Prosperity and depression are relative concepts. Today both France and Japan are depressed relative to the United States; equivalently, the United States is prosperous relative to these countries. I say these countries are depressed relative to the United States because their output per working-age person is 30 percent less than the U.S. level. An interesting and important policy question is: Why are these countries depressed? The answers for these two countries turn out to be very different. The United States is prosperous relative to France because the U.S. intratemporal tax wedge that distorts the trade-off between consumption and leisure is much smaller than the French wedge. I will show that, if France modified its intratemporal tax wedge so that its value was the same as the U.S. value, French welfare in consumption equivalents would increase by 19 percent. Consumption would have to increase by 19 percent now and in all future periods to achieve as large a welfare gain as that resulting from this tax reform. The United States is prosperous relative to Japan because production efficiency is higher in the United States. In the United States, total factor productivity is approximately 20 percent higher than in Japan. If Japan suddenly became as efficient in production as the United States, its welfare gain in consumption equivalents would be 39 percent. Equally interesting and important are big changes over time in relative output (per working-age person) across countries. Why are New Zealand’s and Switzerland’s economies depressed by over 30 percent relative to their 1970 trend-corrected levels? Both of these countries have small populations, but depressions are not restricted to small countries. Japan, with its 125 million people, is now depressed by 20 percent relative to its 1991 trend-corrected level. On the prosperity side, why are Ireland and South Korea so prosperous now relative to their 1970 trend-corrected levels? This lecture is concerned primarily with big international differences among relatively rich industrial countries and changes in these differences over time. The countries that receive primary attention all have market economies and healthy, well-educated populations. In the countries considered, the variations in aggregate output per working-age person are large, and reasonably good measures of the factor inputs are available. This permits, in many cases, the identification of the change in policy or the difference in policy that gave rise to prosperity or depression. This is in contrast to business-cycle theory, which provides little guidance to policy except for the important policy implication that a stabilization effort will have either no effect or a perverse effect. The output variations studied and analyzed in this lecture are big: an order of magnitude larger than the much-studied business-cycle fluctuations. The variations studied, however, are an order of magnitude smaller than the muchstudied differences between the richest and poorest countries. Surprisingly, only recently have depressions been systematically studied from the perspective of growth theory, which is the theory used * University of Minnesota and Federal Reserve Bank of Minneapolis. I thank my colleagues at the University of Minnesota and the Federal Reserve Bank of Minneapolis for helpful discussions and comments. In particular, I thank Tim Kehoe, Ellen McGrattan, and Nancy Stokey for their help. I also thank Martin Weale and Franck Portier for providing some British and French tax information used in this lecture. Thanks also go to Sami Alpanda and James MacGee for research assistance and helpful discussions. This lecture draws heavily on collaborative research with Fumio Hayashi. I thank the Economic and Social Research Institute, Cabinet Office, Government of Japan and the U.S. National Science Foundation for financial support. The views expressed herein are those of the author and not necessarily those of the Federal Reserve Bank of Minneapolis or the Federal Reserve System.

ABSTRACT This paper asks how well different organizational structures perform in terms of generating information about investment projects and allocating capital to these projects. A decentralized approach‐with small, single‐manager firms‐is most likely to be attractive when information about projects is “soft” and cannot be credibly transmitted. In contrast, large hierarchies perform better when information can be costlessly “hardened” and passed along inside the firm. The model can be used to think about the consequences of consolidation in the banking industry, particularly the documented tendency for mergers to lead to declines in small‐business lending.

A strongly identified workforce presents a paradox during times of radical organizational change. Though it may bind people together behind the change initiative, strong organizationwide identification often blinds and potentially blocks the view of new possibilities. Prior research on identity change has tended to either ignore the paradox or resolve it by advocating some middle ground such as hybrid organizational identities or group-level identifications. This paper presents an identity transformation model that capitalizes on the paradoxical tensions over time by unpacking the processes by which individual and organizational levels of identity interact. It operationalizes the model by suggesting linguistic markers that describe the different stages of the process and rhetorical techniques that leaders can use to guide people through the process. To illustrate the model and its application, the paper highlights moments across a 10-year period at Tech-Co, a high-technology company undergoing a significant identity transformation.

The article reviews the book “The Japanese Pharmaceutical Industry: The New Drug Lag and the Failure of Industrial Policy,” by L. G. Thomas.

This paper examines the relative efficiency of UK credit unions. Radial and non-radial measures of input cost efficiency plus associated scale efficiency measures are computed for a selection of input output specifications. Both measures highlighted that UK credit unions have considerable scope for efficiency gains. It was mooted that the documented high levels of inefficiency may be indicative of the fact that credit unions, based on clearly defined and non-overlapping common bonds, are not in competition with each other for market share. Credit unions were also highlighted as suffering from a considerable degree of scale inefficiency with the majority of scale inefficient credit unions subject to decreasing returns to scale. The latter aspect highlights that the UK Government's goal of larger credit unions must be accompanied by greater regulatory freedom if inefficiency is to be avoided. One of the advantages of computing non-radial measures is that an insight into potential over- or under-expenditure on specific inputs can be obtained through a comparison of the non-radial measure of efficiency with the associated radial measure. Two interesting findings emerged, the first that UK credit unions over-spend on dividend payments and the second that they under-spend on labour costs.

Assessment of accurate market size and early adoption patterns is essential to strategic decision making of managers involved in new-product launches. This article proposes methodology that explains changes in parameter estimates of the Bass model, p (coefficient of innovation), q (coefficient of imitation), and c (market penetration rate) by direction of "extra-Bass" skew in the data, or equivalently, by underlying heterogeneity of the population. This research shows significantly opposite patterns of these parameter estimates, depending on skew of the diffusion curve detected by a generalized model, i.e., the gamma/shifted Gompertz (G/SG) model, which embeds the Bass model as a special case. The G/SG model originally presented in Bemmaor (1994) is based on two assumptions: (1) Individual-level times to first purchase are distributed shifted Gompertz and (2) individual-level propensity to buy follows a gamma distribution across the population. We assume that the scale parameter of the shifted Gompertz distribution is constant across consumers. The advantage the G/SG model has over alternative diffusion models such as the nonuniform influence model is that its cumulative distribution function takes a closed-form expression. In line with Van den Bulte and Lilien (1997), we analyze these opposite patterns from simulated data using the G/SG model as the true model and 12 real adoption data sets. The patterns are: (1) as the level of censoring decreases, the estimates of p and c decrease and those of q increase when data exhibit more right skew than the Bass model and (2) the estimates of p and c increase and those of q decrease when data exhibit more left skew than the Bass model. For the simulated data, we manipulated four dimensions: (1) "extra-Bass" skew in the data, (2) ratio q/p, (3) speed of diffusion, and (4) error variance. Both results of the simulated data and the real adoption data sets confirm the existence of two opposite patterns of parameter estimates of the Bass model depending on "extra-Bass" skew. When the model is correctly specified with simulated data, estimates of c increase and those of q decrease for both the Bass and the G/SG models. The estimates of p increase as one adds data points only for the G/SG model. No significant tendency in parameter estimates of p was detected for the Bass model. As for ill-conditioning issues, systematic changes in the parameter estimates of the G/SG model can be substantially larger in some cases than those obtained with the Bass model, even though the data were generated by taking the G/SG model as the true one. Therefore, model complexity can aggravate the tendency for parameters to change systematically as one adds data points. The forecasting results from the simulated data show the supremacy of the G/SG model. It provides more accurate results than the Bass model in the one-step ahead, two-step ahead, and three-step ahead forecasts. With the real data set, the G/SG model provides more accurate one-step ahead forecasts than the Bass model, but the model's forecasting performance deteriorates more rapidly than the Bass model when one shifts to two-step ahead and three-step ahead forecasts. The systematic changes in parameter estimates are larger for the more complex model. Our research shows that the G/SG model is a flexible model used to analyze the systematic changes in parameter estimates when specification error and ill-conditioning occur. As our findings incorporate two possible types of parameter estimate bias, compared to the previous single-direction view, they can provide essential information to enhance forecasting accuracy of products and services using new technological innovations. Our forecasting results of simulated and real adoption data raise a question about the optimal horizon of forecasting in applying flexible models of diffusion. The G/SG model also provides grounds to investigate jointly "the speed of takeoff" and "the diffusion speed after takeoff".

Previous studies document negative long-term abnormal stock returns following seasoned equity offering (SEO) issuances and conclude that markets are inefficient. Other studies, however, argue that these results are a manifestation of risk mismeasurement (i.e., the bad-model problem), not market inefficiency. We test the efficient market hypothesis (EMH) and avoid the bad-model problem by examining the long-term performance of our sample firms' bonds and stocks following their SEOs. Our results are inconsistent with the EMH. We also provide evidence that SEOs transfer wealth from shareholders to bondholders because SEOs reduce default risk. Copyright 2002, Oxford University Press.

Previous studies document negative long-term abnormal stock returns following seasoned equity offering (SEO) issuances and conclude that markets are inefficient. Other studies, however, argue that these results are a manifestation of risk mismeasurement (i.e., the bad-model problem), not market inefficiency. We test the efficient market hypothesis (EMH) and avoid the bad-model problem by examining the long-term performance of our sample firms' bonds and stocks following their SEOs. Our results are inconsistent with the EMH. We also provide evidence that SEOs transfer wealth from shareholders to bondholders because SEOs reduce default risk.