nep-ent New Economics Papers
on Entrepreneurship
Issue of 2011‒08‒22
four papers chosen by
Marcus Dejardin
Notre-Dame de la Paix University

  1. Sources of Finance, Investment Policies and Plant Entry in the Renewable Energy Sector By Margarita Kalamova; Chris Kaminker; Nick Johnstone
  2. Virtual Incubation in Industrial Clusters: A Case Study in Pakistan By Babur Wasim Arif; Tetsushi Sonobe
  3. A Simple Theory of Managerial Talent, Pay Contracts and Wage Distribution By Yanhui Wu
  4. A new method for measuring tail exponents of firm size distributions By Fujimoto, Shouji; Ishikawa, Atushi; Mizuno, Takayuki; Watanabe, Tsutomu

  1. By: Margarita Kalamova; Chris Kaminker; Nick Johnstone
    Abstract: This report looks specifically at the full array of public policies promoting investment in the renewable energy sector, and discusses their impact on plant entry into the market, with the support of case studies focusing on Germany, the U.S.A. and Australia. It examines differing risk/return expectations across stages of the investment continuum (from R&D through to mergers and acquisitions) and the financial structures that are employed at each stage. Although transparency, predictability and longevity of government programmes are necessary if investors are to initiate a project in clean energy, predictability should not be mistaken for permanence. In the case where policies target investment in physical capital, it is important to ‘sunset’ many of the policies discussed in this report. It is the nature of entrepreneurship that not all investments in new activities will pay off and not all promotion efforts will be successful. Against such a backdrop, public investment policy will also frequently meet with failure. Combining continuous assessment with policy predictability is a delicate balancing act. Clear criteria for policy evaluation are required, and ideally the criteria for success should depend on productivity.<BR>Ce rapport s’intéresse plus particulièrement à l’éventail complet des politiques publiques encourageant l’investissement dans le secteur des énergies renouvelables, et analyse leurs effets sur l’entrée de nouvelles entreprises sur le marché, en s’appuyant sur des études de cas réalisées en Allemagne, aux États-Unis et en Australie. Il étudie les différentes attentes en termes de risque/rendement au cours des différentes phases du processus d’investissement (de la R-D jusqu’aux fusions-acquisitions), et les structures financières correspondantes. Bien que la transparence, la prévisibilité et la longévité des programmes publics soient nécessaires pour que les investisseurs se lancent dans les énergies propres, il ne faut pas confondre prévisibilité et permanence. Quand les politiques publiques ciblent l’investissement dans le capital physique, de nombreuses mesures examinées dans ce rapport doivent être mises de côté. Les entrepreneurs savent pertinemment que la totalité des investissements consacrés à de nouvelles activités, y compris les efforts de promotion, ne sont pas toujours fructueux. Dans ce contexte, les politiques d’investissement public se soldent souvent par un échec. Concilier évaluation continue et prévisibilité des politiques est un exercice d’équilibre délicat, qui doit reposer sur des critères d’évaluation clairement définis, dont le principal devrait idéalement être celui de productivité.
    Keywords: venture capital, environmental policy, climate change, Investment Policy, Renewable Energy Sources, Asset Finance, Financial Risk, capital-risque, changement climatique, énergies renouvelables, politique de l’environnement, politiques d’investissement, financement d'actifs, risque en capital
    JEL: G24 G32 G38 Q42 Q54 Q58
    Date: 2011–07–29
  2. By: Babur Wasim Arif (Federal Bureau of Statistics, Pakistan); Tetsushi Sonobe (National Graduate Institute for Policy Studies)
    Abstract: In industrial clusters, transaction costs are kept low and free riding is discouraged by a community mechanism developed through dense and repeated interactions among entrepreneurs. In such environments, new entrants without established reputations and connections are put at a distinct disadvantage. This negative effect on new entry must be neutralized for an industrial cluster to expand. Using enterprise level data from Pakistan, this study finds that personal networks are indeed important for successful enterprise operation, which works to the advantage of incumbents, but that subcontracting plays the role of virtual incubation in nurturing new enterprises, reinforcing the cluster’s dynamism.
    Keywords: South Asia, Pakistan, industrial cluster, social capital, subcontracting
    Date: 2011–08
  3. By: Yanhui Wu
    Abstract: This paper develops a simple theory of pay structures and pay levels across heterogeneous agents by bringing together optimal contracts inside the firm and competitive resource allocation in the market. The central idea is that more talented people tend to create greater value but face larger conflicts of interest in their employment relationship, and different pay contracts are optimally designed to mitigate different levels of agency problems. Sorted by their talent, people are stratified into production workers, self-employed, salaried managers with low-powered performance pay, and CEOs with high-powered equity-based pay. In a general equilibrium framework, I show that the sorting of managerial talent into pay contracts is tied to firm size. The theory highlights that high-powered incentive pay and large scales of operations cause the disproportionately large wage earnings at the top, and are the main source of income inequality. Market forces that reallocate resources from smaller to larger firms tend to increase the threshold talent for becoming a manager, increase the prevalence of high-powered incentive pay, raise the top earnings, and spread out the wage distribution.
    Keywords: Managerial Talent, Limited Liability, Provision of Incentives, Pay Structure, CEOPay, Wage Distribution
    JEL: D2 J3 L1 L2 M5
    Date: 2011–08
  4. By: Fujimoto, Shouji; Ishikawa, Atushi; Mizuno, Takayuki; Watanabe, Tsutomu
    Abstract: We propose a new method for estimating the power-law exponent of a firm size variable, such as annual sales. Our focus is on how to empirically identify a range in which a firm size variable follows a power-law distribution. As is well known, a firm size variable follows a power-law distribution only beyond some threshold. On the other hand, in almost all empirical exercises, the right end part of a distribution deviates from a power-law due to finite size effect. We modify the method proposed by Malevergne et al. (2011) so that we can identify both of the lower and the upper thresholds and then estimate the power-law exponent using observations only in the range defined by the two thresholds. We apply this new method to various firm size variables, including annual sales, the number of workers, and tangible fixed assets for firms in more than thirty countries. --
    Keywords: Econophysics,power-law distributions,power-law exponents,firm size variables,finite size effect
    JEL: C16 D20 E23
    Date: 2011

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