This paper examines a class of contractual relationships with specific investment, a nondurable trading opportunity, and renegotiation. Trade actions are modeled as individual and trade-action-based option contracts ("nonforcing contracts") are explored. The paper introduces the distinction between divided and unified investment and trade actions, and it shows the key role this distinction plays in determining whether efficient investment and trade can be achieved. Under a nonforcing dual-option contract, the party without the trade action is made the residual claimant with regard to the investment action, which induces efficient investment in the divided case. The unified case is more problematic: here, efficiency is typically not attainable, but the dual-option contract is still optimal in a wide class of settings. More generally, the paper shows that, with ex post renegotiation, constraining parties to use "forcing contracts" implies a strict reduction in the set of implementable value functions.The holdup problem arises in situations in which contracting parties can renegotiate their contract between the time they make unverifiable relation-specific investments and the time at which they can trade. 1 The severity of the holdup problem depends critically on the productive technology and on the timing of renegotiation opportunities. This paper contributes to the literature by examining how the nature of the "trade
Patent citations are a commonly used indicator of knowledge spillovers among inventors, while clusters of research and development labs are locations in which knowledge spillovers are particularly likely to occur. In this paper, we assign patents and citations to newly defined clusters of American R&D labs to capture the geographic extent of knowledge spillovers. Our tests show that the localization of knowledge spillovers, as measured via patent citations, is strongest at small spatial scales and diminishes rapidly with distance. On average, patents within a cluster are about three to six times more likely to cite an inventor in the same cluster than one in a control group. At the same time, the strength of knowledge spillovers varies widely between clusters. The results are robust to the specification of patent technological categories, the method of citation matching and alternate cluster definitions.
Unrecognized states are characterized by stagnant or crumbling economies and political instability, often serve as havens for illicit trade, and challenge the territorial sovereignty of recognized states. Their persistence is both intellectually puzzling and normatively problematic, but unrecognized statehood can be a remarkably stable outcome, persisting for decades. Our four-player model reveals that unrecognized statehood emerges as an equilibrium outcome when a patron state is willing and able to persistently invest resources to sustain it. We assess options available to actors in the international community who seek to impose their preferred outcomes in these disputes and find that, although sanctions are the most frequently employed, they can often lead to renewed conflict instead of the intended resolution.
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