This article exploits a quasi‐experimental setting to estimate the impact that a commonly used performance‐related pay scheme had on branch performance in a large distribution firm. The scheme, which is based on the Balanced Scorecard, was implemented in all branches in one division but not in another. Branches from the second division are used as a control group. Our results suggest that the Balanced Scorecard had some impact but that it varied with branch characteristics, and, in particular, branches with more experienced managers were better able to respond to the new incentives.

Abstract The theoretical effects of labor regulations, such as employment protection legislation (EPL), on innovation is ambiguous. EPL increases job security, and the greater enforceability of job contracts may increase worker investment in innovative activity. But EPL increases firms' adjustment costs, which may lead to underinvestment in activities that are likely to require adjustment, including technologically advanced innovation. In this paper, we find empirical evidence that these effects are at work—in particular, a higher share of multinational enterprise innovative activity in countries with high EPL is technologically advanced.

We examine the “technology sourcing” hypothesis that foreign research labs located in the U.S. tap into U.S. R&D spillovers and improve home country productivity. We show that U.K. firms that established a high proportion of inventors based in the U.S. by 1990 benefited disproportionately from the growth of U.S. R&D stock over the next ten years. We estimate that U.S. R&D during the 1990s was associated with 5 percent higher Total Factor Productivity for U.K. manufacturing firms in 2000 (about $13 billion), with the majority of benefits accruing to firms with an innovative presence in the U.S.

Food purchases differ substantially across countries. We use detailed household-level data from the United States, France, and the United Kingdom to (i) document these differences; (ii) estimate a demand system for food and nutrients; and (iii) simulate counterfactual choices if households faced prices and nutritional characteristics from other countries. We find that differences in prices and characteristics are important and can explain some difference (e.g., United States–France difference in caloric intake) but generally cannot explain many of the compositional patterns by themselves. Instead, it seems an interaction between the economic environment and differences in preferences is needed to explain cross-country differences. (JEL D12, I12, L11, L66, Q11)

This paper is part of a research program analyzing how competition affects aggregate innovative activity through its effects on firms’ organization. In previous work (Aghion et al., 2005a), we found an inverted-U shaped relationship between competition and innovation. Our explanation emphasized the “composition effect” of competition on the steady-state distribution of technological gaps across industries. Our focus here is on firms’ decisions whether or not to integrate vertically with their suppliers. We provide evidence of a U-shaped relationship between competition and vertical integration. Our explanation is based on the following idea: a moderate increase in product market competition will reduce a producer’s incentive to integrate by improving the outside options of her nonintegrated suppliers and hence raising their incentive to innovate. Too much competition will raise the producer’s incentive to integrate, however, by allowing nonintegrated suppliers to capture most of the innovation surplus. Finding a U-shaped relationship between competition and vertical integration sheds light on the debate over the “Transaction Cost Economics” (TCE) approach to vertical integration pioneered by Oliver Williamson (1975, 1985) versus the “Property Right Theory” (PRT) approach developed by Sanford Grossman and Oliver Hart (1986) and by Hart and John Moore (1990). According to the TCE approach, vertical integration is a way for contracting parties involved in a specific relationship to limit ex post bargaining inefficiencies due to holdup and thereby minimize the loss in ex ante investment that would result from it. This approach thus predicts a positive correlation between vertical integration and the degree of relation specificity. According to the PRT approach, the ownership structure will affect not so much the ex post bargaining efficiency as the relative bargaining powers of the (two) contracting parties, and therefore their relative ex ante investment incentives. Thus, while vertical integration should enhance both parties’ investments positively in the TCE approach by reducing the extent of ex post inefficiency, in the PRT approach ownership by one party, say the buyer, will enhance the buyer’s ex ante incentives at the expense of the seller’s, as it enhances the buyer’s bargaining power ex post at the expense of the seller’s. Thus, the TCE approach predicts that increased competition on the producer’s (or supplier’s) market, which reduces the overall degree of asset specificity, should therefore reduce the need for vertical integration in order to preserve ex ante investment incentives by either party. On the other hand, as we show below, the PRT approach allows the U-shaped relationship between vertical integration and competition that we find empirically. † Discussants: Sam Kortum, University of Minnesota; Mark Duggan, University of Maryland; Joel Waldfogel, University of Pennsylvania; Shane Greenstein, Northwestern University.

There are growing calls to restrict advertising of junk foods. Whether such a move will improve diet quality will depend on how advertising shifts consumer demands and how firms respond. We study an important and typical junk food market-the potato chips market. We exploit consumer level exposure to adverts to estimate demand, allowing advertising to potentially shift the weight consumers place on product healthiness, tilt demand curves, have dynamic effects and spillover effects across brands. We simulate the impact of a ban and show that the potential health benefits are partially offset by firms lowering prices and by consumer switching to other junk foods.

Many writers have claimed that research and development (R&D) has two faces. In addition to the conventional role of stimulating innovation, R&D enhances technology transfer (absorptive capacity). We explore this idea empirically using a panel of industries across twelve OECD countries. We find R&D to be statistically and economically important in both technological catch-up and innovation. Human capital also plays an major role in productivity growth, but we only find a small effect of trade. In failing to take account of R&D-based absorptive capacity, existing U.S.-based studies may underestimate the return to R&D.

Soda taxes aim to reduce excessive sugar consumption. We assess who is most impacted by soda taxes. We estimate demand using micro longitudinal data covering on-the-go purchases, and exploit the panel dimension to estimate individual-specific preferences. We relate these preferences and counterfactual predictions to individual characteristics and show that soda taxes are relatively effective at targeting the sugar intake of the young, are less successful at targeting the intake of those with high total dietary sugar, and are unlikely to be strongly regressive especially if consumers benefit from averted internalities. (JEL D12, H22, H25, H71)

This paper investigates the relationship between product market competition and innovation. We find strong evidence of an inverted-U relationship using panel data. We develop a model where competition discourages laggard firms from innovating but encourages neck-and-neck firms to innovate. Together with the effect of competition on the equilibrium industry structure, these generate an inverted-U. Two additional predictions of the model-that the average technological distance between leaders and followers increases with competition, and that the inverted-U is steeper when industries are more neck-and-neck-are both supported by the data. © 2005 by the President and Fellows of Harvard College and the Massachusetts Institute of Technology.

How does firm entry affect innovation incentives in incumbent firms? Microdata suggest that there is heterogeneity across industries. Specifically, incumbent productivity growth and patenting is positively correlated with lagged greenfield foreign firm entry in technologically advanced industries, but not in laggard industries. In this paper we provide evidence that these correlations arise from a causal effect predicted by Schumpeterian growth theory—the threat of technologically advanced entry spurs innovation incentives in sectors close to the technology frontier, where successful innovation allows incumbents to survive the threat, but discourages innovation in laggard sectors, where the threat reduces incumbents' expected rents from innovating. We find that the empirical patterns hold using rich micro panel data for the United Kingdom. We control for the endogeneity of entry by exploiting major European and U.K. policy reforms, and allow for endogeneity of additional factors. We complement the analysis for foreign entry with evidence for domestic entry and entry through imports.