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on Post Keynesian Economics |
| By: | Luca Colombo (DISCE, Università Cattolica); Herbert Dawid (Bielefeld University); Kordian Kabus (Bielefeld University) |
| Abstract: | In this paper we examine the trade off between different effects of the availability of venture capital on the speed of technological progress in an industry. We consider an evolutionary industry simulation model based on Nelson and Winter (1982) where R&D efforts of an incumbent firm generate technological know-how embodied in key R&D employees, who might use this know-how to found a spinoff of the incumbent. Venture capital is needed to finance a spinoff, and therefore the expected profits from founding a spinoff depend on how easily venture capital can be acquired. Accordingly, thick venture capital markets might have two opposing effects. First, incentives of firms to invest in R&D might be reduced and, second, if spinoff formation results in technological spillovers between the parent firm and the spinoffs, the generation of spinoff firms might positively influence the future efficiency of the incumbent's innovation efforts. We study how this tradeoff influences the effect of venture capital on the innovation expenditures, speed of technological change and the evolution of industry concentration in several scenarios with different industry characteristics. |
| Keywords: | Venture Capital, Technological Progress, R&D Effort, Spinoff, Industry Evolution |
| JEL: | O30 J30 L20 |
| Date: | 2007–03 |
| URL: | http://d.repec.org/n?u=RePEc:ctc:serie3:ief0074&r=pke |
| By: | Kirsanova, Tatiana; Menzies, Gordon; Vines, David |
| Abstract: | This paper develops a real model of financial crisis, and uses it to elucidate the controversy between Joe Stiglitz and the IMF concerning the Asian financial crisis. Borrowers of foreign capital are bound by lending contracts to pay the world rate of return on their borrowing, following an adverse shock; by assumption, they do not default. This is onerous, since the shock makes the marginal product of capital fall to less than the world rate of return, and creates a debt overhang on which interest must be paid. The country faces a choice. It could choose to pay these extra interest obligations on its debt overhang -- a transfer -- in every period, raise taxes in order to meet these obligations, and thereby gradually reduce capital to its new lower level, at which point there would no longer be a debt overhang. We describe this as the `IMF strategy'. Alternatively the country could choose the `Stiglitz strategy': it could immediately borrow internationally the sum of all the future interest obligations on its debt overhang, perhaps with the assistance of the IMF. It would need to raise taxes in order to meet the interest costs on that extra borrowing. But the fiscal cost of doing this would be finite and the fiscal costs would be equally spread across time. The short run tax burden would thus be smaller. We show that balance sheet effects mean that the real exchange rate can greatly overshoot in the IMF strategy, whereas it need not overshoot in the Stiglitz strategy. That will lessen the `crisis' aspects of the short run responses to the shock. |
| Keywords: | debt overhang; financial crisis; fiscal adjustment |
| JEL: | F31 |
| Date: | 2007–05 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:6318&r=pke |