nep-bec New Economics Papers
on Business Economics
Issue of 2005‒09‒11
eighteen papers chosen by
Christian Calmes
Universite du Quebec en Outaouais

  1. Survey Expectations By M. Hashem Pesaran; Martin Weale
  2. A Search Model of Venture Capital, Entrepreneurship, and Unemployment By Robin Boadway; Oana Secrieru; Marianne Vigneault
  3. Project games By Estevez-Fernandez,Arantza; Borm,Peter; Hamers,Herbert
  4. The Welfare Costs of Macroeconomic Fluctuations under Incomplete Markets: Evidence from State-Level Consumption Data By Kris Jacobs; Stéphane Pallage; Michel A. Robe
  5. What Are Firms? Evolution from Birth to Public Companies By Steven N. Kaplan; Berk A. Sensoy; Per Strömberg
  6. What do People Value when they Negotiate? Mapping the Domain of Subjective Value in Negotiation By Curhan, Jared R.; Elfenbein, Hillary Anger; Xu, Heng
  7. The roles of comovement and inventory investment in the reduction of output volatility By F. Owen Irvine; Scott Schuh
  8. Do Women in Top Management Affect Firm Performance? A Panel Study of 2500 Danish Firms By Nina Smith; Valdemar Smith; Mette Verner
  9. How Do House Prices Affect Consumption? Evidence From Micro Data By John Y. Campbell; João F. Cocco
  10. The impact of a Mixed Mode Data Collection Design on Non-Response Bias on a Business Surveys By Peter Lynn; Emanuela Sala
  11. How Much Do Banks Use Credit Derivatives to Reduce Risk? By Bernadette A. Minton; René Stulz; Rohan Williamson
  12. Firms as Realizations of Entrepreneurial Visions By U. Witt
  13. New workplace practices and the gender wage gap By Datta Gupta, Nabanita; Tor, Eriksson
  14. Organisational Change, Absenteeism and Welfare Dependency By Røed, Knut; Fevang, Elisabeth
  15. The Division of Labour, Worker Organisation, and Technological Change By Lex Borghans; Bas ter Weel
  16. International Outsourcing and Individual Job Separations By Jakob Roland Munch
  17. The Economics of Workaholism: We Should Not Have Worked on This Paper By Daniel S. Hamermesh; Joel Slemrod
  18. Social Networks in Labor Markets By Antoni Calvo-Armengol; Yannis M. Ioannides

  1. By: M. Hashem Pesaran; Martin Weale
    Abstract: This paper focuses on survey expectations and discusses their uses for testing and modeling of expectations. Alternative models of expectations formation are reviewed and the importance of allowing for heterogeneity of expectations is emphasized. A weak form of the rational expectations hypothesis which focuses on average expectations rather than individual expectations is advanced. Other models of expectations formation, such as the adaptive expectations hypothesis, are briefly discussed. Testable implications of rational and extrapolative models of expectations are reviewed and the importance of the loss function for the interpretation of the test results is discussed. The paper then provides an account of the various surveys of expectations, reviews alternative methods of quantifying the qualitative surveys, and discusses the use of aggregate and individual survey responses in the analysis of expectations and for forecasting.
    Keywords: models of expectation formation, survey data, heterogeneity, tests of rational expectations
    JEL: C40 C50 C53 C80
    Date: 2005–08
  2. By: Robin Boadway; Oana Secrieru; Marianne Vigneault
    Abstract: The authors develop a search model of venture capital in which the number of successful matches of entrepreneurs and venture capitalists (VCs) at any moment in time is a function of the number of entrepreneurs searching for funds, the number of VCs searching for entrepreneurs, and the number of vacancies posted by each VC. The authors extend the literature by incorporating search unemployment and they explicitly model the occupational choice of individuals to become workers or entrepreneurs. Their analysis shows that, in the market equilibrium, the level of advice VCs offer is inefficiently low compared with the social optimum. Furthermore, the number of vacancies, the level of employment, and the number of potential entrepreneurs are generally either too low or too high relative to their socially optimal level. Policy to achieve the social optimum consists of a capital gains subsidy, an employment tax or subsidy, and an investment tax or subsidy.
    Keywords: Financial markets; Fiscal policy; Labour markets
    JEL: D82 G18 G24 H21 J64
    Date: 2005
  3. By: Estevez-Fernandez,Arantza; Borm,Peter; Hamers,Herbert (Tilburg University, Center for Economic Research)
    Abstract: This paper studies situations in which a project consisting of several activities is not executed as planned. It is divided into three parts. The first part analyzes the case where the activities may be delayed; this possibly induces a delay on the project as a whole with additional costs. Associated delayed project games are defined and are shown to have a nonempty core. The second part considers the case where the activities may be expedited; this possibly induces an expedition of the project as a whole creating profits. Corresponding expedited project games are introduced and are shown to be convex. The third and last part studies situations where some activities may be delayed and some activities may be expedited. Related project games are defined and shown to have a nonempty core.
    Keywords: delay;expedition;cooperative games;convexity; project planning
    JEL: C71
    Date: 2005
  4. By: Kris Jacobs; Stéphane Pallage; Michel A. Robe
    Abstract: Existing estimates of the welfare cost of business cycles suggest that it is quite low and might well be minuscule. Many of these estimates are based on aggregated U.S. consumption data. Arguably, because markets are incomplete and risk-sharing is imperfect, the welfare costs computed with aggregate consumption data are likely underestimates. Yet, incomplete-market models have not yielded significantly greater cost figures. Previous incomplete-market studies, however, have relied on model-generated consumption series that reflect optimal decsions in models calibrated using individual income data. In this paper, we maintain the assumption of incomplete markets but use observed consumption streams instead. Using state-level retail sales figures, we show that the welfare cost of macroeconomic volatility is in fact very substantial. In one half of the U.S. states, the welfare gain from the removal of business cycles can in fact exceed the gain from receiving an extra percentage point of consumption growth in perpetuity. In short, our results indicate that macroeconomic volatility has first-order welfare implications.
    Keywords: Incomplete markets, consumption volatility, growth, welfare
    JEL: E32 E60
    Date: 2005
  5. By: Steven N. Kaplan; Berk A. Sensoy; Per Strömberg
    Abstract: We study how firm characteristics evolve from early business plan to initial public offering to public company for 49 venture capital financed companies. The average time elapsed is almost 6 years. We describe the financial performance, business idea, point(s) of differentiation, non-human capital assets, growth strategy, customers, competitors, alliances, top management, ownership structure, and the board of directors. Our analysis focuses on the nature and stability of those firm attributes. Firm business lines remain remarkably stable from business plan through public company. Within those business lines, non-human capital aspects of the businesses appear more stable than human capital aspects. In the cross-section, firms with more alienable assets have substantially more human capital turnover.
    JEL: L2 G3
    Date: 2005–08
  6. By: Curhan, Jared R.; Elfenbein, Hillary Anger; Xu, Heng
    Abstract: Four studies provide support for the development and validation of a framework for understanding the range of social psychological outcomes valued subjectively as consequences of negotiations. Study 1 inductively elicited and coded elements of subjective value among students, community members, and negotiation practitioners, revealing 20 categories that negotiation theorists in Study 2 sorted to reveal four underlying dimensions: Feelings about Instrumental Outcomes, the Self, Process, and Relationship. Study 3 proposed a new Subjective Value Inventory (SVI) questionnaire and confirmed its 4-factor structure, and Study 4 presents convergent, discriminant, and predictive validity data for this SVI. Results suggest the SVI is a promising tool to systematize and encourage research on the subjective outcomes of negotiation.
    Keywords: Negotiation, social psychological outcomes, subjective value,
    Date: 2005–07–29
  7. By: F. Owen Irvine; Scott Schuh
    Abstract: Most of the reduction in GDP volatility since the 1983 is accounted for by a decline in comovement of output among industries that hold inventories. This decline is not simply a passive byproduct of reduced volatility in common factors or shocks. Instead, structural changes occurred in the long-run and dynamic relationships among industries’ sales and inventory investment behavior—especially in the automobile and related industries, which are linked by supply and distribution chains featuring new production and inventory management techniques. Using a HAVAR model (Fratantoni and Schuh 2003) with only two sectors, manufacturing and trade, we discover structural changes that reduced comovement of sales and inventory investment both within and between industries. As a result, the response of aggregate output to all types of shocks is dampened. Structural changes accounted for more than 80 percent of the reduction in output volatility, thus weakening the case for “good luck,” and altered industries’ responses to federal funds rate shocks, thus suggesting the case for “better monetary policy” is complicated by changes in the real side of the economy.
    Keywords: Gross domestic product ; Monetary policy ; Inventories
    Date: 2005
  8. By: Nina Smith (Aarhus School of Business, CIM and IZA Bonn); Valdemar Smith (Aarhus School of Business and University of Copenhagen); Mette Verner (Aarhus School of Business and CIM)
    Abstract: Corporate governance literature argues that board diversity is potentially positively related to firm performance. This study examines the relationship in the case of women in top executive jobs and on boards of directors. We use data for the 2500 largest Danish firms observed during the period 1993-2001 and find that the proportion of women in top management jobs tends to have positive effects on firm performance, even after controlling for numerous characteristics of the firm and direction of causality. The results show that the positive effects of women in top management depend on the qualifications of female top managers.
    Keywords: firm performance, female CEOs, board diversity, gender diversity
    JEL: G38 J16 M14
    Date: 2005–07
  9. By: John Y. Campbell; João F. Cocco
    Abstract: Housing is a major component of wealth. Since house prices fluctuate considerably over time, it is important to understand how these fluctuations affect households' consumption decisions. Rising house prices may stimulate consumption by increasing households' perceived wealth, or by relaxing borrowing constraints. This paper investigates the response of household consumption to house prices using UK micro data. We estimate the largest effect of house prices on consumption for older homeowners, and the smallest effect, insignificantly different from zero, for younger renters. This finding is consistent with heterogeneity in the wealth effect across these groups. In addition, we find that regional house prices affect regional consumption growth. Predictable changes in house prices are correlated with predictable changes in consumption, particularly for households that are more likely to be borrowing constrained, but this effect is driven by national rather than regional house prices and is important for renters as well as homeowners, suggesting that UK house prices are correlated with aggregate financial market conditions.
    JEL: D1 G1
    Date: 2005–08
  10. By: Peter Lynn (Institute for Social and Economic Research); Emanuela Sala (Institute for Social and Economic Research)
    Abstract: Many studies of data collection processes for business surveys focus on issues related to how to increase response rates and how to reduce response burden. Additionally, some have focussed on measurement error. Issues related to non response bias, on the other hand, do not seem to be explicitly part of the research agenda. The main reason why researchers should be concerned about non response is the potential for it to introduce bias. Our paper compares two alternative survey designs in terms of resultant response rates and non response bias. The first design is a simple postal survey with follow-up mailings; the second design is a two-phase multi-mode design, where the postal survey is followed at the second phase by a telephone survey of non-respondents. We found evidence that the sample obtained using only postal methods is biased in important respects. Bias is not apparent in the demographic characteristics of the employees. Bus bias is observed in some of the employees’ employment characteristics and some of the characteristics of the firms in which they work. The multi mode design seems, overall, to have reduced or removed the bias of the postal sample. Only in marginal respects was some further bias introduced. We also compare costs of the two designs, to enable a comparison of cost-effective at bias reduction.
    Keywords: data collection, non-response bias, survey non-response
    Date: 2005–08
  11. By: Bernadette A. Minton; René Stulz; Rohan Williamson
    Abstract: This paper examines the use of credit derivatives by US bank holding companies from 1999 to 2003 with assets in excess of one billion dollars. Using the Federal Reserve Bank of Chicago Bank Holding Company Database, we find that in 2003 only 19 large banks out of 345 use credit derivatives. Though few banks use credit derivatives, the assets of these banks represent on average two thirds of the assets of bank holding companies with assets in excess of $1 billion. Few banks are net buyers of credit protection and disclose using credit derivatives to hedge loans. Banks are more likely to be net protection buyers if they engage in asset securitization, originate foreign loans, and have lower capital ratios. The likelihood of a bank being a net protection buyer is positively related to the percentage of commercial and industrial loans in a bank's loan portfolio and negatively or not related to other types of bank loans. The use of credit derivatives by banks is limited because adverse selection and moral hazard problems make the market for credit derivatives illiquid for the typical credit exposures of banks.
    JEL: G10 G20 G21 D82
    Date: 2005–08
  12. By: U. Witt
    Abstract: In the debate on why firms exist, the question of who chooses between firms and markets and on what basis is rarely addressed. This paper argues that the choice is a core element of the entrepreneurial pursuit of visions or conceptions of business opportunities. To successfully organize resources into the envisioned businesses – be it via firms or markets – resource owners must be coordinated on the entrepreneur’s conception of the business and be motivated to perform properly. To solve the dual problem, the organizational form of the firm offers the entrepreneur unique advantages not feasible under the organizational form of markets.
    Date: 2005–09
  13. By: Datta Gupta, Nabanita (Department of Economics, Aarhus School of Business); Tor, Eriksson (Department of Economics, Aarhus School of Business)
    Abstract: We explore the effect of introducing new workplace practices on the gender gap using a unique 1999 survey on work and compensation practices of Danish private sector firms merged to a large matched employer-employee database. Self-managed teams, project organisation and job rotation schemes are the most widely implemented work practices. Wage gains from adopting new workplace practices accrue mainly to hourly paid males and salaried females but do not generate large changes in the gender gap in pay at the level of the firm. Considering practices individually, however, the gender wage gap among salaried workers is significantly reduced in firms which offer job rotation and project organisation, while among hourly paid workers the use of quality control circles significantly widens the gap in pay between male and female workers.
    Keywords: new work practices; employer-employee data; wage differentials; gender
    JEL: J16 J31 M54
    Date: 2005–09–02
  14. By: Røed, Knut (The Ragnar Frisch Centre for Economic Research); Fevang, Elisabeth (The Ragnar Frisch Centre for Economic Research)
    Abstract: We show that recent attempts to reorganise and cut costs in the Norwegian health care and social services sectors have had the unintended side effects of raising the level of sickness absence and disability among the employees, and that these effects have persisted several years after completion of the reorganisation processes. Since a substantial proportion of the resulting costs are external to the decision-makers, we suspect that the pace of change may have been excessively high. Changes that were efficient from each service provider’s point of view may have been inefficient from a social and a public-finance point of view.
    Keywords: Absenteeism; hazard rate model; NPMLE
    JEL: C14 I38 J28
    Date: 2005–08–08
  15. By: Lex Borghans (ROA, Maastricht University and IZA Bonn); Bas ter Weel (MERIT, Maastricht University and IZA Bonn)
    Abstract: The model developed in this paper explains differences in the division of labour across firms as a result of computer technology adoption. We find that changes in the division of labour can result both from reduced production time and from improved communication possibilities. The first shifts the division of labour towards a more generic structure, while the latter enhances specialisation. Although there exists heterogeneity, our estimates for a representative sample of Dutch establishments in the period 1990-1996 suggest that productivity gains have been the main determinant for shifts in the division of labour within most firms. These productivity gains have induced skill upgrading, while in firms gaining mainly from improved communication possibilities specialisation increased and skill requirements have fallen.
    Keywords: division of labour, wage level and structure, technological change, computerisation of the labour market
    JEL: J31 O15 O33
    Date: 2005–07
  16. By: Jakob Roland Munch (Department of Economics, University of Copenhagen)
    Abstract: This paper studies the effects of international outsourcing on individual transitions out of jobs in the Danish manufacturing sector for the period 1992-2001. Estimation of a single risk duration model, where no distinction is made between different types of transitions out of the job, shows that outsourcing has a clear significant positive effect on the job separation rate, but the effect corresponds to a limited number of lost jobs. A competing risks duration model that distinguishes between job-to-job and job-to-unemployment transitions is also estimated. Outsourcing is found to increase the unemployment risk of workers and in particular low-skilled workers, but again the quantitative impact is not dramatic. Outsourcing also increases the job change hazard rate and mostly so for high-skilled workers.
    Keywords: international outsourcing; job separations; competing risks duration model
    JEL: F16 J68 C23 C41
    Date: 2005–08
  17. By: Daniel S. Hamermesh; Joel Slemrod
    Abstract: A large literature examines the addictive properties of such behaviors as smoking, drinking alcohol and eating. We argue that for some people addictive behavior may apply to a much more central aspect of economic life: working. Workaholism is subject to the same concerns about the individual as other addictions, is more likely to be a problem of higher-income individuals, and can, under conditions of jointness in the workplace or the household, generate negative spillovers onto individuals around the workaholic. Using the Retirement History Survey and the Panel Study of Income Dynamics, we find evidence that is consistent with the idea that high-income, highly educated people suffer from workaholism with regard to retiring, in that they are more likely to postpone earlier plans for retirement. The evidence and theory suggest that the negative effects of workaholism can be addressed with a more progressive income tax system than would be appropriate in the absence of this behavior.
    JEL: J22 H24 D91
    Date: 2005–08
  18. By: Antoni Calvo-Armengol; Yannis M. Ioannides
    Abstract: Research in sociology and economics point to important role for social networks in labor markets. Social contacts mediate propagation of rich and reliable information among indi- viduals and thus help workers find jobs and employers find employees. Recent theoretical advances show that for agents connected through networks employment is positively cor- related across time and agents, unemployment exhibits duration dependence, and inequal- ity can persist. Recent empirical findings underscore nonlinearities in social interactions and potentially important effects of self-selection. Socioeconomic characteristics can explain substantial spatial dependence in unemployment.
    Keywords: networks, labor markets, social connections, unemployment, proximity, spatial dependence, information networks, neighborhoods and jobs
    JEL: D85 A14 J64 J31 J70 L14
    Date: 2005

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