Aghion P, Fudenberg D, Holden R, Kunimoto T, Tercieux O. Subgame-Perfect Implementation Under Value Perturbations. 2010.Abstract

We consider the robustness of extensive form mechanisms when common knowledge of the state of Nature is relaxed to common p-beliefs about it. We show that with even an arbitrarily small amount of such uncertainty, the Moore-Repullo mechanism does not yield (even approximately) truthful revelation and in addition there are sequential equilibria with undesirable outcomes. More generally, we show that any extensive form mechanism is fragile in the sense that if a non-monotonic social objective can be implemented with this mechanism, then there are arbitrarily small common p-belief value perturbations under which an undesirable sequential equilibrium exists.

Aghion P, Boustan L, Hoxby C, Vandenbussche J. The Causal Impact of Education on Economic Growth: Evidence from U.S. 2009. PDF
Aghion P, Howitt P, Murtin F. The Relationship Between Health and Growth: When Lucas Meets Nelson-Phelps. 2009.Abstract

This paper revisits the relationship between health and growth in light of modern endogenous growth theory. We propose an unified framework that encompasses the growth effects of both, the accumulation and the level of health. Based on cross-country regressions where we instrument for both variables, we find that a higher initial level and a higher rate of improvement in life expectancy, both have a significantly positive impact on per capita GDP growth. Then, restricting attention to OECD countries, we find supportive evidence that only the reduction in mortality below age forty generates productivity gains, which in turn may explain why the positive correlation relationship between health and growth in cross-OECD country regressions is weaker over the contemporary period.

Aghion P, Comin D, Howitt P, Tecu I. When Does Domestic Saving Matter for Economic Growth?. 2009.Abstract

Can a country grow faster by saving more? We address this question both theoretically and empirically. In our theoretical model, growth results from innovations that allow local sectors to catch up with frontier technology. In poor countries, catching up re- quires the cooperation of a foreign investor who is familiar with the frontier technology and a domestic entrepreneur who is familiar with local conditions. In such a country, domestic saving matters for innovation, and therefore growth, because it enables the local entrepreneur to put equity into this cooperative venture, which mitigates an agency problem that would otherwise deter the foreign investor from participating. In rich countries, domestic entrepreneurs are already familiar with frontier technology and therefore do not need to attract foreign investment to innovate, so domestic saving does not matter for growth. A cross-country regression shows that lagged savings is positively associated with productivity growth in poor countries but not in rich countries. The same result is found when the regression is run on data generated by a calibrated version of our theoretical model.

Aghion P, Hemous D, Kharroubi E. Credit Constraints, Cyclical Fiscal Policy and Industry Growth. 2009.Abstract

This paper evaluates whether the cyclical pattern of fiscal policy can affect growth. We first build a simple endogenous growth model where entrepreneurs can invest either in short-run projects or in long- term growth enhancing projects. Long-term projects involve a liquidity risk which credit constrained firms try to overcome by borrowing on the basis of their short-run profits. By increasing Örmsímarket size in recessions, a countercyclical fiscal policy will boost investment in productivity-enhancing long- term projects, and the more so in sectors that rely more on external Önancing or which display lower asset tangibility. Second, the paper tests this prediction using Rajan and Zingales (1998)'s diff-and-diff methodology on a panel data sample of manufacturing industries across 17 OECD countries over the period 1980-2005. The evidence confirms that the positive effects of a more countercyclical Öscal policy on value added growth, productivity growth, and R&D expenditure, are indeed larger in industries with heavier reliance on external Önance or lower asset tangibility.

Aghion P, Reenen VJ, Zingales L. Innovation and Institutional Investment. 2009.Abstract

We find that institutional ownership in publicly traded companies is associated with more innovation (measured as cited-weighted patents), even after controlling for a possible endogeneity of institutional ownership. To explore the mechanism through which this link arises, we build a model that nests managerial laziness with career-concern considerations, where institutional ownership increases the incentives managers have to innovate by reducing the career risk of innovative projects. While the lazy manager hypothesis predicts a substitution effect between institutional ownership and product market competition, the career-concern one allows for complementarity. Our finding that the effect of institutional investors on innovation increases with product market competition supports the career- concern model. This model is also supported by our finding that that CEOs are less likely to be fired in the face of profit downturns when institutional ownership is higher.

Aghion P, Algan Y, Cahuc P. Can Policy Influence Culture. 2009.
Aghion P, Dewatripont M, Kolev J, Murray F, Stern S. Of Mice and Academics. 2009.Abstract

This paper argues that openness of upstream research does not simply encourage higher levels of downstream exploitation, it also raises the incentives for additional upstream research by encouraging the establishment of entirely new research directions. We test this hypothesis by examining a “natural experiment” in openness within the academic community: NIH agreements signed during the late 1990s that limited the IP restrictions imposed on academics regarding certain genetically engineered mice. Using a sample of engineered mice that are linked to specific scientific papers (some affected by the NIH agreements and some not), we implement a differences-in-differences estimator to evaluate how the level and type of follow-on research using these mice changes after the NIH-induced increase in openness. We find a significant increase in the level of follow-on research. Moreover, this reflects increased exploration of more diverse research paths. Overall, our findings highlight a neglected cost of IP: reductions in the diversity of experimentation that follows from a single idea.

Aghion P, Algan Y, Cahuc P, Shleifer A. Distrust and Regulation. Currently revised for the Quarterly Journal of Economics. 2009. PDF
Aghion P, Dewatripont M, Hoxby C, Mas-Colell A, Sapir A. Governance and Peformance of Universities. Currently revised for Economic Policy. 2009.Abstract

We investigate how university governance affects research output, measured by patenting and international university research rankings. For both European and U.S. universities, we generate several measures of autonomy, governance, and competition for research funding. We show that university autonomy and competition are positively correlated with university output, both among European countries and among U.S. public universities. We then identity a (political) source of exogenous shocks to funding of U.S. universities. We demonstrate that, when a state's universities receive a positive funding shock, they produce more patents if they are more autonomous and face more competition from private research universities. Finally, we show that during periods when merit-based competitions for federal research funding have been most prominent, universities produce more patents when they receive an exogenous funding shock, suggesting that routine participation in such competitions hones research skill.

The Economics of Growth
Aghion P, Howitt P. The Economics of Growth. MIT Press; 2009. Publisher's Version
Aghion P, Bacchetta P, Ranciere R, Rogoff K. Exchange Rate Regimes and Productivity Growth. forthcoming in the Journal of Monetary Economics. 2009.
Aghion P, Acemoglu D, Griffith R, Zilibotti F. Vertical Integration and Technology: Theory and Evidence. forthcoming in the Journal of the European Economic Association. 2009. PDF
Aghion P, Dewatripont M, Stein J. Academic Freedom, Private Sector Focus, and the Process of Innovation. Rand Journal of Economics. 2009.Abstract

We develop a model that clari…es the respective advantages and disadvantages of academic and private-sector research. Our model assumes full protection of intellectual property rights at all stages of the development process, and hence does not rely on lack of appropriability or spillovers to generate a rationale for academic research. Instead, we focus on control-rights considerations, and argue that the fundamental tradeoff between academia and the private sector is one of creative control versus focus. By serving as a precommitment mechanism that allows scientists to freely pursue their own interests, academia can be indispensable for early-stage research. At the same time, the private sector’s ability to direct scientists towards higher-payo¤ activities makes it more attractive for later-stage research.

Aghion P, Algan Y, Cahuc P. Civil society and the state: The interplay between cooperation and minimum wage regulation. 2009.Abstract

In a cross-section of countries, state regulation of labor markets is strongly negatively correlated with the quality of labor relations. In this paper, we argue that these facts reflect different ways to regulate labor markets, either through the state or through the civil society, depending on the degree of cooperation in the economy. We rationalize these facts with a model of learning of the quality of labor relations. Distrustful labor relations lead to low unionization and high demand for direct state regulation of wages. In turn, state regulation crowds out the possibility for workers to experiment negotiation and learn about the potential cooperative nature of labor relations. This crowding out effect can give rise to multiple equilibria: a “good” equilibrium characterized by cooperative labor relations and high union density, leading to low state regulation; and a “bad” equilibrium, characterized by distrustful labor relations, low union density and strong state regulation of the minimum wage.

Aghion P, Acemoglu D, Bursztyn L, Hemous D. Environment and Directed Technical Change. 2009. PDF
Aghion P, Fudenberg D, Holden TR. Subgame Perfect Implementation with Almost Perfect Information and the Hold-Up Problem. 2009.Abstract

The foundations of incomplete contracts have been questioned using or extending the subgame perfect implementation approach of Moore and Repullo (1988). We consider the robustness of subgame perfect implementation to the introduction of small amounts of asymmetric information. We show that Moore-Repullo mechanisms may not yield (even approximately) truthful revelation in pure or totally mixed strategies as the amount of asymmetric information goes to zero. Moreover, we argue that a wide class of extensive-form mechanisms are subject to this fragility.

Aghion P, Burgess R, Redding S, Zilibotti F. The Unequal Effects of Liberalization: Evidence from Dismantling the License Raj in India. American Economic Review. 2008;94 (4) :1397-1412.Abstract

We study the e¤ects of the progressive elimination of the system of industrial regulations on entry and production, known as the “license raj”, on registered manufacturing output, employment, entry and investment across Indian states with different labor market regulations. The effects are found to be unequal depending on the institutional environment in which industries are embedded. In particular, following delicensing, industries located in states with pro-employer labor market labor market institutions grew more quickly than those in pro-worker environments.

Aghion P, Braun M, Fedderke J. Competition and Productivity Growth in South Africa. 2007.Abstract

Using three different panel data sets, we show: (i) that mark-ups are significantly higher in South African manufacturing industries than they are in corresponding industries worldwide; (ii) that competition policy (i.e a reduction of mark-ups) should have largely positive effects on productivity growth in South Africa.

Aghion P, Askenazy P, Berman N, Cette G, Eymard L. Credit Constraints and the Cyclicality of R&D Investments: Evidence from France. Currently revised for the Journal of the European Economic Association. 2007.Abstract

We use a French firm-level panel data set over the period 1993-2004 to analyze the relationship between credit constraints and firms’ R&D behavior over the business cycle. Our main results can be summarized as follows: (i) the share of R&D investment over total investment is countercyclical without credit constraints, but it becomes more procyclical as firms face tighter credit constraints; (ii) the result is magnified for firms in sectors that depend more heavily upon external finance; (iii) in more credit constrained firms, R&D investment share plummets during recessions but does not increase proportionally during upturns; (iv) average R&D investment and productivity growth are more negatively correlated with sales volatility in more credit constrained firms.