepwise linear bidding functions Classification-JEL:C72; C92; D44; E62; H30 Keywords:War of attrition, dynamic bidding, all-pay auction, stabilisation, volunteer’s dilemma, experiment Creation-Date: 2006-06 Number: 0607 Handle: RePEc:san:crieff:0607 File-URL: http://www.st-andrews.ac.uk/~www_crieff/papers/dp0607.pdf File-Format: application/pdf Template-type: ReDIF-Paper 1.0 Author-Name: Oliver Kirchkamp Author-Name: Michele Bernasconi Author-Name: Paolo Paruolo Title: Do fiscal variables affect fiscal expectations? Experiments with real world and lab data Abstract: We generate observable expectations about fiscal variables through laboratory experiments using real world data from several European countries as stimuli. We compare a VAR model of expectations for data which is presented in a fiscal frame with one for neutrally presented data. We find that participants understand the meaning of the fiscal variables, but also that their ability to perceive the correct characteristics of fiscal policy is limited. We tie the VAR analysis to specific models of forming expectations. We find that agents’ expectations are neither consistent with rational nor with purely adaptive expectations but, instead, follow an augmented-adaptive scheme Classification-JEL:C91; D89; E62; H31 Keywords:Experiments, fiscal policy, expectations, causality, cointegration, panel data. Creation-Date: 2006-06 Number: 0608 Handle: RePEc:san:crieff:0608 File-URL: http://www.st-andrews.ac.uk/~www_crieff/papers/dp0608.pdf File-Format: application/pdf Template-type: ReDIF-Paper 1.0 Author-Name: Oliver Kirchkamp, Author-Name: Philipp Reiß Title: Expectations in first-price auctions Abstract: Bids in private value first price auctions consistently deviate from risk neutral symmetric equilibrium bids. It is difficult to explain this deviation with risk aversion. We propose and test two other explanations: (1) Bidders do not form correct expectations. (2) Bidders do not play a best reply against their expectations. We present a novel experimental setup which allows to observe bids and expectations separately. We extensively test the internal validity of this setup. We find that off equilibrium expectations explain, if at all, underbidding. Off equilibrium bids do not seem to be due to wrong expectations but due to deviations from a best reply Classification-JEL:C92; D44 Keywords:Experiments, Auction, Expectations. Creation-Date: 2006-06 Number: 0609 Handle: RePEc:san:crieff:0609 File-URL: http://www.st-andrews.ac.uk/~www_crieff/papers/dp0609.pdf File-Format: application/pdf Template-type: ReDIF-Paper 1.0 Author-Name: Manfredi M.A. La Manna  Title: The Hidden Surplus From Research Joint Ventures: An Application Of Systems Reliability Theory Abstract: The paper’s aim is two fold: (a) to model some key features of the research process as a multi-component system, as understood by the mathematical theory of systems reliability; and (b) to apply the resulting model to Research Joint Ventures, showing that a potentially very large surplus can be realized purely by organizing research efficiently, i.e. even without any changes in R&D investment. Classification-JEL: O32 Keywords: optimal organization, systems reliability, Research Joint Ventures, parallel and series systems, majorization, organizational surplus. Creation-Date: 2006-11 Number: 0610 Handle: RePEc:san:crieff:0610 File-URL: http://www.st-andrews.ac.uk/~www_crieff/papers/dp0610.pdf File-Format: application/pdf Template-type: ReDIF-Paper 1.0 Author-Name: Peter Macmillan Author-Name: Ian Smith Title: Explaining International Soccer Rankings Abstract: Existing research on the determinants of FIFA’s international soccer rankings suffers from serious statistical problems, particularly sample selection bias and non normal errors. We correct for this by extending the data set by an additional 100 countries. Furthermore, we find important roles for new variables in the form of the size of population and a long history of international soccer in explaining world football rankings. We also investigate the determinants of an alternative ranking measure to that constructed by FIFA. Classification-JEL: F0; L83; H50; Z10. Keywords: international football rankings, history. Creation-Date: 2006-12 Number: 0612 Handle: RePEc:san:crieff:0612 File-URL: http://www.st-andrews.ac.uk/~www_crieff/papers/dp0612.pdf File-Format: application/pdf Template-type: ReDIF-Paper 1.0 Author-Name: Jim Jin Author-Name: Osiris J. Parcero Title: Competitiveness and Conjectural Variation in Duopoly Markets Abstract: Duopoly competition can take different forms: Bertrand, Cournot, Bertrand-Stackelberg, Cournot-Stackelberg and joint profit maximization. In comparing these market structures this paper make three contributions. First, we find a clear price (output) ranking among these five markets when goods are substitutes (complements). Second, these rankings can be explained by different levels of conjectural variation associated with each market structure. Third, in a more general non-linear duopoly model we find that CV in prices tends to hurt consumers, while CV in quantities is often good for social welfare. In this last case the policy recommendation for regulators seems to be to encourage the establishment of firms’ reputation in quantity responses, but to discourage it in price responses. Classification-JEL: L11; L13; D43 Keywords: Optimal Bertrand, Cournot, Stackelberg, monopoly, ranking, conjectural variation. Creation-Date: 2006-12 Number: 0613 Handle: RePEc:san:crieff:0613 File-URL: http://www.st-andrews.ac.uk/~www_crieff/papers/dp0613.pdf File-Format: application/pdf Template-type: ReDIF-Paper 1.0 Author-Name: Gavin C. Reid Author-Name: Julia A. Smith Title: Practitioner Views on Financial Reporting for Smaller Entities Abstract: This paper has four purposes. First, to establish the policy background leading to a special financial reporting standard for small firms (FRSSE), aimed at reducing compliance costs. An indirect policy implication of this was that small firms would be stimulated, for example, in terms of start-up rate, performance (including survival, profitability, and growth), and contribution to employment and innovation within the economy. Second, to consider the implications for FRSSE itself on compliance costs, and to ask what forms they may take. Third, to analyse new evidence on adopters and non-adopters of the FRSSE. Fourth, to cast this new evidence into a cost effectiveness framework, to judge whether adopters who are engaged in upgrading of skills, to implement the FRSSE, have attained net benefit, compared to non-adopters, in so doing. The conclusion is that significant net benefit has indeed accrued to adopters. Classification-JEL: G32; M13; M41 Keywords: Small firms, financial reporting, compliance costs, cost-effectiveness. Creation-Date: 2007-01 Revision-Date: 2008-06 Number: 0701 Handle: RePEc:san:crieff:0701 File-URL: http://www.st-andrews.ac.uk/~www_crieff/papers/dp0701.pdf File-Format: application/pdf Template-type: ReDIF-Paper 1.0 Author-Name: Andrew Vivian Title: The Equity Premium: UK Industry Evidence. Abstract: Recent US research has suggested that market expected returns have fallen. Most studies propose this fall in market expected returns occurred during the 1990’s. Our UK empirical analysis finds a fall in expected returns in the 1990’s for the market index, but, in general, this is not evident across many segments of the market. Specifically,we find for the majority of UK industries a) over recent decades there has not been a general or overall fall in expected returns and b) there was not a common decline in expected returns during the 1990’s. We propose changing industry composition of the market portfolio rather than a decline in systematic risk is primarily responsible for this recent proposed fall in value-weighted market returns. Classification-JEL: G12; G15 Keywords: Equity Premium, Declining Returns, Industry Composition. Creation-Date: 2007-03 Number: 0702 Handle: RePEc:san:crieff:0702 File-URL: http://www.st-andrews.ac.uk/~www_crieff/papers/dp0702.pdf File-Format: application/pdf Template-type: ReDIF-Paper 1.0 Author-Name: Geethanjali Selvaretnam Title: Banks, depositors and liquidity shocks: long term vs. short term interest rates in a model of adverse selection Abstract: This model takes into consideration the fact that depositors have private information about their probability of having to withdraw early. The banks can offer a menu of contracts with different combinations of long and short term interest rates to those who withdraw early and wait respectively. This is a principal- agent model of a bank in a competitive market and depositors where depositors are either low or high type which indicates the probability of early withdrawal. Therefore they will consider the long-term and short-term returns in their investment decision. We find the contracts that the banks offer that can be sustained as equilibrium - symmetric pooling equilibrium where only one contract is offered and a separating equilibrium where two contracts are offered. It is found that found return of more than one can never be sustained. Further, there is no symmetric pooling equilibrium when both types withdraw with some probability. However a symmetric pooling equilibrium can be sustained if the proportion of low type agents is high enough and they never withdraw early. There is a separating equilibrium if the proportion of low type agents is sufficiently high. Classification-JEL: D82; G21 Keywords: adverse selection, interest rates, liquidity shock, private information. Creation-Date: 2007-05 Number: 0703 Handle: RePEc:san:crieff:0703 File-URL: http://www.st-andrews.ac.uk/~www_crieff/papers/dp0703.pdf File-Format: application/pdf Template-type: ReDIF-Paper 1.0 Author-Name: Mikel Larreina Title: Detecting a cluster in a region without complete statistical data, using Input-Output analysis: The case of the Rioja wine cluster Abstract: In recent times the role of wine in regional economies has been a major political issue, highlighting the importance of measuring accurately the multiplier effect of wine in regions with large wine sectors. This paper provides a case study of how to construct vital parts of an Input-Output table for a region without complete statistics, and how to use them thereafter to interpret the economic structure of the region. This methodology may be adapted to other wine clusters, and to related clusters, such as brewing and distilling Classification-JEL: R11; R15; Q19 Keywords: Wine, Rioja, cluster, Input-Output, regional economy. Creation-Date: 2007-06 Number: 0706 Handle: RePEc:san:crieff:0706 File-URL: http://www.st-andrews.ac.uk/~www_crieff/papers/dp0706.pdf File-Format: application/pdf