Trust: The Social Virtues and the Creation of Prosperity

The 2008 crash has left all the established economic doctrines - equilibrium models, real business cycles, disequilibria models - in disarray. Part of the problem is due to Smith’s "veil of ignorance": individuals unknowingly pursue society’s interest and, as a result, have no clue as to the macroeconomic effects of their actions: witness the Keynes and Leontief multipliers, the concept of value added, fiat money, Engel’s law and technical progress, to name but a few of the macrofoundations of microeconomics. A good viewpoint to take bearings anew lies in comparing the post-Great Depression institutions with those emerging from Thatcher and Reagan’s economic policies: deregulation, exogenous vs. endoge- nous money, shadow banking vs. Volcker’s Rule. Very simply, the banks, whose lending determined deposits after Roosevelt, and were a public service became private enterprises whose deposits determine lending. These underlay the great moderation preceding 2006, and the subsequent crash.

The Economic Institutions of Capitalism

The well-known Easterlin paradox points out that average happiness has remained constant over time despite sharp rises in GNP per head. At the same time, a micro literature has typically found positive correlations between individual income and individual measures of subjective well-being. This paper suggests that these two findings are consistent with the presence of relative income terms in the utility function. Income may be evaluated relative to others (social comparison) or to oneself in the past (habituation). We review the evidence on relative income from the subjective well-being literature. We also discuss the relation (or not) between happiness and utility, and discuss some nonhappiness research (behavioral, experimental, neurological) related to income comparisons. We last consider how relative income in the utility function can affect economic models of behavior in the domains of consumption, investment, economic growth, savings, taxation, labor supply, wages, and migration.

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Relative income, happiness, and utility : an explanation for the Easterlin paradox and other puzzles

Models that depict innovation as a smooth, well-behaved linear process badly misspecify the nature and direction of the causal factors at work. Innovation is complex, uncertain, somewhat disorderly, and subject to changes of many sorts. Innovation is also difficult to measure and demands close coordination of adequate technical knowledge and excellent market judgment in order to satisfy economic, technological, and other types of constraints—all simultaneously. The process of innovation must be viewed as a series of changes in a complete system not only of hardware, but also of market environment, production facilities and knowledge, and the social contexts of the innovation organization.

An Overview of Innovation

(1975). The Limits of Organization. Journal of Economic Issues: Vol. 9, No. 3, pp. 543-544.

The Limits of Organization

Research summary: In this article, we document a shift away from science by large corporations between 1980 and 2006. We find that publications by company scientists have declined over time in a range of industries. We also find that the value attributable to scientific research has dropped, whereas the value attributable to technical knowledge (as measured by patents) has remained stable. These trends are unlikely to be driven principally by changes in publication practices. Furthermore, science continues to be useful as an input into innovation. Our evidence points to a reduction of the private benefits of internal research. Large firms still value the golden eggs of science (as reflected in patents), but seem to be increasingly unwilling to invest in the golden goose itself (the internal scientific capabilities). Managerial summary: There is a widespread belief among commentators that large American corporations are withdrawing from research. Large corporations may still collaborate with universities and acquire promising science-based start-ups, but their labs increasingly focus on developing existing knowledge and commercializing it, rather than creating new knowledge. In this article, we combine firm-level financial information with a large and comprehensive data set on firm publications, patents and acquisitions to quantify the withdrawal from science by large American corporations between 1980 and 2006. This withdrawal is associated with a decline in the private value of research activities, even though scientific knowledge itself remains important for corporate invention. We discuss the managerial and policy implications of our findings.

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The decline of science in corporate R&D

Research summary: Using a large sample of private firms across Europe, we examine how the social context of owners affects firm strategy and performance. Drawing on embeddedness theory and the institutional logics perspective, we argue that embeddedness in a family, in particular the nuclear family, can strengthen identification and commitment to the firm, but can also induce owners to behave more conservatively. Consistent with this argument, we find that family-owned firms have higher profit margins, returns on assets, and survival rates compared to single-owner or unrelated-owners' firms, but also invest and grow more slowly, hold greater reserves of cash, and rely less on external debt. These differences are most pronounced when the two largest shareholders are married. Our results highlight the key role of marital ties in explaining differences in behavior and performance among firms. Managerial summary: Despite the prevalence of the married-couple ownership structure in firms, little research has been dedicated to understanding how these firms are managed and perform. We examine the behavior and performance of firms owned by married couples in a large panel of closely held Western European firms. We find that married-owner family firms are managed more conservatively relative to firms with unrelated owners and even to other family-owned firms. In particular, married-owner family firms invest and grow more slowly and rely less on external finance. However, they also exhibit greater performance stability and higher profitability. Our findings suggest that social relationships among owners have a large impact on firm strategy and performance, and highlight some potential trade-offs to performance when married couples control firms. Copyright © 2015 John Wiley & Sons, Ltd.

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Married to the firm? A large‐scale investigation of the social context of ownership

https://ueaeprints.uea.ac.uk/43477/1/Innov_FV_RP2013.pdf

Innovation and firm value: An investigation of the changing role of patents, 1985–2007

Executive SummaryA defining feature of modern economic growth is the systematic application of science to advance technology. However, despite sustained progress in scientific knowledge, recent pro...

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The Changing Structure of American Innovation: Some Cautionary Remarks for Economic Growth

Scientific knowledge is believed to be the wellspring of innovation. Historically, firms have also invested in research to fuel innovation and growth. In this paper, we document a shift away from scientific research by large corporations between 1980 and 2007. We find that publications by company scientists have declined over time in a range of industries. We also find that the value attributable to scientific research has dropped, whereas the value attributable to technical knowledge (as measured by patents) has remained stable. These effects appear to be associated with globalization and narrower firm scope, rather than changes in publication practices or a decline in the usefulness of science as an input into innovation. Large firms appear to value the golden eggs of science (as reflected in patents) but not the golden goose itself (the scientific capabilities). These findings have important implications for both public policy and management.Institutional subscribers to the NBER working paper series, and residents of developing countries may download this paper without additional charge at www.nber.org.

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Andrea Patacconi

Papers

The decline of science in corporate R&D

Married to the firm? A large‐scale investigation of the social context of ownership

Innovation and firm value: An investigation of the changing role of patents, 1985–2007

The Changing Structure of American Innovation: Some Cautionary Remarks for Economic Growth

Killing the Golden Goose? The Decline of Science in Corporate R&D