Initial Resource Endowments Research Articles

Endowment Origin, Demographic Effects and Individual Preferences in Contests

In modern firms the use of contests as an incentive device is ubiquitous. Nonetheless, recent experimental research shows that in the laboratory subjects routinely make suboptimal decisions in contests even to the extent of making negative returns. The purpose of this study is to investigate if changing how agents are endowed with resources can increase the efficiency in contests. To this end, we conduct a laboratory experiment in which subjects are asked to allot costly resources (bids) in an effort to attain an award (prize). In line with other laboratory studies of contests, our results show that subjects overbid relative to theoretical predictions and incur substantial losses as a result. Making subjects earn their initial resource endowments mitigates the amount of overbidding and thus increases overall efficiency. Overbidding is also linked to gender with women bidding higher than men and having lower average earnings. Other demographic information such as religiosity and individual preferences towards winning and risk also contribute to excessive bidding.

Cluster Life Cycles, Path Dependency and Regional Economic Development: Insights from a Meta-Study on Basque Clusters

In this study, we aim at evaluating the role of path-dependent and past-dependent forces in the historical trajectory of clusters. For that purpose, we study the life cycles of four of the main industrial clusters in the Basque Country (paper-making, electronics and information and communication technology, maritime industries and aeronautics) and analyse the factors that account for the origin, development, maturity and, if so, decline of those clusters, considering factors related to both cluster dynamics and the regional environment. Our analysis shows that the existence of a life cycle does not imply a straightforward growth path. Clusters follow multiple growth patterns in their development. The heterogeneity of growth patterns may be, in some cases, due to different initial conditions. However, despite similar initial conditions and/or resource endowments and opportunities for development, we can observe heterogeneous evolutionary patterns. Clusters react differently to the same external shocks (e.g. international demand, global competition and technological change) and evolve differently according to their capabilities.

An agent based model to simulate structural and land use changes in agricultural systems of the argentine pampas

The Argentine Pampas, one of the main agricultural areas in the world, recently has undergone significant changes in land use and structural characteristics of agricultural production systems. Concerns about the environmental and societal impacts of the changes motivated development of an agent-based model (ABM) to gain insight on processes underlying recent observed patterns. The model is described following a standard protocol (ODD). Results are discussed for an initial set of simplified simulations performed to understand the processes that generated and magnified the changes in the Pampas. Changes in the structure of agricultural production and land tenure seem to be driven by differences among farmers’ ability to generate sufficient agricultural income to remain in business. In turn, as no off-farm or credit is modeled, economic sustainability is tied to initial resource endowment (area cropped). Farmers operating small areas are economically unviable and must lease out their farms to farmers operating larger areas. This leads to two patterns: (a) a concentration of production (fewer farmers operating larger areas) and, (b) an increase in the area operated by tenants. The simulations showed an increase of soybean area, linked to the higher profitability of this crop. Despite the stylized nature of initial simulations, all emerging patterns are highly consistent with changes observed in the Pampas.

Reforms and agricultural productivity in Central and Eastern Europe and the Former Soviet Republics: 1989–2005

This paper analyses the changes in agricultural performance in Central and Eastern Europe and the Former Soviet republics since the start of the transition process. We provide a conceptual framework for the evolution of productivity and efficiency measures and link this evolution to the issue of factor abundance taking into account specific transition characteristics. We document the changes in agricultural performance using empirical data on the evolution of partial productivity and total factor productivity estimates and we illustrate how productivity varies between countries at various stages of the transition process. Over the past twenty years, virtually all transition countries witnessed an initial decline in productivity, and virtually all countries currently witness an increase in productivity. However, the depth and length of the initial decline differs enormously between countries. Our analysis indicates that the productivity changes were related to the extent of the pre-reform distortions, initial resource endowments and technology use, and the reform implementation in the countries.

The Kuznets curve: determinants of its shape and the role of finance

PurposeThis paper aims to study the importance of initial resource endowments, the savings rate, and financing opportunities for growth and the distribution of income.Design/methodology/approachThe analysis is based on a theoretical model of accumulation and applies simulations. The frame of presentation is the so‐called Kuznets curve.FindingsThe paper shows under what circumstances the inverted U‐shaped curve hypothesized by Kuznets emerges and clarifies the role of a functioning capital market for economic growth and the distribution of income. It turns out that when initial income disparities are high and the savings rate is low it cannot be taken for granted that economic growth leads to a more equal income distribution. The paper further shows that with an efficient capital market total income rises faster and further and inequality is always lower than without a functioning capital market.Research limitations/implicationsFuture research should help to identify the institutional and regulatory frameworks that promote a stable basic financial infrastructure.Originality/valueBy drawing on the concept of a hydraulic society the interplay of key factors that drive economic growth and income inequality can be clarified.

Fiscal Vulnerability and Sustainability in Oil-Producing Sub-Saharan African Countries

Over many years rises and fall of world oil prices have been repeatedly reflected in the boom-bust cycles in oil-exporting countries the world over. The recent spectacular rise and equally spectacular fall in prices provides an opportunity to inquire whether anything is different this time. In this paper we limit the analysis to the experience, outlook, and longterm fiscal policy considerations for eight of the world's oil-producing countries in sub- Saharan Africa. Because we are interested in gauging their fiscal vulnerability and sustainability from the angle of managing exhaustible oil wealth, we focus on the non-oil primary balance as the relevant indicator of how initial conditions and resource endowments can influence long-term considerations in several different models of fiscal rules.

Fiscal Vulnerability and Sustainability in Oil-Producing Sub-Saharan African Countries

Over many years rises and fall of world oil prices have been repeatedly reflected in the boom-bust cycles in oil-exporting countries the world over. The recent spectacular rise and equally spectacular fall in prices provides an opportunity to inquire whether anything is different this time. In this paper we limit the analysis to the experience, outlook, and longterm fiscal policy considerations for eight of the world's oil-producing countries in sub- Saharan Africa. Because we are interested in gauging their fiscal vulnerability and sustainability from the angle of managing exhaustible oil wealth, we focus on the non-oil primary balance as the relevant indicator of how initial conditions and resource endowments can influence long-term considerations in several different models of fiscal rules.

On taxing capital income with income shifting

We examine a linear capital income tax and a nonlinear labor income tax in a two-type model where individuals live for two periods. We assume that taxes are paid only in the second period in which the agents receive both labor and capital income and may shift income from labor to capital. The two types of individuals may differ with respect to wage rate and initial resource endowments. In the absence of income shifting, endowment variation motivates a capital income tax which would not exist where there is pure wage rate variation. In the latter circumstance, income shifting would indeed establish a case for a capital income tax while adding variation in resource endowments would ambiguously affect the case. The asymmetric information case for a capital income tax must be traded off against distortionary effects not only on savings, but also on labor as an agent may earn labor income which is reported and taxed as capital income.

Who enters, where and why? The influence of capabilities and initial resource endowments on the location choices of de novo enterprises

Some geographical locations have characteristics that create opportunities for de novo enterprises, but not all new firms can access the benefits presented by a potential location. The ability of new firms to appropriate benefit and avoid risk depends on the resources that entrepreneurs can marshal for their enterprise. This article develops a model of the interplay between the attributes of de novo entrants and their founding locations. The model assumes that de novo entrants tend to appear in the region where their founders live, but that founders choose among locations within their regions.The test of the model, using data on all de novo entrants in the Canadian manufacturing sector during 1984—98, reveals that entrants with greater resource and capability endowments are more likely to locate in areas with an agglomeration of similar firms, but this effect reverses at high endowment levels. Additionally, larger entrants are less likely to locate in areas characterized by intense local competition and potential entry deterrence, while smaller and well-endowed entrants tend to locate in areas where entry barriers are lower and asset turnover higher. These findings suggest that entrants choose locations strategically within their founding regions.They also indicate that the strategic imperatives of de novo entrants differ significantly from those of geographically diversifying firms, and thus suggest amendments to theories of location choice when modeling the decisions of new ventures.

Russian Manufacturing and the Threat of 'Dutch Disease' - A Comparison of Competitiveness Developments in Russian and Ukrainian Industry

This paper examines the development of Russian industry in comparison with that of Ukrainian industry during 1995-2004 in an effort to ascertain to what extent, if any, Russian manufacturing showed signs of succumbing to 'Dutch disease'. Ukraine and Russia began the market transition with broadly similar institutions, industrial structures and levels of technology, and the economic reforms implemented in the two countries were also similar, although Ukraine was reckoned to lag behind Russia in many areas. The main difference between them is Russia's far greater resource wealth. It follows that differences in industrial development since 1991 may to some degree be attributable to differences in initial natural resource endowments. In short, Ukraine could provide a rough approximation of how a resource-poor Russia might have developed over the transition.

Who Enters, Where, and Why? The Influence of Capabilities and Initial Resource Endowments on the Location Choices of De Novo Enterprises

Who Enters, Where, and Why? The Influence of Capabilities and Initial Resource Endowments on the Location Choices of De Novo Enterprises

Who Enters, Where, and Why? The Influence of Capabilities and Initial Resource Endowments on the Location Choices of New Enterprises

Using data about all de novo entrants into the Canadian manufacturing sectors during 1984-1998, we studied location choices as a function of firms' initial resources and capabilities. Employing nested logit estimation, we examined the impact of various location traits such as: agglomeration, competition, deterrence, and sunk costs, on location choices. Findings reveal that the probability of entry to a location with high agglomeration economies increases with increases in resources and capabilities and then declines. Very large de novo entrants may prefer isolated locations. Stronger entrants are more detracted by local competition and incumbents' deterrence strategies. Weaker firms value more places with lower entry barriers and sunk costs.

Preadaptation, Firm Heterogeneity, and Technological Performance: A Study on the Evolution of Fiber Optics, 1970–1995

Strategy research typically traces stable performance differences among firms to a priori heterogeneity in initial resource endowments or in expected flows of resources. The objective of this paper is to explore how this heterogeneity is created and how it affects firm technological performance. Within the framework of an evolutionary view of technological change, we develop the notion of technological preadaptation to describe that part of a firm’s prior experience that is accumulated without anticipation of subsequent uses. In particular, we hypothesize that (technological) performance differences are positively related to (1) firms’ stock of relevant skills and knowledge potentially available for applications other than those for which they were originally developed and (2) the extent to which firms actually build on these skills and knowledge in new domains. The empirical setting is fiber optics technology as it evolved for use in long-distance communications between 1970 and 1995. We find that “preadapted” firms that consistently leveraged their prior experience achieved higher levels of performance than did firms that did not leverage that experience or did not have prior experience. The study illustrates the importance of preadaptation in capability development and technological competition.

The role of human and social capital and entrepreneurial orientation for small business performance in a transitional economy

We develop a model of small business performance in transitional economies in which owners' human and social capital are expected to be directly and positively related to the firm's entrepreneurial orientation, and all three are hypothesised to have a positive impact on performance. In transitional economies, these factors are particularly salient because of the scarcity of resources and the lack of entrepreneurial tradition and adequate institutional infrastructure. The model is tested with structural equations analysis of data from 160 owners of small businesses in Bulgaria. We find that social capital is related to entrepreneurial orientation, and both are positively associated with business performance. This means that social capital is an important initial resource endowment in transforming economies, and small business owners need to establish and develop connections with partners, suppliers, customers, and institutions. Also, they should seek to identify opportunities and develop proactive and innovative strategies.

Labour markets, social justice and economic efficiency

In conventional economic theory, a trade-off supposedly exists between social justice and economic efficiency. In reality, market and other economic institutions are dominated by power relations, so that the sponsorship of social justice is a productive factor. Neo-liberal economic policies, by lifting the constraints on the exercise of unequal power, increased injustice and triggered a downward economic and social spiral. Reversing this requires a revolution in economic theory and policy focused on full employment, the working of labour markets, the organisation of work, and household organisation, social provision and self-sufficiency. In conventional economic theory, the initial resource endowments of individuals are taken as given and, although these may be unequal, they are essentially external to the market. Labour markets are assumed to be more or less 'competitive' and within them real wages reflect the quality of workers' resource endowments (mainly human capital) and their personal efficiency and energy. That these result in a wide dispersion of labour market rewards, some of which may be insufficient to sustain a reasonable standard of life, is a demonstration, it is argued, of how widely dispersed are individual resource endowments and capabilities (Hirsch and Addison, 1986). From this perspective, any idea of social justice designed to reduce income inequalities risks damaging incentives and lowering overall economic well-being. This is the basis of Okun's (1975) thesis that there exists an inverse trade-off between social equality and economic efficiency: that greater social (income) equality can only be purchased at the cost of lowering economic efficiency. The alternative perspective explored in this Special Issue recognises the central import ance of relative power in determining outcomes. This focuses attention on the external and internal forces structuring markets and how these differentially affect the incomes and opportunities of individuals. From this perspective, social justice requires the removal of the obstacles that inhibit individuals and groups from developing their potential and from deploying their resources to full advantage. Thus, contrary to the orthodox view, increasing

From aid dependence to self‐articulated aspiration: A comparative analysis of sub‐Saharan Africa and East Asia

The article analyses the role of aid and the international donor community in economic development through a comparative analysis of the institutional environments for policy implementation in sub‐Saharan Africa and East Asia. It outlines the debate on Africa's ‘growth tragedy’, the aid‐growth nexus, and the donor‐recipient relationship, and examines the central differences in initial conditions, resource endowments, and institutional governance structures between the two regions. It demonstrates how differences in the policy implementation contexts in the two regions have determined the efficacy of various economic policies which can explain why seemingly similar, comparable policies, e.g., import substitution and direct credit allocation, have given rise to diverse outcomes in East Asia and Africa. On this background, the article questions the utility of Structural Adjustment Programmes (SAPs), and concludes with a call for a re‐conceptualisation of aid policy design in Africa.

Russian Mass Privatization: Analysis of Financial Structure and Initial Cash Endowments

This paper analyzes the cash flow and corporate finance structure of large‐size Russian enterprises required by law to privatize. The legal framework and governmental regulatory structure of Russia's mass privatization program are presented, and particular emphasis is placed on tracing the flow of cash (versus Russian privatization vouchers) between enterprises, investors and the government. Most Russian firms raise no cash during the initial privatization process and, accordingly, have substantial difficulties in obtaining funds to continue operations and to finance their growth and expansion. The authors believe that undue emphasis on the use of privatization vouchers has placed many newly privatized firms in conditions of extreme financial distress. Examples of the initial financial structure of three Western corporate finance transactions — spin‐offs, leveraged buy‐outs (LBOs) and Chapter 11 reorganizations — are compared to the initial endowment of liquid resources in Russian firms undergoing privatization.

Can the shadow of the future harm cooperation?

It is generally thought that in long-term relationships high valuations of the future are conducive to cooperation. In an intertemporal model of conflict, however, we demonstrate the possibility of the opposite effect: a longer shadow of the future may harm cooperation. In particular, we show that the degree of inefficiency is positively related to: (i) the agents' valuation of the future, (ii) potential growth rates in resources, (iii) the size of initial resource endowments, and (iv) the effectiveness of conflict.

Market Exchange and Wealth Distribution: A Classroom Simulation

The author offers an activity in which students are endowed with different colored (valued) M&M candies that they then trade to achieve combinations that have greater value than their individual pieces. The exercise is designed to show the role of diverse skills and aptitudes, effort, creativity, initial resource endowments, and market exchange in determining patterns of wealth.

Optimal Management of Game and Forage Resources in a Private Fee‐Hunting Enterprise

AbstractThe paper formulates a bioeconomic model of a private fee‐hunting enterprise to examine the optimal management of this agroecological system under a wide range of bioeconomic circumstances. An empirical application demonstrates that the economic viability of the enterprise (concerning managers) and the sustainability of the underlying biological resources (concerning public regulators) depend critically on the initial endowment of resources and on the existence of publicly‐mandated or self‐imposed restrictions on maximum allowable hunting rates. Perhaps surprising is the implication that in some circumstances regulators may be able to promote resource sustainability by relaxing hunting controls.