nep-mic New Economics Papers
on Microeconomics
Issue of 2005‒06‒05
five papers chosen by
Joao Carlos Correia Leitao
Universidade da Beira Interior

  1. On the Efficiency of Spam Mailing and Portal Advertising By Martin Bandulet
  2. New Firms Evolving in the Knowledge Economy; problems and solutions around turning points. By E. Stam; E. Garnsey
  3. Lobbying Competition Over US Trade Policy By Kishore Gawande; Pravin Krishna
  4. Calculating Tragedy: Assessing the Costs of Terrorism By Bruno S. Frey; Simon Luechinger; Alois Stutzer
  5. ‘Just Forget It’: Memory Distortion as Bounded Rationality By Bruno S. Frey

  1. By: Martin Bandulet (University of Augsburg, Department of Economics)
    Abstract: The objective of this paper is to provide a simple approach endogenizing the welfare reducing or welfare enhancing effect of informative advertising. Using this approach, it is possible to analyse the welfare consequences of a technology shock that reduces unit information costs, and to explain whether electronic junk mails or portal advertising will cause welfare gains or losses in a competitive environment.
    Keywords: advertising, externalities, internet portals
    JEL: D8 D62 L86
    Date: 2005–06
  2. By: E. Stam; E. Garnsey
    Abstract: This paper explores and explains the emergence and growth of new firms in the knowledge economy. The resource-based view, capabilities approach, and evolutionary economics are used as a foundation for a developmental approach. The development of the firm is conceptualized in terms of processes that include opportunity recognition, resource mobilization, resource generation and resource accumulation, which lead to the development of competences and capital in a base made up of productive, commercial and financial resources. Problems originating within or outside the firm may deplete the productive, commercial and asset base, leading to turning points in the life course of these firms. These have negative consequences when problems are not solved, but positive consequences when they lead to new solutions and the development of new competence. The empirical study shows that even in an elite sample of young fast-growing firms, most firms face turning points in their life course, and thus do not grow in a continuous way. The study shows that quantitative growth indicators do not always reveal growth problems that have been faced by new firms. Some problems do not negatively affect the employment growth of the firm, and other problems are solved before growth stagnates. The qualitative analysis shows that young firms are almost always in disequilibrium: there is almost never a perfect match between the constituents of their resource base, between input resources and requirements for expansion. This explains why continuous growth is so unlikely. Although every firm seems to grow in a unique manner, there is evidence for the presence of a limited set of necessary mechanisms for the growth of (new) firms, which work out in particular ways given the specific context and history of these firms.
    Keywords: New firms, firm growth, theory of the firm, resource based view, firm life course, organizational crises, knowledge economy
    JEL: D21 D92 L23 M13 M21
  3. By: Kishore Gawande; Pravin Krishna
    Abstract: Competition between opposing lobbies is an important factor in the endogenous determination of trade policy. This paper investigates empirically the consequences of lobbying competition between upstream and downstream producers for US trade policy. The theoretical framework used is the well-known Grossman-Helpman model of trade policy determination suitably modified to account for the cross-sectoral use of inputs in production (the input-output matrix). Our empirical results, using US trade data, validate the predictions of the theoretical model with lobbying competition. Trade protection is found to be higher in industries with organized lobbies but lower when there are organized downstream users of the industry's output. Lobbying competition is additionally interesting as a candidate explanation for an empirical puzzle in the literature concerning the apparently nearly "welfare-maximizing" behavior of the US government in setting trade policy. Our estimates diminish the magnitude of the puzzle somewhat, but do not provide a full quantitative resolution of this question.
    JEL: D72 D78 F12 F13
    Date: 2005–05
  4. By: Bruno S. Frey; Simon Luechinger; Alois Stutzer
    Abstract: The trends and consequences of terrorist activities are often captured by counting the number of incidents and casualties. More recently, the effects of terrorist acts on various aspects of the economy have been analyzed. These costs are surveyed and put in perspective. As economic consequences are only a part of the overall costs of terrorism, possible approaches for estimating the utility losses of the people affected are discussed. Results using the life satisfaction approach, in which individual utility is approximated by self-reported subjective well-being, suggest that people’s utility losses may far exceed the purely economic consequences.
    Keywords: Terrorism; subjective well-being; life satisfaction; utility loss
    JEL: D74 H56 I31
    Date: 2004–09
  5. By: Bruno S. Frey
    Abstract: Distortions in memory impose important bounds on rationality but have been largely disregarded in economics. While it is possible to learn, it is more difficult, and sometimes impossible, to unlearn. This retention effect lowers individual utility directly or via reduced productivity, and adds costs to principal-agent relationships. The imprinting effect states that the more one tries to forget a piece of information the more vivid it stays in memory, leading to a paradoxical outcome. The effects are based on, and are supported by, psychological experiments, and it is shown that they are relevant in many economic situations and beyond.
    Keywords: Memory; bounded rationality; learning; retention; ironic process theory; principalagency theory
    JEL: D11 D83 J2 M20 Z00
    Date: 2004–06

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