nep-bec New Economics Papers
on Business Economics
Issue of 2005‒04‒24
twenty-two papers chosen by
Christian Calmes
Universite du Quebec en Outaouais

  1. Resolving Contractual Disputes: Arbitration vs Mediation By Surajeet Chakravarty
  2. AN INTERVIEW WITH FRANCO MODIGLIANI By William Barnett; Robert Solow
  3. Aggregation of Expert Opinions By Dino Gerardi; Richard McLean; Andrew Postlewaite
  4. Two-Sided Search, Heterogeneous Skills and Labor Market Performance By Samuel Danthine
  5. A Trace of Anger is Enough: On the Enforcement of Social Norms By Jakub Steiner
  6. Firm Size Dynamics in the Aggregate Economy By Esteban Rossi-Hansberg; Mark L.J. Wright
  7. Do Differences Make a Difference? The Impact of Human Capital Diversity, Experience and Compensation on Firm Performance in Engineering Consulting By Keld Laursen; Volker Mahnke; Per Vejrup-Hansen
  8. Vertical Contracts between Manufacturers and Retailers: Inference with Limited Data By Sofia Villas-Boas
  9. R&D Networks Among Unionized Firms By Vincent Vannetelbosch; Ana Mauleon; José Sempere-Monerris
  10. Internet Retailing as a Marketing Strategy By Maarten C.W. Janssen; Rob van der Noll
  11. Low Pay, Higher Pay and Job Satisfaction within the European Union: Empirical Evidence from Fourteen Countries By Luis Diaz-Serrano; Jose A. Cabral Vieira
  12. Identification, screening and stereotyping in labor market discrimination By Vendrik,Maarten C.M.; Schwieren,Christiane
  13. Product market competition and economic performance in Canada By Maria Maher; Jay Shaffer
  14. Investigating the post-complaint period by means of survival analysis By B. LARIVIÈRE; D. VAN DEN POEL
  16. Ownership Concentration, Monitoring and Optimal Board Structure By Clara Graziano; Annalisa Luporini
  17. Information Channels in Labor Markets. On the Resilience of Referral Hiring By Alessandra Casella; Nobuyuki Hanaki
  18. Identification of Supply Models of Retailer and Manufacturer Oligopoly Pricing By Sofia Villas-Boas; Rebecca Hellerstein
  19. A Global Database of Domestic and International Tourist Numbers at National and Subnational Level By Richard S.J. Tol; Andrea Bigano; Jacqueline M. Hamilton; Yuan Zhou
  20. Cost-Reducing Alliances and Local Spillovers By Frédéric Deroian
  21. Concession Length and Investment Timing Flexibility By Michele Moretto; Chiara D.Alpaos; Cesare Dosi
  22. Focal Firms as Technological Gatekeeers within Industrial Districts: Knowledge Creation and Dissemination in the Italian Packaging Machinery Industry By Alessandro Malipiero; Federico Munari; Maurizio Sobrero

  1. By: Surajeet Chakravarty
    Abstract: In this paper we analyze contracts written on potentially non-verifiable states. We first show that the contract always enters a dispute phase. We analyze two possible legal rules which can be used to resolve the disputes. Under both rules the paper derives the optimal contract. An interesting feature of the optimal contract is that for low verifiability likelihood the agent is always rewarded unless there is failure. The other result is that under both legal rules used first-best effort and more than first-best-effort level can be implemented, depending on how small the likelihood of verifiability is.
    Keywords: Contracts and Dispute resolution
    JEL: J3 K4
    Date: 2005–03
  2. By: William Barnett (Department of Economics, The University of Kansas); Robert Solow (MIT)
    Date: 2004–06
  3. By: Dino Gerardi (Cowles Foundation, Yale University); Richard McLean (Rutgers University); Andrew Postlewaite (University of Pennsylvania)
    Abstract: Conflicts of interest arise between a decision maker and agents who have information pertinent to the problem because of differences in their preferences over outcomes. We show how the decision maker can extract the information by distorting the decisions that will be taken, and show that only slight distortions will be necessary when agents are “informationally small”. We further show that as the number of informed agents becomes large the necessary distortion goes to zero. We argue that the particular mechanisms analyzed are substantially less demanding informationally than those typically employed in implementation and virtual implementation. In particular, the equilibria we analyze are “conditionally” dominant strategy in a precise sense. Further, the mechanisms are immune to manipulation by small groups of agents.
    Keywords: Information Aggregation, Mechanism Design, Incomplete Information
    JEL: C72 D78 D82
    Date: 2005–04
  4. By: Samuel Danthine (Université du Québec à Montréal, CIRPÉE and IZA Bonn)
    Abstract: entrepreneurial skills is proposed. It is possible to characterize both the competitive equilibrium and the optimal solution numerically. The competitive equilibrium is shown to be suboptimal. Less-skilled workers and firms are too selective, not matching with their comparable counterparts. High-types, on the other hand, are not selective enough. The model shows promise as a tool for evaluating the effects of labor policies (and other changes in the economy) on the composition of unemployment and on unemployment duration, as well as on wage distributions. The effect of introducing a simple unemployment insurance scheme is then twofold. First, it increases unemployment by allowing a greater proportion of low types not to match, which decreases output. Second, it decreases mismatch, which has a positive effect on output. It is possible to have a positive effect of unemployment insurance on productivity and find the optimal level of unemployment insurance. Finally, it is shown that assuming risk-neutral workers in this model is not innocuous.
    Keywords: two-sided search, heterogeneity, unemployment, unemployment insurance, risk aversion
    JEL: J63 J65 J31
    Date: 2005–04
  5. By: Jakub Steiner
    Abstract: It is well documented that the possibility of punishing free-riders increases contributions in one-shot public good games. I demonstrate theoretically that minimal punishment commitments (perhaps provided by anger) may lead to high contribution levels. Thus, almost selfish players may behave as strong reciprocators.
    Keywords: Reciprocity, Emotions, Commitment, Punishment, Public Good.
    JEL: D64 H41 Z13
    Date: 2005–01
  6. By: Esteban Rossi-Hansberg; Mark L.J. Wright
    Abstract: Why do firm growth and exit rates decline with size? What determines the size distribution of firms? This paper presents a theory of firm dynamics that simultaneously rationalizes the basic facts on firm growth, exit, and size distributions. The theory emphasizes the accumulation of industry specific human capital in response to industry specific productivity shocks. The theory implies that firm growth and exit rates should decline faster with size, and the size distribution should have thinner tails, in sectors that use human capital less intensively, or correspondingly, physical capital more intensively. In line with the theory, we document substantial sectoral heterogeneity in US firm dynamics and firm size distributions, which is well explained by variation in physical capital intensities.
    JEL: E2 D2 L2
    Date: 2005–04
  7. By: Keld Laursen; Volker Mahnke; Per Vejrup-Hansen
    Abstract: The paper investigates the relationship between human capital characteristics and firm performance in engineering consulting. Because general experience, firm-specific human capital and diversity carry specific costs and benefits we hypothesize curvilinear (taking inverted U-shapes) relations to firm performance. We find little effect of general experience and firm-specific human capital, but the findings give some support for the curvilinear relation between performance and human capital diversity.
    Keywords: Educational diversity; human capital; firm performance
    JEL: C31 D83 M5
    Date: 2005
  8. By: Sofia Villas-Boas (University of California, Berkeley)
    Abstract: In this paper we compare different models of vertical contracting between manufacturers and retailers in the supermarket industry. Demand estimates are used to compute price-cost margins for retailers and manufacturers under different supply models when wholesale prices are not observed. The focus is on identifying which set of margins seems to be compatible with the margins obtained from direct estimates of cost and to select the best among the non-nested competing models. The models considered are: (1) a simple linear pricing model; (2) a vertically integrated model; and (3) a variety of alternative (strategic) supply scenarios, that allow for collusion, non-linear pricing and strategic behavior with respect to private label products. Using data on yogurt sold at several stores in a large urban area of the United States, we find that wholesale prices are close to marginal cost and that retailers have pricing power in the vertical chain. This is consistent with non-linear pricing by the manufacturers or with high bargaining power of the retailers.
    Keywords: Vertical contracts, multiple manufacturers and retailers, non-nested tests, yogurt local market.,
    Date: 2004–08–01
  9. By: Vincent Vannetelbosch (FNRS and CORE, Université Catholique de Louvain); Ana Mauleon (FNRS and CEREC, Facultés Universitaires Saint-Louis); José Sempere-Monerris (University of Valencia)
    Abstract: We develop a model of strategic networks in order to analyze how trade unions will affect the stability and efficiency of R&D collaboration networks in an oligopolistic industry with three firms. Whenever firms settle wages, the complete network is always pairwise stable and the partially connected network is stable if and only if spillovers are large enough. If spillovers are small, the complete network is the efficient network; otherwise, the efficient network is the partially connected network. Thus, a conflict between stability and efficiency may occur: efficient networks are pairwise stable, but the reverse is not true. Strong stability even reinforces this conflict. However, once unions settle wages such conflict disappears: the complete network is the unique pairwise and strongly stable network and is the efficient network whatever the spillovers.
    Keywords: Networks, R&D collaboration, Oligopoly, Unions
    JEL: C70 L13 L20 J50 J52
    Date: 2005–04
  10. By: Maarten C.W. Janssen (Faculty of Economics, Erasmus Universiteit Rotterdam); Rob van der Noll (Faculty of Economics, Erasmus Universiteit Rotterdam, and CPB Netherlands Bureau for Economic Policy Analysis, The Hague)
    Abstract: We analyze the incentives for incumbent bricks-and-mortar firms and new entrants to start an online retail channel in a differentiated goods market. To this end we set up a two-stage model where firms first decide whether or not to build the infrastructure necessary to start an online retail channel and then compete in prices using the channels they have opened up. Consumers trade-off the convenience of online shopping and the ease to compare prices, with online uncertainties. Without a threat of entry by a third pure online player we find that for most parameter constellations firms' dominant strategy is not to open an online retail channel as this cannibalizes too much on their conventional sales. As the cannibalization effect is not present for a pure Internet player, we show that these firms will start online retail channels under a much wider range of parameter constellations. The threat of entry may force incumbent bricks-and-mortar firms to deter entry by starting up an Internet retail channel themselves. We also show that a low cost of building up an online retail channel or online shopping conveniences may not be to the benefit of online shopping as the strategic interaction between firms may be such that no online retail channel is built when the circumstances seem to be more favourable.
    Keywords: E-Commerce; Internet; multichannel competition; online uncertainty; online shopping convenience
    JEL: D43 M30
    Date: 2005–04–11
  11. By: Luis Diaz-Serrano (National University of Ireland Maynooth, CREB and IZA Bonn); Jose A. Cabral Vieira (University of the Azores and CEEAplA)
    Abstract: We examine differences in job satisfaction between low- and higher-paid workers within the European Union (EU). To do so The European Community Household Panel Data covering the period 1994-2001 is used. Our results indicate that low paid workers report a lower level of job satisfaction when compared with their higher paid counterparts in most countries, except in the UK. This supports the idea that low-wage employment in these countries mainly comprises low quality. The results also indicate that gap in average job satisfaction between low- and higher-paid workers is markedly wider in the Southern European countries than in the rest of EU. Finally, there are significant differences in the determinants of job satisfaction across countries. It seems then that a homogeneous policy may be inappropriate to increase satisfaction, and hence labour productivity, in the EU as a whole. Hence, an improvement of the quality of the jobs in the EU may require different policies. In particular, in some countries such as the United Kingdom removing low employment, namely through regulation, may worsen the workers’ well-being, although in other cases such a policy may lead to a totally different outcome.
    Keywords: job satisfaction, job quality, low-wage employment
    JEL: J28
    Date: 2005–04
  12. By: Vendrik,Maarten C.M.; Schwieren,Christiane (METEOR)
    Abstract: Social-psychological research reveals two opposite ways in which a person can respond to increased feelings of uncertainty in decision-making. First, he (or she) may try to reduce his uncertainty by searching for more specific information. This leads to less stereotyping and discrimination. Second, he may identify more strongly with a salient social group he belongs to (his ingroup, e.g. men). This induces him to rely more on stereotypic perceptions and prejudices, and hence to discriminate more against an outgroup (e.g. women). This paper develops a microeconomic model that integrates both responses in the context of hiring and pay decisions by an employer. The model determines simultaneous equilibrium levels of expenditures on screening of job applicants and ingroup identification. Increasing competition in the product market makes the employer feel more uncertain about his profits, but also raises the opportunity cost of screening expenditures. The latter rise elicits substitution of ingroup identification for screening expenditures, and hence enhances discrimination. Affirmative action has the opposite effect by raising the marginal benefits of screening expenditures. Some experimental and empirical evidence is briefly discussed.
    Keywords: microeconomics ;
    Date: 2005
  13. By: Maria Maher; Jay Shaffer
    Abstract: This paper examines the strength of product market competition and economic performance in Canada and discusses way in which the institutional framework governing competition policy could be improved. Competitive forces are comparatively strong and administrative and economic regulations inhibiting competition are amongst the lowest in the OECD countries. However, Canada’s regulated conduct doctrine exempts anti competitive behaviour when required by regulation, and thus significant parts of the economy remain shielded from the competition law. This is a particular problem with provincial government regulation. Restrictions on internal trade also continue to exist, and implementation of the Agreement on Internal Trade is less effective than it could be. More attention needs to be focussed on removing those regulations that restrain competition, particularly in professional services. In network industries, competition has largely been absent in the electricity sector. While it is widely recognised that reforms are necessary, those undertaken in the past have mainly been aimed at bringing in private sector investment, while avoiding full competition in generation and in retail markets. Canada has more significant restrictions on foreign ownership than almost any other OECD country, notably in airlines, telecommunications and broadcasting, and their removal could improve performance in these sectors. <p> Concurrence sur les marchés de produits et performance économique au Canada <p> Ce document examine la puissance de la concurrence dans les marchés de produits et de la performance économique au Canada. Il envisage aussi les moyens par lesquels pourrait être amélioré le cadre institutionnel qui gouverne les politiques de la concurrence. La vigueur des forces concurrentielles est comparativement élevée au Canada et les régulations inhibant la concurrence sont parmi les plus faibles de la zone de l’OCDE. Cependant, le code canadien de conduite réglementé exonère les comportements anticoncurrentiels lorsqu’ils sont couverts par une réglementation, de sorte que certains pans importants de l’économie restent non couverts par le droit de la concurrence. Ce problème est particulièrement aigu dans le cas des réglementations sous autorités provinciales. Des restrictions continuent de limiter les échanges provinciaux, et la mise en œuvre de l’Accord sur le commerce intérieur est moins effective qu’elle pourrait l’être. Il conviendrait de chercher plus activement à supprimer les réglementations qui freinent la concurrence dans les professions libérales. Dans les industries de réseaux, la concurrence a été pratiquement absente dans le secteur de l’électricité. S’il existe un large consensus sur la nécessité de réformes, celles qui ont été entreprises par le passé ont eu pour objectif principal d’encourager l’investissement du secteur privé, tout en évitant l’ouverture intégrale à la concurrence de secteurs comme la production d’électricité et la vente au détail. Le Canada connaît aussi un plus grand nombre de restrictions significatives concernant les intérêts étrangers que presque tous les autres pays de l’OCDE, notamment dans les domaines du transport aérien, des télécommunications et de la télédiffusion. Leur élimination pourrait stimuler les performances dans ces secteurs.
    Keywords: Canada; market structure; competition; productivity and growth; antitrust law; regulatory policies; network industries
    JEL: K21 K23 L11 L16 L40 L43 O51
    Date: 2005–03–30
    Abstract: Firms increasingly view each contact with their customers as an opportunity that needs to be managed. The primary purpose of this article is to gain a better understanding of the customers’ post-complaint period. Specific focus is placed on the impact of effective complaint handling on actual customer behavior throughout the time, whereas previous research has mainly focused on time-invariant or intentional measures. Survival analysis techniques are used to investigate the longitudinal behavior of complainants after their problem recovery. The proportionality assumption is tested for each explanatory variable under investigation. In addition, the impact for each variable is estimated by means of survival forests. Survival forests enable us to explore the evolution over time of the effects of the covariates under investigation. As such, the impact of each explanatory variable is allowed to change when the experiment evolves over time, in contrast to “proportional” models that restrict these estimates to be stationary. Our research is performed in the context of a financial services provider and analyzes the post-complaint periods of 2,326 customers. Our findings indicate that (i) it is interesting to consider complainants since they represent a typical and rather active customer segment, (ii) furthermore, it is beneficiary to invest in complaint handling, since these investments are likely to influence customers’ future behavior and (iii) survival forests are a helpful tool to investigate the impact of complaint handling on future customer behavior, since its components provide evidence of changing effects over time.
    Keywords: Data mining, customer relationship management, consumer complaint behavior, actual customer behavior, proportionality, survival forests.
    Date: 2005–03
  15. By: Theodore Panagiotidis (Loughborough University); Emilie Rutledge (Durham University)
    Abstract: The paper examines the relationship between UK wholesale gas prices and the Brent oil price over the period 1996-2003. Tests for Unit Roots and Cointegration are carried out and it is discovered that a long run equilibrium relationship between UK gas and oil prices predates the opening of the UK-Mainland Europe Inter-connector. Following a recursive methodology (Hansen & Johansen 1999), it was found that the cointegrating relationship is present throughout the sample period. However, the long run solutions seem to be more volatile. Evidence is provided that the short run relationship is linear and impulse response functions are used to examine the effects that a shock in oil would have on gas.
    Keywords: oil, gas, cointegration, nonparametric cointegration, recursive trace test, error correction, impulse response
    JEL: C22 C52 O13 Q43
    Date: 2005–04–15
  16. By: Clara Graziano (University of Udine); Annalisa Luporini (University of Florence)
    Abstract: The paper analyzes the optimal structure of board of directors in a firm with ownership concentrated in the hands of a large shareholder who sits on the board. We focus our attention on the choice between one-tier board who performs all tasks and two-tier board where the management board is in charge of project selection and the supervisory board is in charge of monitoring. We consider the case in which the large shareholder sits on (and controls) the supervisory board but not the management board. We show that a two-tier structure can limit the interference of large shareholders and can restore manager’s incentive to exert effort to become informed on new investment projects without reducing the large, shareholder’s incentive to monitor the manager. This results in higher expected profits in a two-tier board than in one-tier board and the difference in profits can be sufficiently high to induce large shareholders to prefer a two-tier board despite the fact that in this case the manager selects his preferred projects rather than the project preferred by large shareholders. The paper has interesting policy implications since it suggests that two-tier boards can be a valuable option in Continental Europe where ownership structure is concentrated. It also offers support to some recent corporate governance reforms, like the so-called Vietti reform in Italy, that have introduced the possibility to choose between one-tier and two-tier structure of boards for listed firms.
    Keywords: Board of directors, Dual board, Corporate governance, Monitoring, Project Choice
    JEL: G34 L22
    Date: 2005–01
  17. By: Alessandra Casella (Columbia University); Nobuyuki Hanaki (Earth Institute, Columbia University)
    Abstract: Economists and sociologists disagree over markets' potential to assume functions typically performed by networks of personal connections, first among them the transmission of information. This paper begins from a model of labor markets where social ties are stronger between similar individuals and firms employing productive workers prefer to rely on personal referrals than to hire on the anonymous market (Montgomery (1991). However, we allow workers in the market to engage in a costly action that can signal their high productivity, and ask whether the possibility of signaling reduces the reliance on the network. We find that the network is remarkably resilient. To be effective signaling must fulfill two contradictory requirements: unless the signal is extremely precise, it must be expensive or it is not informative; but it must be cheap, or the network can undercut it.
    Keywords: Networks, Signaling, Referral hiring, Referral premium
    JEL: A14 J31 J41 D83
    Date: 2005–03
  18. By: Sofia Villas-Boas (University of California, Berkeley); Rebecca Hellerstein (Federal Reserve Bank of New York)
    Abstract: This note outlines conditions under which we can identify a vertical supply model of multiple retailers' and manufacturers' oligopoly-pricing behavior. This is an important question particularly when the researcher believes, contrary to the traditional assumption followed in the empirical literature, that retailers may not be neutral pass-through intermediaries. We show that a data-set of an industry's product prices, quantities, and input prices over time is sufficient to identify the vertical model of retailers' and manufacturers' oligopoly-pricing behavior given nonlinear demand, for homogeneous-products industries, and given multi-product firms, for differentiated-products industries.
    Keywords: Identification, Vertical relationships, Oligopoly models of multiple manufacturers and retailers,
    Date: 2004–10–01
  19. By: Richard S.J. Tol (Hamburg University); Andrea Bigano (Fondazione Eni Enrico Mattei and Catholic University of Leuven); Jacqueline M. Hamilton (Hamburg University and Centre for Marine and Atmospheric Science); Yuan Zhou (Hamburg University and Centre for Marine and Atmospheric Science)
    Abstract: We present a new, global data base on tourist destinations. The data base differs from other data bases in that it includes both domestic and international tourists; and it contains data, for the most important destinations, data at national level as well as at lower administrative levels. Missing observations are interpolated using statistical models. The data are freely accessible on the internet.
    Keywords: Tourism, Data
    JEL: L83
    Date: 2005–01
  20. By: Frédéric Deroian (F.O.R.U.M Université Paris X)
    Abstract: Firms raise cost-reducing alliances before competing with each other, but cannot fully internalize the shared knowledge. When spillovers are local and transit through the network of alliances, stable architectures with a moderate level of asymmetry are identified.
    Keywords: Oligopoly, Cost-Reducing alliances, Local spillovers, Network stability
    JEL: C70 L13 L20
    Date: 2005–01
  21. By: Michele Moretto (University of Brescia); Chiara D.Alpaos (University of Brescia); Cesare Dosi (University of Padova)
    Abstract: When assigning a concession contract, the regulator faces the issue of setting the concession length. Another key issue is whether or not the concessionare should be allowed to set the timing of new investments. In this paper we investigate the impact of concession length and investment timing flexibility on the “concession value”. It is generally argued that long-term contracts are privately valuable as they enable a concessionaire to increase her overall discounted returns. Moreover, the real option theory suggests that investment flexibility has an intrinsic value, as it allows concessionaires to avoid costly errors. By combining these two conventional wisdoms, one may argue that long- term contracts, which allow for investment timing flexibility, should always result in higher concession values. Our result suggests that this is not always the case. Firstly, investment flexibility does not always increase the concession value. Secondly, long-term contracts do not necessarily increase the concession value.
    Keywords: Concession contracts, Real option theory, Investment timing flexibility, Water utilities
    JEL: D81 G31 L95
    Date: 2005–02
  22. By: Alessandro Malipiero; Federico Munari; Maurizio Sobrero
    Abstract: Despite the diffusion of communication tools and boundary spanning technologies, knowledge flows in innovation processes retain a distinct localized nature in many industries and geographical clusters emerge as critical areas to foster technological diffusion. In this paper we focus on the role of focal firms in industrial clusters as “gatekeepers” introducing external technological novelties in the cluster and enacting new useful knowledge production locally, thus enhancing international competitive capabilities of all firms in the cluster. We analyze a longitudinal dataset of 720 patents granted by USPTO between 1990 and 2003 to firms in the automatic packaging machinery industrial district of Emilia-Romagna in Northern Italy, and a matched-sample to control for the uneven geographical distribution of R&D and patenting activities. Our results show that firms within the cluster use local knowledge to a greater extent and more rapidly than knowledge from the outside than it would be expected given the geographic distribution of innovative activity in the industry. Moreover, focal firms use external knowledge to a greater extent than other firms operating in the cluster, and other (non focal) firms within the cluster use knowledge from focal firms to a greater extent than would be expected given the geographic distribution of innovative activity in the industry. Implications for research on the geographical distribution of innovation activities are discussed.
    Keywords: Innovation processes; Knowledge flows; Geographical clusters
    JEL: O18 O31 D83
    Date: 2005

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