The economic theory of international business: a supply chain perspective

This paper proposes a way of addressing unresolved issues in international business theory by modelling the multinational enterprise as a coordinator of supply chains. It identifies a new market seeking strategy that is an alternative to conventional strategies such as exporting, licensing and FDI, and analyses the conditions under which it will be adopted by firms. The new strategy involves the off-shoring of production and the out-sourcing of R&D, and is implemented through co-operation between a source country firm and a host country firm.

The economic theory of international supply chains: a systems view

This paper offers an integrated analysis of out-sourcing, off-shoring and foreign direct investment within a systems view of international business. This view takes the supply chain rather than the firm as the basic unit of analysis. It argues that competition in the global economy selects supply chains that maximise the joint profit of all the firms in the chain. The systems view is compared with the firm-centred view commonly used in strategy literature. The paper shows that a firm’s strategy must be embedded within an efficient supply chain strategy, and that this strategy must be negotiated with, rather than imposed upon, other firms. The paper analyses the conditions under which various supply chain strategies - and by implication various firm-level strategies - are efficient. Only by adopting a systems view of supply chains is it possible to determine which firm-level strategies will succeed in a volatile global economy.

Interpersonal interaction and economic theory: the case of public goods

Interpersonal interaction in public goods contexts is very different in character to its depiction in economic theory, despite the fact that the standard model is based on a small number of apparently plausible assumptions. Approaches to the problem are reviewed both from within and outside economics. It is argued that quick fixes such as a taste for giving do not provide a way forward. An improved understanding of why people contribute to such goods seems to require a different picture of the relationships between individuals than obtains in standard microeconomic theory, where they are usually depicted as asocial. No single economic model at present is consistent with all the relevant field and laboratory data. It is argued that there are defensible ideas from outside the discipline which ought to be explored, relying on different conceptions of rationality and/or more radically social agents. Three such suggestions are considered, one concerning the expressive/communicative aspect of behaviour, a second the possibility of a part-whole relationship between interacting agents and the third a version of conformism.

The economic theory of the firm as a foundation for international business theory

The economic theory of the firm is central to the theory of the multinational enterprise. Recent literature on multinationals, however, makes only limited reference to the economic theory of the firm. Multinationals play an important role in coordinating the international division of labour through internal markets. The paper reviews the economic principles that underlie this view. Optimal internalisation equates marginal benefits and costs. The benefits of internalisation stem mainly from the difficulties of licensing proprietary knowledge, reflecting the view that MNEs possess an ‘ownership’ or ‘firm-specific’ advantage. The costs of internalisation, it is argued, reflect managerial capability, and in particular the capability to manage a large firm. The paper argues that management capability is a complement to ownership advantage. Ownership advantage determines the potential of the firm, and management capability governs the fulfilment of this potential through overcoming barriers to growth. The analysis is applied to a variety of issues, including out-sourcing, geographical dispersion of production, and regional specialisation in marketing.

Time patterns in UK demand for alcohol and tobacco: an application of the EM algorithm

Capturing the pattern of structural change is a relevant task in applied demand analysis, as consumer preferences may vary significantly over time. Filtering and smoothing techniques have recently played an increasingly relevant role. A dynamic Almost Ideal Demand System with random walk parameters is estimated in order to detect modifications in consumer habits and preferences, as well as changes in the behavioural response to prices and income. Systemwise estimation, consistent with the underlying constraints from economic theory, is achieved through the EM algorithm. The proposed model is applied to UK aggregate consumption of alcohol and tobacco, using quarterly data from 1963 to 2003. Increased alcohol consumption is explained by a preference shift, addictive behaviour and a lower price elasticity. The dynamic and time-varying specification is consistent with the theoretical requirements imposed at each sample point. (c) 2005 Elsevier B.V. All rights reserved.

Studying the effect of systemisation on design activity

It is considered that systemisation, the use of standard systems of components and design solutions, has an effect on the activities of the designer. This paper draws on many areas of knowledge; design movements, economic theory, quality evaluation and organisation theory to substantiate the view that systemisation will reduce the designer's discretion at the point of design. A methodology to test this hypothesis is described which will be of use to other researchers studying the social processes of construction organisations.

On the determinants of optimal border enforcement

We extend the current immigration-enforcement literature by incorporating both the practice of people smuggling and a role for non-wage income into a two-country, dynamic general equilibrium model. We use the model economy to examine three questions. First, how does technological progress in the smuggling industry affect the level of migration and capital accumulation for a given level of enforcement? Second, do changes in border enforcement affect the level of migration, capital accumulation, and smuggling activity? Third, is the optimal level of enforcement sensitive to technological progress in the smuggling industry? We show that the government chooses to devote resources to border enforcement only if the deterrent effect on smugglers is large enough. Otherwise, it is not worth taxing host-country natives as the taxes paid will more than offset any income gain resulting from fewer migrants.

The management of positive inter-store externalities in shopping centres: some empirical evidence

In enclosed shopping centres, stores benefit from the positive externalities of other stores in the centre. Some stores provide greater benefits to their neighbours than others – for example anchor tenants and brand leading stores. In managing shopping centres, these positive externalities might be captured through rental variations. This paper explores the determinants of rent – including externalities – for UK regional shopping centres. Two linked databases were utilised in the research. One contains characteristics of 148 shopping centres; the other has some 1,930 individual tenant records including rent level. These data were analysed to provide information on the characteristics of centres and retailers that help determine rent. Factors influencing tenant rents include market potential factors derived from urban and regional economic theory and shopping centre characteristics identified in prior retail research. The model also includes variables that proxy for the interaction between tenants and the impact of positive in-centre externalities. We find that store size is significantly and negatively related to tenant with both anchor and other larger tenants, perhaps as a result of the positive effects generated by their presence, paying relatively lower rents while smaller stores, benefiting from the generation of demand, pay relatively higher rents. Brand leader tenants pay lower rents than other tenants within individual retail categories.

The price of space: the convergence of value in use and value in exchange

This paper discusses concepts of value from the point of view of the user of the space and the counter view of the provider of the same. Land and property are factors of production. The value of the land flows from the use to which it is put, and that in turn, is dependent upon the demand (and supply) for the product or service that is produced/provided from that space. If there is a high demand for the product (at a fixed level of supply), the price will increase and the economic rent for the land/property will increase accordingly. This is the underlying paradigm of Ricardian rent theory where the supply of land is fixed and a single good is produced. In such a case the rent of land is wholly an economic rent. Economic theory generally distinguishes between two kinds of price, price of production or “value in use” (as determined by the labour theory of value), and market price or “value in exchange” (as determined by supply and demand). It is based on a coherent and consistent theory of value and price. Effectively the distinction is between what space is ‘worth’ to an individual and that space’s price of exchange in the market place. In a perfect market where any individual has access to the same information as all others in the market, price and worth should coincide. However in a market where access to information is not uniform, and where different uses compete for the same space, it is more likely that the two figures will diverge. This paper argues that the traditional reliance of valuers to use methods of comparison to determine “price” has led to an artificial divergence of “value in use” and “value in exchange”, but now such comparison are becoming more difficult due to the diversity of lettings in the market place, there will be a requirement to return to fundamentals and pay heed to the thought process of the user in assessing the worth of the space to be let.

Non-existence of competitive equilibria with dynamically inconsistent preferences

This paper shows the robust non-existence of competitive equilibria even in a simple three period representative agent economy with dynamically inconsistent preferences. We distinguish between a sophisticated and naive representative agent. Even when underlying preferences are monotone and convex, at given prices, we show by example that the induced preference of the sophisticated representative agent over choices in first-period markets is both non-convex and satiated. Even allowing for negative prices, the market-clearing allocation is not contained in the convex hull of demand. Finally, with a naive representative agent, we show that perfect foresight is incompatible with market clearing and individual optimization at given prices.