nep-bec New Economics Papers
on Business Economics
Issue of 2006‒01‒29
24 papers chosen by
Christian Calmes
Universite du Quebec en Outaouais

  1. The Unsustainable US Current Account Position Revisited By Obstfeld, Maurice; Rogoff, Kenneth
  2. Hot and Cold Housing Markets: International Evidence By Ceron, Jose A.; Suarez, Javier
  3. Structural Changes in the US Economy: Bad Luck or Bad Policy? By Canova, Fabio; Gambetti, Luca
  4. The Circulation of Ideas: Firms Versus Markets By Hellmann, Thomas F; Perotti, Enrico C
  5. The structural dynamics of US output and inflation: what explains the changes? By Luca Gambetti; Evi Pappa; Fabio Canova
  6. Distribution Risk and Equity Returns By Danthine, Jean-Pierre; Donaldson, John B; Siconolfi, Paolo
  7. Minimum Wages and Firm Profitability By Draca, Mirko; Machin, Steve; Van Reenen, John
  8. Oil Shocks and the Business Cycle in Europe By Baltasar Manzano; Carlos de Miguel; José Mª Martín Moreno
  9. Trends in Hours and Economic Growth By Ngai, Liwa Rachel; Pissarides, Christopher
  10. Systèmes de retraite et vieillissement By Gilles Le Garrec
  11. Back to square one: identification issues in DSGE models By Fabio Canova; Luca Sala
  12. A New International Division of Labour in Europe: Outsourcing and Offshoring to Eastern Europe By Marin, Dalia
  13. The Organization of the Innovation Industry: Entrepreneurs, Venture Capitalists and Oligopolists By Norbäck, Pehr-Johan; Persson, Lars
  14. Performance Related Pay and Labour Productivity By Gielen, Anne; Kerkhofs, Marcel J M; van Ours, Jan C
  15. Service Offshoring, Productivity and Employment: Evidence from the US By Amiti, Mary; Wei, Shang-Jin
  16. The Effects of Cartelization on Product Design By Haan, Marco A.; Toolsema, Linda A.
  17. Managerial satisfaction with subsidiary performance; the influence of the parent MNE\'s capabilities and the subsidiary\'s environment By Dikova, Desislava; Witteloostuijn, Arjen van
  18. To integrate or not to integrate ? complementarity, similarity, and acquisition value creation By Zaheer, Akbar; Castaner, Xavier; Souder, David
  19. Competing for Talents By Damiano, Ettore; Li, Hao; Suen, Wing
  20. What Reduces the Impact of Managerial Entrenchment on Agency Costs? Evidence for UK Firms By Chrisostomos Florackis; Aydin Ozkan
  21. Does a Platform Owning Monopolist Want Competition? By Andras Niedermayer
  22. Évaluation et expérimentation de logiciels libres pour la petite et moyenne entreprise By Michel Sauvé; Mario Boutin; Robert Gérin-Lajoie; Isabelle Therrien
  23. The Provision and Effects of Company Training. A brief review of the literature By Rita Asplund
  24. Paths to positivity: exploring the dynamics of positive organizing By Cunha, Miguel Pina e; Cunha, Rita Campos e; Rego, Arménio

  1. By: Obstfeld, Maurice; Rogoff, Kenneth
    Abstract: We show that the when one takes into account the global equilibrium ramifications of an unwinding of the US current account deficit, currently running at more than 6% of GDP, the potential collapse of the dollar becomes considerably larger than our previous estimates (Obstfeld and Rogoff 2000a) - as much as 30% or even higher. It is true that global capital market deepening appears to have accelerated over the past decade (a fact documented by Lane and Milesi-Ferreti (2003, 2004) and recently emphasized by outgoing US Federal Reserve Chairman Alan Greenspan), and that this deepening may have helped allowed the United States to a record-breaking string of deficits. Unfortunately, however, global capital market deepening turns out to be of only modest help in mitigating the dollar decline that will almost inevitably occur in the wake of global current account adjustment. As the analysis of our earlier papers (2000a,b) showed, and the model of this paper reinforces, adjustments to large current account shifts depend mainly on the flexibility and global integration of goods and factor markets. Whereas the dollar’s decline may be benign as in the 1980s, we argue that the current conjuncture more closely parallels the early 1970s, when the Bretton Woods system collapsed. Finally, we use our model to dispel some common misconceptions about what kinds of shifts are needed to help close the US current account imbalance. For example, faster growth abroad helps only if it is relatively concentrated in nontradable goods; faster productivity growth in foreign tradable goods will actually exacerbate the US adjustment problem.
    Keywords: external imbalance; net foreign assets; real exchange rate; sustainability; US current account deficit
    JEL: F21 F32 F36 F41
    Date: 2006–01
  2. By: Ceron, Jose A.; Suarez, Javier
    Abstract: This paper examines the experience of 14 developed countries for which there are about 30 years of quarterly inflation-adjusted housing price data. Price dynamics is modelled as a combination of a country-specific component and a cyclical component. The cyclical component is a two-state Markov switching process with parameters common to all countries. We find that the latent cyclical variable captures previously undocumented changes in the volatility of real housing price increases. These volatility phases are quite persistent (about six years, on average) and occur with about the same unconditional frequency over time. In line with previous studies, the mean of real housing price increases can be predicted to be larger when lagged values of those increases are large, real GDP growth is high, unemployment falls, and interest rates are low or have declined. Our findings have important implications for risk management in regard to residential property markets.
    Keywords: cycles; housing prices; Markov switching; volatility
    JEL: E32 G15 R31
    Date: 2006–01
  3. By: Canova, Fabio; Gambetti, Luca
    Abstract: This paper investigates the relationship between time variations in output and inflation dynamics and monetary policy in the US. There are changes in the structural coefficients and in the variance of the structural shocks. The policy rules in the 1970s and 1990s are similar as is the transmission of policy disturbances. Inflation persistence is only partly a monetary phenomena. Variations in the systematic component of policy have limited effects on the dynamics of output and inflation. Results are robust to alterations in the auxiliary assumptions.
    Keywords: inflation persistence; monetary policy; structural VARs; time varying coefficients; transmission of shocks
    JEL: C53 E47 E52
    Date: 2006–01
  4. By: Hellmann, Thomas F; Perotti, Enrico C
    Abstract: We describe new ideas as incomplete concepts for which the innovator needs feedback from agents with complementary skills. Once shared, ideas may be stolen. We compare how different contractual environments support invention and implementation. Markets, as open exchange systems, are good for circulation and thus elaboration, but may fail to reward idea generation. Firms, as controlled idea exchange systems, can reward idea generation but can do so only by restricting their circulation. This identifies a basic trade-off between protecting the rights of invention and the best implementation of ideas. An environment that allows ideas to cross firm boundaries enhances the rate of innovation and creates a symbiotic relationship between markets and firms.
    Keywords: firms; ideas; innovation
    JEL: D83 L22 M13 O31
    Date: 2006–01
  5. By: Luca Gambetti; Evi Pappa; Fabio Canova
    Abstract: We examine the dynamics of US output and inflation using a structural time varying coefficient VAR. We show that there are changes in the volatility of both variables and in the persistence of inflation. Technology shocks explain changes in output volatility, while a combination of technology, demand and monetary shocks explain variations in the persistence and volatility of inflation. We detect changes over time in the transmission of technology shocks and in the variance of technology and of monetary policy shocks. Hours and labor productivity always increase in response to technology shocks.
    Keywords: Variability, Persistence, Transmission, Structural time varying VARs
    JEL: C11 E12 E32 E62
    Date: 2005–06
  6. By: Danthine, Jean-Pierre; Donaldson, John B; Siconolfi, Paolo
    Abstract: In this paper we entertain the hypothesis that observed variations in income shares are the result of changes in the balance of power between workers and capital owners in labour relations. We show that this view implies that income share variations represent a risk factor of first-order importance for the owners of capital and, consequently, are a crucial determinant of the return to equity. When both risks are calibrated to observations, this distribution risk dominates in importance the usual systematic risk for the pricing of assets. We also show that distribution risks may originate in non-traded idiosyncratic income shocks.
    Keywords: distribution risk; equity premium; income shares; limited market participation
    JEL: E3 G1
    Date: 2006–01
  7. By: Draca, Mirko; Machin, Steve; Van Reenen, John
    Abstract: Although there is a large literature on the economic effects of minimum wages on labour market outcomes (especially employment), there is hardly any evidence on their impact on firm performance. This is surprising: minimum wages appear to have a significant impact on wages, but only a limited impact on jobs, so it is natural to imagine there must be a stronger impact on other aspects of firm behaviour. In this paper we consider the impact of minimum wages on firm profitability by exploiting the introduction of a minimum wage to the UK labour market in 1999. We use pre-policy information on the distribution of wages to construct treatment and comparison groups and implement a difference in differences approach. We show evidence that firm profitability was significantly reduced (and wages significantly raised) by the minimum wage introduction. This emerges from separate analyses of two distinct types of firm level panel data (one on firms in a very low wage sector, UK residential care homes, and a second on firms across all sectors). Interestingly, we find no evidence that the profitability reductions resulted in increases in firm exit, so our findings may be consistent with redistribution of quasi-rents towards low wage employees.
    Keywords: exit; minimum wage; profitability
    JEL: J23 L25
    Date: 2006–01
  8. By: Baltasar Manzano; Carlos de Miguel; José Mª Martín Moreno
    Abstract: This paper analyzes the effects of oil price shocks on the business cycle of the EU-15 countries using a standard dynamic general equilibrium model for a small open economy in which oil is included as an imported productive input. The results show that oil shocks can account for a significant percentage of GDP fluctuations in many of those countries. Furthermore, we show that the increases in the relative price of oil had a negative effect on welfare, particularly in southern European countries, which are historically associated with a lax monetary policy during oil crisis.
  9. By: Ngai, Liwa Rachel; Pissarides, Christopher
    Abstract: We study long-run trends in aggregate market hours of work and shifts across economic sectors within the context of balanced aggregate growth. We show that a model of many goods and uneven TFP growth in market and home production can rationalize the observed falling or U-shaped aggregate hours and structural change across market sectors. The dynamics of market hours are driven by substitutions between home and market production and depend critically on the existence of many market sectors. Extensions show how the model can explain rising leisure and more complex hours dynamics without violating balanced aggregate growth.
    Keywords: balanced growth; home production; hours of work; labour supply; marketization; structural transformation
    JEL: J21 J22 O14 O41
    Date: 2006–01
  10. By: Gilles Le Garrec (Observatoire Français des Conjonctures Économiques)
    Date: 2005
  11. By: Fabio Canova; Luca Sala
    Abstract: We investigate identifiability issues in DSGE models and their consequences for parameter estimation and model evaluation when the objective function measures the distance between estimated and model impulse responses. We show that observational equivalence, partial and weak identification problems are widespread, that they lead to biased estimates, unreliable t-statistics and may induce investigators to select false models. We examine whether different objective functions affect identification and study how small samples interact with parameters and shock identification. We provide diagnostics and tests to detect identification failures and apply them to a state-of-the-art model.
    Keywords: Identification, minimum distance estimators, likelihood function, new keynesian models
    JEL: C1 C3 E3
    Date: 2005–05
  12. By: Marin, Dalia
    Abstract: Europe is reorganizing its international value chain. I document these changes in Europe’s international organization of production with new survey data of Austrian and German firms investing in Eastern Europe. I show estimates of the share of intra-firm trade between Austria and Germany on the one hand and Eastern Europe on the other. Furthermore, I present empirical evidence of the drivers of the new division of labour in Europe. I find among other things that falling trade costs and falling corruption levels as well as improvements in the contracting environment in Eastern Europe are affecting the level of intra-firm imports from Eastern Europe. They are also favouring outsourcing over offshoring. Low organizational costs of hierarchies and large costs of hold-up (when there are no alternative investors in Old Europe or no alternative suppliers in Eastern Europe) are favouring offshoring over outsourcing. Tax holidays granted by host countries in Eastern Europe also mildly affect the organizational choice.
    Keywords: comparative advantage in Eastern Europe; contract enforcement; empirical test of the theory of the firm; intra-firm trade; the empirics of global sourcing
    JEL: D23 D51 F11 L14 O11
    Date: 2006–01
  13. By: Norbäck, Pehr-Johan; Persson, Lars
    Abstract: Exit of venture-backed firms often takes place through sales to large incumbent firms. We show that in such an environment, venture-backed firms have a stronger incentive to develop basic innovations into commercialized innovations than incumbent firms, due to strategic product market effects. This will increase the price for basic innovations, thereby triggering more such innovations by entrepreneurs. Consequently, a venture capital market implies that more innovations are created, and that these become better developed. Moreover, we show that to exist in equilibrium, venture capitalist must be substantially more efficient, otherwise incumbents will preempt venture capitalists entering the market by acquiring basic innovations
    Keywords: acquisitions; entrepreneurship; innovation; venture capital
    JEL: G24 L1 L2 M13 O3
    Date: 2006–01
  14. By: Gielen, Anne; Kerkhofs, Marcel J M; van Ours, Jan C
    Abstract: This paper uses information from a panel of Dutch firms to investigate the labour productivity effects of performance related pay (PRP). We find that PRP increases labour productivity at the firm level with about 9%.
    Keywords: labour productivity; performance related pay
    JEL: C41 H55 J64 J65
    Date: 2006–01
  15. By: Amiti, Mary; Wei, Shang-Jin
    Abstract: The practice of sourcing service inputs from overseas suppliers has been growing in response to new technologies. This paper estimates the effects of offshoring on productivity in US manufacturing industries between 1992 and 2000, using instrumental variables estimation to address the potential endogeneity of offshoring. It finds that service offshoring has a significant positive effect on productivity in the US, accounting for around 11% of productivity growth during this period. Offshoring material inputs also has a positive effect on productivity, but the magnitude is smaller accounting for approximately 5% of productivity growth. There is a small negative effect of less than half a percent on employment when industries are finely disaggregated (450 manufacturing industries). However, this affect disappears at more aggregate industry level of 96 industries indicating that there is sufficient growth in demand in other industries within these broadly defined classifications to offset any negative effects.
    Keywords: employment; offshoring; outsourcing; productivity; services
    JEL: F1 F2
    Date: 2006–01
  16. By: Haan, Marco A.; Toolsema, Linda A. (Groningen University)
    Abstract: We consider the following model. First, two firms choose locations on a Hotelling line. Second, they play a repeated price-setting game, in which they may be able to collude. Transportation costs are quadratic. We show that if firms collude in the location stage, they choose locations that coincide with the social optimum, provided that the discount factor is high enough. If the discount factor is lower, the firms locate further apart. Furthermore, we show that if firms choose locations non-cooperatively, they both locate in the middle of the line, again provided that the discount factor is high enough. If the discount factor is lower, the firms locate further apart. Thus, with the possibility of a price cartel and a discount rate that is sufficiently high, Hotelling?s principle of minimum differentiation is restored.
    Date: 2005
  17. By: Dikova, Desislava; Witteloostuijn, Arjen van (Groningen University)
    Abstract: Multinational enterprise performance is one of the most researched topics in the strategic management literature over the last thirty years. Despite the proliferation of studies, the dispute over the relation between firms? international investment activities and corporate performance has not yet reached a consensus. This paper?s contribution is threefold. First, we focus on entry by West European multinational enterprises into Central and East European countries. Second, we develop a multi-theory argument, combining insights from transaction cost, new institutional, behavioral, resource-based and international strategy theories. Third, we estimate the determinants of managerial satisfaction with subsidiary performance with questionnaire data for a sample of 198 subsidiaries.
    Date: 2005
  18. By: Zaheer, Akbar; Castaner, Xavier; Souder, David
    Abstract: In this paper, the authors explain that relatedness is often associated with acquisition value creation without distinguishing between three underlying sources of synergy: business similarity, product complementarity and geographic complementarity. The authors argue that realizing value in acquisitions requires maching the type of relatedness with the appropriate degree of integration; specifically high integration for business similarity, medium integration for product complementarity and low integration for geographic complementarity. Empirical validation, broadly supporting their hypotheses comes from 88 M&As
    Keywords: mergers and acquisitions; value creation; integration
    JEL: G34
    Date: 2006–01–24
  19. By: Damiano, Ettore; Li, Hao; Suen, Wing
    Abstract: Though individuals prefer to join groups with high quality peers, there are advantages to being high up in the pecking order within a group if higher ranked members of a group have greater access to the group's resources. When two organizations try to attract members from a ¯xed population of heterogeneous agents, how resources are distributed among the members according to their rank a®ects how agents choose between the organizations. Competition between the two organizations has implications for both the equilibrium sorting of agents and the way resources are distributed within each organization. To compete more intensely for the more talented agents, both organizations are selective and give no resources to their low ranks. In both organizations, higher ranks are rewarded with more resources, with a greater rate of increase in the organization that has a lower average quality in equilibrium.
    Date: 2006–01–17
  20. By: Chrisostomos Florackis; Aydin Ozkan
    Abstract: This paper examines how managerial entrenchment, defined as the extent to which managers are able to use their discretion and expropriate wealth from shareholders, influences agency costs. Using a cross-sectional regression framework and a large sample of UK listed firms, we show that there is a negative relationship between our inverse proxy for agency costs, namely asset turnover ratio, and managerial entrenchment. However, it seems that the relation between managerial entrenchment and agency costs depends on managerial incentives. Specifically, there is strong evidence that managerial incentive variables, such as executive ownership and market-to-book ratio, moderate the negative relationship between managerial entrenchment and asset turnover.
    Keywords: Agency costs, managerial entrenchment, corporate governance mechanisms
    JEL: G3 G32
    Date: 2006–01
  21. By: Andras Niedermayer
    Abstract: We consider a software vendor selling both a monopoly platform (e.g. operating system) and an application that runs on this platform. He may face competition by an entrant in the applications market. Consumers are heterogeneous in their preferences for both the platform and the applications. They first buy the platform and then the applications. Their utility over the horizontally differentiated applications is known only after they bought the platform. In equilibrium the platform seller can be better off with a competitor in the applications market for three reasons. First, the platform vendor makes more profits with his platform. Second, the competitor’s entry serves as a credible commitment to lower prices for applications. Third, higher ex ante expectations of product diversity lead to a higher demand for his application. Competition may be profit enhancing even if the first two effects are absent, i.e. the product diversity effect can be sufficient. The model also gives an answer to the much debated question why Microsoft prices MS Office significantly higher than its operating system.
    Keywords: Two-sided markets; platforms; entry; complementary goods; price commitment; product diversity; Microsoft
    JEL: D41 D43 L13 L86
    Date: 2005–12
  22. By: Michel Sauvé; Mario Boutin; Robert Gérin-Lajoie; Isabelle Therrien
    Abstract: <P>Les logiciels libres, ou Open Source Software, ont connu un très grand succès au cours des dernières années. Les logiciels libres offrent plusieurs avantages à leurs utilisateurs: des coûts plus bas, davantage de flexibilité dans la conduite de leur stratégie informatique ainsi que la réduction de certains risques, tel que la disparition de l’éditeur d’un logiciel.<P> Récemment, plusieurs logiciels d’affaires sont apparus sous licence libre: parmi ceux-ci, certains progiciels de gestion intégrée (PGI, ou ERP) se démarquent, dont Compiere, avec des centaines de milliers de références sur Google et un nombre total de plus de 700 000 téléchargements. Il est raisonnable de croire que les logiciels d’affaires libres offrent aux PME canadiennes l'opportunité de bénéficier des avantages des technologies de l'information à moindre coût.<P> Nous soutenons que l’accès au gain d’efficience promis par ces logiciels à moindre coût pourrait augmenter la compétitivité des entreprises canadiennes. Ce projet est une première étape en vue de vérifier cette hypothèse. Son but est d’identifier les meilleurs logiciels d’affaires libres et d’en faire une évaluation sommaire.<P> Pour mieux nous préparer à la recherche des meilleurs candidats, nous avons d’abord fait la revue des différentes méthodologies de sélection de logiciels, autant dans le domaine du propriétaire que du libre. Par la suite, nous avons établi la liste des différents types de logiciels d’affaires, en prenant comme toile de fond les principes de la réingénierie des processus.<P> Finalement, nous avons appliqué une série de cribles dans le but d'identifier une dizaine de logiciels libres matures. De tous les candidats potentiels, trois ont été retenus pour une évaluation ergonomique et fonctionnelle sommaire.<P> <UL><LI><B>Compiere</B> : présenté comme un ERP, Compiere permet d’automatiser les processus d’achat, de vente, de gestion d’inventaire et les opérations comptables. Il est programmé en Java et son installation est facile. L’évaluation ergonomique s’est avérée satisfaisante. L’offre de services professionnels est déjà importante. L’enthousiasme de la communauté semble donc justifié.<P> <LI> <B> ERP5</B> : choisi parmi les finalistes pour son caractère unique. C’est le seul logiciel de gestion de production. Cependant, il s’est avéré impossible à installer. Il fut aussi impossible d’obtenir du support technique. Pour ces raisons, nous ne recommandons pas ce logiciel pour un site pilote.<P> <LI><B>SQL-Ledger</B> : Essentiellement un logiciel de comptabilité, son installation s’est avérée très facile. Ce logiciel est aussi bien supporté par sa communauté. Cependant, le processus d’évaluation a révélé des déficiences ergonomiques importantes. Nous ne pouvons donc recommander ce logiciel.<P></UL> En conclusion, Compiere se démarque clairement parmi les logiciels d’affaires libres. C’est un logiciel mature qui offre à faible coût des fonctions requises par un très grand nombre de PME.<P> Cette étude n’est pas suffisante pour recommander formellement ces logiciels aux entreprises canadiennes. Une étude plus approfondie, tel un projet pilote en entreprise, sera nécessaire. Nous recommandons que Compiere soit choisi pour ces projets pilotes.
    Date: 2005–02–01
  23. By: Rita Asplund
    JEL: J24 J31 M53
    Date: 2004–05–18
  24. By: Cunha, Miguel Pina e; Cunha, Rita Campos e; Rego, Arménio
    Abstract: This paper advances a theory about the way patterns of positive and negative organizing unfold. It is grounded in data collected from 58 individuals. We followed an inductive logic and used critical incidents to collect information on positive and negative processes and outcomes. From this we extracted six dimensions, which are present in different combinations in the 116 incidents narrated by the participants: recognition/ indifference, communication/silence, interaction/separation, confidence/distrust, loyalty/betrayal, and organizational transparency/organizational secrecy. We then analyzed how these dimensions fit together and discovered that they could be organized around four major patterns combining the clarity/opacity of organizational rules and the considerate/ detached behavior of leaders. We assert that positive leaders are essential in the creation of positive organizations, regardless of the features of the external context.
    Keywords: positive organizing; organizational energy; leadership
    Date: 2005

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