CER-ETH Research Seminar, Spring Term 2010

The CER-ETH Research Seminar takes place on Mondays during term time from 5:15 pm to 6:45 pm at ETH Zurich, Room ZUE G1 (Zürichbergstr. 18). Per term we invite 6 to 7 internationally known speakers to present and discuss their work.

Programme:

Everyone who is interested is cordially invited!

If you would like to receive our weekly invitation via e-mail, or if you have any other question, please send an e-mail to Volker Hahn.

 

Guido Cozzi

This study develops an R&D-based growth model that features both vertical and horizontal innovation to shed some light on the current debate on whether patent protection stimulates or stifles innovation. Specifically, we analyze the growth and welfare aspects of patent protection in the form of pro…fit division between sequential innovators along the quality ladder. We show that patent protection has asymmetric effects on vertical innovation (i.e., quality improvement) and horizontal innovation (i.e., variety expansion). Maximizing the incentives for vertical (horizontal) innovation requires a pro…fit-division rule that assigns the entire flow pro…fit to the entrant (incumbent) of a quality ladder. In light of this …finding, we argue that in order to properly analyze the growth and welfare implications of patent protection, it is important to …firstly disentangle its different effects on vertical and horizontal innovation.

Full Paper

 

Yannick Malevergne

Zipf’s law states that, for most countries, the number of firms with size greater than S is inversely proportional to S. Most explanations start with Gibrat’s rule of proportional growth but need to incorporate additional constraints and ingredients introducing deviations from it. We show that combining Gibrat’s rule at all firm levels with random processes of firms’ births and deaths yield Zipf’s law under a “balance” condition between the average growth rate of incumbent firms and the net growth rate of investments in new entrant firms. Thus, Zipf’s law can be interpreted as the signature of the long-term optimal allocation of resources that ensures the maximum sustainable growth rate of an economy. For economies with finite age, Zipf’s can be recovered as a compensation between the finite-age effect and small deviations of the balance condition. We are able to account for the age-dependent hazard rate documented in the empirical literature as a result of the presence of a minimum size below which firms exit. Our results hold not only for statistical averages over ensemble of economies (i.e., in average) but also apply to a single typical economy.

Full Paper

 

Douglas Nelson

Full Paper

 

Bouwe Dijkstra

We focus on the incentives of a regulated …firm to invest in a cleaner technology under abatement targets and emission taxation. We assume asymmetric information, in that the regulated fi…rm can be good or bad in employing the new technology. Environmental policy is set either before the …firm invests (commitment) or after (time consistency). With abatement targets, commitment usually yields higher welfare than time consistency, because it gives more incentives to invest. With taxation, time consistency usually yields higher welfare, because it gives more incentives to invest. Given investment, targets yield higher welfare according to a modi…fied Weitzman rule with reverse probability weighting. Otherwise, targets yield higher welfare with commitment, because they give more incentives to invest. The welfare comparison under time consistency is ambiguous.

Full Paper

 

Jean-Charles Rochet

This paper presents a model of the stakeholder corporation and analyzes the equilibrium of an economy with stakeholder firms. The analysis is based on a model of a production economy that differs from the standard approach based on states of nature. The property which differentiates it from the standard model (which justifies the shareholder approach to the corporation) is that firms' choices of investment influence the probability distributions of their outputs, and hence exert external effects on consumers and employees: as a result pro…fit maximization and competitive behavior do not lead to Pareto optimality. Using a Coasian approach to resolve the problem of externalities, we show that if firms issue not only equity shares but also marketable property rights for employees and consumers, and if firms' managers maximize the total values of their firms (shareholder value plus consumer and employee values) then Pareto optimality of equilibrium is restored when agents are identical. In the more realistic case where agents are heterogeneous, reforming capitalism by giving some weight to employee and consumer surpluses in the objective of the …firms always increases social welfare.

Full Paper

 

Ujjayant Chakravorty

Regulation of environmental externalities like global warming from the burning of fossil fuels (e.g., coal and oil) is often done by capping both emission flows and stocks. For example, the European Union and states in the Northeastern United States have introduced caps on flows of carbon emissions while the stated goal of the Intergovernmental Panel on climate Change (IPCC) which provides the science behind the current global climate negotiations is to stabilize the atmospheric stock of carbon. Flow regulation is often local or regional in nature, while stock regulation may be global. How do these multiple pollution control efforts interact when a nonrenewable resource creates pollution? In this paper we show that flow and stock pollution control efforts, if uncoordinated, may exacerbate environmental externalities. For example, a stricter cap on emission flows may actually increase the global pollution stock and hasten the date when the global pollution cap is reached.

Full Paper