Serguey Braguinsky

Bidder Discounts and Target Premia in Takeovers

When a takeover is announced, the sum of the stock-market values of the firms involved often falls, and the value of the acquirer almost always does. Does this mean that takeovers do not raise the values of the firms involved? Not necessarily. We set up a model in which the equilibrium number of takeovers is constrained efficient. Yet, upon news of a takeover, a targets price rises, the bidders price falls, and, most of the time the joint value of the target and acquirer also falls.

High-Tech Entrepreneurship

Whereas most start-ups are in low-tech industries, we apply a novel strategy to a data set of scientists and engineers to focus predominantly on high-tech entrepreneurs. We develop a simple model in which the rewards from entrepreneurship are determined by the interaction of ability, the quality of the entrepreneurial idea, and experience in employment. As is consistent with the model, we find that the average return to entrepreneurship is positive, higher paid workers are more likely to become entrepreneurs, especially at younger ages, and greater pre-entry labor market experience is associated with longer tenure but lower earnings in entrepreneurship.

Postcommunist Oligarchs in Russia: Quantitative Analysis

The transition in Russia has not been a revolutionary jump to a market economy and democracy but an incremental process that has so far resulted in a hybrid system aptly called “oligarchic capitalism.” I study the evolution of the first postcommunist oligarchy by examining the careers of the 296 most prominent first‐wave postcommunist business tycoons. Forty‐three percent of them were insider oligarchs deriving their status from a privileged nomenklatura background dating back to the previous regime. The rest were outsider oligarchs with no such background. Compared with insider oligarchs, outsider oligarchs were younger, better educated, and disproportionately Jewish. Their initial business successes tended to happen in sectors neglected in the planned economy, but the overwhelming majority of them subsequently developed their own special relationship with the government. It appears that instead of changing the rules of the socioeconomic game, the new entrants were themselves changed by those rules.

Enforcement of Property Rights During the Russian Transition: Problems and Some Approaches to a New Liberal Solution

The paper examines economic inefficiency stemming from the replacement of the public property rights enforcement mechanism by private (“mafia‐type”) enforcement in the transitional economy of Russia. It is shown that private enforcement leads to the entrenchment of small‐scale inefficient monopolies. The state becomes a vehicle for rent seeking and free loading. A simple model is employed to argue that a naive laissez‐faire approach to the problem is not likely to work. The paper then argues that any attempt at a once‐and‐for‐all institutional solution relying on coordination by a benevolent government is also basically impossible. A step‐by‐step incentive‐based approach is advocated; in particular, the paper proposes the nonconventional libertarian idea of establishing a commercialized government property protection service, and it discusses some of its theoretical and practical aspects. The role of the devolution and competition of power is also examined.

Direct Estimation of Hidden Earnings: Evidence From Administrative Data

We estimate hidden earnings by matching car registries to employers’ records of paid earnings for a panel of individuals and households in Moscow. The identification strategy is based on the idea that reported earnings may be falsified, but car registries are accurate. Hidden earnings comprise over 75 percent of actual earnings of the large majority of car owners, at least twice as high as estimated in previous studies using less direct methods. There is also a lot of heterogeneity across employers. Foreign-owned firms, large firms and state-owned firms in capital-intensive industries report earnings more transparently than do small firms and firms in labor-intensive industries, where actual earnings may be more than five times higher than reported earnings. Differentials of similar magnitude are found in public services, especially among educators. Our findings shed new light on the perceived links between firm ownership, size and productivity in countries with large hidden economies.

Direct Estimation of Hidden Earnings: Evidence from Russian Administrative Data

We employ unique administrative data from Moscow to obtain a direct estimate of hidden incomes. Our approach is based on comparing employer-reported earnings to market values of cars owned by the corresponding individuals and their households. We detect few hidden earnings in most foreign-owned firms and larger firms, especially state-owned enterprises in heavily regulated industries. The same empirical strategy indicates that up to 80 percent of earnings of car owners in the private sector are hidden, especially in smaller companies and industries such as trade and services, where cash flows are easier to manipulate. We also find considerable hidden earnings in government services. Our approach sheds new light on the decline in the gross domestic product (GDP) in Russia after the collapse of communism and subsequent recovery; in particular, we argue that a good deal of these changes might represent changes in income reporting rather than actual changes in GDP.

Where Does Entrepreneurship Pay

Empirical literature has found negative earnings differential between self-employed and paid workers, but much of the existing theory predicts the opposite, especially when entrepreneurship is defined as applying general technical knowledge to firm-specific purposes. We employ the NSF data on science and engineering workforce to identify occupations and jobs that require especially intensive use of technical knowledge acquired through formal education and we show that entrepreneurship generates considerable conditional mean and median pecuniary returns as compared to paid work in such jobs. In contrast, among scientists and engineers whose business ventures are not related to their education, the entrepreneurial earnings differential is negative, in line with findings in the previous literature. The positive earnings differential in education-intensive occupations increases with tenure in business, but declines with age. We offer a simple job-matching model where workers receive noisy signals about their ability, and higher-ability workers gradually sort themselves into self-employment in education-related jobs because of higher returns to ability in such jobs. The model is shown to be in line with evidence from panel data, suggesting that the premium to self-employment in education-intensive occupations and jobs might be due primarily to selection.

Spinning Tales about Japanese Cotton Spinning: Saxonhouse (1974) and Lessons from New Data

We revisit the story of technology adoption and diffusion in Japans Meiji-era cotton spinning industry, the study of which was pioneered by Gary Saxonhouse (1974). Using a novel data set and modern methodology, we argue that both the ease with which the best technology diffused and the role of “slavish imitation†in this process may have been overstated. We find an important role played by market competition, including asset reallocation. Our analyses provide richer insights into the complex phenomena of technology diffusion, innovation, and economic growth.

Academic Entrepreneurship: Bayh-Dole versus the 'Professor's Privilege'

Should society encourage scientists at universities to become entrepreneurs? Using data on U.S. university-employed scientists with a Ph.D. in STEM disciplines leaving their university to become entrepreneurs during 1993-2006 and similar data from Sweden we show evidence suggesting that owning your idea outright (the “Professor’s Privilege”) rather than sharing ownership with your university employer (the Bayh-Dole regime) is strongly positively associated with the rate of academic entrepreneurship but not with apparent economic gain for the entrepreneur. Further analysis show that in both countries there is too much entry into entrepreneurship, and selection from the bottom of the ability distribution among scientists. Targeted policies aimed at screening entrepreneurial decisions by younger, tenure-track academics may therefore produce more benefits for society than general incentives.

Science-Based Business : Knowledge Capital or Entrepreneurial Ability? : Theory and Evidence from a Survey of Biotechnology Start-ups

We present a model of science-based entrepreneurship where ideas initially produced by researchers with scientific knowledge capital may be developed by high-ability entrepreneurs. With moderate verification costs, startups continuously managed by inventors-founders coexist in equilibrium with startups that experience entrepreneurial turnover. The model predicts that startups managed by non-founder entrepreneurs would on average outperform the startups managed by their founders, and that better functioning of the market for entrepreneurial talent should result in more entrepreneurial turnover in equilibrium which in its turn leads to more ideas being commercialized and higher rewards to successful startups. We probe the implications of the model using a unique dataset from the survey of a representative sample of biotechnology startups in Japan and we find them to be broadly supported in the data.