Regularities concerning how entry, exit, market structure, and innovation vary from the birth of technologically progressive industries through maturity are summarized. A model emphasizing differences in firm innovative capabilities and the importance of firm size in appropriating the returns from innovation is developed to explain the regularities. The model also explains regularities regarding the relationship within industries between firm size and firm innovative effort, innovative productivity, cost, and profitability. It predicts that over time firms devote more effort to process innovation but the number of firms and the rate and diversity of product innovation eventually wither

Regularities concerning how entry, exit, market structure, and innovation vary from the birth of technologically progressive industries through maturity are summarized. A model emphasizing differences in firm innovative capabilities and the importance of firm size in appropriating the returns from innovation is developed to explain the regularities. The model also explains regularities regarding the relationship within industries between firm size and firm innovative effort, innovative productivity, cost, and profitability. It predicts that over time firms devote more effort to process innovation but the number of firms and the rate and diversity of product innovation eventually wither

This paper examines the impact of technological innovation on wages using a panel of British firms. A head-count measure of major innovations between 1945 and 1983 is combined with share price and accounting information. Innovating firms are found to have higher average wages, but rival innovation tends to depress own wages. This appears consistent with a model where wages are partly determined by a sharing in the rents generated by innovation. In other words, innovation may be a good instrument for proxies for rents such as profitability, quasi rents, or Tobin's (average) Q . Instrumental variable estimates of the elasticity between wages and quasi rents are about 0.29

The takeover boom of the 1980s was accompanied by a series of innovations in debt contracts, including the poison put that allows bonds to be redeemed in the event of a corporate control change. The poison put was included in a large majority of convertible debt offerings, shortly after the first issues with such provisions. We attempt to understand the factors that contributed to the widespread adoption of this innovation in convertible bonds and the consequences for shareholder wealth. Our findings suggest that by reducing the potential for bondholder-shareholder conflicts and by conveying positive information about future takeover prospects, poison puts result in significant benefits to issuing firm shareholders, particularly if the firm is under takeover speculation. There are, however, no benefits when a firm has adopted antitakeover measures prior to the offering. There is weaker evidence that existing bondholders do worse when poison puts are present

Wesley M. Cohen, Steven Klepper, Firm Size and the Nature of Innovation within Industries: The Case of Process and Product R&D, The Review of Economics and Statistics, Vol. 78, No. 2 (May, 1996), pp. 232-243

We study a positive theory of stagnation and growth aimed at understanding the large variations in growth outcomes across actual economies. The theory points to the fundamental role played by vested interests in determining policies which are key to the growth process: some agents seek to prevent the adoption of new technologies. We develop a model of technology adoption, and show how technological innovation may sow the seeds of its own destruction. In particular, we find that the equilibrium is characterized by a long cycle of stagnation and growth. Over this cycle, incumbent innovators have sufficient political influence that new technologies are prohibited, and only as these incumbents are phased out of the economy will new innovation occur. In formalizing our theory we make a methodological contribution by characterizing dynamic voting equilibria in which voters must forecast the effects of different current policies on future prices and policy outcomes

Between 1984 and 1995 New Zealand changed from a closed and centrally controlled economy to one of the most open countries in the OECD. The reforms liberalizing the economy were notable for their very comprehensive coverage and innovations that included: performance contracts for senior civil servants and the central bank, legislated constraints on fiscal expenditure decisions backed by accrual accounting, tax neutrality, subsidy-free agriculture, and no industry-specific regulation of competition. Modern microeconomics contributed much to policy design. Economic growth has been vigorous since 1991, but a different sequencing of reforms may have enhanced outcomes

The study examines how the risk of exhausting corporate tax liabilities before deducting interest expense affects corporate leverage. It differs from prior studies in three ways: (1) it uses data compiled by the Internal Revenue Service (IRS) from corporate tax returns rather than accounting data; (2) it measures risk of tax exhaustion more accurately; and (3) it adopts a first‐difference time‐series approach, so that firms act as their own control between adjacent years. These methodological innovations reduce biases caused by measurement error and omitted variables that were present in prior research. The results suggest that, all else being equal, high risk of tax exhaustion reduces firms' use of leverage. As well, the study provides the first evidence that personal taxes significantly affect corporate leverage. The effects on leverage decisions of other variables are also tested and the results are consistent with predictions from prior theoretical work

This paper constructs a space of states of the world representing the exhaustive uncertainty facing each player in a strategic situation. The innovation is that preferences are restricted primarily by 'regularity' conditions and need not conform with subjective expected utility theory. The construction employs a hierarchy of preferences, rather than of beliefs as in the standard Bayesian model. Applications include the provision of foundations for a Harsanyi-style game of incomplete information and a rich framework for the axiomatization of solution concepts for complete information normal form games