Project Leader

WATANABE Tsutomu, Faculty Fellow

Sub-Leader

UESUGI Iichiro, Consulting Fellow

Overview

(1) Study Group on Financial and Industrial Networks

1. Cost-benefit of dealing with multiple banks, and creditworthiness-testing capabilities of financial institutions
   1) Inter-bank bargaining structures in new loan agreements will be analyzed to determine the implications of dealing with multiple banks.
   2) Processes culminating in lending decisions will be classified to determine behavioral differences among financial institutions.
   3) Performance of borrowers will be analyzed against banks' determinations of creditworthiness based on information other than tangible information.
2. Role of inter-firm credit as a substitute for bank borrowing
   1) The extension of inter-firm credit between firms being able to freely procure funds and firms facing severe restrictions in borrowing will be examined.
   2) Inter-firm credit is said to be acting as a substitute for bank borrowing. However, the real price of inter-firm credit is difficult to determine from the outside. Determinative factors that come into play in choosing between inter-firm credit and bank borrowing will be examined.
3. The relation between inter-firm transaction networks and firm behavior
   1) The role of transaction networks in the exit of firms will be analyzed.
   2) The impact of demand uncertainty on supply chains and sales networks in manufacturing industries will be analyzed.
   3) Structures of inter-firm transaction networks will be analyzed using the Earth Simulator.

(2) Study Group on Price and Wage Dynamics

In this project, we will undertake detailed micro-level analysis of the price-setting behavior of firms. Using this as a starting point, we will attempt a new approach to macro-level price dynamics. The following analyses will be undertaken during the current fiscal year.

1. Inter-store price differentials will be analyzed using home scanner data (data generated by households using scanners to record purchases). Particular attention will be paid to determining the relation between rates of price increases and price differentials.
2. The relation between product innovation and business cycles will be analyzed using home scanner data and store scanner data (POS data).
3. Price changes in online and off-line markets will be compared for digital home electronic products.
4. Analysis of wage stickiness will be continued.

Major Research Results

RIETI Discussion Papers

• "The Effects of Collateral on SME Performance in Japan " (ONO Arito, SAKAI Koji and UESUGI Iichiro)
• "Reform of Governance in Cooperative Financial Institutions: The scale of shinkin banks' boards of directors and management performance" (YAMORI Nobuyoshi, TOMIMURA Kei and HARIMAYA Kozo)
• "Statistical Analysis of Price Fluctuations in the Online Market" (MIZUNO Takayuki and WATANABE Tsutomu)
• "The Stickiness of Company Shipping Prices: Analysis based on Questionnaire and POS Data" (ABE Naohito, TONOGI Akiyuki and WATANABE Tsutomu)

RIETI Policy Discussion Papers

• "Comparative Study of Regional Finance and Industrial Partnerships in Japan and South Korea - Comparison of the Taegu and North Gyeongsang regions of South Korea and the Tokai and Kansai regions of Japan based on corporate questionnaire surveys " (YAMORI Nobuyoshi, HIRAKAWA Hitoshi, CHOI Yong-Ho, JIN Byung-Yong, BU Gi-Duck and PARK Man-Bong)

Publications

• Empirical Analysis of SME Financing in Japan - Examining commonly-held views, written and edited by WATANABE Tsutomu and UESUGI Iichiro, Nikkei Publishing Inc., September 2008

RIETI Policy Symposium

• "What Can Be Learned from Large-Scale Business Data: An approach integrating economics and physics"

Project Leader

KAWAGUCHI Daiji, Faculty Fellow

Overview

This project covers the following six themes.

• (1) Figuring out the basic facts of Japan's labor markets.
• (2) Analysis of factors affecting the proliferation of non-regular employment.
• (3) Impact of non-regular employment on career development of young people and its welfare implications.
• (4) Theoretical and empirical analysis of the impact of long-term employment systems on corporate productivity.
• (5) Theoretical and empirical analysis of the impact of increased mobility in labor markets on corporate productivity.
• (6) Empirical analysis of the use of non-regular employees based on corporate personnel data.

First, the basic facts of Japan's labor markets in recent years will be figured out using large-scale government statistics. Next, the project will focus on the proliferation of non-regular modes of employment, and will analyze the cause of its increase as well as the impact of this trend on young people's career development and related welfare implications. The project will evaluate how the shortening of the average years of employment caused by non-regular employment affects corporate productivity. Furthermore, the project will verify theoretically and empirically how greater labor mobility reduces employment mismatching and improves productivity. Finally, corporate personnel data will be used in analyzing the use of non-regular employees and their promotion to regular employee status.

Major Research Results

RIETI Discussion Papers

• "Stable Wage Distribution in Japan, 1982-2002: A counter example for SBTC?" (KAWAGUCHI Daiji and MORI Yuko)
• "TFP Growth Slowdown and the Japanese Labor Market in the 1990s" (Julen ESTEBAN-PRETEL, NAKAJIMA Ryo and TANAKA Ryuichi)
• "Are Contingent Jobs Dead Ends or Stepping Stones to Regular Jobs? Evidence from a structural estimation" (Julen ESTEBAN-PRETEL, NAKAJIMA Ryo and TANAKA Ryuichi)
• "Econometric Analysis of Irreversible Investment with Financial Constraints: Comparison of parametric and semiparametric estimations" (ASANO Hirokatsu)

Project Leader

TSURU Kotaro, Senior Fellow

Overview

The Japanese economy experienced a fifteen-year period of adjustment following the collapse of the bubble economy. As it now attempts to take off toward new frontiers, Japan needs to adopt organizational and institutional designs that will heighten and promote the potential growth and the process of innovation. In so doing, as a more essential requirement for the improvement of corporate innovation and therefore corporate performance, it is important to fundamentally review corporate organizational structures, the status of human resources, and the systems and institutions that function as the infrastructure of markets. This project starts by focusing on corporate mergers and acquisitions, which intensify in recent years, to more fully examine the following questions:
(1) What are the motives and intent of M&A activities? and
(2) Are the initially anticipated effects of M&A realized, and does corporate performance actually improve after the completion of corporate reorganization?
In addition, countermeasures to hostile take-over bids and their implications will also be analyzed.

Project Leader

YAMAUCHI Naoto, Faculty Fellow

Sub-Leader

MORIYAMA Hiromichi, Consulting Fellow

Overview

Given the advent of an aging society with a declining population, plus major structural changes in the form of globalization and the intensification of international competition, in order to maintain economic vitality and to keep the size of the public sector within a scope that is sustainable, it is essential to implement reform toward establishing "small government." Our research activities will include the categorization of the forms of public-private partnership (PPP) such as private finance initiative (PFI), the designated administrator system, and market testing; the conduct of quantitative verification of the effects of reductions in fiscal expenditure; and the conduct of analyses of introduction incentives, including by means of surveys of local government bodies and non-profit organizations (NPOs). In this way we will put forward suggestions on how to shape policies for achieving efficient public services in Japan through PPP.

Project Leader

MIYAJIMA Hideaki, Faculty Fellow

Overview

As the result of macroeconomic environmental changes as well as rapid progress of deregulation and institutional reform in the second half of the 1990s, Japanese firms have participated in a large-scale experiment involving the transformation of their businesses, organizational structures and corporate governance. This has attracted keen attention both in Japan and overseas. This project has studied the actual status of governance structure reforms of Japanese firms and analyzed the impact of these changes on corporate performance. The aim of this project during fiscal 2008 will be the following issues that previously were not fully studied.

• (1) Theoretical re-examination of institutional complementarity
• (2) Theoretical re-examination of owing stocks and empirical study of cross-holding of shares
• (3) Significance of public listing and the economic functions of publicly listed subsidiaries
• (4) Re-examination of condition-dependent governance
• (5) Interrelation of business portfolios, decentralization and corporate governance
• (6) Role of inter-firm competition as a precondition for autonomous governance and internal governance

While focusing on these issues, this project will seek to develop new methodologies for empirical analysis and to develop data needed for such approaches. Finally, this project will attempt to open new research frontiers in corporate governance with strong policy implications.

Major Research Results

MFJ-RIETI-WASEDA International Conference

• "Organization and Performance: Understanding the Diversity of Firms"

Related Website

• "Developing the Research Frontier in Corporate Governance Analysis"

Project Leader

IWAMOTO Yasushi, Faculty Fellow

Sub-Leader

HASHIMOTO Kyoji, Faculty Fellow

Overview

Faced with the challenges of aging, globalization, global environmental issues and growing disparities, Japan's socio-economic structures are undergoing significant changes that necessitate fundamental reforms in the tax system. With this awareness, this project has utilized developments in tax theory to consider appropriate tax systems that correspond to socio-economic structural changes from a medium- to long-term perspective. During the current fiscal year, the project will expand upon the analysis undertaken in the previous year and will also take up new analytical issues. Specifically, the following critical issues will be considered and research themes will be selected from areas where academic contributions can be made: the relation between social security and taxation in an aging society; capital gains taxation in an environment of economic globalization; and systems of local taxation corresponding to advances in decentralization. Currently, the project has adopted four research themes:

• (1) Analysis of transfer and incidence of corporate taxes.
• (2) Economic impact of tax-based public pension systems: Simulation analysis using multi-sector overlapping generations model.
• (3) Analysis of social security and taxation.
• (4) Local taxation corresponding to changes in socio-economic structures: In light of the relation between local taxes and local allocation taxes.

Major Research Results

RIETI Discussion Papers

• "Gasoline Tax Rates from the Perspective of Optimal Taxation Theory: Comparison among Japan, the U.S., and the UK" (KAWASE Akihiro)
• "Dynamic Applied General Equilibrium Analysis for Fiscal Reconstruction Based on a Multi-sector Overlapping Generations Model" (KIMURA Shin and HASHIMOTO Kyoji)
• "The Efficiency versus Equity Trade-off: Observations from survey data" (MORIKAWA Masayuki)
• "Tax and Insurance Premiums as Financial Resources for Social Security" (IWAMOTO Yasushi)
• "Estimation of Future Tax Revenue" (HASHIMOTO Kyoji and OH Sunchung)

RIETI Policy Discussion Papers

• "The Effects of Social Security and the Tax System on Income Distribution and Economic Growth" (MORIKAWA Masayuki)

Project Leader

TSURU Kotaro, Senior Fellow

Overview

In order to study a new "form" for Japan's labor market institutions, and types of reform, we will organize a study group that will conduct theoretical and empirical research from various perspectives such as law, economics and management. While looking broadly at labor market institutions as a whole, we will also look into the interrelationships of each constituent part, and in particular will make suggestions regarding a comprehensive system of labor laws from a standpoint that transcends vertical segmentation and boundaries. When conducting our analysis we will fully embrace international viewpoints and methods of analysis, including experiences from Europe and elsewhere, and will attempt to elucidate the relationships between labor laws and institutions and the labor market and employment systems, and in turn the relationship (including the issue of non-regular employment) with economic performance.

Major Research Results

RIETI Discussion Papers

• "Labor Market Institution Reform in Japan: Problems and recommendations" (TSURU Kotaro)
• "The Reform of Labor Market Institutions from the Perspectives of Law and Economics" (HIGUCHI Yoshio)
• "Reform of the labor market" (YASHIRO Naohiro)
• "Economic Analysis of Long Working Hours" (OHTAKE Fumio and OKUDAIRA Hiroko)
• "Issues for Labor Law and Changes in Corporate Organization " (SHIMADA Yoichi)
• "Dispute Resolution Systems and Collective Bargaining: From the perspective of disputes over dismissal" (KAMBAYASHI Ryo)
• "Basis and Direction of Labor Law Reform: Japan and the debate in Europe and the United States" (MIZUMACHI Yuichiro)
• "Labor Market Reform and Labor Law" (KOJIMA Noriaki)
• "Age-Free Law and Policy: A labor market approach or an approach of guaranteeing human rights" (MORITO Hideyuki)
• "Does Employment Protection Reduce Productivity?: An analysis using Basic Survey of Japanese Business Structure and Activities microdata" (OKUDAIRA Hiroko, TAKIZAWA Miho, and TSURU Kotaro)
• "Fairness Today: From the perspective of organizational justice" (MORISHIMA Motohiro)
• "How Has Labor Law Come to Grips with the Reform of Labor Market Institutions?" (SUWA Yasuo)

Publications

• Labor Market Institutions Reform in Japan: Changing the way people work  (Written and edited by TSURU Kotaro, HIGUCHI Yoshio and MIZUMACHI Yuichiro)

RIETI Policy Symposium

• "Labor Market Institutions Reform in Japane" (Japanese)

Project Leader

NAKAMURA Ryohei, Faculty Fellow

Overview

Although the Japanese economy remains on a recovery path, local economies are experiencing growing interregional disparities and this makes the recovery trend a mottled picture. The purpose of this project is to undertake the following four analyses with an intention to establish sustainable local economic systems: (1) analysis of recycling systems in local economies; (2) prerequisite for sustainable local economies: capital and concentration; (3) prerequisite for sustainable local economies: local economic scale; and (4) overview and examination of theory of interregional disparities. Regarding (1), we have investigated Kurashiki City as a sample locality. The next step will be to develop a non-competitive entry type urban input-output table to be used in analyzing what constitutes a desirable industrial structure. Regarding (2), we are studying the relationship between urban compactness and sustainability. This study is based on detailed data from the Population Census and Census of Commerce, and takes into account our analysis of urban layout. Regarding (3) and (4), we are currently developing a disparity analysis model designed to use microdata for empirical analysis. The model under development draws on endogenous growth theories and new economic geography models.

Major Research Results

RIETI Discussion Papers

• "Changes in Agglomeration Economies and Linkage Externalities for Japanese Urban Manufacturing Industries:1990 and 2000 " (NAKAMURA Ryohei)

RIETI Policy Discussion Papers

• "Establishment of Sustainable Local Economic Systems - Analysis of economic structure: Kurashiki city case study" (NAKAMURA Ryohei and MORITA Manabu )

Project Leader

SHISHIDO Zenichi, Faculty Fellow

Overview

We have frequently discussed the question, "To whom does the company belong" in corporate governance theories. However, henceforth, it will be necessary to engage in this discussion from a different perspective: that is, what is the optimal incentive mechanism for the providers of the essential resources needed in corporate activities (managers and employees as human capital providers and shareholders and creditors as monetary capital providers. The legal system is a key part of the infrastructure that affects the outcome of incentive bargaining. However, because the legal system consists of numerous sub-divisions, no attempt has been made in the past to deal with "enterprise law" as an integrated incentive structure. In this project, Japanese and foreign experts are brought together to undertake a restatement of enterprise law, covering corporate law, insolvency law, securities law, labor law and tax law.

Major Research Results

RIETI Seminar

• "Enterprise Law as the Infrastructure of an Incentive Mechanism : Implications for New Japanese Corporate Governance System" (Japanese)

RIETI International Seminar

• "Lessons from SOX Act and Perspectives for J-SOX: Effects of the legal system on corporate activities"

Project URL

• "Enterprise Law as a Structure for Incentives"

Project Leader

TAMAI Katsuya, Faculty Fellow

Sub-Leader

AKAI Nobuo, Faculty Fellow

Overview

Japanese universities have undergone important changes in recent years, such as the incorporation of national universities as independent administrative institutions beginning in April 2005. However, it can hardly be said that all problems have been solved through these institutional reforms. The following are some of the issues and problems that remain to be addressed: the raison d'être of national universities; the interrelation between "education" and "research" and the allocation of resources; the allocation of operating grants and competitive research funds; a framework for university governance conducive to competition and constructive rivalry among national universities; and the management of national university hospitals. These issues not only affect the future of Japan's ivory towers, but also have an important bearing on the future of Japan's economy and society in the 21st century. The purpose of this project is to develop a framework for considering the above issues. Currently, we are engaged in researching the following themes:
(1) Current conditions and outlook for the performance of national universities and the allocation of funds;
(2) Current conditions and issues related to the governance of national universities; and
(3) Universities and local economies.

Major Research Results

RIETI Policy Symposium

• "Universities of the Future from Social and Economic Perspective"

Project Leader

YASUDA Takehiko, Faculty Fellow

Overview

The level of entrepreneurial activity in Japan, as measured in terms of the start-up ratio, has increased slightly since the start of the 21st century, but still remains at the lowest level in international comparisons. Given the important link between entrepreneurial activity and innovation, the current situation needs to be rectified as quickly as possible. With this in mind, the government has introduced policy lending programs and various other measures to increase start-ups. Though such policy measures should presumably be based on the information like conditions affecting entrepreneurship and obstacles to the start-ups, not enough is known in Japan compared to the U.S. and Europe due to data constraints. In particular, almost nothing is known about "latent entrepreneurs" whose behavior determines the future level of a country's entrepreneurial activities. The purpose of this project is to investigate the current conditions of entrepreneurs and latent entrepreneurs in Japan. The microdata obtained from the investigation will be used in statistical analysis to determine how the level of entrepreneurial activity can be raised and where current problems and obstacles lie.

Project Leader

ISHIKAWA Jota, Faculty Fellow

Overview

Signatories of the Kyoto Protocol are considering and implementing various policies to achieve their reduction goals. Recently, there has been considerable activity in developing a new framework for after the first commitment period. Representative policies for countering global warming include emissions taxes and emissions quotas. These two policies generally yield equivalent results in a closed economy. However, recent theoretical research indicates that equivalency is not achieved in an open economy (for example, see Kiyono and Ishikawa, 2004 and Ishikawa and Kiyono, 2006). Particularly important is the problem of carbon leakage, which points out that while greenhouse gas reduction policies in one country may reduce that country's emissions, this may indirectly increase emissions in other countries. Furthermore, it cannot be said that adequate theoretical research has been conducted concerning the combination of emissions trading and emissions quotas. While emissions trading systems have been tried on various levels, with the exception of the EU, the establishment of large-scale emissions trading systems has been delayed. The purpose of this project is to examine and to gain new perspectives on issues related to the carbon leakage problem and emissions trading systems particularly within the framework of an open economy.

Project Leader

FURUSAWA Taiji, Faculty Fellow

Overview

It has proven difficult to take effective and concerted international action against global warming because of different interpretations of the mechanisms of global warming and because countermeasures require current generations to "sacrifice" themselves for future generations. Under these conditions, it is not enough for the international cooperative framework to include retaliatory and punitive provisions. Rather, it becomes necessary to maintain an incentive for cooperation by making a moral appeal. Hudec (1990) states that compliance with GATT laws is based on the two factors of "moral and political response to international obligations" and the "threat of retaliatory measures." The purpose of this project is to theoretically explore cooperation promoting systems that are based on the soft and hard imperatives of moral action and retaliation.

As has been pointed out with respect to the Kyoto Protocol, building a mechanism to tackle global warming involves a free-rider problem. Issues related to participation in cooperative initiatives as examined by Maruta and Okada (2005) and Furusawa and Konishi (2008) will be taken into account in developing our model. Environmental policies (such as a carbon tax) and trade policies (such as import tariff) must be simultaneously considered in designing international systems to prevent global warming. A crucial issue in policy choice involves the question of whether optimal contracts will bind both environmental and trade policies or either of the two. The project will also consider these choices in light of Horn, Maggi and Staiger (2006).

Project Leader

AKAI Nobuo, Faculty Fellow

Overview

The maturation of society and the diversification of needs have made it necessary for Japan to adopt institutional reforms that will allow local governments to manage their administrative and fiscal systems more efficiently under their own discretion and responsibility. Such reforms require the proper division of functions and roles between central and local governments, governance by the citizens and administrative accountability, and the appropriate re-assignment of functions between the private and public sectors. In this context, ports and harbors constitute infrastructure assets with an important role to play in local economic management. However, this is an area where the division of functions between central and local governments remains ambiguous. Sufficiently flexible administrative and fiscal systems that would allow local governments, acting alone or in cooperation, to manage such facilities under their own discretion and responsibility for the purpose of revitalizing their local economies have yet to be developed.

From a fiscal perspective, ports and harbors have been constructed under the financial supports of the central government's Port Development Special Account. However, to date, no analysis has been undertaken on the following matters: survey of the theoretical treatment of the impact of disbursements from special accounts; detailed review of the financial statements of the Port and Harbor Development Special Account; estimation of the potential redistribution effect of transfers to individual ports and harbors; and the impact of the central government's port and harbor development subsidies on ex-post management efficiency of regional ports and harbors

Adequate accounting indicators have not been developed for the financial accounting of regional ports and harbors. As a result, local citizens have not been provided with a full explanation of how these facilities are managed and operated (lack of accountability). Adequate theoretical and empirical analysis has not been conducted on how lack of accountability and government regulation of ports and harbors impacts modes of ownership, inter-regional cooperation, the operational efficiency of regional ports and harbors, and forward-looking activities of local governments. In this project, we adopt a different approach from past studies to examine various aspects of administrative and fiscal systems that would be conducive to efficient management of regional ports and harbors and to the revitalization of local economies.

Project Leader

KAWAHAMA Noboru, Faculty Fellow

Sub Leader

OHASHI Hiroshi, Faculty Fellow

NISHIGAKI Atsuko, Senior Fellow

Overview

Over the past few years, interest in competition policy based on the enforcement of anti-monopoly laws has grown very rapidly throughout Asian countries and other parts of the world. Faced with a new market environment characterized by economic globalization, countries throughout the world are being forced to radically change their positions on competition policy and the management of such policies based on competition laws. In the case of Japan, the role of the competition policy is becoming increasingly important because maintaining economic vitality under conditions of declining fertility and an aging population requires the promotion of innovation through the full utilization of market competition. The purpose of this project is to examine the competition policy in an environment where globalization and innovation have gained critical importance. This project will comprehensively examine the competition policy from the perspectives of law, economics and government administration, while taking into account related developments in other countries.

Project Leader

NAKAMURA Ryohei, Faculty Fellow

Overview

Achievement of regional economic autonomy in an open system requires abilities to utilize regional resources (comparative advantage), to attract funds into the region (export power), and to prevent the outflow of funds from the region (circulatory capacity). Furthermore, regional economic innovation is required for sustainable autonomy. Adopting this perspective, this project will conduct research focusing on the following three areas.

• (1) Analysis of regional agglomeration capable of achieving autonomy: The question of how to obtain funds from outside the region will be analyzed by considering the relation between the role of supply-side inputs and technological progress. The externalities of the following three major factors which can facilitate agglomeration will be quantitatively analyzed by using industry statistics and other microdata: "leakage of knowledge," "associative effects" and "sharing of factors."
• (2) Analysis of necessary scale in achieving regional autonomy: The NEG model will be used to examine causal factors in regional disparity undertaken separately for market and supply potential. Furthermore, taking into consideration future possibilities for the adoption of a "doshusei" or regional administrative system, the potential impact of regional integration will be estimated.
• (3) Endogenous resolution of regional disparities: Disparities among regions should be rectified through endogenous resolution based on exchanges of differences derived from comparative advantage between major metropolitan areas and outlying regions rather than relying on the implementation of policies that are exogenous to the region. One source of comparative advantage for the regions would be environmental assets. The project will use the NEG model to undertake simulation analysis and to identify relevant policy implications.

Project Leader

MURAMOTO Tsutomu, Faculty Fellow

Sub Leader

YOSHINO Naoyuki, Faculty Fellow

Overview

The purpose of this project is to examine, from a policy perspective, how risk capital can be supplied to small and medium enterprises (SMEs) and local economies during the current financial crisis. Policy evaluation will be conducted with an aim to formulate policy recommendations to the extent possible. With these objectives in mind, the following questions will be analyzed from the perspective of SME-related policies: (1) how can funds be supplied to local economies and to local SMEs in particular? and (2) what should be the source of such funds?

Under the existing systems, the supply of risk capital is clearly provided for in locally specific financing programs (relationship banking) in the form of financing and loans for startups. Because certain credit risks cannot be fully covered in indirect financing, efforts have been made to utilize capital funds and hybrid lending (upside return-type financing). However, the scale of these types of funding is extremely small compared to total lending by financial institutions. Under these conditions, it is critically important to analyze the feasibility of supplying risk capital through relationship banking. This project intends to examine the following issues:

1) Verification of local funding needs (defining the concept of "local" and gauging funding needs).
2) Conditions and effectiveness of funding provided by the Organization for SMEs and Regional Innovation.
3) Effectiveness of innovative financing (hybrid financing, securitization, etc.).
4) Government involvement in supporting local start-up businesses (role of the government-affiliated financial institutions, interrelation and competition among local financial institutions, etc.).
5) Methods essential to the development of relationship banking (intellectual assets as soft information, business evaluation of intellectual assets).
6) New types of local initiatives (resident-participatory projects, financial NPOs, nursing care businesses and other schemes for the introduction of private funds).
7) Examination of advanced methods in foreign countries (revenue bonds, etc.).

Major Research Results

RIETI Discussion Papers

• "Current Situation and Problems in European Common Energy Policies" (KAINOU Kazunari)