This paper provides evidence that capital market imperfections hold back innovation and growth, and that public policy can complement capital markets. We deliver the evidence by studying the effects of government funding on the behavior of SMEs in Finland. By adapting the methodology recently proposed by Rajan and Zingales (1998) to firm-level data, we show that government funding disproportionately helps firms from industries that are dependent on external finance. We demonstrate that the result is economically significant and robust to a variety of tests.

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We use elections data in which a large number of ties in vote counts between candidates are resolved via a lottery to study the personal incumbency advantage. We benchmark non‐experimental regression discontinuity design (RDD) estimates against the estimate produced by this experiment that takes place exactly at the cutoff. The experimental estimate suggests that there is no personal incumbency advantage. In contrast, conventional local polynomial RDD estimates suggest a moderate and statistically significant effect. Bias‐corrected RDD estimates that apply robust inference are, however, in line with the experimental estimate. Therefore, state‐of‐the‐art implementation of RDD can meet the replication standard in the context of close elections.

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Education and Invention* Modern growth theory puts invention on the center stage. Inventions are created by individuals, raising the question: can we increase number of inventors? To answer this question, we study the causal effect of M.Sc. engineering education on invention, using data on U.S. patents' Finnish inventors and the distance to the nearest technical university as an instrument. We find a positive effect of engineering education on the propensity to patent, and a negative OLS bias. Our counterfactual calculation suggests that establishing 3 new technical universities resulted in a 20% increase in the number of USPTO patents by Finnish inventors.

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Despite a huge theoretical literature on credit markets charaterized by asymmetric information little is known about the structure of real world credit contracts or the nature of the underlying informational regime on which they are predicated. A model is constructed and tested that enables delineation of credit contract features and establishment of the nature of the underlying informational regime. Large sample estimates based on individual loans from a major UK bank are shown to support both the symmetric and asymmetric information variants of the model: better borrowers get larger loans and lower interest rates; collateral provision and loan size reduce the interest rate paid. However, consistent with a regime of symmetric information collateral levels are found to be independent of borrower type. Finally, in line with the insurance literature, the bank is shown to use qualitative as well as quantitative information in the structuring of loan contracts to small businesses.

Many new technologies exhibit clear generational changes. The empirical literature on technology diffusion traditionally analyses the spread of new technologies generically. We use data from the mobile phone industry, where first-generation (1G) and second-generation technologies (2G) can be clearly identified, to analyze the role of generational effects in diffusion. The results from a generation-specific approach differ significantly from those of a generic model. There are positive within-generation network effects. 1G (2G) has a positive (negative) effect on 2G (1G) diffusion. Both generations are substitutes for fixed phones. Effects of competition and payment schemes are analyzed. D