Luca Correani

R&D Cooperation in Regular Networks with Endogenous Absorptive Capacity

Abstract In this paper we analyze how firms’ R&D investment decisions, firms’ profits and social welfare are affected by absorptive capacity; that is, the ability of a firm to learn from other collaborating firms. The model developed is a strategic regular network where firms have the opportunity to form pair-wise collaborative links with other firms and then compete à la Cournot. Different to the existing literature, we find that firms’ R&D efforts could increase or decrease with the degree of the network, depending on the level of absorptive capacity, the market size and the network dimension. In particular, in the case of small market size and low learning effect, the connection between firms drives up research investments. Moreover, if absorptive capacity is sufficiently low, the research collaboration between firms turns out not to be desirable from a private point of view while, in line with the existing literature, social efficiency requires a complete or intermediate level of collaborative activity. We also show that the complete network is pair-wise stable and socially optimal for an intermediate level of spillover intensity, while the empty network maximizes firms’ profits when absorptive capacity is small, yet it is not pair-wise stable.

A note on link formation and network stability in a Hotelling game

Abstract We develop a model to examine the link formation and the stability of networks in a Hotelling-type oligopoly. We find that with two firms, the link formation depends on the degree of vertical differentiation regardless of the degree of horizontal differentiation, while, with a greater number of firms, link formation occurs when firms feature high horizontal differentiation but low vertical differentiation.

Optimal choice of fiscal policy instruments in a stochastic IS–LM model

This article derives optimal fiscal rules within a stochastic model of Keynesian type in the context of Poole (1970). By using optimal control theory and applying the Hamilton–Jacobi–Bellman equation, we extend the original Poole results concerning the output stabilization properties of monetary policy to the case of fiscal policy. In particular, we look for the optimal setting of government expenditure and lump-sum taxation in the case that the fiscal authority wishes to keep the product close to a reference value and that the economy is assumed to be affected by stochastic disturbances of real and/or monetary type. According to our findings an expenditure rule is preferable to a taxation rule when the two instruments are independent. The introduction of a fiscal budget rule can make taxation preferable under a certain model parametrization.

Preferences, Development and Corruption Trap

A perpetual scarcity of public goods/services produces distortions of an individual’s attitudes towards the cost of bureaucratic procedures: even if bureaucracy is not cumbersome, poverty induces people to perceive honesty as too expensive and to prefer illegal payments because they cannot completely satisfy their needs by following the legal bureaucratic procedures. So traditional anticorruption measures such as the increase in corruption costs or the organization of public education campaigns would not permanently reduce corruption levels if poverty remains diffused. Using an overlapping generation model based on a mechanism of cultural transmission, we study the evolution both of social attidudes towards bureaucratic corruption and the institutional framework. Theoretical analysis displays how in poorer countries corruption appears to be a permanent state; institutional reforms are blocked and the only relevant anticorruption intervention consists in public education campaigns. However, also in this case, we simply obtain a temporary reduction of corruption. We call this situation “the corruption trap” because the preferences of population always converge to equilibria with a very high proportion of corrupt agents and honesty is only a temporary state due to anticorruption measures. Similar situations could be observed in developed countries with high levels of corruption owing to unexpected institutional shoks. Finally, we empirically corroborate the model’s implications in a cross-country framework, using both corruption indices and a new data-set which measures the population’s expectation of future corruption for each country.