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on Business Economics |
| By: | Marcel Boyer; Éric Gravel |
| Abstract: | We clarify the foundations of project evaluation under multiple risk sources and we show that the way the NPV method is typically applied in most firms and organizations violates some fundamental principles of value creation such as the additivity and absence of arbitrage principles. Project evaluation must be done through (i) decomposing the project cash flows into components corresponding to the different sources of risk and (ii) obtaining the present value of each component with a specific risk-adjusted discount rate. The value of the project is obtained as the sum of the present values so obtained. Alternatively, the different components can be corrected for their respective risk to obtain their certainty equivalents. The value of the project is then obtained as the sum of those certainty equivalents discounted at the unique, observable, identical, risk free rate. <P>Nous clarifions les fondements de l’évaluation de projet en présence de multiples sources de risque et nous concluons que la méthode VAN telle qu’appliquée dans la plupart des entreprises et organisations viole certains principes fondamentaux de la création de valeur tels l’additivité et l’absence d’arbitrage. L’évaluation d’un projet doit se faire en (i) décomposant les flux monétaires en composantes correspondant aux diverses sources de risque et (ii) actualisant chaque composante à l’aide d’un taux spécifique à cette composante. La valeur du projet est obtenue en sommant les valeurs présentes des diverses composantes. Alternativement, les différentes composantes peuvent être corrigées pour leur risque respectif afin d’obtenir leurs équivalents certains. La valeur du projet est alors obtenue en prenant la somme des équivalents certains actualisée au taux sans risque, identique, unique et observable. |
| Keywords: | project evaluation, multiple risks, évaluation de projet, risques multiples |
| Date: | 2005–11–01 |
| URL: | http://d.repec.org/n?u=RePEc:cir:cirwor:2005s-37&r=bec |
| By: | Allen N. Berger (Wharton Financial Institutions Center); George R.G. Clarke (The World Bank); Robert Cull (The World Bank); Leora Klapper (The World Bank); Gregory F. Udell (Indiana University) |
| Abstract: | The authors jointly analyze the static, selection, and dynamic effects of domestic, foreign, and state ownership on bank performance. They argue that it is important to include indicators of all the relevant governance effects in the same model. "Nonrobustness" checks (which purposely exclude some indicators) support this argument. Using data from Argentina in the 1990s, their strongest and most robust results concern state ownership. State-owned banks have poor long-term performance (static effect), those undergoing privatization had particularly poor performance beforehand (selection effect), and these banks dramatically improved following privatization (dynamic effect. However, much of the measured improvement is likely due to placing nonperforming loans into residual entities, leaving "good" privatized banks. |
| Keywords: | Domestic finance |
| Date: | 2005–06–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:3632&r=bec |
| By: | Christopher F. Baum (Boston College); Mustafa Caglayan (University of Glasgow); Andreas Stephan (Europa-Universitat Viadrina; DIW Berlin); Oleksandr Talavera (DIW Berlin) |
| Abstract: | This paper investigates the link between the optimal level of non-financial firms' liquid assets and uncertainty. We develop a partial equilibrium model of precautionary demand for liquid assets showing that firms change their liquidity ratio in response to changes in uncertainty. We test this proposition using a panel of non-financial US firms drawn from the COMPUSTAT quarterly database covering the period 1993--2002. The results indicate that firms increase their liquidity ratios when macroeconomic uncertainty or idiosyncratic uncertainty increases. We demonstrate that our results are robust with respect to the inclusion of interest rates and the index of leading indicators. |
| Keywords: | liquidity, uncertainty, non-financial firms, dynamic panel data |
| JEL: | C23 D8 D92 G32 |
| Date: | 2005–12–07 |
| URL: | http://d.repec.org/n?u=RePEc:boc:bocoec:634&r=bec |
| By: | Carlo Carraro (University of Venice); Carmen Marchiori (London School of Economics); Alessandra Sgobbi (Fondazione Eni E. Mattei) |
| Abstract: | Bargaining is ubiquitous in real life. It is a major dimension of political and business activities. It appears at the international level, when governments negotiate on matters ranging from economic issues (such as the removal of trade barriers), to global security (such as fighting against terrorism) to environmental and related issues (such as climate change control). What factors determine the outcomes of such negotiations? What strategies can help reach an agreement? How should the parties involved divide the gains from cooperation? With whom will one make alliances? The authors address these questions by focusing on a noncooperative approach to negotiations, which is particularly relevant for the study of international negotiations. By reviewing noncooperative bargaining theory, noncooperative coalition theory, and the theory of fair division, they try to identify the connections among these different facets of the same problem in an attempt to facilitate progress toward a unified framework. |
| Keywords: | Environment, Governance |
| Date: | 2005–06–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:3642&r=bec |
| By: | Julia Hirsch; Carsten Bienz |
| Abstract: | We analyze the degree of contract completeness with respect to staging of venture capital investments using a hand-collected German data set of contract data from 464 rounds into 290 entrepreneurial firms. We distinguish three forms of staging (pure milestone financing, pure round financing and mixes). Thereby, contract completeness reduces when going from pure milestone financing via mixes to pure round financing. We show that the decision for a specific form of staging is determined by the expected distribution of bargaining power between the contracting parties when new funding becomes necessary and the predictability of the development process. To be more precise, parties choose the more complete contracts the lower the entrepreneur's expected bargaining power - the maximum level depending on the predictability of the development process. |
| Date: | 2005–12 |
| URL: | http://d.repec.org/n?u=RePEc:fmg:fmgdps:dp552&r=bec |
| By: | Oliver Gürtler |
| Abstract: | The benefits and costs of different forms of job design have been analyzed in the literature yet. The focus has thereby mostly been on job designs under formal contracts between the parties. However, in the real world relational contracts - informal agreements sustained by the value of future relationships - play a role as important as formal ones. This paper therefore considers the advantages and disadvantages of two different kinds of job design, partial del- egation and complete delegation with specialization, when the parties make use of both, formal and informal agreements. It is found that many of the results derived in the absence of informal contracts will no longer hold, if these contracts become available. |
| Keywords: | Job design, relational contracts, formal contracts, delegation |
| JEL: | D82 J33 L23 M52 M54 |
| Date: | 2005–10 |
| URL: | http://d.repec.org/n?u=RePEc:bon:bonedp:bgse32_2005&r=bec |
| By: | Dirk Hackbarth (Finance Department, Olin School of Business, Washington University in St. Louis); Junjian Miao (Department of Economics, Boston University); Erwan Morellec (University of Lausanne, FAME, and CEPR) |
| Abstract: | This paper develops a framework for analyzing the impact of macroeconomic conditions on credit risk and dynamic capital structure choice. We begin by observing that when cash flows depend on current economic conditions, there will be a benefit for firms to adapt their default and financing policies to the position of the economy in the business cycle phase. We then demonstrate that this simple observation has a wide range of empirical implications for corporations. Notably, we show that our model can replicate observed debt levels and the countercyclicality of leverage ratios. We also demonstrate that it can reproduce the observed term structure of credit spreads and generate strictly positive credit spreads for debt contracts with very short maturities. Finally, we characterize the impact of macroeconomic conditions on the pace and size of capital structure changes, and debt capacity. |
| Keywords: | Dynamic capital structure; Credit spreads; Macroeconomic conditions |
| JEL: | G12 G32 G33 |
| Date: | 2005–11 |
| URL: | http://d.repec.org/n?u=RePEc:bos:macppr:wp2005-005&r=bec |
| By: | Frédérick Demers |
| Abstract: | The author proposes and evaluates econometric models that try to explain and forecast real quarterly housing expenditures in Canada. Structural and leading-indicator models of the Canadian housing sector are described. The long-run relationship between expenditure and its determinants is shown to have shifted during the late 1970s, which implies that important changes have occurred in how the housing market is driven. The author finds that the response of housing investment to interest rates has become more pronounced over time. He compares out-of-sample forecasts from linear and non-linear cointegration models (which make use of information on fundamentals such as wealth and demographics) with forecasts from simple leading-indicator models (which exploit information such as housing starts or household indebtedness). The author finds that simple leading-indicator models can provide relatively accurate near-term forecasts. The preferred structural model, which allows for a shift in the cointegrating vector, provides a rich analysis of the housing sector, with good forecast accuracy on the construction side but not on the resale side, which is more difficult to predict. |
| Keywords: | Economic models; Econometric and statistical methods |
| JEL: | R21 E27 |
| Date: | 2005 |
| URL: | http://d.repec.org/n?u=RePEc:bca:bocawp:05-41&r=bec |
| By: | Peter Maskell; Harald Bathelt; Anders Malmberg |
| Abstract: | Business people and professionals come together regularly at trade fairs, exhibitions, conventions, congresses, and conferences. Here, their latest and most advanced findings, inventions and products are on display to be evaluated by customers and suppliers, as well as by peers and competitors. Participation in events like these helps firms to identify the current market frontier, take stock of relative competitive positions and form future plans. Such events exhibit many of the characteristics ascribed to permanent spatial clusters, albeit in a temporary and intensified form. These short-lived hotspots of intense knowledge exchange, network building and idea generation can thus be seen as temporary clusters. The present paper compares temporary clusters with permanent clusters and other types of inter-firm interactions. If regular participation in temporary clusters can satisfy a firm’s need to learn through interaction with suppliers, customers, peers and rivals, why is the phenomenon of permanent spatial clustering of similar and related economic activity so pervasive? The answer, it is claimed, lies in the restrictions imposed upon economic activity when knowledge and ideas are transformed into valuable products and services. The paper sheds new light on how interaction among firms in current clusters coincides with knowledge-intensive pipelines between firms in different regions or clusters. In doing so, it offers a novel way of understanding how inter-firm knowledge relationships are organized spatially and temporally. |
| Keywords: | Economic geography; knowledge; clusters; temporary clusters; trade fairs; conventions; pipelines |
| JEL: | D83 L22 O17 O18 R12 |
| Date: | 2005 |
| URL: | http://d.repec.org/n?u=RePEc:aal:abbswp:05-20&r=bec |
| By: | Olivier Baguelin (EUREQua) |
| Abstract: | A model of employment relation is provided in which agents choose whether to seek self-esteem through work. When they do, they develop an intrinsic motivation to effort. Depending on non-wage characteristics of the job the employer wants to fill, she can encourage this intrinsic motivation by a well-designed contract. We show that the profitability as well as the efficiency of the employment relation may depend on non-wage gratification opportunities workers get. |
| Keywords: | Intrinsic motivation, self-esteem, moral hazard, profitability, efficiency. |
| JEL: | J24 J32 J33 |
| Date: | 2005–09 |
| URL: | http://d.repec.org/n?u=RePEc:mse:wpsorb:v05062&r=bec |
| By: | Gerd Muehlheusser; Andreas Roider |
| Abstract: | In this paper we analyze the frequently observed phenomenon that (i) some members of a team (“black sheep”) exhibit behavior disliked by other (honest) team members, who (ii) nevertheless refrain from reporting such misbehavior to the authorities (they set up a “wall of silence”). Much cited examples include hospitals and police departments. In this paper, these features arise in equilibrium. An important ingredient of our model are benefits that agents receive when cooperating with each other in a team. Our results suggest that teams in which the importance of these benefits varies across team members are especially prone to the above mentioned phenomenon. |
| Keywords: | teams, misbehavior, wall of silence, asymmetric information |
| JEL: | D82 C73 |
| Date: | 2004–07 |
| URL: | http://d.repec.org/n?u=RePEc:bon:bonedp:bgse17_2005&r=bec |
| By: | Christian Grund |
| Abstract: | The internet virtually revolutionized the possibilities of employee recruiting. First of all, this contribution undertakes a description of the market. Then, advantages and possible problems of the recruitment via internet are discussed. The empirical study analyses the issues, which persons search for and find a new job via internet and which consequences arise for these persons. The results include that rather well educated persons find jobs with long working hours via internet. Controlling for several individual and job-based characteristics no differences with regard to wages and job satisfaction are found compared to other ways of recruiting. |
| Keywords: | Job satisfaction; Job search; Internet; Matching; Recruiting; Wages |
| JEL: | M12 J64 L86 |
| Date: | 2005–07 |
| URL: | http://d.repec.org/n?u=RePEc:bon:bonedp:bgse18_2005&r=bec |
| By: | An Chen |
| Abstract: | In this paper, we consider the net loss of a life insurance company issuing identical equity-linked pure endowment contracts in the case of periodic premiums. Under this construction, financial risks as well as the mortality risk are included. Based on Møller (1998), we particularly investigate the situation where the company applies a time-discretized risk-minimizing hedging strategy, i.e., a trading restriction is imposed on a continuous-time risk-minimizing strategy. Therefore, the considered model is incomplete where the incompleteness results not only from the mortality risk but also from the trading restrictions. Through an illustrative example, it is observed from the simulations that a substantial reduction in the ruin probability is achieved by using the time-discretized risk-minimizing strategy. However, as the hedging frequency is set higher, this advantage almost disappears, because a higher frequency leads to more hedging errors which constitute a vital part of the hedger’s net loss. In order to improve the simulated results, another type of discrete-time risk-minimizing strategy is taken into consideration. It is obtained by discretizing the hedging model instead of the hedging strategy. For this purpose, Møller’s (2001) discrete-time (binomial) risk-minimizing strategy is adopted. For both strategies, a number of sensitivity analyses are carried out, e.g. how the ruin probability changes with the fair combination of the minimum interest rate guarantee and the participation rate. |
| Keywords: | Net Loss, Discrete-time Risk-minimizing Hedging Strategies, Pure Endowment Equity-linked Life Insurance |
| JEL: | G10 G13 G22 |
| Date: | 2005–08 |
| URL: | http://d.repec.org/n?u=RePEc:bon:bonedp:bgse19_2005&r=bec |
| By: | Huasheng, SONG; Vincent, VANNETELBOSCH |
| Abstract: | We reconsider Goyal and Moraga-Gonzalez (Rand J. of Econ. 32 (2001), 686-707) model of strategic networks in order to analyze how government policies (e.g. subsidies) will affect the stability and efficiency of networks of R&D collaboration among three firms located in different countries. A conflict between stability and efficiency is likely to occur. When governments cannot subsidize R&D, this conflict will occur if public spillovers are not very small. However, when governments can subsidize R&D, the likelihood of a conflict is considerably reduced. Indeed, a conflict will arise only if public spillovers are very small or quite large. |
| Keywords: | Network; R&D collaboration; Subsidy |
| JEL: | C70 F13 L13 L20 |
| Date: | 2005–05–15 |
| URL: | http://d.repec.org/n?u=RePEc:ctl:louvec:2005035&r=bec |
| By: | Ana, MAULEON; José, SEMPERE-MONERRIS; Vincent, VANNETELBOSCH |
| Abstract: | We study the endogenous formation of networks between manufacturers of differentiated goods and multi-product retailers who interact in a successive duopoly. Joint consent is needed to establish and/or maintain a costly link between a manufacturer and a retailer. We find that only three distribution networks are stable for particular values of the degree of product differentiation and link costs : (i) the non-exclusive distribtion & non-exclusive dealing network in which both retailers distribute both products is stable for intermediate degree of product differentiation and small link costs; (ii) the exclusive distribution & exclusive dealing network in which each retailer distributes a different product is stable for low degrees of product differentiation; (iii) the mixed distribution network in which one retailer distributes both products while the other retailer sells only one is stable for high degrees of product differentiation and large link costs. We show that the distribution networks that maximize social welfare are not necessarily stable. Thus, a conflict between stability and social welfare is likely to occur, even more if the degree of product differentiation is either low or high. |
| Keywords: | Networks; Retailers; Manufacturers |
| JEL: | C70 L13 L20 J50 J52 |
| Date: | 2005–06–15 |
| URL: | http://d.repec.org/n?u=RePEc:ctl:louvec:2005036&r=bec |
| By: | Bruining, H.; Verwaal, E. (Erasmus Research Institute of Management (ERIM), RSM Erasmus University) |
| Abstract: | The paper explores the impact of entrepreneurial management dimensions on post-MBO financial performance. We use Stevenson?s conceptualization of entrepreneurship (1983), empirically validated by Brown, Davidsson and Wiklund (2001), positing that entrepreneurial companies will be involved in recognizing and exploiting opportunity, regardless of the resources controlled. From the literature we hypothesize positive effects of entrepreneurial management dimensions on post-MBO financial performance. We find that successful buyout managers cannot be classified as entrepreneurs on all entrepreneurial dimensions. Instead they ambidextrously combine the pursuit of valuable opportunities with the exploitation and control of their resources. Implications for theory and managerial practice are discussed. |
| Keywords: | Management Buyouts;Entrepreneurial Management;Financial Performance; |
| Date: | 2005–11–30 |
| URL: | http://d.repec.org/n?u=RePEc:dgr:eureri:30007805&r=bec |
| By: | Giuseppe, DE FEO; Jean, HINDRIKS (UNIVERSITE CATHOLIQUE DE LOUVAIN, Department of Economics) |
| Abstract: | There is a general presumption that competition is a good thing. In this paper we show that competition in the insurance markets can be bad when there is adverse selection; Using the dual theory of choice under risk, we are able to fully characterize both the competitive and the monopoly market outcomes. When they are two types of risk, the monopoly dominates competition if and only if competition leads to market unravelling. When there are a continuum of types the efficiency of competition is less trivial. In effect monopoly is shown to provide better insurance but at the cost of driving out some agents from the market. Performing simulation for differnt distributions of risk, we find that monopoly in general performs (much) better than competition in terms of the realization of the gains from trade across all traders in equilibrium. The reason is that the monopolist can exploit its market power to relax the incentive constraints |
| Keywords: | monopoly; competition; non-expected utility; insurance; adverse selection |
| JEL: | G22 |
| Date: | 2005–07–15 |
| URL: | http://d.repec.org/n?u=RePEc:ctl:louvec:2005042&r=bec |
| By: | Andre van Stel; David Storey; Roy Thurik; Sander Wennekers |
| Abstract: | This exploratory study focuses on the conversion from nascent to actual entrepreneurship and the role of entry barriers in this process. Using data for a sample of countries partici-pating in the Global Entrepreneurship Monitor between 2002 and 2004, we estimate a two-equation model explaining the nascent entrepreneurship rate and the young business entre-preneurship rate, while taking into account the interrelationship between the two variables (i.e. the conversion). Furthermore various determinants of entrepreneurship reflecting the demand and supply side of entrepreneurship as well as government intervention are incor-porated in the model. We find evidence for a strong conversion effect from nascent to ac-tual entrepreneurship. We also find positive effects on entrepreneurial activity rates of la-bour flexibility and tertiary enrollment and a negative effect of social security expenditure. Concerning the effect of entry regulations we find mixed results. Using one set of entry regulation measures we find no effects whereas using data from a second source we find a weak negative effect of more burdensome entry regulations on the rate of entrepreneurship. |
| Keywords: | nascent entrepreneurship, young businesses, entry regulations |
| JEL: | H10 M13 |
| Date: | 2005–11 |
| URL: | http://d.repec.org/n?u=RePEc:esi:egpdis:2005-35&r=bec |
| By: | Carlos, RAMIREZ |
| Abstract: | Amongst professional activities, audit has increasingly departed from what the sociology of professions traditionally considered to be lying at the heart of the identity of the members of a professional body : the autonomy to judge the nature and amount of work that is necessary to treat the cases submitted to these members. Indeed, the generalisation of audit standards and the institutionalisation of means of controlling their application have in the last thirty years contributed to externalise and collectivise professional judgement. This paper tries to go back over the consequences of the process of controlling the work of auditors, both for the definition of audit itself and for the definition of the professional community. To do this, the paper takes the example of the operation of an audit monitoring unit that was set by the Institute of cartered accountants in England and Wales (in association with the Scottish and Irish Institutes of cartered accountants) to comply with the 1989 Companies act that integrated the 8th European Company Law directive in the British legislation. As what regards audit, it is shown that the result of the monitoring process was to reveal a great diversity in the ways of understanding audit practice as well as to stigmatise, not so much ill practice, but rather practices that were distant to the model that had inspired the definition of audit standardsn and the definition of the way to control their application. Regarding the professional community, it is contented that the monotoring process lead top make the hierarchical structure of this community visible whilst rendering a revision of the process necessary so as to attemps to restore order and unity in the professional body. |
| Keywords: | audit; quality control |
| JEL: | M42 |
| Date: | 2005–04–01 |
| URL: | http://d.repec.org/n?u=RePEc:ebg:heccah:0812&r=bec |
| By: | Mark Dutz (The World Bank) |
| Abstract: | This empirical paper sheds light on a significant element of the debate of whether infrastructure services have a strong impact on economic development by exploring the impact of innovative road freight services on downstream business users. The paper uses a new and purpose-specific survey of 165 logistics service providers and 493 user enterprises in food processing, food distribution, and the automotive industry in the Czech Republic, Hungary, and Poland. The main findings are that there are substantial downstream benefits from innovations in road freight services, both dampening cost increases and raising sales revenues of business users. The additional finding that increased intensity of competition in road freight services is significantly associated with the provision of innovative services suggests that easing any remaining barriers to competition in upstream business sectors should be a priority. |
| Keywords: | Infrastructure, Industry, Private sector development |
| Date: | 2005–11–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:3768&r=bec |
| By: | Benjamin Herzberg (The World Bank); Andrew Wright (Freelance writer and editor in the field of international development) |
| Abstract: | The authors examine competitiveness partnerships, which consist of structured dialogue between the public and private sector to improve the investment climate. The paper is designed to be used as a resource by donors, governments, or businesspeople who are interested in establishing, maintaining, or improving a competitiveness partnership in their country or region. The political and economic context of a country determines the kind of partnership that is feasible and likely to succeed, and there is no one-size-fits-all approach. But it is possible to distill some ideas and techniques from best practice as many public-private dialogue mechanisms face similar challenges. Drawing on the experiences of 40 countries, the authors make a positive case for building and maintaining competitiveness partnerships, and offer a selection of valuable insights into how practitioners can design them so as to avoid common pitfalls. They demonstrate that reforms that are designed through public-private dialogue are better conceived and more effectively implemented because they arise from increased mutual understanding between government and the business community. The paper has three parts. Part One outlines what competitiveness partnerships can achieve. Part Two describes how competitiveness partnerships function, presenting issues to consider when designing such partnerships and a range of ways in which they may be approached. Part Three identifies challenges that competitiveness partnerships have frequently faced and strategies that have been used to overcome them. |
| Keywords: | Private sector development, Governance, Transition, Social Development, Public sector management |
| Date: | 2005–08–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:3683&r=bec |
| By: | Warren H. Hausman (Stanford University); Hau L. Lee (Stanford University); Uma Subramanian (The World Bank) |
| Abstract: | Past research into the determinants of international trade highlighted the importance of the basic spatial gravity model augmented by additional variables representing sources of friction. Studies modeled many sources of friction using various proxies, including indices based on expert judgment in some cases. This paper focuses on logistics friction and draws on a data set recently compiled by the World Bank with specific quantitative metrics of logistics performance in terms of time, cost, and variability in time. It finds that the new variables that relate directly to logistics performance have a statistically significant relationship with the level of bilateral trade. It also finds that a single logistics index can capture virtually all of the explanatory power of multiple logistics indicators. The findings should spur public and private agencies that have direct or indirect power over logistics performance to focus attention on reducing sources of friction so as to improve their country's ability to compete in today's global economy. Moreover, since the logistics metrics are directly related to operational performance, countries can use these metrics to target actions to improve logistics and monitor their progress. |
| Keywords: | ??? |
| Date: | 2005–11–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:3773&r=bec |
| By: | Xavier Brusset (IAG, Université Catholique de Louvain, Louvain la Neuve, Belgium) |
| Abstract: | When, in a supply chain, a supplier and a buyer have the choice of transaction form to do business, the equilibrium transaction form which emerges is much more constrained than previously envisaged in literature. In this paper, two forms of long-term supply contracts and procurement in the spot market are compared. A capacity constrained service provider and a buyer of such service choose among three different transaction forms: spot procurement, minimum purchase commitment and quantity flexibility contracts. The ultimate demand the buyer has to satisfy and the spot market price of the input she has to purchase from the supplier are exogenous stochastic processes. Complete analytical results and a numerical example are presented. This paper builds upon recent supply chain contract literature by trying to join in one setting problems which up till now were considered in isolation. |
| Keywords: | contracts, supply chain, statistical decision theory, optimization techniques, transactional relationships |
| JEL: | L14 L23 C44 C61 C62 |
| Date: | 2005–12–07 |
| URL: | http://d.repec.org/n?u=RePEc:wpa:wuwpem:0512007&r=bec |
| By: | Xavier Brusset (IAG, Université Catholique de Louvain, Louvain la Neuve, Belgium) |
| Abstract: | The present paper studies the impact of information sharing and contractual instruments on a shipper and her transport suppliers through a monte carlo simulation. After reviewing the literature, we propose a model to measure the benefits in terms of expected transport cost and variance of this cost. We evaluate three scenarios over a reiterated- single period setting in a shipper carrier single-echelon model with a mix of long-term and short-term procurement strategies: perfect information, asymmetric information and private information at one level of the supply chain. After spelling out the optimal parameters for the procurement policy, we evaluate the rent transfer between carrier and shipper in a numeric example using the monte-carlo method. |
| Keywords: | supply chain management, transport, contract, monte carlo, bivariate normal distribution, information |
| JEL: | L14 L23 C44 C61 C62 |
| Date: | 2005–12–07 |
| URL: | http://d.repec.org/n?u=RePEc:wpa:wuwpem:0512008&r=bec |
| By: | Christopher A Laincz; Ana Sofia Domingues Rodrigues |
| Abstract: | This paper presents a dynamic model of the firm size distribution. Empirical studies of the firm size distribution often compare the moments to a log-normal distribution as implied by Gibrat's Law and note important deviations. Thus, the first, and basic questions we ask are how well does the dynamic industry model reproduce Gibrat's Law and how well does it match the deviations uncovered in the literature. We show that the model reproduces these results when testing the simulated output using the techniques of the empirical literature. We then use the model to study how structural parameters affect the firm size distribution. We find that, among other things, fixed and sunk costs increase both the mean and variance of the firm size distribution while generally decreasing the skewness and kurtosis. The rate of growth in an industry also raises the mean and variance, but has non-monotonic effects on the higher moments. |
| Keywords: | Firm size distribution; Gibrat's Law; R&D. |
| JEL: | L11 L13 |
| URL: | http://d.repec.org/n?u=RePEc:yor:yorken:05/34&r=bec |
| By: | Junjian Miao (Department of Economics, Boston University); Neng Wang (Columbia Business School) |
| Abstract: | Entrepreneurs often face undiversi¯able idiosyncratic risks from their business invest- ments. Motivated by this observation, we extend the standard real options approach to investment to an incomplete markets environment and analyze the joint decisions of busi- ness investments, consumption-saving and portfolio selection. Our analysis depends cru- cially on whether the investment payo®s are in lump-sum or in °ows. Precautionary saving e®ect plays a key role. In the lump-sum payo® case, risk aversion accelerates investment. Moreover, when the agent's precautionary motive is strong enough, an increase in volatility accelerates investment. These results may be reversed for the °ow payo® case. Finally, hedging a®ects investment decisions by changing the expected growth of wealth and reduc- ing the agent's exposure to idiosyncratic risk. The agent's hedging demand is higher when he is closer to exercising the investment option. |
| Keywords: | real options, idiosyncratic risk, hedging, risk aversion, precautionary saving,incomplete markets |
| JEL: | G11 G31 E2 |
| Date: | 2005–10 |
| URL: | http://d.repec.org/n?u=RePEc:bos:macppr:wp2005-011&r=bec |
| By: | Wolfgang Sofka (Centre for European Economic Research ZEW , Mannheim, Germany); Joerg Zimmermann (Max Planck Institute of Economics, Entrepreneurship, Jena, Germany) |
| Abstract: | Globalization has led to exciting new business opportunities around the globe. Still, national and cultural boundaries have not evaporated into a “borderless world.†Several studies have identified so-called liabilities of foreignness that arise from a lack of embeddedness and roots in the host market and subsequent competitive disadvantages. Countervailing strategies for these effects have remained scarce so far. We suggest that this is due to the lack of a viable approach to identify and quantify these effects and develop a conceptual framework to empirically estimate the individual degree of liability of foreignness of a firm from a market perspective. We suggest that disruptive changes in a society change the dynamics of liability of foreignness and generate opportunities for foreign companies to optimize their localization strategies. We apply our approach to a large mature market with established international competition: the German new car market. For a comprehensive sample of roughly 1,400 car models from 2003 we estimate the relative turnover disadvantage for all major foreign manufacturers. We find that most foreign producers have managed to overcome liabilities of foreignness in Germany through firm-specific advantages. Still, some face significant challenges. A submarket analysis shows that home market advantages are more deeply rooted in the Western part of Germany and that foreign competitors find a more accessible competitive environment in Eastern Germany. Therefore, East Germany is a superior platform for deploying effective and efficient countervailing strategies. Moreover, we identify a broader rationale to engage early and decisively in untapped but promising markets like China. |
| Keywords: | Liability of foreignness, automotive market, multinational strategy, seemingly unrelated regressions |
| JEL: | F23 L62 M10 |
| Date: | 2005–12–05 |
| URL: | http://d.repec.org/n?u=RePEc:wpa:wuwpio:0512003&r=bec |
| By: | Junjian Miao (Department of Economics, Boston University); Neng Wang (Columbia Business School) |
| Abstract: | Empirical evidence shows that entrepreneurs on average do not earn more than paid em- ployees in terms of present value. One may ask why individuals what to stay in business and take entrepreneurial activities. To address this question, we propose a continuous time real options model in which entrepreneurs do not know their investment quality and learn about it over time. We show that due to the option value of learning, an entrepreneur may stay in business even though the net present value (NPV) is negative. We also show that risk aversion erodes option value and lowers private ¯rm value so that a highly risk averse entrepreneur may exit even when the NPV is positive. We also show that a more risk averse or a more pessimistic entrepreneur exits earlier. Finally, the model can generate the positive relation between wealth and survival duration without liquidity constraints. |
| Keywords: | real options, learning, private firm value, survival, precautionary savings |
| JEL: | D80 D91 G11 E21 |
| Date: | 2005–07 |
| URL: | http://d.repec.org/n?u=RePEc:bos:macppr:wp2005-015&r=bec |