Choice of Flexible Production Technologies Under Strategic Delegation

This work analyzes a managerial delegation model in which firms can choose between a flexible production technology which allows them to produce two different products and a dedicated production technology which limits production to only one product. We analyze whether the incentives to adopt the flexible technology are smaller or greater in a managerial delegation model than under strict profit maximization. We obtain that the asymmetric equilibrium in which only one firm adopts the flexible technology can be sustained under strategic delegation but not under strict profit maximization when products are substitutes. We extend the analysis to consider welfare implications.

Cost-Saving production technologies and strategic delegation

This work analyzes a managerial delegation model in which firms that produce a differentiated good can choose between two production technologies: a low marginal cost technology and a high marginal cost technology. For the former to be adopted more investment is needed than for the latter. By giving managers of firms an incentive scheme based on a linear combination of profit and sales revenue, we find that Bertrand competition provides a stronger incentive to adopt the cost-saving technology than the strict profit maximization case. However, the results may be reversed under Cournot competition. We show that if the degree of product substitutability is sufficiently low (high), the incentive to adopt the cost-saving technology is larger under strict profit maximization (strategic delegation).

A note on bargaining power and managerial delegation in multimarket oligopolies

In a two-stage delegation game model with Nash bargaining between a manager and an owner, an equivalence result is found between this game and Fershtman and Judd's strategic delegation game (Fershtman and Judd, 1987). Interestingly, although both games are equivalent in terms of profits under certain conditions, managers obtain greater rewards in the bargaining game. This results in a redistribution of profits between owners and managers.

Multiple roles of transfer prices: One vs. two books

This paper investigates multiple roles of transfer prices for shipments of goods and services between entities of a multinational enterprise. At the center is the role of transfer pricing (TP) in tax manipulation, but other roles having to do with internal operations or strategic delegation, etc. are also considered. The interesting question is to what extent and how the different roles of TPs interfere with each other. The answer depends on whether companies use one or two books, i.e. whether they (can) apply different TPs for different purposes. We illustrate, in a stylized model, the competing aims of tax manipulation and strategic delegation. Finally, we briefly look at selected reform proposals, concluding that either TP problems are not addressed, or else new distortions will be introduced instead.

Incomplete information games of conflict and collective action

My thesis consists of three essays that investigate strategic interactions between individuals engaging in risky collective action in uncertain environments. The first essay analyzes a broad class of incomplete information coordination games with a wide range of applications in economics and politics. The second essay draws from the general model developed in the first essay to study decisions by individuals of whether to engage in protest/revolution/coup/strike. The final essay explicitly integrates state response to the analysis. The first essay, Coordination Games with Strategic Delegation of Pivotality, exhaustively analyzes a class of binary action, two-player coordination games in which players receive stochastic payoffs only if both players take a ``stochastic-coordination action''. Players receive conditionally-independent noisy private signals about the normally distributed stochastic payoffs. With this structure, each player can exploit the information contained in the other player's action only when he takes the “pivotalizing action”. This feature has two consequences: (1) When the fear of miscoordination is not too large, in order to utilize the other player's information, each player takes the “pivotalizing action” more often than he would based solely on his private information, and (2) best responses feature both strategic complementarities and strategic substitutes, implying that the game is not supermodular nor a typical global game. This class of games has applications in a wide range of economic and political phenomena, including war and peace, protest/revolution/coup/ strike, interest groups lobbying, international trade, and adoption of a new technology. My second essay, Collective Action with Uncertain Payoffs, studies the decision problem of citizens who must decide whether to submit to the status quo or mount a revolution. If they coordinate, they can overthrow the status quo. Otherwise, the status quo is preserved and participants in a failed revolution are punished. Citizens face two types of uncertainty. (a) non-strategic: they are uncertain about the relative payoffs of the status quo and revolution, (b) strategic: they are uncertain about each other's assessments of the relative payoff. I draw on the existing literature and historical evidence to argue that the uncertainty in the payoffs of status quo and revolution is intrinsic in politics. Several counter-intuitive findings emerge: (1) Better communication between citizens can lower the likelihood of revolution. In fact, when the punishment for failed protest is not too harsh and citizens' private knowledge is accurate, then further communication reduces incentives to revolt. (2) Increasing strategic uncertainty can increase the likelihood of revolution attempts, and even the likelihood of successful revolution. In particular, revolt may be more likely when citizens privately obtain information than when they receive information from a common media source. (3) Two dilemmas arise concerning the intensity and frequency of punishment (repression), and the frequency of protest. Punishment Dilemma 1: harsher punishments may increase the probability that punishment is materialized. That is, as the state increases the punishment for dissent, it might also have to punish more dissidents. It is only when the punishment is sufficiently harsh, that harsher punishment reduces the frequency of its application. Punishment Dilemma 1 leads to Punishment Dilemma 2: the frequencies of repression and protest can be positively or negatively correlated depending on the intensity of repression. My third essay, The Repression Puzzle, investigates the relationship between the intensity of grievances and the likelihood of repression. First, I make the observation that the occurrence of state repression is a puzzle. If repression is to succeed, dissidents should not rebel. If it is to fail, the state should concede in order to save the costs of unsuccessful repression. I then propose an explanation for the “repression puzzle” that hinges on information asymmetries between the state and dissidents about the costs of repression to the state, and hence the likelihood of its application by the state. I present a formal model that combines the insights of grievance-based and political process theories to investigate the consequences of this information asymmetry for the dissidents' contentious actions and for the relationship between the magnitude of grievances (formulated here as the extent of inequality) and the likelihood of repression. The main contribution of the paper is to show that this relationship is non-monotone. That is, as the magnitude of grievances increases, the likelihood of repression might decrease. I investigate the relationship between inequality and the likelihood of repression in all country-years from 1981 to 1999. To mitigate specification problem, I estimate the probability of repression using a generalized additive model with thin-plate splines (GAM-TPS). This technique allows for flexible relationship between inequality, the proxy for the costs of repression and revolutions (income per capita), and the likelihood of repression. The empirical evidence support my prediction that the relationship between the magnitude of grievances and the likelihood of repression is non-monotone.

Fast-Track Authority and International Trade Negotiations

Fast Track Authority (FTA) is the institutional procedure in the Unites States whereby Congress grants to the President the power to negotiate international trade agreements. Under FTA, Congress can only approve or reject negotiated trade deals, with no possibility of amending them. In this paper, we examine the determinants of FTA voting decisions and the implications of this institutional procedure for trade negotiations. We describe a simple two-country trade model, in which industries are unevenly distributed across con- stituencies. In the foreign country, trade negotiating authority is delegated to the executive, while in the home country Congress can retain the power to amend trade agreements. We show that legislators’ FTA voting behavior depends on the trade policy interests of their own constituencies as well as those of the majority of Congress. Empirical analysis of the determinants of all FTA votes between 1974 (when fast track was first introduced) and 2002 (when it was last granted) provides strong support for the predictions of our model.

Firm social, cultural and intellectual capital : strategic indicators of international client satisfaction

Despite the increasing significance of the construction industry as an emerging sector of the Australian economy, there is inadequate research performed on construction design firms in terms of theoretical and empirical foundations. Although past research has identified the barriers and success factors for firm market entry, evidence suggests that to date no research has explicitly explored the sustainability of construction design firms in international markets. SMEs and their approach to firm internationalisation differ significantly from large manufacturing firms and a vast majority of construction design firms operate as SMEs. This paper develops a sustainable business model for construction design SMEs, which rely upon the development of clear Client Following (CF) versus Market Seeking (MS) strategies to support internal firm strategic and operational management. The understanding of these strategies is vital as the application of either will shape the design management approach of firms, which would in turn impact on the sustainability of these firms in foreign markets. Long-term sustainability of firms in international markets relies heavily upon client satisfaction. Client and project team participants’ communication during various design processes has often been problematic and the added difficulty of communicating across international boundaries further compounds the problem of capturing and maintaining client’s requirements. Therefore this paper develops a model for economic sustainability of Australian construction design firms working in international markets by exploring factors that affect client satisfaction across international boundaries, through the development of business performance indicators. These include not only the critical financial capital but also other ‘softer’ indicators, namely: social, cultural and intellectual capital. These act as a firm’s measure of success and the acquisition of this type of capital will provide significant advantages to firms’ success, hence sustainability in international markets.

The EU as an Effective Trade Power? Strategic Choice of Judicial Candidates in the Context of the World Trade Organization

Drawing on the European Union (EU) foreign policy literature on effectiveness, this article studies how the European Union chooses judges to serve on the World Trade Organization’s key judicial institution: the Appellate Body. Conceptually, the article differentiates between effectiveness in representation and effectiveness in impact. The article shows how delegation to the European Commission has increased the strategic agenda-setting power for championing its preferred candidates. The article further compares European and US practice in nominating candidates. Overall, the article finds that effectiveness in representation has increased over time. In terms of effectiveness in impact, the article shows how the international environment conditions the EU’s influence. The article also exposes the difficulties of studying the effectiveness of EU external relations due to the peculiar decision-making processes dominant in judicial bodies.