The objective of CREAM – Center for Research in Economics and Management – is to provide high quality research and analysis in the field of Industrial Economics and Labor Economics with applications to Management.
Decades of controlled laboratory research shows a stunning efficiency in most experimental markets. They clear under a wide range of market institutions, and converge to new equilibria surprisingly fast in reaction to various types of imposed shocks. Most remarkably, however, efficiency frequently results under conditions were standard theory predicts market failure.
In this project, we propose to investigate three hypothesis; the role of social preferences in the determination of prices; the mechanisms of learning and price convergence; the importance of outside options for search behavior and price determination.
Espen R. Moen:
Foredrag om FoU i forskingsrådet 9. Juni 2008
This project aims at providing a comprehensive empirical and theoretical study of the interrelationships between R&D, industry dynamics, worker flows and economic growth.
The empirical investigations will be based on an internationally unique longitudinal dataset covering the period 1995 to 2005, combining complete administrative registers of firms, individuals, and R&D activities in Norway. A key issue is to identify efficiency properties of various R&D instruments, and to discuss the optimal mix of R&D instruments for a small, open economy.
The longitudinal dataset will partly be used for descriptive empirical studies, for example, to characterize firms and sectors investing extensively in R&D in terms of their profitability, size, employee composition and market position. Identified regularities will give impetus to theoretical hypotheses, whose empirical relevance will in turn be rigorously tested using structural or reduced form econometric models.
The econometric models will shed light on, for example, the underlying forces driving R&D and entrepreneurship, as well as their interrelationships. They will also be used to study the process of creative destruction, by which innovative and profitable firms absorb resources from less profitable firms in the same sector.
In Norway, there are a number of R&D policy instruments, for example, tax breaks, support from the Norwegian Research Council, state-owned venture capital funding, and patents. We will analyze optimal use of these instrument under private information and under different assumptions regarding market structure and nature of spillovers.
Optimal policy will also be analyzed in an endogenous growth setting, in the context of a small, open economy. Finally, the project will examine effects following from an integration of the Norwegian patent system into the European Patent Convention, and discuss how the European Patent System should be designed.
The intent of this research project is to examine the relationship between wage contracts in individual firms and the equilibrium in the labour market. We will analyse the relationship between wage contracts and unemployment, human capital investment, innovation and welfare.
The project will to a large extent be undertaken by the head of the project Espen R. Moen in collaboration with Åsa Rosen at the University of Stockholm.
In the 1980s, the relationship between wage contracts and macroeconomic performance, in particular the unemployment rate, was much in focus. Prominent examples are the work on profit sharing (Weitzman 1985) and efficiency wage models (Shapiro and Stiglitz 1984). Our theoretical analysis deviates from this literature in two directions:
First, our analysis employs more sophisticated models of contracts. In the early literature, wage contracts were modelled in a rather parsimoniously way. Since then theories of contracts have developed considerably. New developments include rent extraction models (Laffont and Tirole 1993), multi-tasking (Homstrøm and Milgrom 1991), and theories of promotions and deferred compensation (here the seminal contribution came early, see Lazear and Rosen 1981). Based on these recent theoretical models of contract theory, we intend to study the relationship between wage contracts and macroeconomic performance.
Second, our analysis includes search frictions in the labour market. Search and matching models of the labour market have become increasingly popular over the last decade, in particular the Diamon-Mortensen-Pissarides equilibrium search model (see Diamond 1982, Mortensen 1986, and Pissarides 2000 for an overview of the literature). We will apply the competitive search equilibrium concept, developed in Moen (1997).
A core element in our analysis is what we refer to as equilibrium feedback mechanisms. Equilibrium feedback exists if a given agent’s outcome depends on the behaviour of agents on the same side of the market, because their behaviour influences the actions of agents on the other side of the market.
The project will be segmented into four parts. We will focus on developing theoretical models in the following four areas:
We believe that the project may shed light on issues of great practical interest, particularly for a country like Norway.
For several reasons, the Norwegian economy will have to restructure in the future, primarily because the petroleum sector is diminishing and demographics are changing (the population is aging). In order to obtain an efficient allocation of workers across sectors and firms it is imperative that the market for employed workers function well.
Furthermore, as the petroleum sector diminishes it is vital that the entrepreneurial potential in the economy is utilized fully and not locked into existing firms. A deeper understanding of the processes that jointly determine wage contracts, turnover decisions, the supply of entrepreneurs and the unemployment rate will therefore be in high demand.