The Q-theory of investment says that a firm's investment rate should rise with its Q. We argue here that this theory also explains why some firms buy other firms. We find that 1. A firm's merger and acquisition (M&A) investment responds to its Q more -- by a factor of 2.6 -- than its direct investment does, probably because M&A investment is a high fixed cost and a low marginal adjustment cost activity, 2. The typical firm wastes some cash on M&As, but not on internal investment, i.e., the 'Free-Cash Flow' story works, but explains a small fraction of mergers only, and 3. The merger waves of 1900 and the 1920's, `80s, and `90s were a response to profitable reallocation opportunities, but the `60s wave was probably caused by something else.

This paper evaluates the importance of microeconomic irreversibilities for aggregate dynamics using a real-business-cycle (RBC) model characterized by investment irreversibilities at the establishment level. The main finding is that investment irreversibilities do not play a significant role in an otherwise standard real-business-cycle model: Even though investment irreversibilities are crucial for establishment-level dynamics, aggregate fluctuations are basically the same under fully flexible or completely irreversible investment.

A key feature of modern dynamic economies is imperfect competition. Some imperfect competition is due to institutions such as patents and copy-rights that allow Þrms to exercise market power over the sale of products they invent. Some imperfect competition is due to various forms of increas-ing returns to scale and product differentiation. Since market power is an essential feature of innovation and growth in the new economy (as it was in the old economy) we need to know how imperfect competition affects the conventional wisdom on tax policy. We argue that it has particularly striking implications for the taxation of capital. The current consensus among economists is that investment should be lightly taxed with most tax revenues coming from labor and consumption taxation; see Kenneth L. Judd (1999) for a discussion of this literature. These analyses assume perfect competition in all markets. Even though imperfect competition is common, economists generally prefer competitive models since analyses with imperfect competition usually get mired in strategic details

This paper treats racial integration as an innovation in economic process in which economic entities find it advantageous to utilize potentially more productive inputs previously unavailable due to law, custom, or managerial discretion. Data on the racial integration of Major League Baseball and Atlantic Coast Conference basketball are employed to address this issue. The central question examined is which type of team integrated first—losers or winners? The results strongly support the idea that entrepreneurship trumps competitive rivalry; that is, winning teams led the process of racial integration.

The core theory of behavior in Economics, which structures inquiry and provides a framework for empirical analysis, is largely responsible for the success of the discipline. Behavioral Economics (BE) challenges this theory, but has failed to provide a coherent alternative. Consequently the influence of BE has been limited. In what follows we argue that Evolutionary Psychology (EP), suitably adapted, can provide at least a partial foundation for BE. Its methods offer a way of generating theories of the origins of anomalous behaviors and of testing those theories. I. Behavioral Economics BE has been most successful in documenting failures of the rational actor model (e.g. failures of expected utility theory, irrational cooperation, and time inconsistent preferences). However, attempts to incorporate these observations into theory have been ad hoc: either an anomalous behavior is induced by modifying the utility function or the behavior is simply assumed and implications derived. The lack of theoretical foundations causes a number of problems for BE. First, empirical analysis can show the inadequacy of mainstream theory, but it does little to help develop alternatives. Second, without a

The welfare effects of PTAs are most directly linked to changes in trade prices, i.e., the terms of trade. This paper employs a simple strategic pricing game in segmented markets to measure the effects of MERCOSUR on the pricing of “nonmember” exports to Brazil: As Brazil exempts its MERCOSUR partners from tariffs, the resulting competitive pressure leads other exporters to reduce their prices. Working with detailed data on unit values and tariffs we find that the creation of MERCOSUR was associated with significant declines in the prices of nonmembers' exports to the region.

The U.S. and U.K. Great Depressions Through the Lens of Neoclassical Growth Theory by Harold L. Cole and Lee E. Ohanian. Published in volume 92, issue 2, pages 28-32 of American Economic Review, May 2002

In this paper, we investigate the impact of economic incentives on the international supply of big-screen movies. More particularly, we also study the impact of a 1998 increase in the term of copyright on U.S. movie production.