nep-bec New Economics Papers
on Business Economics
Issue of 2005‒03‒13
twenty-two papers chosen by
Christian Calmes
Universite du Quebec en Outaouais

  1. Global Climate Policy in a Post-Kyoto World By Georg Muller-Furstenberger; Gunter Stephan
  2. Changes in the world distribution of output-per-worker 1960-98: how a standard decomposition tells an unorthodox story By ; Paul Beaudry; ; Fabrice Collard; ; David A. Green
  3. An Empirical Analysis of U.S. Aggregate Portfolio Allocations By Michel Normandin; Pascal St-Amour
  4. Quality of Institutions, Credit Markets and Bankruptcy By Christa Hainz
  5. Banking Fragility and Disclosure: International Evidence By Solomon Tadesse
  6. Capital-Skill complementarity? Evidence from a Panel of Countries By Chris Papageorgiou; John Duffy; Fidel Perez-Sebastian
  7. Vertical integration and technology: theory and evidence By ; Daron Acemoglu; Philippe Aghion; Rachel Griffith; Fabrizio Zillibotti
  8. Framing under risk : Endogenizing the Reference Point and Separating Cognition and Decision By Raphaël Giraud
  9. Is innovation persistent at the firm Level . An econometric examination comparing the propensity score and regression methods By Emmanuel Duguet; Stéphanie Monjon
  10. Volatility Forecasting By Torben G. Andersen; Tim Bollerslev; Peter F. Christoffersen; Francis X. Diebold
  11. Competitive Bargaining Equilibria By Julio Davila; Jan Eeckhout
  12. Growth, distance to frontier and composition of human capital By ; Jérôme Vandenbussche; Philippe Aghion; Costas Meghir
  13. Union Formation and Bargaining Rules in the Labor Market. By Yolanda Chica; María Paz Espinosa
  14. Immigrant earnings profiles in the presence of human capital investment: measuring cohort and macro effects By ; David A. Green; ; Christopher Worswick
  15. The role of employment experience in explaining the gender wage gap By Michal Myck; Gillian Paull
  16. Changes in the distribution of male and female wages accounting for employment composition using bounds By Richard Blundell; Amanda Gosling; Hide Ichimura; Costas Meghir
  17. Cultural Variation in the Theory of the Firm By Donald W. Katzner;
  18. Individual action, institutions and social change : an approach in terms of convention By Bernard Enjolras
  19. Private Benefits of Control, Ownership, and the Cross-Listing Decision By Craig Doidge; G. Andrew Karolyi; Karl V. Lins; Darius P. Miller; Rene M. Stulz
  20. How special is the special relationship? Using the impact of US R&D spillovers on UK forms as a test of technology sourcing By Rachel Griffith; Rupert Harrison; ; John Van Reenen
  21. Internet Entrepreneurship: Networks and Performance of Internet Ventures In China By BAT BATJARGAL
  22. What is the Impact of Software Patent Shifts?: Evidence from Lotus v. Borland By Josh Lerner; Feng Zhu

  1. By: Georg Muller-Furstenberger; Gunter Stephan
    Abstract: Obviously, there are different views on how successful the Kyoto process was in establishing interna-tional cooperation in greenhouse gas abatement. But independent of that, the question is urgent: What might happen after 2012? Will there be a new initiative for an internationally coordinated climate policy or does the world fall back into a regime of non-cooperative abatement policies? This paper analyses costs and benefits of three different post-Kyoto policy options: On the one hand there is PARETO which is the nickname for the pareto-efficient internationalization of the external effects of global cli-mate change through international trade in carbon rights on the one hand. And there is CAP as well as INTAG on the other. Both are unilateral climate policies. CAP denotes a scenario where regions aim for reducing domestic carbon emissions by a certain percentage annually. INTAG is a short cut for intensity targeting which is the US’ most preferred climate policy option. It refers to the same abate-ment policy, however by means of technological progress only
    Keywords: Climate policy; intensity targeting; R&D investments; Integrated Assessment
    JEL: O33 Q38 Q43
    Date: 2005–02
  2. By: ; Paul Beaudry; ; Fabrice Collard; ; David A. Green
    Abstract: Why have some countries done so much better than others over the recent past? In order to shed new light on this issue, this paper provides a decomposition of the change in the distribution of output-per-worker across countries over the period 1960-98. The main finding of the paper is that most of the change in shape of the world distribution of income between 1960-1998 can be accounted for by a very substantial and previously unrecognized change in the parameters driving the growth process. In particular, we show that the role of capital deepening forces - that is the role of investment rates and population growth in affecting output - increased dramatically over the period 1978-98 versus 1960-78, and that this increase can account for almost all the observed changes in the world distribution. In contrast, we do not find any significant effects coming through non-linear convergence mechanisms or increased importance of education; both of which have played prominent roles in recent discussion of economic performance. Our results therefore highlight that the period 1978-98 was particularly advantageous to countries which strongly favored capital accumulation and hence suggests that research aimed at understanding recent differences in economic performances across countries needs to focus on explaining why the social returns to physical capital accumulation where abnormally high over the period 1978-98.
    JEL: O33 O41
    Date: 2004–09
  3. By: Michel Normandin; Pascal St-Amour
    Abstract: This paper analyzes the important time variation in U.S. aggregate portfolio allocations. To do so, we first use flexible descriptions of preferences and investment opportunities to derive optimal decision rules that nest tactical, myopic, and strategic portofolio allocations. We then compare these rules to the data through formal statistical analysis. Our main results reveal that i) purely tactical and myopic investment behaviors are unambiguously rejected, ii) strategic portfolio allocations are strongly supported, and iii) the Fama-French factors best explain empirical portfolios shares.
    Keywords: Dynamic Hedging, Risk Aversion, Inter-temporal Substitution, Time-Varying Investment Opportunity Set
    JEL: G11
    Date: 2005
  4. By: Christa Hainz
    Abstract: The number of firm bankruptcies is surprisingly low in economies with poor institutions. We study a model of bank-firm relationship and show that the bank’s decision to liquidate bad firms has two opposing effects. First, the bank receives a payoff if a firm is liquidated. Second, it loses the rent from incumbent customers that is due to its informational advantage. We show that institutions must improve significantly in order to yield a stable equilibrium in which the optimal number of firms is liquidated. There is also a range where improving institutions may decrease the number of bad firms liquidated.
    Keywords: Credit markets, institutions, bank competition, information sharing, bankruptcy, relationship banking.
    JEL: G21 G33 K10
    Date: 2005–02–01
  5. By: Solomon Tadesse
    Abstract: Motivated by recent public policy debates on the role of market discipline in banking stability, I examine the impact of greater bank disclosure in mitigating the likelihood of systemic banking crisis. In a cross sectional study of banking systems across 49 countries in the 90s, I find that banking crises are less likely in countries with financial reporting regimes characterized by (i) comprehensive disclosure (ii) informative disclosure, (iii) timely disclosure and (iv) more stringent auditing.
    Keywords: Banking Crisis, Disclosure, Transparency, Audit Stringency
    JEL: G21 G28
    Date: 2005–02–01
  6. By: Chris Papageorgiou; John Duffy; Fidel Perez-Sebastian
  7. By: ; Daron Acemoglu; Philippe Aghion (Institute for Fiscal Studies and Harvard University); Rachel Griffith (Institute for Fiscal Studies); Fabrizio Zillibotti (Institute for Fiscal Studies)
    Abstract: This paper investigates the determinants of vertical integration using data from the UK manufacturing sector. We find that the relationship between a downstream (producer) industry and an upstream (supplier) industry us more likely to be vertically integrated when the producing industry is more technology intensive and the supplying industry is less technology intensive. Moreover, both of these effects are stronger when the supplying industry accounts for a large fraction of the producer\\\'s costs. These results are generally robust and hold with alternative measures of technology intensity, with alternative estimation straegies, and with or without contraolling for a number of firm and industry-level characteristics. They are consistent with the incomplete contract theories of the firm that emphasize both the potential costs and benefits of vertical integration in terms of investment incentives.
    Keywords: holdup, incomplete contracts, internal organisation fo the firm, investment, R&D, technology, vertical integration
    JEL: L22 L23 L24 L60
    Date: 2004–12
  8. By: Raphaël Giraud (EUREQua/TEAM)
    Abstract: We aim at improving the classical explanation of the framing effect phenomenon, based on Prospect Theory by, first, making the reference point shifting that generates the phenomenon endogenous, and second, providing a theory of risky choice framing that accounts for the fundamental intuition that framing effects do not come from cognitive limitations of the subjects. We introduce a normative equivalence relation on the set of lottery prizes that models different descriptions and axiomatizing a preference functional of the Expected Lottery-Dependent Utilit type. We first show that the framing effect relates to the indeterminacy of preferences over the space of prizes, modeled by a set of von Neumann-Morgenstern utility functions interpreted as states of mind or reference points. Second, we show that it is possible to identify the precise effect of the reference point shifting by disentangling the perception of the prizes of a lottery from the reaction to its description. The framing phenomenon is thus explained by an endogenous reference point shifting that stems from the feelings that arise in the spirit of the decision maker as a consequence of a variation in the description, in line with psychological explanations of other kinds of framing.
    Keywords: Framing effects; descriptions; states of mind; reference point shifting; lottery-dependent expected utility; partial orders
    JEL: D81 D00 A12
    Date: 2004–09
  9. By: Emmanuel Duguet (Université de Bretagne et EUREQua); Stéphanie Monjon (EUREQua)
    Abstract: At the macroeconomic level, the persistence of technological change allows sustainable growth. But do the innovations come from the same set of firms or from a continous renewal of innovators ? On this point, the assumptions underlying the endogenous growth models differ and innovation persistence at the macroeconomic level can be supported by different firm-level behavioral assumptions. The aim of this article is threefold. Firstly, we evaluate a measure of the degree of innovation persistence at the firm level. Secondly, we analyze the factors underpinning the innovation persistence by testing the theoretical explanations that have been proposed in the literature. Lastly, we examine the robustness of the standard econometric methods used in innovation economics. We show that the persistence of innovation is strong at the firm level and that the right theoretical modeling depends on the size of the firm. While the smallfirms reveals strong learning-by-doing effects in the production of innovation, the persistence of innovation in the large firms relies on the persistence of formal research and development investments.
    Keywords: Community innovation surveys; creative destruction; innovation; learning-by-doing; matching; persistence; propensity score; research and development
    JEL: C14 O31 O32
    Date: 2004–07
  10. By: Torben G. Andersen (Kellogg School of Management, Northwestern University); Tim Bollerslev (Department of Economics, Duke University); Peter F. Christoffersen (Faculty of Management, McGill University); Francis X. Diebold (Department of Economics, University of Pennsylvania)
    Abstract: Volatility has been one of the most active and successful areas of research in time series econometrics and economic forecasting in recent decades. This chapter provides a selective survey of the most important theoretical developments and empirical insights to emerge from this burgeoning literature, with a distinct focus on forecasting applications. Volatility is inherently latent, and Section 1 begins with a brief intuitive account of various key volatility concepts. Section 2 then discusses a series of different economic situations in which volatility plays a crucial role, ranging from the use of volatility forecasts in portfolio allocation to density forecasting in risk management. Sections 3, 4 and 5 present a variety of alternative procedures for univariate volatility modeling and forecasting based on the GARCH, stochastic volatility and realized volatility paradigms, respectively. Section 6 extends the discussion to the multivariate problem of forecasting conditional covariances and correlations, and Section 7 discusses volatility forecast evaluation methods in both univariate and multivariate cases. Section 8 concludes briefly.
    JEL: C10 C53 G1
    Date: 2005–02–22
  11. By: Julio Davila (CERMSEM et University Pennsylvania); Jan Eeckhout (University Pennsylvania)
    Abstract: We propose a simple bargaining procedure, the equilibrium of which converges to the Walrasian allocation as the agents become increasingly patient. We thus establish that the competitive outcome obtains even if agents have market power and are not price-takers. Moreover, where in other bargaining protocols the final outcome depends on bargaining power or relative impatience, the outcome here is determinate and depends only on preferences and endowments. This procedure has therefore important implications for policy applications compared to standard bargaining rules.
    Keywords: Alternating-offers bargaining; Walrasian equilibrium; price-setting; quantity constraints
    JEL: C60 C71 D41 D51
    Date: 2004–04
  12. By: ; Jérôme Vandenbussche; Philippe Aghion (Institute for Fiscal Studies and Harvard University); Costas Meghir (Institute for Fiscal Studies and University College London)
    Abstract: We examine the contribution of human capital to economy-wide technological improvements through the two channels of innovation and imitation. We develop a theoretical model showing that skilled labor has a higher growth-enhancing effect closer to the technological frontier under the reasonable assumption that innovation is a relatively more skillintensive activity than imitation. Also, we provide evidence in favor of this prediction using a panel dataset covering 19 OECD countries between 1960 and 2000 and explain why previous empirical research had found no positive relationship between initial schooling level and subsequent growth in rich countries. In particular, we show that in OECD economies it is crucial to isolate the two separate margins of primary/secondary and tertiary education. Interestingly, the latter type of schooling proves to be a factor of economic divergence.
    Date: 2004–08
  13. By: Yolanda Chica (Universidad del País Vasco); María Paz Espinosa (Universidad del País Vasco)
    Keywords: Union Formation, Sequential Bargaining, Nash Bargaining, Monopoly Union
    JEL: C72 J51
    Date: 2005–03–07
  14. By: ; David A. Green; ; Christopher Worswick
    Abstract: Considering immigrant earnings in the context of post-arrival human capital investment implies: cohort quality should be defined in terms of the present value of the whole earnings profile; and, an appropriate definition of “macro” effects is obtained using the earnings profile of the native born cohort entering the labour market at the same time as an immigrant cohort. We illustrate this using Canadian immigrant earnings, where there were large cross-cohort earnings declines in the 1980s and 1990s. We find that changes affecting all new entrants play an important role in understanding immigrant earnings. In contrast, earlier approaches imply that “macro” events explain little of immigrant earnings patterns.
    JEL: J61 J31
    Date: 2004–01
  15. By: Michal Myck (Institute for Fiscal Studies); Gillian Paull (Institute for Fiscal Studies)
    Abstract: The wage gap between male and female workers has narrowed in both the US and the UK over the past twenty five years. At the same time, employment rates for men and women have converged. This paper examines the relationship between these two facts by analysing the role played by labour market experience in explaining the narrowing gender wage gap. We analyse the relationships between male and female levels of experience and relative wages in the US and the UK over the period 1978 to 2000. The estimation procedure is based on pseudo panels created from cross-sectional data (Current Population Survey (CPS) for the US and Family Expenditure Survey (FES) for the UK). Possible biases from unobserved heterogeneity and the endogeneity of experience are addressed by using an ‘imputed’ measure of experience based on grouped data and by estimating the wage regressions in first differences. Differences in levels of experience are found to explain 39 percent of the gender wage gap in the US and 37 percent in the UK, and failure to control for unobserved heterogeneity is found to understate the role played by total experience in explaining the gap. The gender wage gap has diminished over recent successive cohorts of workers. However, the evidence suggests that the improvements in relative female wages can’t be attributed to changes in relative levels of experience. For each of the successive cohorts we examine, total experience increases the gender wage ratio by a constant 8 to 9 percentage points in the US and the UK. We find that the average experience for female workers relative to male workers has increased over successive cohorts. However, this has either been insufficient to lead to a noticeable effect on relative wages, or changes in the returns to experience have altered affecting female relative earnings unfavourably.
    Keywords: gender wage gap, returns to experience, artificial panel data
    JEL: J16 J41 C23
    Date: 2004–07
  16. By: Richard Blundell (Institute for Fiscal Studies and University College London); Amanda Gosling (Institute for Fiscal Studies and Univeristy of Essex); Hide Ichimura (Institute for Fiscal Studies and University College London); Costas Meghir (Institute for Fiscal Studies and University College London)
    Abstract: This paper examines changes in the distribution of wages using bounds to allow for the impact of non-random selection into work. We show that bounds constructed without any economic or statistical assumptions can be informative. However, since employment rates in the UK are often low they are not informative about changes in educational or gender wage differentials. Thus we explore ways to tighten these bounds using restrictions motivated from economic theory. With these assumptions we find convincing evidence of an increase in inequality within education groups, changes in the "return" to education and increases in the relative wages of women.
    Date: 2004–09
  17. By: Donald W. Katzner (University of Massachusetts Amherst);
    Abstract: This paper presents a model of the firm that includes the possibility of firm and employee-on-the-job decision making based on alternatives to profit and utility maximization. Such alternatives are relevant and significant when explaining firm activity in cultural environments in which self interest is not considered to be a primary force driving human behavior. Three types of firms are defined and their properties compared: the Western firm, the Japanese firm, and the clan. The third is a combination of the first two. JEL Categories: D21, Z19
    Keywords: Culture, firm, decision making
    Date: 2005–03
  18. By: Bernard Enjolras (Institute for social research et MATISSE)
    Abstract: This anthology consists of a collection of articles that address two common questions : how institutions emerge from individual actions and how individual actions are shaped by institutions ? What unifies these contributions is the search of a theoretical explanation that overcomes the shortcomings of the rational choice explanations of social institutions. The approach developed here deals with two methodological problems that are pervasive in social sciences : that of the relationship between agency and structures and that of role of rationality and norms in explaining individual social behavior. Individuals are seen to be acting according to "conventions" that structure their interaction and that are cognitive and interpretative schemes that allow them to understand social reality and to give meaning to their actions. In addition individuals do not act either rationally or normatively but are conceived as acting within a "conventional" context that gives meaning to their action but also constrains them. They are supposed to be moved both by normative considerations and by self-interest that can conflict.
    Keywords: Convention, norm; rationality; collective action; agency; structure; social action; institution; governance; social change; community; nonprofit organizations; institutions
    JEL: C72 D70 H42 L3 L31 L32 L50
    Date: 2004–06
  19. By: Craig Doidge; G. Andrew Karolyi; Karl V. Lins; Darius P. Miller; Rene M. Stulz
    Abstract: This paper investigates how a foreign firm%u2019s decision to cross-list its shares in the U.S. is related to the concentration of the ownership of its cash flow rights and of its control rights. Theory has proposed that when private benefits are high, controlling shareholders are less likely to choose to list their firm%u2019s shares in the U.S. because the higher standards for transparency and disclosure, as well as the increased monitoring associated with such listings, limit their ability to extract private benefits. We offer evidence that confirms this hypothesis using data on more than 4,000 firms from 31 countries. Using logistic regression analysis, we show that the control rights held by controlling shareholders, as well as the difference between their control rights and their cash flow rights are significantly and negatively related to the existence of a U.S. listing. In addition, we employ duration analysis using a Cox proportional-hazard model to show that the probability of listing in a given year from 1995 to 2001, conditional on not yet having listed, is significantly lower for firms whose managers have high levels of control and for firms whose controlling shareholder owns more control rights than cash flow rights.
    JEL: G15 G34 K00 P51
    Date: 2005–03
  20. By: Rachel Griffith (Institute for Fiscal Studies); Rupert Harrison (Institute for Fiscal Studies); ; John Van Reenen
    Abstract: How much does US-based R&D benefit other countries and through what mechanisms? We test the 'technology sourcing' hypothesis that foreign research labs located on US soil tap into US R&D spillovers and improve home country productivity. Using panels of UK and US firms matched to patent data we show that UK firms who had established a high proportion of US-based inventors by 1990 benefited disproportionately from the growth of the US R&D stock over the next 10 years. We estimate that UK firms’ Total Factor Productivity would have been at least 5% lower in 2000 (about $14bn) in the absence of the US R&D growth in the 1990s. We also find that technology sourcing is more important for countries and industries who have 'most to learn'. Within the UK, the benefits of technology sourcing were larger in industries whose TFP gap with the US was greater. Between countries, the growth of the UK R&D stock did not appear to have a major benefit for US firms who located R&D labs in the UK. The 'special relationship' between the UK and the US appears distinctly asymmetric.
    Keywords: international spillovers; technology sourcing; productivity;
    JEL: O32 O33 F23
    Date: 2004–12
    Abstract: This article examines the contingent value of entrepreneurs' networks to survival likelihood of Internet ventures, and the dynamics of entrepreneurs' networks over time. The empirical data are composed of the longitudinal surveys of 94 Internet ventures in Beijing, China. The study found the positive and the negative contingent effects of structural holes on the survival likelihood of new firms. The study found that networking skills of entrepreneurs are associated positively with the changes in networks over time. Improved social skills lead to greater firm legitimacy.
    Keywords: Structural holes, human capital, Internet, entrepreneurship, China
    JEL: M13 D85 L14 L25 P27
    Date: 2005–02–01
  22. By: Josh Lerner; Feng Zhu
    Abstract: Economists have debated the extent to which strengthening patent protection spurs or detracts from technological innovation. In this paper, we examine the reduction of software copyright protection in the Lotus v. Borland decision. If patent and copyright protections are substitutes, then weakening of one form of protection should be associated with an increasing reliance on the other. We find that the firms affected by the diminution of copyright protection disproportionately accelerated their patenting in subsequent years. But little evidence can be found for harmful effects: in fact, the increased reliance on patents is correlated with some positive outcomes for firms.
    JEL: O3
    Date: 2005–03

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