Trade, firm selection, and innovation: the competition channel

The availability of rich firm-level data sets has recently led researchers to uncover new evidence on the effects of trade liberalization. First, trade openness forces the least productive firms to exit the market. Secondly, it induces surviving firms to increase their innovation efforts and thirdly, it increases the degree of product market competition. In this paper we propose a model aimed at providing a coherent interpretation of these findings. We introducing firm heterogeneity into an innovation-driven growth model, where incumbent firms operating in oligopolistic industries perform cost-reducing innovations. In this framework, trade liberalization leads to higher product market competition, lower markups and higher quantity produced. These changes in markups and quantities, in turn, promote innovation and productivity growth through a direct competition effect, based on the increase in the size of the market, and a selection effect, produced by the reallocation of resources towards more productive firms. Calibrated to match US aggregate and firm-level statistics, the model predicts that a 10 percent reduction in variable trade costs reduces markups by 1:15 percent, firm surviving probabilities by 1 percent, and induces an increase in productivity growth of about 13 percent. More than 90 percent of the trade-induced growth increase can be attributed to the selection effect.

Dominant negative MyD88 proteins inhibit interleukin-1beta /interferon-gamma -mediated induction of nuclear factor kappa B-dependent nitrite production and apoptosis in beta cells.

Insulin-dependent diabetes mellitus is an autoimmune disease in which pancreatic islet beta cells are destroyed by a combination of immunological and inflammatory mechanisms. In particular, cytokine-induced production of nitric oxide has been shown to correlate with beta cell apoptosis and/or inhibition of insulin secretion. In the present study, we investigated whether the interleukin (IL)-1beta intracellular signal transduction pathway could be blocked by overexpression of dominant negative forms of the IL-1 receptor interacting protein MyD88. We show that overexpression of the Toll domain or the lpr mutant of MyD88 in betaTc-Tet cells decreased nuclear factor kappaB (NF-kappaB) activation upon IL-1beta and IL-1beta/interferon (IFN)-gamma stimulation. Inducible nitric oxide synthase mRNA accumulation and nitrite production, which required the simultaneous presence of IL-1beta and IFN-gamma, were also suppressed by approximately 70%, and these cells were more resistant to cytokine-induced apoptosis as compared with parental cells. The decrease in glucose-stimulated insulin secretion induced by IL-1beta and IFN-gamma was however not prevented. This was because these dysfunctions were induced by IFN-gamma alone, which decreased cellular insulin content and stimulated insulin exocytosis. These results demonstrate that IL-1beta is involved in inducible nitric oxide synthase gene expression and induction of apoptosis in mouse beta cells but does not contribute to impaired glucose-stimulated insulin secretion. Furthermore, our data show that IL-1beta cellular actions can be blocked by expression of MyD88 dominant negative proteins and, finally, that cytokine-induced beta cell secretory dysfunctions are due to the action of IFN-gamma.

Sequencing and identification of expressed Schistosoma mansoni genes by random selection of cDNA clones from a directional library

We have initiated a gene discovery program in Schistosoma mansoni based on the technique of Expressed Sequence Tags (ESTs), i.e. partial sequences of cDNAs obtained from single passes in automatic DNA sequencers. ESTs can be used to identify genese onf the basis of their homology whith sequences from other species deposited in DNA or protein databases. Trasncripts with sequences without matches in teh databases may represent novel parasite-specific genes. This approach has shown to be very efficient and in less than two years a broad range of novel genes has already been ascertained, more than doubling the number of known S. mansoni genes.

On the maintenance of sex-chromosome polymorphism by sex-antagonistic selection

Complex sex-determination systems are a priori unstable and require specific selective forces for their maintenance. Analytical derivations have suggested that sex-antagonistic selection may play such a role, but this assumed absence of recombination between the sex-determining and sex-antagonistic genes. Using individual-based simulations, and focusing on the sex chromosome and coloration polymorphisms of platy fishes as a case study, we show that the conditions for polymorphism maintenance induce female-biases in primary sex ratios, so that sex-ratio selection makes the system collapse towards male- or female heterogamety as soon as recombinant genotypes appear. However, a polymorphism can still be maintained under scenarios comprising strong sexual selection against dull males, mild natural selection against bright females, and low recombination rates. Though such conditions are plausibly met in natural populations of fishes harbouring such polymorphisms, quantitative empirical evaluations are required to properly test whether sex-antagonistic selection is a causal agent, or if other selective processes are required (such as local mate competition favouring female biased sex ratios).

Effects of flecainide on exercise-induced ventricular arrhythmias and recurrences in genotype-negative patients with catecholaminergic polymorphic ventricular tachycardia.

BACKGROUND: Conventional therapy with beta-blockers is incompletely effective in preventing arrhythmic events in patients with catecholaminergic polymorphic ventricular tachycardia (CPVT). We have previously discovered that flecainide in addition to conventional drug therapy prevents ventricular arrhythmias in patients with genotype-positive CPVT. OBJECTIVE: To study the efficacy of flecainide in patients with genotype-negative CPVT. METHODS: We studied the efficacy of flecainide for reducing ventricular arrhythmias during exercise testing and preventing arrhythmia events during long-term follow-up. RESULTS: Twelve patients with genotype-negative CPVT were treated with flecainide. Conventional therapy failed to control ventricular arrhythmias in all patients. Flecainide was initiated because of significant ventricular arrhythmias (n = 8), syncope (n = 3), or cardiac arrest (n = 1). At the baseline exercise test before flecainide, 6 patients had ventricular tachycardia and 5 patients had bigeminal or frequent ventricular premature beats. Flecainide reduced ventricular arrhythmias at the exercise test in 8 patients compared to conventional therapy, similar to that in patients with genotype-positive CPVT in our previous report. Notably, flecainide completely prevented ventricular arrhythmias in 7 patients. Flecainide was continued in all patients except for one who had ventricular tachycardia at the exercise test on flecainide. During a follow-up of 48±94 months, arrhythmia events (sudden cardiac death and aborted cardiac arrest) associated with noncompliance occurred in 2 patients. Flecainide was not discontinued owing to side effects in any of the patients. CONCLUSIONS: Flecainide was effective in patients with genotype-negative CPVT, suggesting that spontaneous Ca(2+) release from ryanodine channels plays a role in arrhythmia susceptibility, similar to that in patients with genotype-positive CPVT.

Dibenzofuran degradation by Sphingomonas wittichii RW1 under environmental stresses

Sphingomonas wittichii is a gram-negative Alpha-proteobacterium, capable of degrading xenobiotic compounds such as dibenzofuran (DBF), dibenzo-p-dioxin, carbazole, 2-hydroxybiphenyl or nitro diphenyl ether herbicides. The metabolism of strain RW1 has been the subject of previous studies and a number of genes involved in DBF degradation have been characterized. It is known that RW1 posseses a unique initial DBF dioxygenase (encoded by the dxnAl gene) that catalyzes the first step in the degradation pathway. None of the organisms known to be able to degrade DBF have a similar dioxygenase, the closest match being the DBF dioxygenase from Rhodococcus sp. with an overall amino acid similarity of 45%. Genes participating in the conversion of the metabolite salicylate via the ortho-cleavage pathway to TCA cycle intermediates were identified as well. Apart from this scarce information, however, there is a lack of global knowledge on the genes that are involved in DBF degradation by strain RW1 and the influence of environmental stresses on DBF-dependent global gene expression. A global analysis is necessary, because it may help to better understand the behaviour of the strain under field conditions and suggest improvements for the current bioaugmentation practice. Chapter 2 describes the results of whole-genome analysis to characterize the genes involved in DBF degradation by RW1. Micro-array analysis allowed us to detect differences in gene transcription when strain RW1 was exposed to DBF. This was complemented by ultra-high throughput sequencing of mutants no longer capable of growing on salicylate and DBF. Some of the genes of the ortho-cleavage pathway were induced 2 to 4 times in the presence of DBF, as well as the initial DBF dioxygenase. However two gene clusters, named 4925 and 5102 were induced up to 19 times in response to DBF induction. The cluster 4925 is putatively participating in a meta-cleavage pathway while the cluster 5102 might be part of a gentisate pathway. The three pathways, ortho-cleavage, meta-cleavage and gentisate pathway seem to be active in parallel when strain RW1 is exposed to DBF, presenting evidence for a redundancy of genes for DBF degradation in the genome of RW1. Chapter 3 focuses on exploiting genetic tools to construct bioreporters representative for DBF degradation in RW1. A set of basic tools for genetic manipulation in Sphingomonas wittichii RW1 was tested and optimized. Both plasmids and mini-transposons were evaluated for their ability to be maintained in RW1 with or without antibiotic selection pressure, and for their ability to lead to fluorescent protein expression in strain RW1 from a constitutive promoter. Putative promoter regions of three of the previously found DBF-induced genes (Swit_4925, Swit_5102 and Swit_4897-dxnAl) were then used to construct eg/^-bioreporters in RW1. Chapter 4 describes the use of the constructed RW1-based bioreporter strains for examining the expression of the DBF degradation pathway genes under microcosm conditions. The bioreporter strains were first exposed to different carbon sources in liquid culture to calibrate the egfp induction. Contrary to our expectations from micro-array analysis only the construct with the promoter from gene cluster 4925 responded to DBF, whereas the other two constructs did not show specific induction with DBF. The response from the bioreporters was subsequently tested for sensitivity to water stress, given that this could have an important impact in soils. Exposure to liquid cultures with decreasing water potential, achieved by NaCl or PEG addition to the growth media, showed that eGFP expression in RW1 from the promoter regions 4925 and 5102 was not directly influenced by water stress, but only through an overall reduction in growth rate. In contrast, expression of eGFP from the dxnAl or an uspA promoter was also directly dependent on the extent of water stress. The RW1 with the 4925 construct was subsequently used in soil microcosms to evaluate DBF bioavailability to the cells in presence or absence of native microbiota or other contaminated material. We found that RW1 could grow on DBF added to soil, but bioreporter expression suggested that competition with native microbiota for DBF intermediates may limit its ability to proliferate to a maximum. Chapter 5 describes the results from the experiments carried out to more specifically detect genes of RW1 that might be implicated in water stress resistance. Hereto we created transposon mutagenesis libraries in RW1, either with a classical mini-Tn5 or with a variant that would express egfp when the transposon would insert in a gene induced under water stress. Classical mutant libraries were screened by replica plating under high and low water stress conditions (achieved by adding NaCl to the agar medium). In addition, we screened for smaller microcolonies formed by mutants in agarose beads that could be analized with flow cytometry. A number of mutants impaired to grow on NaCl-supplemented media were recovered and the transposon insertion sites sequenced. In a second procedure we screened by flow cytometry for mutants with a higher eGFP production after exposure to growth medium with higher NaCl concentrations. Mutants from both libraries rarely overlapped. Discovered gene functions of the transposon insertions pointed to compatible solute synthesis (glutamate and proline), cell membrane synthesis and modification of cell membrane composition. The results obtained in the present study give us a more complete picture of the mechanisms of DBF degradation by S. wittichii RW1, how it reacts to different DBF availability and how the DBF catabolic activity may be affected by the conditions found in contaminated environments. - Sphingomonas wittichii est une alpha-protéobactérie gram-négative, capable de dégrader des composés xénobiotiques tels que le dibenzofurane (DBF), la dibenzo-p-dioxine, le carbazole, le 2-hydroxybiphényle ou les herbicides dérivés du nitro-diphényléther. Le métabolisme de la souche RW1 a fait l'objet d'études antérieures et un certain nombre de gènes impliqués dans la dégradation du DBF ont été caractérisés. Il est connu que RW1 possède une unique dioxygénase DBF initiale (codée par le gène dxnAl) qui catalyse la première étape de la voie de dégradation. Aucun des organismes connus pour être capables de dégrader le DBF n'a de dioxygénase similaire. L'enzyme la plus proche étant la DBF dioxygénase de Rhodococcus sp. avec 45% d'acides aminés conservés. Les gènes qui participent à la transformation du salicylate en métabolites intermédiaires du cycle de Krebs par la voie ort/io-cleavage ont aussi été identifiés. Outre ces informations lacunaires, il y a un manque de connaissances sur l'ensemble des gènes impliqués dans la dégradation du DBF par la souche RW1 ainsi que l'effet des stress environnementaux sur l'expression génétique globale, en présence du DBF. Une analyse globale est nécessaire, car elle peut aider à mieux comprendre le comportement de la souche dans les conditions de terrain et de proposer des améliorations pour l'utilisation de la bio-augmentation comme technique de bio-remédiation. Le chapitre 2 décrit les résultats de l'analyse du génome pour caractériser les gènes impliqués dans la dégradation du DBF par RW1. Une analyse de micro-arrays nous a permis de détecter des différences dans la transcription des gènes lorsque la souche RW1 a été exposée au DBF. L'analyse a été complétée par le criblage à ultra-haut débit de mutants qui n'étaient plus capables de croître avec le salicylate ou le DBF comme seule source de carbone. Certains des gènes de la voie ortho-cleavage, dont la DBF dioxygénase initiale, ont xî été induits 2 à 4 fois, en présence du DBF. Cependant, deux groupes de gènes, nommés 4925 et 5102 ont été induits jusqu'à 19 fois en réponse au DBF. Le cluster 4925 participe probablement dans une voie de meta-cleavage tandis que le cluster 5102 pourrait faire partie d'une voie du gentisate. Les trois voies, ortho-cleavage, meta-cleavage et la voie du gentisate semblent être activées en parallèle lorsque la souche RW1 est exposée au DBF, ce qui représente une redondance de voies pour la dégradation du DBF dans le génome de RW1. Le chapitre 3 se concentre sur l'exploitation des outils génétiques pour la construction de biorapporteurs de la dégradation du DBF par RW1. Un ensemble d'outils de base pour la manipulation génétique dans Sphingomonas wittichii RW1 a été testé et optimisé. Deux plasmides et mini-transposons ont été évalués pour leur capacité à être maintenu dans RW1 avec ou sans pression de sélection par des antibiotiques, et pour leur capacité à exprimer la protéine fluorescente verte (eGFP) dans la souche RW1. Les trois promoteurs des gènes Swit_4925, Swit_5102 et Swit_4897 (dxnAl), induits en réponse au DBF, ont ensuite été utilisés pour construire des biorapporteurs dans RW1. Le chapitre 4 décrit l'utilisation des souches biorapportrices construites pour l'analyse de l'expression des gènes de la voie de dégradation du DBF dans des microcosmes avec différents types de sols. Les souches biorapportrices ont d'abord été exposées à différentes sources de carbone en cultures liquides afin de calibrer l'induction de la eGFP. La construction avec le promoteur du gène 4925 a permis une réponse au DBF. Mais contrairement à nos attentes, basées sur les résultats de l'analyse des micro-arrays, les deux autres constructions n'ont pas montré d'induction spécifique au DBF. La réponse des biorapporteurs a ensuite été testée pour la sensibilité au stress hydrique, étant donné que cela pourrait avoir un impact important dans les microcosmes. La diminution du potentiel hydrique en culture liquide est obtenue par addition de NaCl ou de PEG au milieu de croissance. Nous avons montré que l'expression de la eGFP contrôlée par les promoteurs 4925 et 5102 n'était pas directement influencée par le stress hydrique, mais seulement par une réduction globale des taux de croissance. En revanche, l'expression de la eGFP dépendante des promoteurs dxnAl et uspA était aussi directement dépendante de l'ampleur du stress hydrique. La souche avec la construction 4925 a été utilisée par la suite dans des microcosmes avec différents types de sols pour évaluer la biodisponibilité du DBF en présence ou absence des microbes indigènes et d'autres composés contaminants. Nous avons constaté que RW1 pouvait se développer si le DBF a été ajouté au sol, mais l'expression de la eGFP par le biorapporteur suggère que la compétition avec la microbiota indigène pour les métabolites intermédiaires du DBF peut limiter sa capacité à proliférer de manière optimale. Le chapitre 5 décrit les résultats des expériences réalisées afin de détecter spécifiquement les gènes de RW1 qui pourraient être impliquées dans la résistance au stress hydrique. Ici on a crée des bibliothèques de mutants de RW1 par transposon, soit avec un mini-Tn5 classique ou avec une variante qui exprime la eGFP lorsque le transposon s'insère dans un gène induit par le stress hydrique. Les bibliothèques de mutants ont été criblées par la méthode classique de repiquage sur boîtes, dans des conditions de stress hydrique élevé (obtenu par l'addition de NaCl dans les boîtes). En outre, nous avons criblé des micro¬colonies dans des billes d'agarose qui ont pu être analysées par cytométrie de flux. Un certain nombre de mutants déficients à croître sur des milieux supplémentés avec du NaCl ont été isolés et les sites d'insertion du transposon séquencés. Dans une deuxième procédure nous avons criblé par cytométrie de flux des mutants avec une production de eGFP supérieure, après exposition à un milieu de croissance avec une concentration élevée de NaCl. Les mutants obtenus dans les deux bibliothèques n'étaient pas similaires. Les fonctions des gènes où se trouvent les insertions de transposons sont impliqués dans la synthèse de solutés compatibles (glutamate et de la proline), dans la synthèse de la membrane cellulaire et dans la modification de la composition de la membrane cellulaire. Les résultats obtenus dans la présente étude nous donnent une image plus complète des mécanismes de dégradation du DBF par S. wittichii RW1, comment cette souche réagit à la disponibilité du DBF et comment l'activité catabolique peut être affectée par les conditions rencontrées dans des environnements contaminés.

Abnormal sensitivity to negative feedback in late-life depression.

AIMS: The purpose of the present study was to probe sensitivity to potentially misleading negative feedback on cognitive tasks as a possible mechanism of cognitive impairment in elderly patients with mild depression. METHODS: A total of 22 mildly depressed elderly subjects were compared to 22 healthy controls, using a computerized Tower-of-London task. RESULTS: Failure and magnitude of failure were significantly worse after negative but not positive feedback. Depression predicted failure after negative feedback but not the magnitude of failure. Neither failure nor magnitude of failure increased as a consequence of repeated negative feedback. CONCLUSIONS: Altered sensitivity to negative feedback occurs in mild late-life unipolar depression and may represent a subtle context-specific phenomenon.

Tuberculosis in HIV-negative and HIV-infected patients in a low-incidence country: clinical characteristics and treatment outcomes.

BACKGROUND: In Switzerland and other developed countries, the number of tuberculosis (TB) cases has been decreasing for decades, but HIV-infected patients and migrants remain risk groups. The aim of this study was to compare characteristics of TB in HIV-negative and HIV-infected patients diagnosed in Switzerland, and between coinfected patients enrolled and not enrolled in the national Swiss HIV Cohort Study (SHCS). METHODS AND FINDINGS: All patients diagnosed with culture-confirmed TB in the SHCS and a random sample of culture-confirmed cases reported to the national TB registry 2000-2008 were included. Outcomes were assessed in HIV-infected patients and considered successful in case of cure or treatment completion. Ninety-three SHCS patients and 288 patients selected randomly from 4221 registered patients were analyzed. The registry sample included 10 (3.5%) coinfected patients not enrolled in the SHCS: the estimated number of HIV-infected patients not enrolled in the SHCS but reported to the registry 2000-2008 was 146 (95% CI 122-173). Coinfected patients were more likely to be from sub-Saharan Africa (51.5% versus 15.8%, P<0.0001) and to present disseminated disease (23.9% vs. 3.4%, P<0.0001) than HIV-negative patients. Coinfected patients not enrolled in the SHCS were asylum seekers or migrant workers, with lower CD4 cell counts at TB diagnosis (median CD4 count 79 cells/µL compared to 149 cells/µL among SHCS patients, P = 0.07). There were 6 patients (60.0%) with successful outcomes compared to 82 (88.2%) patients in the SHCS (P = 0.023). CONCLUSIONS: The clinical presentation of coinfected patients differed from HIV-negative TB patients. The number of HIV-infected patients diagnosed with TB outside the SHCS is similar to the number diagnosed within the cohort but outcomes are poorer in patients not followed up in the national cohort. Special efforts are required to address the needs of this vulnerable population.

The Rio de Janeiro HIV Vaccine Site: I. Recruitment Strategies and Socio-demographic Data of a HIV Negative Homosexual and Bisexual Male Cohort in Rio de Janeiro, Brazil

The initial effort of the Brazilian Ministry of Health to be an active partner in the world effort in the preparation of future accurate human immune deficiency virus (HIV) efficacy trials was the establishment of a multi-centered cohort of homosexual and bisexual men. An open cohort was established to determine the HIV incidence and the socio-behavioral aspects involved in Rio de Janeiro. A total of 318 potential participants, originated from multiple sources (health units, public information, snowball recruitment), were screened and recruitment became effective through the direct involvement of target communities (with the support of Non Governmental Organizations) and the population. Among this group, seropositivity for sexually transmitted diseases was high with 23, 32 and 46% for HIV, syphilis and hepatitis B, respectively. The socio-demographic data from the first 200 participants of this HIV negative cohort suggests that the cohort volunteers are an appropriate sample of the general male population of the State of Rio de Janeiro

Cdc42 explores the cell periphery for mate selection in fission yeast.

How cells polarize in response to external cues is a fundamental biological problem. For mating, yeast cells orient growth toward the source of a pheromone gradient produced by cells of the opposite mating type. Polarized growth depends on the small GTPase Cdc42, a central eukaryotic polarity regulator that controls signaling, cytoskeleton polarization, and vesicle trafficking. However, the mechanisms of polarity establishment and mate selection in complex cellular environments are poorly understood. Here we show that, in fission yeast, low-level pheromone signaling promotes a novel polarization state, where active Cdc42, its GEF Scd1, and scaffold Scd2 form colocalizing dynamic zones that sample the periphery of the cell. Two direct Cdc42 effectors--actin cables marked by myosin V Myo52 and the exocyst complex labeled by Sec6 and Sec8--also dynamically colocalize with active Cdc42. However, these cells do not grow due to a block in the exocytosis of cell wall synthases Bgs1 and Bgs4. High-level pheromone stabilizes active Cdc42 zones and promotes cell wall synthase exocytosis and polarized growth. However, in the absence of prior low-level pheromone signaling, exploration fails, and cells polarize growth at cell poles by default. Consequently, these cells show altered partner choice, mating preferentially with sister rather than nonsister cells. Thus, Cdc42 exploration serves to orient growth for partner selection. This process may also promote genetic diversification.

EGFR signalling as a negative regulator of Notch1 gene transcription and function in proliferating keratinocytes and cancer.

The Notch1 gene has an important role in mammalian cell-fate decision and tumorigenesis. Upstream control mechanisms for transcription of this gene are still poorly understood. In a chemical genetics screen for small molecule activators of Notch signalling, we identified epidermal growth factor receptor (EGFR) as a key negative regulator of Notch1 gene expression in primary human keratinocytes, intact epidermis and skin squamous cell carcinomas (SCCs). The underlying mechanism for negative control of the Notch1 gene in human cells, as well as in a mouse model of EGFR-dependent skin carcinogenesis, involves transcriptional suppression of p53 by the EGFR effector c-Jun. Suppression of Notch signalling in cancer cells counteracts the differentiation-inducing effects of EGFR inhibitors while, at the same time, synergizing with these compounds in induction of apoptosis. Thus, our data reveal a key role of EGFR signalling in the negative regulation of Notch1 gene transcription, of potential relevance for combinatory approaches for cancer therapy.

Evaluation of Three Mycobacterium leprae Monoclonal Antibodies in Mucus and Lymph Samples from Ziehl-Neelsen Stain Negative Leprosy Patients and their Household Contacts in an Indian Community

Mucus and lymph smears collected from leprosy patients (9) and their household contacts (44) in the Caño Mochuelo Indian Reservation, Casanare, Colombia, were examined with monoclonal antibodies (MoAb) against Mycobacterium leprae. The individuals studied were: 5 borderline leprosy (BB) patients, 4 with a lepromatous leprosy (LL), all of whom were undergoing epidemiological surveillance after treatment and 44 household contacts: 21 of the LL and 23 contacts of the BB patients. The MoAb were reactive with the following M. leprae antigens: 65 kd heat shock protein, A6; soluble antigen G7 and complete antigen, E11. All the samples were tested with each of the MoAb using the avidin-biotin-peroxidase technique and 3,3 diaminobenzidine as chromogen. The patients and household contacts studied were all recorded as Ziehl-Neelsen stain negative. The MoAb which showed optimal reaction was G7, this MoAb permited good visualization of the bacilli. Five patients with BB diagnosis and one with LL were positive for G7; of the BB patients' household contacts, 9 were positive for G7; 7 of the LL patients' household contacts were positive for the same MoAb. MoAb G7 allowed the detection of bacillar Mycobacterium spp. compatible structures in both patients and household contacts. G7 permited the visualization of the complete bacillus and could be used for early diagnosis and follow-up of the disease in patients.

Growth, selection and appropriate contracts

We study a dynamic model where growth requires both long-term investment and the selection of talented managers. When ability is not ex-ante observable and contracts are incomplete, managerial selection imposes a cost, as managers facing the risk of being replaced tend to choose a sub-optimally low level of long-term investment. This generates a trade-off between selection and investment that has implications for the choice of contractual relationships. Our analysis shows that rigid long-term contracts sacrificing managerial selection may be optimal at early stages of economic development and when access to information is limited. As the economy grows, however, knowledge accumulation increases the return to talent and makes it optimal to adopt flexible contractual relationships, where managerial selection is implemented even at the cost of lower investment. Better institutions, in the form of a richer contracting environment and less severe informational frictions, speed up the transition to short-term relationships.