Explore the vast range of titles available.

This article examines the link between the opportunity cost of money and time-varying liquidity premia of near-money assets. Higher interest rates imply higher opportunity costs of holding money and hence a higher premium for the liquidity service benefits of assets that are close substitutes for money. Consistent with this theory, short-term interest rates in the United States, United Kingdom, and Canada have a strong positive relationship with the liquidity premium of Treasury bills and other near-money assets over periods going back to the 1920s. Once the opportunity cost of money is taken into account, Treasury security supply variables lose their explanatory power for the liquidity premium, except for transitory short-run effects. These findings indicate a high elasticity of substitution between money and near-money assets. As a consequence, a central bank that follows an interest rate operating target not only elastically accommodates and neutralizes shocks to money demand, but effectively also shocks to near-money asset supply and demand.

Research Summary Shocks, whether they derive from shifts in demand, supply, regulation, or innovation, can create the need for competitive repositioning by industry participants when they disrupt established sources of competitive advantage. Such situations can therefore create a canonical strategic problem: whether, where, and how to (re‐)position following an industry shock. In this paper, we explore the role of comparative adjustment costs in determining competitive advantage in dynamic environments. In so doing, we synthesize contributions from Penrose, Porter, and Williamson to conceptualize the relationship between adjustment costs and related concepts such as resources/capabilities, dynamic capabilities, transaction costs, and opportunity costs. Managerial Summary Whether, where, and how should leaders reposition their firms in response to industry shocks? This paper develops a framework to guide leaders charged with making these decisions. The framework emphasizes that firms facing an industry shock must: (a) assess their firm's cost and time to move to each new position, and compare that cost and time to rivals' costs and time to move to those same positions; (b) compare the cost of delaying repositioning (such as forfeiting first mover advantage) to the profits from remaining in its original position, and (c) consider that, in order to speed repositioning, the efficient choice may be to temporarily accept certain hazards from outsourcing, and later integrate to eliminate those hazards. We illustrate the framework using an example from the smartphone industry.

This study investigates estimation errors due to hidden costs—the costs of implementation that are neglected in strategic decision-making processes—in the context of services offshoring. Based on data from the Offshoring Research Network, we find that decision makers are more likely to make cost-estimation errors given increasing configuration and task complexity in captive offshoring and offshore outsourcing, respectively. Moreover, we show that experience and a strong orientation toward organizational design in the offshoring strategy reduce the cost-estimation errors that follow from complexity. Our findings contribute to research on the effectiveness of sourcing and global strategies by stressing the importance of organizational design and experience in dealing with increasing complexity.

The flow opportunity cost of moving from unemployment to employment consists of forgone public benefits and the forgone consumption value of nonworking time. We construct a time series of the opportunity cost of employment using detailed microdata and administrative or national accounts data to estimate benefits levels, eligibility, take-up, consumption by labor force status, hours, taxes, and preference parameters. The opportunity cost is procyclical and volatile over the business cycle. The estimated cyclicality implies far less unemployment volatility in leading models of the labor market than that observed in the data, irrespective of the level of the opportunity cost.

Most informal finance comes from family and friends. Existing informal finance theories cannot match two characteristics of family finance: family investors may accept belowmarket or even negative returns, yet borrowers often prefer formal finance. We argue that social preferences make family finance cheap but create shadow costs that nonetheless discourage its use: Committing family funds to risky investment displaces intrafamily insurance and undermines limited liability. The same characteristics that sustain familial insurance thus render family finance a poor source of risk capital. Even when overcoming capital constraints requires social ties, intermediation and semiformalization may therefore be crucial for promoting risk taking.

This paper investigates the impact of negative screening on the investment universe as well as on financial performance. We come up with a novel identification process and as such depart from mainstream socially responsible investing literature by concentrating on individual firms' conduct and by studying a much wider range of issues. Firstly, we study the size and financial performance of fourteen potentially controversial issues: abortion, adult entertainment, alcohol, animal testing, contraceptives, controversial weapons, fur, gambling, genetic engineering, meat, nuclear power, pork, (embryonic) stem cells, and tobacco. We investigate an international sample of more than 1,600 stocks for more than twenty years. We then analyze the impact of applying negative screens to a market portfolio. Our findings suggest that the choice for negative screening strategies does matter for the size of the investment universe as well as for risk-adjusted return performance. Investing in controversial stocks in many cases results in additional risk-adjusted returns, whereas excluding them may reduce financial performance. These findings suggest that there are opportunity costs to negative screening.

We examine a novel, but economically important, characterization of trade credit relationships in which large investment-grade buyers borrow from their smaller suppliers. Using a matched sample of large retail buyers and their much smaller suppliers, we find that slower payment terms by large retailers are associated with lower investment at the supplier level. The effects are sharpest during periods of tight bank credit and for firms which we might otherwise characterize as financially constrained. The opportunity cost of extending credit to large buyers appears to be positive and sharply increasing in the financial frictions facing a firm.

We estimate demand for residential broadband using high-frequency data from subscribers facing a three-part tariff. The three-part tariff makes data usage during the billing cycle a dynamic problem, thus generating variation in the (shadow) price of usage. We provide evidence that subscribers respond to this variation, and we use their dynamic decisions to estimate a flexible distribution of willingness to pay for different plan characteristics. Using the estimates, we simulate demand under alternative pricing and find that usage-based pricing eliminates low-value traffic. Furthermore, we show that the costs associated with investment in fiber-optic networks are likely recoverable in some markets, but that there is a large gap between social and private incentives to invest.

We analyze the environmental regulation-productivity nexus and add to the literature in two main ways. First, shadow prices of energy and industrial energy prices are employed as relative measures of policy stringency. To ensure the robustness of the results, the model is also estimated for five alternative measures that have been applied in prior research. Second, we address the endogeneity of environmental regulation, innovation, and trade openness. A cross-country multi-sectoral dataset is utilized, including newly industrialized countries and former transition economies. The estimates show that the positive effects of increases in environmental policy stringency on productivity, which have often been reported in the more recent studies, change to mainly insignificant effects once simultaneity is controlled for. Hence, no support for the strong Porter Hypothesis can be found. Instead, stricter environmental regulation fosters innovation and, therefore, has an indirect, yet not decisive, positive effect on productivity growth.

Research Summary This study explores incumbent responses to the architectural innovation shock of index shifting in the bicycle component industry. Incumbents differed by when they imitated and by organization of production—some integrated while others outsourced components—and many of these decisions changed over time, which are not explained by extant theory. This paper develops a theory that predicts timing of imitation and organizational choice for component manufacturing that highlights a dynamic trade‐off among adjustment, opportunity, and transaction costs that explains timing of imitation, organizational structure of component manufacturing, and changes in organizational structure. Empirical analysis finds support for a fundamental trade‐off among these costs in response to an innovation shock. Managerial Summary An innovation shock presents managers both an opportunity to reposition and gain advantage against competitors and creates competitive pressure to do so. When and how should firms respond to such shocks? This paper develops a comparative approach to help managers decide when and how to imitate an innovation shock. The paper recommends comparatively assessing adjustment costs, opportunity costs of moving late, and initially outsourcing to imitate quickly even though doing so may be costly and problematic over the long‐run. The paper also predicts when firms should integrate to produce more efficiently. These findings are illustrated through the introduction and adoption of index shifting in the sport bicycling market from 1980 through 1995.