This paper establishes an inequality that may be used to test the null hypothesis that a stock price equals the expected present discounted value of its dividend stream, with a constant discount rate.The inequality states that if this hypothesis is true, the variance of the innovation in the stock price is bounded above by a certain function of the variance in the innovation in the dividend.The bound is valid even if' prices and dividends are nonstationary.The inequality is used to test the null hypothesis, for some long term annual U.S. stock price data.The null is decisively rejected, with the stock price innovation variance exceeding its theoretical upper bound by a factor of as much as twenty.The rejection is highly significant statistically.Regression diagnostics and some informal analysis suggest that the results are more consistent with there being speculative bubbles in the U.S. stock market than with a failure of the rational expectations or constant discount rate hypothesis

[We present a model suggesting that innovative output is influenced by R&D and market structure characteristics. Based on a new and direct measure of innovation, we find that (1) the total number of innovations is negatively related to concentration and unionization, and positively related to R&D, skilled labor, and the degree to which large firms comprise the industry; and (2) these determinants have disparate effects on large and small firms

This paper analyzes a monopolist that markets successive generations of new and improving nondurable products. Prices, research intensity, and product innovations are derived as sequential equilibrium outcomes to a dynamic game with incomplete information. Asymmetric information is an important feature of the model. The monopolist is fully aware of the current product's quality, as are consumers who have tried it. However, the beliefs of other people are characterized by a probability distribution that depends on the monopolist's marketing strategy and the product's popularity. The analysis illustrates a new context in which price signaling might serve as a mechanism for ensuring that only high-quality products are marketed. More important, it shows how product life cycles are generated in the absence of signaling and how a reputation for producing high-quality goods becomes established in such cases

This paper analyzes a monopolist that markets successive generations of new and improving nondurable products. Prices, research intensity, and product innovations are derived as sequential equilibrium outcomes to a dynamic game with incomplete information. Asymmetric information is an important feature of the model. The monopolist is fully aware of the current product's quality, as are consumers who have tried it. However, the beliefs of other people are characterized by a probability distribution that depends on the monopolist's marketing strategy and the product's popularity. The analysis illustrates a new context in which price signaling might serve as a mechanism for ensuring that only high-quality products are marketed. More important, it shows how product life cycles are generated in the absence of signaling and how a reputation for producing high-quality goods becomes established in such cases

Early entry has the advantage of higher revenues per unit of output early on. Late entry has the benefit of learning from the experience of earlier entrants, and hence lower production costs. The advantages are balanced off in a continuous-time, perfect-foresight equilibrium. Competition generates S-shaped diffusion, and staggered entry and exit. A monopolist will innovate less than a competitive industry, but the innovation that he does do, he will do sooner

If a resource importing country can commit to the future development of a backstop tec hnology, such a development program can be used strategically to affe ct the pricing policy of a resource supplier. Previous studies have r evealed the interesting possibility that by delaying development of t he substitute, the importing country could benefit from a favorable p roduction response on the part of the exporting country. This paper d emonstrates that this effect can indeed occur, but the set of paramet ers for which it does occur is smaller than previously realized. The intuition behind this effect is further developed.

The authors examine how the strategic aspect of Japanese research and development expenditures and industrial policies affected U.S.-Japanese bilateral trade during the late 1970s, and investigate which component of R&D--expenditures on process innovation, product quality improvements, new products and new technology, or technology transfer--proved to be most effective. They find that while Japanese R&D expenditures have generally promoted Japan's trade advantage, certain components of R&D have proved more effective than other. The depreciation subsidy and special status with the Ministry of International Trade and Industry is positively related to the Japanese trade performance, while legal cartelization status has not had any apparent effect

[The capital asset pricing model provides a theoretical structure for the pricing of assets with uncertain returns. The premium to induce risk-averse investors to bear risk is proportional to the nondiversifiable risk, which is measured by the covariance of the asset return with the market portfolio return. In this paper a multivariate generalized autoregressive conditional heteroscedastic process is estimated for returns to bills, bonds, and stock where the expected return is proportional to the conditional convariance of each return with that of a fully diversified or market portfolio. It is found that the conditional covariances are quite variable over time and are a significant determinant of time-varying risk premia. The implied betas are also time-varying and forecastable. However, there is evidence that other variables including innovations in consumption should also be considered in the investor's information set when estimating the conditional distribution of returns