POLITICAL SELECTION IN CHINA: THE COMPLEMENTARY ROLES OF CONNECTIONS AND PERFORMANCE

Who becomes a top politician in China? We focus on provincial leaders—a pool of candidates for top political office—and examine how their chances of promotion depend on their performance in office and connections with top politicians. Our empirical analysis, based on the curriculum vitae of Chinese politicians, shows that connections and performance are complements in the Chinese political selection process. This complementarity is stronger the younger provincial leaders are relative to their connected top leaders. To provide one plausible interpretation of these empirical findings, we propose a simple theory in which the complementarity arises because connections foster loyalty of junior officials to senior ones, thereby allowing incumbent top politicians to select competent provincial leaders without risking being ousted. Our findings shed some light on why a political system known for patronage can still select competent leaders.     

ECONOMIC INTEGRATION,POLITICAL INTEGRATION OR BOTH?

We study the effects of economic and political integration by presenting a model in which firms compete with each other in both an economic market—where they produce a good and compete for market share—and in a political (rent seeking) market—where they compete for transfers from the government. Growth is driven by firms’ cost‐reducing innovation activity and economic and political integration affect firms’ incentive to innovate differently. In this setting, economic and political integration can be seen as complementary. Economic integration, when not accompanied by political integration, can lead to less innovation and slower growth as firms respond to increased competition in the economic market by focusing more on rent‐seeking activity. When economic integration is accompanied by political integration, innovation and growth will be stronger and welfare higher.     

POLITICIANS AT WORK: THE PRIVATE RETURNS AND SOCIAL COSTS OF POLITICAL CONNECTIONS

We quantify the private returns and social costs of political connections exploiting a unique longitudinal dataset that combines matched employer–employee data for a representative sample of Italian firms with administrative archives on the universe of individuals appointed in local governments over the period 1985–1997. According to our results, the revenue premium granted by political connections amounts to 5.7% on average, it is obtained through changes in domestic sales but not in exports, and it is not related to improvements in firm productivity. The connection premium is positive for upstream producers for the public administration only, and larger (up to 22%) in areas characterized by high public expenditure and high levels of corruption. These findings suggest that the gains in market power derive from public demand shifts towards politically connected firms. We estimate that such shifts reduce the provision of public goods by approximately 20%.     

THE POLITICAL ECONOMY OF FLEXICURITY

We document the presence of a trade‐off in the labor market between the protection of jobs and the support offered to unemployed people. Different countries’ locations along this trade‐off represent stable political‐economic equilibria. We develop a model in which individuals determine the mix of job protection and support for the unemployed in a political environment. Agents are heterogeneous along two dimensions: employment status (insiders and outsiders) and skills (low and high). Unlike previous work on the political economy of labor market institutions, we emphasize the role of job protection and unemployment benefits in the wage‐setting process. A key implication of the model is that flexicurity configurations with low levels of job protection and high levels of support to the unemployed should emerge in the presence of a highly educated workforce. Panel regressions of countries’ locations along this institutional trade‐off are consistent with the implications of our model.     

政治关联与财务困境公司的政府补助——来自中国ST公司的经验证据

本文以2002-2007年沪深两市的ST公司为样本,实证研究了企业的政治关联对财务困境公司获取政府补助的影响.结果显示:(1)民营企业的政治关联对企业处于财务困境时获取政府补助有显著影响,但对国有企业作用不显著.(2)考虑企业所处的地区环境差异之后,本文发现民营企业的政治关联优势受到地区财政富余程度的显著影响,而地方政府干预要起作用也受到地区财政状况的制约.只有在地方财政有充足财力的情况下,民营企业才可能利用政治关联获得更多的政府补助.(3)从政府补助的效果来看,政府补助虽然可以在救助当年明显改善公司业绩,但对公司长期业绩的提升作用却因企业政治关联程度和企业性质的不同而存在差异:政治关联较弱的民营企业获得的政府补助对公司长期业绩的提高作用显著,但对于国有企业以及具有较强政治关联的民营企业作用则不显著,这在一定程度上说明政治关联导致了政府补助资金的低效运作.     

The role of political ties and political uncertainty in corporate innovation

We examine the relationship between firms' political connections and corporate innovation in a European context. We also consider the moderating effect of political connections on the relationship between political uncertainty and firms' innovation. We use two different metrics of innovation: R&D (an input measure), and patent counts (an output measure). We find that firms with former politicians on their board of directors invest less in R&D than their counterpart firms. However, the presence of this type of director on the board is positively associated with the number of a firm's patent applications. It seems that, although political ties reduce the amount of resources devoted to R&D activities, they increase the effectiveness of intellectual rights protection. Results also show that political uncertainty decreases R&D investment but exacerbates the need for legal protection of innovation through patents. According to our results, political connections attenuate the effect of political uncertainty on firm innovation such that the negative (positive) effect of uncertainty on R&D intensity (patents) weakens when the firm is politically connected.     

PUBLIC EDUCATION AND PENSIONS IN DEMOCRACY: A POLITICAL ECONOMY THEORY

A dynamic political economy theory of fiscal policy is presented to explain the simultaneous existence of public education and pensions in modern democracies. The driving force of the model is the intergenerational conflict over the allocation of the public budget. Successive generations of voters choose fiscal policies through repeated elections. The political power of elderly voters creates the motive for adults to support public investment in the human capital of future generations since it expands future pension possibilities. We characterize the Markov perfect equilibrium of the voting game in a small open economy. The equilibrium reproduces salient features of intergenerational fiscal policies in modern economies.     

The Impact of the Potential Entry of Copycats: Entry Conditions,Consumer Welfare,and Social Welfare

This article examines the implications of the potential entry of a copycat who produces and sells a copycat (i.e., imitation) product that competes with the incumbent product. By analyzing a two‐period dynamic noncooperative game between these two firms, we identify conditions under which the copycat can gain successful market entry. More importantly, we find that the potential entry of a copycat creates (implicit) pressure for the incumbent to lower its selling price; hence, it improves consumer welfare. Finally, we identify conditions under which the potential entry of a copycat can increase social welfare (i.e., consumer welfare and the profit of both firms).      

竞争性品牌策略:进入遏制角度的分析

作为品牌延伸战略的重要表现形式之一,竞争性品牌策略是产业组织理论的一个重要研究领域.作者从市场进入遏制的视角研究竞争性品牌策略,通过构建一个具有产品差异化的动态博弈模型,分析在位者如何创建一个与进入者的品牌直接竞争的"竞争性品牌"并进行相应的产量竞争以达到遏制进入的目的.研究发现:旨在遏制进入的竞争性品牌策略与进入成本密切相关;不但从理论上证明了存在启动竞争性品牌策略的进入成本区间,还在一定的参数条件假设下通过一个简单数值例子给出该成本区间范围;最后对一些竞争性品牌案例进行了分析.     

Political Economy of Mechanisms

We study the provision of dynamic incentives to self‐interested politicians who control the allocation of resources in the context of the standard neoclassical growth model. Citizens discipline politicians using elections. We show that the need to provide incentives to the politician in power creates political economy distortions in the structure of production, which resemble aggregate tax distortions. We provide conditions under which the political economy distortions persist or disappear in the long run. If the politicians are as patient as the citizens, the best subgame perfect equilibrium leads to an asymptotic allocation where the aggregate distortions arising from political economy disappear. In contrast, when politicians are less patient than the citizens, political economy distortions remain asymptotically and lead to positive aggregate labor and capital taxes.     

FINANCIAL DEVELOPMENT AND VERTICAL INTEGRATION: THEORY AND EVIDENCE

Existing evidence is mostly inconclusive on the relevance of financial development as a determinant of vertical integration. This paper presents evidence that, once industry heterogeneity in firm size distribution is taken into account, financial development is an important determinant of cross‐country differences in vertical integration. Financial development fosters entry of firms and increases competition in the industry. This reduces vertical integration of larger firms, but also leads smaller, non‐integrated, firms to exit the industry. As a result, higher financial development reduces vertical integration in industries where a high share of output is produced by small firms. The positive effect of financial development on entry also reduces vertical integration by fostering the development of input markets.     

Entry Deterrence of Capacitated Competition Using Price and Non‐Price Strategies

We analyze the role of pricing and branding in an incumbent firm's decision when facing competition from an entrant firm with limited capacity. We do so by studying two price competition models (Stackelberg and Nash), where we consider the incumbent's entry‐deterrence pricing strategy based on a potential entrant's capacity size. In an extension, we also study a branding model, where the incumbent firm, in addition to pricing, can also invest in influencing market preference for its product. With these models, we study conditions under which the incumbent firm may block the entrant (i.e., prevent entry without any market actions), deter the entrant (i.e., stop entry with suitable market actions) or accommodate the entrant (i.e., allow entry and compete), and how the entrant will allocate its limited capacity across its own and the new market, if entry occurs. We also study the timing difference between the two different dynamics of the price competition models and find that the incumbent's first‐mover advantage benefits both the incumbent and the entrant. Interestingly, the entrant firm's profits are not monotonically increasing in its capacity even when it is costless to build capacity. In the branding model, we show that in some cases, the incumbent may even increase its price and successfully deter entry by investing in consumer's preference for its product. Finally, we incorporate demand uncertainty into our model and show that the incumbent benefits from demand uncertainty while the entrant may be worse off depending on the magnitude of demand uncertainty and its capacity.     

Corporate social responsibility: a strategic and profitable response to entry?

This paper investigates whether an incumbent has an incentive to introduce corporate social responsibility (CSR) activities only as a response to entry by a competitor, i.e., the incumbent would eschew CSR if left uncontested. We assume that the entrant cannot provide CSR at least at the outset for two reasons: (1) it would not be credible due to its lack of recognition and (2) due to high fixed cost to pay e.g., for licensing. More precisely, this paper shows that monopolistic firms can have indeed the incentive to introduce CSR activities only as a response to entry. Therefore, increased competition can turn a firm “green”, providing a “win–win” for business as well as for the environment.     

UNBUNDLING THE INCUMBENT: EVIDENCE FROM UK BROADBAND

We consider the impact of a regulatory process forcing an incumbent telecom operator to make its local broadband network available to other companies (local loop unbundling, or LLU). Entrants are then able to upgrade their individual lines and offer Internet services directly to customers. Employing a very detailed data set covering the whole of the United Kingdom, we find that, over the course of time, many entrants have begun to take advantage of unbundling. LLU entry only had a positive effect on broadband penetration in the early years, and no longer in the recent years as the market reached maturity. In contrast, LLU entry continues to have a positive impact on the quality of the service provided, as entrants differentiate their products upwards compared to the incumbent. We also assess the impact of competition from an alternative form of technology (cable) which is not subject to regulation, and what we discover is that inter‐platform competition has a positive impact on both penetration and quality.     

政治关联、多点接触与企业绩效——市场互换性的调节作用

 随着多元化经营趋势的发展,企业与竞争对手在多个市场上相遇并形成多点接触早已成为常态。在企业与竞争对手间形成多点接触的背景下,许多学者验证了多点接触会对企业绩效产生一定的影响。同时在转型制度环境下,政治关联将有助于降低市场壁垒使企业进入对方所在的市场,这会增强企业间的多点接触程度并降低竞争强度。然而,对政治关联如何影响多点接触进而影响企业绩效的内在机制还鲜有研究。        基于政治关联对企业进入对方所在市场行为影响的逻辑,将市场互换性作为调节变量,利用STATA软件和OLS回归分析方法,以2008年至2014年中国9家上市民营房地产企业在151个区域市场分布变化情况作为样本,结合相互容忍假说,探讨在多点竞争环境下政治关联和多点接触与企业绩效的关系。        实证分析结果表明,政治关联可以降低市场进入壁垒,使企业达到主动增加与其主要竞争对手多点接触程度的目的,进而对企业绩效有积极的影响;另外,市场互换性能负向调节政治关联与企业绩效的关系。        在中国制度环境下,讨论多点接触对企业经营过程产生的影响,为中国企业在多点竞争环境下实现提升绩效的目的提供一个方向,为企业有效增加多点接触程度提供更多的解决方法,也为日后进行多点接触问题的研究拓宽了思路。     

CREDIT CONSTRAINTS AND THE CYCLICALITY OF R&D INVESTMENT: EVIDENCE FROM FRANCE

We use a French firm‐level data set containing 13,000 firms over the period 1994–2004 to analyze the relationship between credit constraints and firms’ R&D behavior over the business cycle. Our main results can be summarized as follows: (i) R&D investment is countercyclical without credit constraints, but it becomes procyclical as firms face tighter credit constraints; (ii) this result is only observed for firms in sectors that depend more heavily upon external finance, or that are characterized by a low degree of asset tangibility; (iii) in more credit‐constrained firms, R&D investment plummets during recessions but does not increase proportionally during upturns.     

New Firms as Employers: The Wage Penalty for Voluntary and Involuntary Job Switchers

According to previous research, new firms pay lower wages. However, previous studies have been unable to control for the possibility that the opportunity costs of accepting employment at new firms may differ across individuals. In this paper, we investigate whether a wage penalty for being employed at a new firm exists if we take the individual employee's experience and status in the labour market into consideration. We focus on individuals who decide to switch jobs and use matched employee–employer data about all firms and employees in Sweden for the period 1998–2010. Our results show that the share of job transitions into lower wages are higher for those who switch to new firms compared with incumbent firms (40 per cent and 31 per cent, respectively). Our endogenous wage equation estimates indicate that being an involuntary job switcher has an equally negative effect on wages at both new and incumbent firms. However, the positive effect of education on wages is more pronounced for job switchers selecting into incumbent firms.     

THE BALANCED US PRESS

We measure the relative ideological positions of newspapers, voters, interest groups, and political parties, using data on ballot propositions. We exploit the fact that newspapers, parties, and interest groups take positions on these propositions, and the fact that citizens ultimately vote on them. We find that, on average, newspapers in the United States are located almost exactly at the median voter in their states—that is, they are balanced around the median voter. Still, there is a significant amount of ideological heterogeneity across newspapers, which is smaller than the one found for interest groups. However, when we group propositions by issue area, we find a sizable amount of ideological imbalance: broadly speaking, newspapers are to the left of the state‐level median voter on many social issues, and to the right on many economic issues. To complete the picture, we use two existing methods of measuring bias and show that the news and editorial sections of newspapers have almost identical partisan positions.     

JOB MARKET SIGNALING OF RELATIVE POSITION,OR BECKER MARRIED TO SPENCE

This paper considers a matching model of the labor market where workers, who have private information on their quality, signal to firms that also differ in quality. Signals allow assortative matching in which the highest‐quality workers send the highest signals and are hired by the best firms. Matching is considered both when wages are rigid (nontransferable utility) and when they are fully flexible (transferable utility). In both cases, equilibrium strategies and payoffs depend on the distributions of worker and firm types. This is in contrast to separating equilibria of the standard model, which do not respond to changes in supply or demand. With sticky wages, despite incomplete information, equilibrium investment in education by low‐ability workers can be inefficiently low, and this distortion can become worse in a more competitive environment. In contrast, with flexible wages, greater competition improves efficiency.     

有限理性下序贯价格竞争的动态演化

本文建立了两个企业的序贯价格竞争模型，基于有限理性预期调整，研究了企业博弈的动态演化特征，分析了模型的均衡解及其稳定性条件。研究发现，边界解和纳什均衡解是一定参数条件下的局部稳定均衡。基于有限理性的动态博弈能够实现基于完全信息的纳什均衡。单纯跟随策略是一定条件下的均衡策略，并能使跟随企业获得更高的销售价格。企业之间报价的相互跟随程度和企业预期的调整速度将会影响均衡点的稳定性。本文对模型进行了数值模拟分析，当参数不满足稳定性条件时会出现分岔、奇异吸引子等混沌现象。本文的主要研究结果对相关行业的企业竞争和稳定市场有启发意义。