In this paper we investigate the effect of local banking development on firms’ innovative activities, using a rich data set on innovation for a large number of Italian firms over the 1990s. There is evidence that banking development affects the probability of process innovation, particularly for firms in high-tech sectors, in sectors more dependent upon external finance, and for firms that are small. The evidence for product innovation is much weaker and not robust. There is also some evidence that banking development reduces the cash flow sensitivity of fixed investment spending, particularly for small firms, and that it increases the probability they will engage in R&D

Productivity differences across firms are large and persistent, but the evidence for worker reallocation as an important source of aggregate productivity growth is mixed. The purpose of this paper is to estimate the structure of an equilibrium model of growth through innovation designed to identify and quantify the role of resource reallocation in the growth process. The model is a version of the Schumpeterian theory of firm evolution and growth developed by Klette and Kortum (2004) extended to allow for firm heterogeneity. The data set is a panel of Danish firms that includes information on value added, employment, and wages. The model's fit is good. The estimated model implies that more productive firms in each cohort grow faster and consequently crowd out less productive firms in steady state. This selection effect accounts for 53% of aggregate growth in the estimated version of the model

David B. Audretsch of Max Planck Institute of Economics reviews “Prophet of Innovation: Joseph Schumpeter and Creative Destruction” by Thomas K. McCraw,. The EconLit Abstract of the reviewed work begins “Presents a biography of Joseph Alois Schumpeter (1883-1950), focusing on his relationship with capitalist innovation. Concentrates on l'enfant terrible, 1883-1926--innovation and economics; the adult, 1926-39--capitalism and society; and the sage, 1939-50--innovation, capitalism, and history. McCraw is Straus Professor of Business History Emeritus at Harvard Business School. Index

We report evidence that Bitnet adoption facilitated increased research collaboration between US universities. However, not all institutions benefited equally. Using panel data from seven top engineering journals, Bitnet connection records, and institution ranking data, we find that middle-tier universities were the primary beneficiaries; they benefited largely by increasing their collaboration with top-tier schools. Furthermore, we find that the magnitude of this effect is greatest for co-located pairs. Thus, the advent of Bitnet – and likely of subsequent networks – seems to have increased the role of middle-tier universities as producers of new knowledge in the national innovation system

[We use a standard single-agent model to conduct a simple consumption growth accounting exercise. Consumption growth is driven by news about current and expected future returns on the market portfolio. We impute the residual of consumption growth innovations that cannot be attributed to either news about financial asset returns or future labor income growth to news about expected future returns on human wealth, and we back out the implied human wealth and market return process. Innovations in current and future human wealth returns are negatively correlated with innovations in current and future financial asset returns, regardless of the elasticity of intertemporal substitution

In this paper, we examine the sources of the productivity growth in the U.S. computer industry from 1978 to 1999. We estimate a joint production model of output quantity and quality that distinguishes two types of technological changes: process and product innovations. Based on the estimation results, we decompose total factor productivity (TFP) growth rate into the contributions of process and product innovations and scale economies. We find that product innovation associated with better quality accounts for about 30% of the TFP growth in the computer industry. Furthermore, the TFP acceleration in the computer industry in the late 1990s is mainly derived from a rapid increase in product innovation

This article examines tax evasion in the diesel fuel market. Diesel fuel used for on‐road purposes is taxed, while other uses are untaxed, creating an incentive for firms and individuals to evade on‐road diesel taxes by purchasing untaxed diesel fuel and then using it for on‐road use. We examine the effects of a federal regulatory innovation in October 1993, the addition of red dye to untaxed diesel fuel at the point of distribution, which significantly lowered the cost of regulatory enforcement. We find that sales of diesel fuel rose 26 percent following the regulatory change, while sales of heating oil, which is an untaxed perfect substitute, fell by a similar amount. The effect on sales was higher in states with higher tax rates and in states likely to have higher audit costs. We also find evidence that heating oil sales were less responsive to demand factors, such as temperature, prior to the dye program, indicating that a significant fraction of predye sales was illegitimate. Furthermore, we find a pattern of price and tax elasticities consistent with innovation in new evasion techniques subsequent to the regulatory change. Finally, we estimate that the elasticity of tax revenues with respect to the tax rate was 0.60 prior to the dye program yet would have been 0.85 in the absence of evasion

We propose a new method for pricing options based on GARCH models with filtered historical innovations. In an incomplete market framework, we allow for different distributions of historical and pricing return dynamics enhancing the model flexibility to fit market option prices. An extensive empirical analysis based on S&P 500 index options shows that our model outperforms other competing GARCH pricing models and ad hoc Black-Scholes models. We show that the flexible change of measure, the asymmetric GARCH volatility and the nonparametric innovation distribution induce the accurate pricing performance of our model. Using a nonparametric approach, we obtain decreasing state price densities per unit probability as suggested by economic theory and corroborating our GARCH pricing model. Implied volatility smiles appear to be explained by asymmetric volatility and negative skewness of filtered historical innovations

Confidence in both financial institutions and markets must be re-built; this requires (1) better (model-based) valuation processes; (2) a more robust capital basis, including clarification and strengthening of the Basel II securitization framework; (3) improving the liquidity regime; (4) greater transparency; notably relating to structured products and off-balance sheet vehicles; (5) improved information from CRAs. The need is to find a balance that still fosters innovation, without leaving the system vulnerable to excesses

[We propose a new method for pricing options based on GARCH models with filtered historical innovations. In an incomplete market framework, we allow for different distributions of historical and pricing return dynamics, which enhances the model's flexibility to fit market option prices. An extensive empirical analysis based on S&P 500 index options shows that our model outperforms other competing GARCH pricing models and ad hoc Black-Scholes models. We show that the flexible change of measure, the asymmetric GARCH volatility, and the nonparametric innovation distribution induce the accurate pricing performance of our model. Using a nonparametric approach, we obtain decreasing state-price densities per unit probability as suggested by economic theory and corroborating our GARCH pricing model. Implied volatility smiles appear to be explained by asymmetric volatility and negative skewness of filtered historical innovations