Scarcity Of Capital Research Articles

Contractual relations and organizational structure in franchising

In this paper, we employ a new dataset based on a sample of 123 franchise systems originating from Germany to empirically test hypotheses stemming from agency theory and capital scarcity considerations on the contractual relations and the organizational structure in franchising. We include proxies for the franchisor’s capital scarcity as well as for moral hazard on the franchisee’s and the franchisor’s side. Furthermore, we distinguish between initial and ongoing franchisor support. Our results indicate that agency models based on double moral hazard do explain the design of franchise contracts and the organizational structure in terms of the proportion of franchised outlets. We find that the incentive component of the franchise contract (the royalty rate) is not influenced by moral hazard on the franchisee’s side, but rather by moral hazard on the franchisor’s side. Furthermore, the proportion franchised is strongly influenced by moral hazard on the franchisee’s side. Hence, after providing incentives to outlet managers by turning them into franchisees, thereby granting them residual claimancy, the royalty rate mainly serves to ensure ongoing franchisor input. The franchisor’s capital scarcity influences the fixed fee in franchise contracts and the proportion of franchised outlets, thus supporting standard capital scarcity arguments.

Italy and the First Age of Globalization, 1861-1940

The paper presents trade policy as in line with that of other continental European powers, with a move to moderate levels of tariff protection for politically sensitive sectors such as steel and textiles and clothing, but also in agriculture, with levels of protection falling slightly before the First World War. Monetary policy was similarly driven by the constraints of capital scarcity, and by the political priority attached to reducing the cost of funding government debt. The most innovative area was probably in industrial policy, where after the 1880s and again in the 1930s in response to sever shocks, quite creative institutional policies were adopted. In particular financial restructuring was used as an opportunity to reshape the structure of industry.

Optimal fiscal federalism in the presence of tax competition

This paper models the optimal division of public goods provision between central and regional governments in an economy with interregional tax competition. Regional provision is inefficient because governments compete for scarce capital by lowering their capital taxes and public good levels to inefficiently low levels. On the other hand, central provision is inefficient because it is determined by the minimum winning coalition within a legislature. The optimal degree to which public good provision should be decentralized depends on a tradeoff between these inefficiencies. In our main model, complete centralization is never optimal: regional governments should supply some public goods.

Growth and social capital: an evolutionary model

In this paper, we analyze the role of cooperation between firms through a model of growth and social capital. In a growth model à la Solow we incorporate the set of resources that a relational network has at its disposals, as a distinct production factor, and thus examine its dissemination through evolutionary type processes in firm interactions. Dynamic analysis of the model demonstrates that cooperation is able to increase the productivity of factors, fostering a higher rate of growth in the long term. The most significant result is that scarcity of social capital can produce a general collapse of the economic system in areas in which long term growth is usually sustained by the learning by doing and spillover of knowledge phenomena. This conclusion leads to reconsider the role of local development economic policies that should concentrate on activities that promote repeated interaction between firms proven to be cooperative or that encourage the formation of technological consortia.

A capital scarcity theory of the environmental Kuznets curve

ABSTRACTThis paper offers a theory of the environmental Kuznets curve (EKC) based on the scarcity of capital relative to environmental quality. In a unified treatment of both market and transition economies of the former Soviet Bloc, we characterize a dynamic economy subject to two sources of market failure: a pollution externality and a pure public good ‘environmental quality’. We derive a policy rule to implement the social optimum in market and transition economies and show how, in general, a pollution tax or tradable permits can only implement the social optimum if accompanied by other taxes on consumption or profits.

Intermediary Asset Pricing

We model the dynamics of risk premia during crises in asset markets where the marginal investor is a financial intermediary. Intermediaries face an equity capital constraint. Risk premia rise when the constraint binds, reflecting the capital scarcity. The calibrated model matches the nonlinearity of risk premia during crises and the speed of reversion in risk premia from a crisis back to precrisis levels. We evaluate the effect of three government policies: reducing intermediaries borrowing costs, injecting equity capital, and purchasing distressed assets. Injecting equity capital is particularly effective because it alleviates the equity capital constraint that drives the model's crisis. (JEL E44, G12, G21, G23, G24)

How economic growth becomes a cost: The scarcity multiplier

Competent macro-allocation of natural capital would allow micro-allocation by economics to be fully useful and may help prevent the latter being confused with the former. This macro-allocation requires social choice, so to see whether it is likely to be competent the effectiveness of democratic politics is investigated. Dysfunction is predicted because democratic institutions produce elements of irresponsibility and ignorance. These permit inflation of want by supply (IWS), a positive feedback in which wants are increased by their supply, provoking more supply, hence more want. Four IWS systems combine under common conditions to indefinitely escalate the scarcity of natural capital, a crucial failure of macro-allocation. This ‘scarcity multiplier' causes apparently rational attempts to satisfy a few wants to exacerbate many, increasing dissatisfaction. Institutions for deliberative public participation may enable democracies to recognize and control IWS. Unless this is done the scarcity multiplier may make cost-benefit analysis misleading: it may make the costs of development projects exceed their benefits in proportion to their financial success.

On Social Poverty: Human Development and the Distribution of Social Capital

ABSTRACT Among social scientists, development theorists, and policy makers there is today an emergent consensus about the multidimensional and contextual character of poverty. Working within the framework of such a consensus in this article, I attempt to identify the social dimension of human poverty. Most generally, I try to sketch an account of social poverty as a shared normative (or soft) constraint on human action and interaction. The argument is developed as follows. I begin by summarizing and then using social capital theory to characterize my account of social poverty more fully. Here I distinguish between what I call horizontal social capital (networks of social trust and connections that are accessible and appropriable within a specific socioeconomic or cultural stratum) and vertical social capital (networks of social trust and connections that are accessible and appropriable between and among various socioeconomic and cultural strata). I argue that social poverty is an absence or scarcity of vertical social capital. From there I go on to analyze some of the mechanisms and asymmetrical effects of social poverty in specific empirical contexts. In closing I reflect briefly on how the problem of social poverty has been addressed in the US context. I suggest that reducing social poverty requires both a bottom-up approach towards the creation of vertical social capital and a top-down approach aimed at the diversification of existing stores of horizontal social capital.

Resolving the Capital Scarcity in Nigeria

Nigerian businesses, federal and state governments alike have historically tended to look abroad to fund large projects. Facts on the outstanding values of bonds, loans and equity confirm that Nigerian capital markets are thin, compared with the sub-Saharan African average; some segments have even become thinner in the last two-and-a-half decades. The current global liquidity glut however offers Nigeria an easy opportunity to transit from a net origin of capital to a net destination of capital. We identify fiscal, monetary, and balance of payment leakages from the Nigerian financial system, and suggest that these leakages can be plugged to make capital more available to government, businesses and consumers in Nigeria. Specifically, we uncover and discuss two main problems that could explain the lack of depth in the Nigerian financial system: a.) Inadvertent but substantial diversion of government owned financial resources away from the domestic financial market by the government and the central bank as they tried to achieve some other policy objectives. With broad money (M2) amounting to a mere 17.6 percent of GDP in 2005, while government kept idle deposits of 21 percent of GDP at the central bank in the name of liquidity management, and 25 percent of GDP in external reserves abroad in the name of fiscal stabilization, we do not need to travel far to see what problems need to be fixed, and by who, to substantially ease the capital scarcity in Nigeria. Nigerian financial system can easily be much deeper, than it has been at any point in the past, if the government manages the re-injection of these dearly needed loanable funds carefully. b.) Negative real interest rates that drive private financial resources away from Nigeria towards positive real returns abroad. Net private capital outflow of 14 percent of GDP in 2005 alone, compared to total domestic bond market of 7 per cent of GDP in the same year, or 12.5 percent of GDP in bank loans, shows that Nigerian financial system could be deeper if it could retain capital originating from it by offering attractive positive real returns on domestic bank deposits and bonds, and perhaps attract some of the surplus liquidity in other emerging markets as well.

Plan C: China's Development under the Scarcity of Natural Capital

Abstract The critical issue of China's modernization is whether it can free itself from the traditional modernization plan based on the relatively abundant natural capital, and innovatively create a developmental model of a large country under the scarcity of natural capital. This is why China is so keen on circular economy and economical use of resources. Focused on this issue, this paper summarizes the theoretical elements of the development under the scarcity of natural capital, points out that Plan C is the strategic choice for China's future development, emphasizes that China needs to enhance the new industrialization, new urbanization and new modernization based on the restriction of natural capital, and discusses the technological and mechanistic support required to realize the development under the scarcity of natural capital.

Risk, Finance and North Carolina's Post-Industrial Future

While innovation is generally seen as the engine of modern economic development, geographers have paid scant attention to the role of finance as an element of the innovation infrastructure. This study explores the availability of venture capital (a type of finance vital to the creation of modern firms) in North Carolina. The data reveal that North Carolina receives below average amounts of venture capital investment despite its remarkable success in creating human capital and transferring research from universities into firms (best exemplified by the Research Triangle Park). The scarcity of venture capital has forced the state to continue to rely on branch-plant facilities for economic development, a situation that compounds the capital shortage by extracting locally earned profits from the state's economy.

Franchising in Spain: Agency and capital scarcity perspectives

Franchising is currently perhaps the most interesting formula, financially speaking, for generating self-employment, as the capital risk on the investment needed to set up a business is kept to a minimum. Since the aim of this research is to combine the agency and scarcity theories, we conducted a study throughout the total number of observations existing in Spain to determine the importance of the sector. Factors under examination included the number of distribution units that are franchised units as a proportion of the total number of units, the number of years since the firm was set up, yearly growth rate, geographical scope of operation, average start-up costs and average royalty rates.

Improved tree fallows in smallholder maize production in Zambia: do initial testers adopt the technology?

In eastern Zambia, population growth has reduced per-capita land availability to such an extent that traditional bush fallows can no longer be practiced, and low soil fertility is a major constraint to crop production. Improved fallows (IF) based on leguminous trees are a low cash-input agroforestry practice to restore soil fertility. The objective of the study reported here was to assess the adoption of IF by farmers who tested the technology, including the extent to which the technology is practiced relative to its potential scale. The socioeconomic and agroecological determinants of the incidence and scale of adoption are estimated using a two-stage Heckman regression model that corrects for sample selection bias. Seventy-five percent of the testers have adopted the technology, which shows that IF are a suitable practice under conditions of capital scarcity, inadequate access to markets for fertilizer, and relatively low population density, which prevail in large parts of southern Africa. Adopters practice the technology to 42% of its potential scale; a non-linear relationship was found between wealth and the incidence as well as the scale of adoption; land and labor availability limit further expansion. Hence, future on-farm research should emphasize IF options which reduce land and labor requirements such as intercropping IF species with maize, and IF species which can be seeded directly.

Agroecologia e agricultura familiar na região centro-sul do estado do Paraná

O trabalho avalia o uso de técnicas agroecológicas pela produção familiar na região centro-sul do Estado do Paraná. Utiliza-se a metodologia de diagnóstico rápido dos sistemas agrários, tendo como referência trabalho desenvolvido na região pela AS-PTA, ONG que visa o desenvolvimento de agricultores familiares a partir do fomento de tecnologias agroecológicas. Após caracterização dos sistemas de produção dos agricultores pesquisados e do ambiente social que os cerca, finaliza-se com uma avaliação dos indicadores econômicos. Verifica-se uma relação entre o grau de capitalização dos agricultores e a adoção de práticas agroecológicas, a qual aumenta à medida que se reduz o grau de capitalização, sendo menor o risco econômico da atividade agrícola dos agricultores com maior índice de adoção. Conclui-se que há um potencial positivo da utilização da agroecologia como instrumento para o desenvolvimento sustentável de agricultores familiares, realçando-se a importância do apoio do poder público na dinamização deste processo.

Availability of Higher Education and Long-Term Economic Growth

This paper examines the economic growth effects of limited availability of higher education in a simple endogenous growth model with overlapping generations. With limited availability, the scarcity of human capital keeps its price high and distributes a larger share of the aggregate output to young households. Under certain conditions, it leads to greater aggregate savings in each period, thereby enabling the economy to grow faster than without any limitation. In such cases, an excessive expansion in the availability causes a temporary boom followed by a serious deficiency in investible funds, resulting in a substantial slowdown in economic growth.

Cotonou's Klondike: African traders and second-hand car markets in Bénin

This article addresses the theme of entrepreneurship in Africa by focusing on second-hand car markets in Cotonou, Bénin. At first glance this booming business seems to confirm neo-liberal and institutional models of entrepreneurship, in which entrepreneurial behaviour constitutes rational calculation in a situation of economic opportunity. The universe in which African car traders operate, however, is characterised by significant capital scarcity, dramatic losses and widespread bankruptcies. The article argues that viewing entrepreneurs as economic calculators is not the proper way to understand the Cotonou car trade. Based on case analysis of a Béninese car trader, it shows that the outcome of car trading in Cotonou is determined by the manipulation of social contacts, characterised by self-interest and distrust among business partners. Analogous to the Klondike gold rush, it appears that the car trader's engagement with the trade is to a large extent motivated by the dream of making a fortune. Thus, even though entrepreneurial failure is widespread among African car traders, most of them remain convinced that car trading can yield significant profits.

Encumbered Cuba: Capital Markets and Revolt, 1878–1895

Encumbered Cuba: Capital Markets and Revolt, 1878–1895

A Nation of Poets and Thinkers - Less so with Eastern Enlargement? Austria and Germany

Many people in the European Union fear that Eastern enlargement will lead to major job losses. More recently, these fears about job losses have extended to high skill labour and IT jobs. Using new firm-level data, this Paper examines whether these fears are justified for Austria and Germany - two countries neighbouring Eastern enlargement. We find that Eastern enlargement leads to surprisingly small job losses, because jobs in Eastern Europe do not compete with jobs in Austria and Germany. Low cost jobs of affiliates in Eastern Europe help Austrian and German firms to stay competitive in an increasingly competitive environment. We also find, however, that multinational firms in Austria and Germany are outsourcing the most skill-intensive activities to Eastern Europe taking advantage of cheap, abundant skilled labour in there. We find that the firms’ outsourcing activities to Eastern Europe are a response to a human capital scarcity in Austria and Germany that became particularly severe in the 1990s. Corporations’ outsourcing of skill-intensive firm activity to Eastern Europe has helped to ease the human capital crisis in both countries. We find that high-skilled jobs transferred to Eastern Europe accounted for 10% of Germany’s and 48% of Austria’s supply of university graduates in the 1990s. We then discuss what can be done to address the skill exodus to Eastern Europe. We show that R&D subsidies do not work in economies with a skill crisis and we suggest liberalizing high-skill labour movement with Eastern enlargement.

A COMPARISON OF LATIN AMERICAN AND ASIAN PRODUCT EXPORTS TO THE UNITED STATES, 1972 TO 1999

This paper examines the evolution of Asian and Latin American trade with the United States between 1972 and 1999. It compares both the mix of each region’s exports as well as the relative prices those exports command in the U.S. market. Trade is examined across thousands finely detailed product categories, and results are summarized by industry and year. The analysis yields both expected and unexpected results. As expected, Latin America trails Asia in terms of manufacturing exports to the U.S. This result is unsurprising given Latin America’s relative land abundance and human and physical capital scarcity, which is summarized in Table 1. Asia’s relative specialization in manufacturing is manifest in several dimensions, including its rapid increase in U.S. manufacturing import market share and its more pronounced reallocation toward manufacturing exports over time. A more surprising finding is that Latin American exports command higher prices when they enter the U.S. in product markets where countries from each region compete directly. One explanation for this result is that Latin America’s exports are of higher quality than Asian exports, but, assuming quality is skill and capital intensive, that conclusion is at odds with Latin America’s comparative advantage. 1 An alternate explanation that is also supported by ‘new’ trade theory models focusing on heterogenous productivity is that Asia’s relatively low prices reflect greater productive efficiency. 2 This second explanation is also consistent with Asia’s relative increase in U.S. market share at the expense of Latin America and other countries over time. It raises the question of why any manufactures are imported from Latin America at all.

The effect of capital market characteristics on the value of start-up firms

We develop an equilibrium model of contracting, bargaining, and search in which the relative scarcity of venture capital affects the bargaining power of entrepreneurs and venture capitalists. This in turn affects the pricing, contracting, and value creation in start-ups. The relative scarcity of venture capital is endogenous and depends on the profitability of venture capital investments, entry costs, and transparency of the venture capital market. Supply and demand conditions also affect the incentives of venture capitalists to screen projects ex ante. We characterize both the short- and long-run dynamics of the venture capital industry, which provides us with a stylized picture of the Internet boom and bust periods. Our model is consistent with existing evidence and provides a number of new empirical predictions.