a b s t r a c tWe build a dynamic oligopoly model with endogenous entry in which a particular firm (leader) invests in an innovation process, facing the subsequent entry of other firms (followers). We identify conditions that make it optimal for the leader in the initial oligopoly situation to undertake pre-emptive R&D investment (strategic predation) eventually resulting in the elimination of all followers. Compared to a static model, the dynamic one provides new insights into the leader's intertemporal investment choice, its optimal decision making, and the dynamics of the market structure over time. We also contrast the leader's investment decisions with those of the social planner.

We show that business education/occupations have expanded and that technical education/occupations have contracted in the Czech Republic and Poland since 1990. We interpret these changes as an adjustment necessary for their transition to a market economy. We do not find the same pattern in Hungary, which we attribute to the earlier timing of its transition. We construct an aggregate model in which labour reallocates in response to changing demand structure. When calibrated with the Czech and Polish data, the model generates a large movement of workers with technical education and experience into business occupations in the early 1990s. The discounted sum of output loss due to the gap between the demand structure and the composition of existing human capital amounts to between 8 and 40 percent of 1990 GDP. JEL classifications: J31, J62, P23, E13.occupations. We calibrate the model based on Czech and Polish data, and measure the discounted sum of output loss due to the imbalance in human capital. This amounts to between 8 and 40 percent of 1990 GDP.Our paper can be viewed as a study of mismatch between the existing worker characteristics and those that the market demands. A much-studied mismatch of this nature is the excessive qualification of workers for available jobs, that is, overeducation (see Alba-Ramirez, 1993 for example). Another is the insufficient capacity of workers to adopt new technology, that is, skill-biased technological change (see Acemoglu and Zilibotti, 2001 among others). These issues are more about the level mismatch than about the composition mismatch that we focus on. Our paper also relates to other studies of educational changes and labour mobility in transition economies. Sarychev (1999) studies the changes from specialized vocational training to general training during the early period of transition in East Germany. Sorm and Terrell (2000) find a significant movement of labour into the finance, trade and tourism sectors, and out of the agricultural and industrial sectors in the Czech Republic. Similarly, Sabirianova (2002) analyses the expansion of service and business occupations in Russia. Our paper highlights the changes from technical to business-related education/occupations. Also, we assess their quantitative significance based on an aggregate model.

In transition economies, there may be a significant mismatch between the types of skills that workers possess and the types of skills that the new economy demands. We consider this problem of human capital mismatch along the dimensions of training type (holding the level) and occupation. We document that in the Czech Republic and Poland the wage rate grew faster in business occupations than in technical occupations in the 1990's, and that in response the technical training/occupations contracted while the business training/occupations expanded. We do not find this pattern in Hungary. We construct a neoclassical model with endogenous occupational choice and calibrate it to the Czech and Polish data. We estimate that the discounted sum of output loss due to human capital mismatch amounts to 44% of the aggregate output of the beginning year of transition.