Mihkel Tombak

Why Firms Form (or do not Form) RJVS

In this article, we examine why it is difficult to induce firms to form Research Joint Ventures (RJVs). We examine various incentives and disincentives for RJV formation by estimating an endogeneous switching model using data from the US National Cooperative Research Act. The empirical findings support hypotheses that firms of different sizes have disincentives to form RJVs and that cost-sharing is an important incentive for RJV participation.

Investment, Capital Structure, and Complementarities Between Debt and New Equity

We study simultaneous investment and financing decisions made by incumbent owners in the presence of capital market imperfections. We present a theory for how the optimal combination of debt and equity financing depends on the firms internal funds. We identify complementarities between the two financial instruments. We test these predictions empirically with panel data on 3,119 corporations in the COMPUSTAT database. Our estimates using instrumental variable techniques support our theoretical predictions regarding the link between internal funds and capital investments, as well as the interaction effects between debt and new equity. We explore implications for managers, financiers, and policy makers.

Time-Based Competition and the Privatization of Services

The authors develop a vertical differentiation model which exhibits congestion externalities and in which firms choose service time. This model is formulated for a variety of industry and ownership structures. The authors find an ownership effect in which service speeds decrease when public services are privatized. This effect, however, could be offset and even reversed by increased efficiency of private services. The authors also investigate how prices and commitment ability with respect to service times will affect the service speeds in equilibrium. Copyright 1995 by Blackwell Publishing Ltd.

Strategic Choice of Flexible Production Technologies and Welfare Implications: Addendum et Corrigendum

In a recent article, Roller and Tombak (1990) analyze the strategic choice of modern flexible production technologies. They develop a two-stage game in which firms choose between a flexible technology and a dedicated technology in the first stage and subsequently choose output. This note corrects an error in one of the graphs in that paper, provides an interpretation of the new graph, and extends the analysis by allowing for mixed strategies and complementary products. Copyright 1992 by Blackwell Publishing Ltd.

Switching to Green: The Timing of Socially Responsible Innovation

We develop a timing game for adopting a product technology that features a public good. We investigate the effects of the degree of product market competition, product differentiation, the private benefits from contributing to the public good, and firm asymmetries on the timing of adoption. We then examine the effects of consumer subsidies on equilibrium timings and the proliferation of the public good.

Who's Number One? Asymmetric Production Costs as a Determinant of Quality Rankings

We examine how production cost asymmetries affect the way firms compete in prices and quality in a vertical differentiation model. By introducing such asymmetries in marginal costs we obtain an endogenously determined quality ranking. We find that with cost differences, quality differentials decrease, and that when cost differences grow large enough, we have a unique duopoly equilibrium where the low-cost firm offers high quality. We illustrate the robustness of these results to different costs of quality formulations. We then conduct a welfare analysis and discuss implications for R&D, trade, as well as for setting quality standards and competition policies.

OPTIMAL CO-PAYMENT POLICY IN HEALTH CARE: COMPETITION, OWNERSHIP STRUCTURE AND QUALITY PROVISION?

Abstract We analytically characterize the effects of ownership and competition in the healthcare industry on quality provision, market coverage and optimal reimbursement policy. A for-profit monopoly selects a lower quality than a nonprofit supplier, and the socially optimal reimbursement rate with a nonprofit monopoly exceeds that with a for-profit monopoly. We establish that the optimal repayment policy is invariant to the introduction of competition by a for-profit high-quality supplier. Thus, market coverage is invariant to the introduction of competition, whereas consumers with a higher willingness to pay for quality are better off with competition.

Switching to Green: The Timing of Socially Responsible Innovation: Switching to Green

We develop a timing game for adopting a product technology that features a public good. We investigate the effects of the degree of product market competition, product differentiation, the private benefits from contributing to the public good, and firm asymmetries on the timing of adoption. We then examine the effects of consumer subsidies on equilibrium timings and the proliferation of the public good.

Employment vs. Entrepreneurship: Risk Aversion and Occupational Choice

We develop an equilibrium model where risk-averse agents can choose between employment and entrepreneurship. An important property of our framework is that the effort of agents is not observable (moral hazard), so that optimal employment contracts must be incentive compatible. In equilibrium we show that more risk-averse agents tend to select into employment. However, we show that income risk is not the only driver for the occupational choice of agents with entrepreneurship options - as commonly argued. Instead, more risk-averse agents with those options have a lower valuation of entrepreneurship, and are therefore less costly for firms to employ. In equilibrium firms in industries where such options are prevalent then adjust their employment contracts to attract the more risk-averse agents.