Two of the most robust results from dynamic competitive models of industrial organization suggest that higher sunk cost industries should exhibit (1) higher intertemporal variability in the market value of their firms, and (2) lower intertemporal variability in the size of their industries. These predictions have done well empirically. This paper argues on theoretical and empirical grounds that depreciation generates countervailing effects.

We allow for heterogeneity in investors' ability to borrow from collateral in a Kiyotaki-Moore style macro model. We calibrate the model to match the quintiles of the distribution of leverage ratios of US non-financial firms. We show that financial amplification of the model with heterogeneous investors can be orders of magnitude higher, because of more pronounced asset price reactions. / Series: Department of Economics Working Paper Series

Studies of small and medium-sized enterprises have provided evidence that CEOs of such firms can have a dominating influence on firm activities. Drawing on upper echelons theory, we analyze the influence of CEO personality (CEO internal locus of control), CEO ownership and CEO education on the evaluation of middle manager performance. In line with our expectations, we find evidence for a direct effect of CEO ownership (negative) and CEO education (positive) on the use of objective performance evaluations and for a direct effect of the CEO's internal locus of control on the use of subjective performance evaluations. Moreover, we provide evidence for a moderating role of both CEO ownership and education with respect to the influence of the CEO's locus of control on the use of subjective evaluations. We use a sample of 247 small and medium-sized manufacturing firms to test our hypotheses.

We analyze the cross-border effect of tax cuts on R&D activity in the context of profit shifting. A tax cut in one location of a multinational enterprise reduces the user cost of capital for the whole group if profit shifting is possible and exerts a positive cross-border effect on R&D output. Using micro-level data, we find an increase of patent output of 15% upon the implementation of a foreign tax cut for firms with cross-border links. In addition, we find that foreign tax cuts prohibiting profit shifting generate a negative cross-border effect on average patent quality. / Series: WU International Taxation Research Paper Series

"What is Justice?" is a compilation of essays by Hans Kelsen that deal with problems of justice and their relationship to law, philosophy, and science. The broad scope and applicability of "What is Justice?" makes it a valuable source for research and writing across jurisdictions and in almost any area of law. Access to the English translation of "What is Justice?" is challenging because the book has no index. This present Index aims to provide scholars with a way in to Kelsen's work. Kelsen's tightly packed generalisations and conceptual arguments, which are intended to apply generally to all laws and legal systems, are not accessible to all readers. The Index attempts to present Kelsen's theories in a manner that enables readers to apply them to any area of law and to take full advantage of Kelsen's wisdom. The authors call their work an "index" because it most closely resembles that literary form. However, the work and its companion, "A Diachronic Index and Glossary to [Kelsen's] Pure Theory of Law?" attempt much more. Each has features of a concordance, and each finds conceptual links between Kelsen's insight and legal institutions and reasoning in areas of law that he never considered. A paper that uses the Indexes to examine such links is John Prebble, "Kelsen, the Principle of Exclusion of Contradictions, and General Anti-Avoidance Rules in Tax Law." / Series: WU International Taxation Research Paper Series

This paper evaluates the impact of a large macroeconomic shock on poverty. In particular, we use longitudinal data from the European Survey on Income and Living Conditions (EU-SILC) comprising almost two million individuals from 29 European countries in order to quantify changes in poverty transition patterns caused by the 2007 global financial crisis. Because the crisis was largely unforeseeable, it provides an appealing natural experiment allowing us to isolate the causal effect of a substantial macroeconomic shock on poverty. Employing semiparametric mixed discrete time survival analysis, we find that conditional poverty entry hazards increased temporarily by 13.4% during the crisis, while post-crisis they are estimated to be 15.7% lower than before. Not only entry hazards have decreased, also conditional exit hazards are estimated to be 31.4% lower post-crisis compared to before. Ceteris paribus, the crisis therefore has made it more difficult to slip into poverty, yet those who were already poor face substantially lower prospects to escape. Exploring determinants of poverty transitions, we find that being retired, having a permanent job, owning one's dwelling instead of renting it, age, marital status, and household size are the most important protective factors against poverty. Finally, we show that mostly a housing cost overburden seems to be responsible for the persistence of poverty. / Series: INEQ Working Paper Series

This study analyzes the impact of transfer pricing on multinational enterprises' R&D investment decisions. Specifically, I examine the effects of two commonly used contract designs to exchange and develop intangible assets across group affiliates: licensing and cost sharing agreements. Whilst serving as a tool to allocate taxable income between group affiliates, the economic implications of licensing and cost sharing agreements differ. Whereas licensing agreements provide for a sharing rule on the intangible's profits, cost sharing agreements on the other hand provide a sharing rule on R&D development costs. This difference matters when firms simultaneously use internal transfer prices to allocate taxable income and provide local management with sufficient investment incentives. Using a multiple-agent, moral hazard investment framework I model a multinational firm with comparable group affiliates in two countries that delegates the R&D investment decision to a local risk and effort averse affiliate manager. The results suggest that the optimal contract not only depends on available tax benefits, but also on R&D investment and manager specific characteristics. A licensing agreement provides management with larger incentives to invest in R&D mitigating agency concerns associated with R&D. On the other hand, using a cost sharing agreement the firm can cater different risk preferences among managers potentially increasing investment. The arm's length principle however may distort an efficient allocation of R&D costs when using a cost sharing agreement. / Series: WU International Taxation Research Paper Series

We run a large-scale natural field experiment to evaluate alternative strategies to enforce compliance with the law. The experiment varies the text of mailings sent to potential evaders of TV license fees. We find a strong effect of mailings, leading to a substantial increase in compliance. Among different mailings, a threat treatment which makes a high detection risk salient has a significant deterrent effect. Neither appealing to morals nor imparting information about others' behavior enhances compliance on aggregate. However, the information condition has a weak positive effect in municipalities where evasion is believed to be common. (authors' abstract)

Der Widerstand gegen die Globalisierung in den Industriestaaten wächst, populistische Bewegungen in Europa und den USA gewinnen an Bedeutung wobei rechte, linke und wachstumskritische Bewegungen mit unterschiedlichen Motiven eine Renationalisierung der Politik unterstützen. Die ökonomische Theorie betont die Vorteile der Globalisierung, durch verstärkte Arbeitsteilung, bessere Nutzung der Ressourcen und raschere Dissemination von Wissen und Technologien. Sie betont aber auch dass es Verlierer des Prozesses gibt, wenn Ungleichheiten und Ungleichgewichte sich verschärfen und Globalisierung wirtschaftspolitisch begleitet werden muss. Dieser Artikel untersucht ob die Vorteile aber auch die Ungleichgewichte in der letzten Globalisierungsphase eingetreten. Er berichtet über die fehlende politischen Begleitung, die zunehmende Globalisierungskritik in den Industrieländern und die Forderung nach Renationalisierung der Politik. Die falsche Verherrlichung der Vergangenheit und egoistischen Reaktionen verschärfen allerdings die Probleme und gefährden die Wohlfahrt. Kriterien einer verantwortungsbewussten Globalisierung werden entwickelt. Globale Herausforderungen verlangen internationale Regeln, sie dürfen jedoch nicht in zentralistische Maßnahmen münden die als Fremdbestimmung empfunden werden. Europäische Ziele und Rahmenbedingungen sollen so gewählt werden, dass sie den nationalen Spielraum erweitern und Bottom-Up-Initiativen fördern. Dieser "Empowermentansatz" sollte in die strategische Neuausrichtung Europas einfließen und könnte den Beginn einer europäischen Globalisierungsstrategie darstellen, die Standards nach oben angleicht und die bisherigen Verlierer befähigt, an den Vorteilen der Globalisierung teilzuhaben. / Series: Department of Economics Working Paper Series

We propose a framework to examine convergence in the jurisdictional patterns of the American FTC and the European Commission. Based on a sample of 595 merger cases scrutinized by either of these agencies in the 1995 - 2007 period, we estimate logit models of the probability of intervening in a merger for both jurisdictions and use them to predict the decisions of the respectively other agency. The results point to an increasing harmonization of merger regimes and corroborate the theoretical appraisal, that the 2004 reform of EU merger law constituted a step towards the US system. (author's abstract)