nep-bec New Economics Papers
on Business Economics
Issue of 2006‒05‒20
twenty-one papers chosen by
Christian Calmes
Universite du Quebec en Outaouais

  1. Project management : learning by breaking the rules By Mangematin, V.; Blanco, S.; Deschamp, B.; Genet, C.; Kahane, B.
  2. The outcome of individual wage bargaining and the influence of managers' bargaining power: evidence from union data By Granqvist, Lena; Regnér, Håkan
  3. Construction Contracts (or: "How to Get the Right Building at the Right Price?") By Surajeet Chakravarty; W. Bentley MacLeod
  4. Efficiency of Insurance Firms with Endogenous Risk Management and Financial Intermediation Activities By J. David Cummins; Georges Dionne; Robert Gagné; Abdelhakim Nouira
  5. A relational theory of relationship lending under contractual incompleteness By Vinicius Carrasco; João Manoel Pinho de Mello
  6. Organizational structure and the hold-up problem By Vinicius Carrasco
  7. Vintage Capital By Raouf Boucekkine; David de la Croix; Omar Licandro
  8. Managing Bank Liquidity Risk: How Deposit-Loan Synergies Vary with Market Conditions By Evan Gatev; Til Schuermann; Philip E. Strahan
  9. Inferring the unobserved human capital of entrepreneurs By Arnab Bhattacharjee (University of-St Andrews); Jean Bonnet (CREM – CNRS); Nicolas Le Pape (CREM – CNRS); Régis Renault (THEMA – CNRS)
  10. Solidarity and Performance Differences By Marion Eberlein; Judith Przemeck
  11. A Percolation-Based Model Explaining Delayed Take-Off in New-Product Diffusion By Martin Hohnisch; Sabine Pittnauer; Dietrich Stauffer
  12. Risk Aversion and Human Capital Investment: a Structural Econometric Model By Thomas Brodaty; Robert Gary-Bobo; Ana Prieto
  13. Merger Control With Transfers from the Capital Gains Tax and Asset Divestments By Arnaud Féral
  14. Work Environment, Job Satisfaction, Top Employees Work Interests By Kliebenstein, James; Hurley, Terence; Orazem, Peter; Miller, D; May, S.
  15. Measuring and Explaining Management Practices Across Firms and Countries By Nick Bloom; John Van Reenen
  16. Get Training or Wait? Long-Run Employment Effects of Training Programs for the Unemployed in West Germany By Bernd Fitzenberger; Aderonke Osikominu; Robert Völter
  17. Multinational Enterprises and Globalization of R&D: A Study of U.S-based Firms By Prema-chandra Athukorala; Archanun Kohpaiboon
  18. Analysis of the discouraged worker phenomenon. Evidence from micro data By John K. Dagsvik, Tom Kornstad and Terje Skjerpen
  19. "Relative Performance Evaluation between Multitask Agents" By Hitoshi Matsushiima
  20. "Changes in the Distribution of Male and Female Wages Accounting for Employment Composition Using Bounds" By Richard Blundell; Amanda Gosling; Hidehiko Ichimura; Costas Meghir
  21. Peer Punishment in Teams: Emotional or Strategic Choice? By Casari, Marco; Luini, Luigi

  1. By: Mangematin, V.; Blanco, S.; Deschamp, B.; Genet, C.; Kahane, B.
    Abstract: The paper explores project management in action in a large public research organisation – NLAT which decided to change its internal organisation from team-based to project-based organisation a few years ago. A systematic and comparative analysis of 8 projects reveals that adherence to the ISO 9000’s standardized rules of project management - specific staffing and project leaders, definition of milestones ex ante, procedure manuals, and formalized learning accumulation mechanisms - had little to do with the organisations success over recent years: Looking for explanations for this success, the paper focuses on the process of transferring from one project to another, enhancing organisational learning through rules breaking. We identify three elements which encourage the accumulation of knowledge and competencies, as organisational learning: low project core staffing levels which stimulates the circulation of engineers and researchers between projects and blurs project boundaries, implementing and managing thematic projects which build on specific competencies developed in dedicated projects and encouraging ‘bricolage’ to hybridise project management with traditional hierarchical management practices.
    JEL: D21
    Date: 2006
  2. By: Granqvist, Lena (Swedish Confederation of Professional Associations (SACO)); Regnér, Håkan (Swedish Confederation of Professional Associations (SACO))
    Abstract: We analyze unique data that identify whether individuals have participated in decentralized wage setting and whether they have negotiated their own wages. Wages are significantly higher for those who have been part of a formalized wage-setting process compared with non-participants, but only in the public sector. Employees who negotiate their own wages have higher wages than non-negotiators. Wages are also significantly higher for those who negotiate with a manager who has the power to set wages, compared with those who negotiate with a manager who has no power over wages. This concerns employees in the public and the private sectors. Quantile regression results reveal that the outcome of individual bargaining increases over the wage distribution. Percentile wage differences are significant only among workers who negotiate with a manager who has the power to set wages. Estimated wage differences between negotiators and non-negotiators are 4.6% on average, 5.6% in the 90th percentile, and 2.3% at the 10th percentile.
    Keywords: wage bargaining; earnings equations; decentralized wage setting; quantile regression
    JEL: J31 J33 J41 J44
    Date: 2006–05–08
  3. By: Surajeet Chakravarty (University of Exeter); W. Bentley MacLeod (Columbia University and IZA Bonn)
    Abstract: Most contracts that individuals enter into are not written from scratch; rather, they depend upon forms and terms that have been successful in the past. In this paper, we study the structure of form construction contracts published by the American Institute of Architects (AIA). We show that these contracts are an efficient solution to the problem of procuring large, complex projects when unforeseen contingencies are inevitable. This is achieved by carefully structuring the ex post bargaining game between the Principal and the Agent. The optimal mechanism corresponding to the AIA construction form is consistent with decisions of the courts in several prominent but controversial cases, and hence it provides an economic foundation for a number of the common-law excuses from performance. Finally, the case of form contracts for construction is an example of how markets, as opposed to private negotiations, can be used to determine efficient contract terms.
    Keywords: law and economics, incomplete contracts, construction, agency theory, industry studies, outsourcing, procurement
    JEL: D8 K2 L7
    Date: 2006–05
  4. By: J. David Cummins; Georges Dionne; Robert Gagné; Abdelhakim Nouira
    Abstract: Risk management is now present in many economic sectors. This paper investigates the role of risk management in creating value for financial institutions by analyzing U.S. property-liability insurers. Property-liability insurers are financial intermediaries whose primary roles in the economy are risk pooling and risk bearing. The risk pooling and risk bearing functions performed by insurers are the primary determinants of the need for risk management. The main goal of this paper is to test how risk management and financial intermediation activities create value for insurers by enhancing economic efficiency. Insurer cost efficiency is measured relative to an econometric cost function. Since the prices of risk management and financial intermediation services are not observable, we consider these two activities as intermediate outputs and estimate their shadow prices. The shadow prices isolate the contributions of risk management and financial intermediation to insurer cost efficiency. The econometric results show that both activities significantly increase the efficiency of the property-liability insurance industry.
    Keywords: Risk management, US property-liability insurer, risk pooling, financial intermediation, economic efficiency, intermediate output, shadow price, cost function, translog approximation
    JEL: C34 D24 D81 G22
    Date: 2006
  5. By: Vinicius Carrasco (Department of Economics PUC-Rio.); João Manoel Pinho de Mello (Department of Economics PUC-Rio)
    Abstract: While the literature has focused on relationships as a technology for solving hidden information problems in credit markets, hidden action has been very little explored as an explanation for the existence of relational lending. In this paper, we propose a theory in which relationships are driven by the problem of contractual incompleteness in instances in which a borrower, by taking ex-ante actions, magnifies the hazards related to ex-post bargaining over returns. A relationship commits the borrower to take actions that minimize the ex-post conflict of interests resulting from contractual incompleteness. We show that a robust feature of an optimally designed lending relationship (i.e., the best Public Perfect Pure Strategy Equilibrium in a repeated lending game) is that a sufficiently patient entrepreneur, upon choosing his actions, ignores his privately observed contingencies. This commitment solves the credit rationing problem that arises in a one-shot (arm’s length) interaction, and reduces, when compared to arm’s length financing, the interest rate that a bank charges for a credit line. Although in a less acute fashion, we also show that the same features just described appear in an optimal lending relationship for the case in which the entrepreneur is impatient.
    Date: 2006–05
  6. By: Vinicius Carrasco (Department of Economics PUC-Rio.)
    Abstract: In this note, I consider a setting in which an agent can exert costly unobservable effort towards two activities and is, a priori, uncertain about its ability to perform them. A (non-contractible) ability enhancing investment can be performed. The lack of commitment from a Principal concerned with (informational) rent extraction, and who is in control of both activities, induces the standard underinvestment outcome of Hold-Up problems. It is then shown that, if the two activities are assigned to two different Principals, ex-post incentives will be more powerful generating, from an ex-ante perspective, higher incentives for ability enhancing investment. The combination of higher ex-ante investments and expost incentives produces an outcome that is superior than a single Principal’s outcome in terms of efficiency. This suggests that organizational structure, through its influence on the design of incentives over contractible variables, can play a key role is solving Hold-Up problems.
    Date: 2006–05
  7. By: Raouf Boucekkine; David de la Croix; Omar Licandro
    Abstract: We highlight the salient characteristics and implications of the seminal contributions in the field of vintage capital growth theory (proposed entry for the New Palgrave Dictionary of Economics, 2nd edition).
    Keywords: vintage capital, the embodied question, replacement echoes, technology diffusion, inequality, demographics
    JEL: E22 E32 O40
    Date: 2006
  8. By: Evan Gatev; Til Schuermann; Philip E. Strahan
    Abstract: Liquidity risk in banking has been attributed to transactions deposits and their potential to spark runs or panics. We show instead that transactions deposits help banks hedge liquidity risk from unused loan commitments. Bank stock-return volatility increases with unused commitments, but the increase is smaller for banks with high levels of transactions deposits. This deposit-lending risk management synergy becomes more powerful during periods of tight liquidity, when nervous investors move funds into their banks. Our results reverse the standard notion of liquidity risk at banks, where runs from depositors had been seen as the cause of trouble.
    JEL: G18 G21
    Date: 2006–05
  9. By: Arnab Bhattacharjee (University of-St Andrews); Jean Bonnet (CREM – CNRS); Nicolas Le Pape (CREM – CNRS); Régis Renault (THEMA – CNRS)
    Abstract: The goal of this paper is to study the role of unobserved human capital in entrepreneurial choice and its impact on the survival of newly created firms. Our starting point is that, when starting a new business, an entrepreneur’s labor market situation (e.g. employed or not) reflects how his human capital may be valuated through salaried labor. This in turn affects the entrepreneurial decision so that, an entrepreneur’s human capital should be correlated with the state at which he decided to start a new firm. We illustrate this point with descriptive statistics computed from a survey of French startups. These statistics show that the impact of education on the new firm’s survival is most pronounced for firms created by individuals salaried in their preferred branch of activity while it is rather limited if the entrepreneur was in the wrong branch or newly unemployed. In this paper we argue, both theoretically and empirically, that these results may be explained by some unobserved heterogeneity in the entrepreneur’s human capital that is correlated both with the initial labor market situation and with some observable measures of human capital such as education or experience. We first present a simple model of entrepreneurial choice that provides predictions about an entrepreneur’s actual human capital as a function of human capital observed by the econometrician as well as the individual’s state in the labor market when the firm was created. The model allows for some information asymmetry on the labor market as well as other sources of inefficiencies such as incentive problems due to moral hazard. It also allows in a simple way for some dynamic considerations on the part of the entrepreneur regarding potential depreciation of his human capital. We argue that the data may be best explained by a model where employer’s information on employee’s human capital is sufficiently poor and where there is a strong concern about human capital depreciation for those with a high level of observed human capital. We then run some duration analysis on our data on new firms’ survival by estimating a proportional hazard Cox model with partial maximum likelihood. The estimation results are coherent with the descriptive statistics on the impact of education on survival for different initial states of the entrepreneur. This econometric analysis will be completed with additional regressions that allow for correcting for unobserved heterogeneity in order to evaluate its magnitude and nature. We have done some preliminary work where unobserved heterogeneity is modelled through random effects (frailties) for different subgroups of individuals according to education level and experience that have a gamma distribution. Our preliminary results show that there is significant unobserved heterogeneity but the estimates of the frailties are consistent with the results obtained by running a standard Cox estimation.
    Keywords: Entrepreneurship, Labor Market, Human Capital Valuation, Information Asymmetries, Duration of the New Firm
    JEL: J24 L25 D8 C41
    Date: 2006
  10. By: Marion Eberlein; Judith Przemeck
    Abstract: To investigate the influence of performance differences on donating behavior in a solidarity game we introduce a real effort task. In each three-person-group subjects are ranked according to their task performance. Since each potential winner is informed about his own rank and the potential losers? ranks, they are able to regard performance differences between various potential losers and between themselves and a potential loser. We run another treatment without a real effort task to check for the influence of performance. We find different kinds of donating behaviour which seem to be fundamental characteristics.
    Keywords: Solidarity, Performance Differences, Real Effort, Experiment
    JEL: C91 D31
    Date: 2006–03
  11. By: Martin Hohnisch; Sabine Pittnauer; Dietrich Stauffer
    Abstract: A model of new-product diffusion is proposed in which a site-percolation dynamics represents socially-driven diffusion of knowledge about the product's characteristics in a population of potential buyers. A consumer buys the new product if her valuation of it is not below the price of the product announced by the firm in a given period. Our model attributes the empirical finding of a delayed ``take-off'' of a new product to a drift of the percolation dynamics from a non-percolating regime to a percolating regime. This drift is caused by learning-effects lowering the price of the product, or by network-effects increasing its valuation by consumers, with an increasing number of buyers.
    Keywords: new-product diffusion, innovation adoption, spatial stochastic processes, percolation
    JEL: C15 L15
    Date: 2006–04
  12. By: Thomas Brodaty (THEMA, Université de Cergy-Pontoise); Robert Gary-Bobo (Université de Paris 1, IDEP and CEPR); Ana Prieto (THEMA, Université de Cergy-Pontoise)
    Abstract: We propose to model individual educational investments as a rational decision, maximizing expected utility, conditional on some characteristics observed by the student, under the combined risks affecting future wages and schooling duration. Assuming that students' attitudes toward risk can be represented by a CRRA utility, we show that the risk-aversion parameter can be identified in a natural way, using the variation in school-leaving ages, conditional on certified educational levels. Estimation can be performed by means of classic Maximum Likelihood methods. The model can easily be compared with a non-structural, simplified version, which is a standard wage equation with endogenous dummy variables representing education levels, education levels being themselves determined by an Ordered Probit model. We find small but significant values of the coefficient of relative risk aversion, between 0:1 and 0:9. These results are obtained with a rich sample of 12,500 young men who left the educational system in 1992, in France.
    Date: 2006–03–15
  13. By: Arnaud Féral (THEMA, Department of Economics, Cergy-Pontoise University)
    Abstract: In a Cournot model of takeover under asymmetric information, we identify a link between efficiency gains and structural remedies, we show that more efficient Insiders are asked to divest a bigger part of their assets. Aware that a unique tool is insufficient to make Insider revealing their type, we allow the Antitrust Agency to choose the mix of cash and stock used as payment for the target, which indirectly defines a transfer. Relying on the medium of paiement literature we show that the merger is even more costly for Insiders when the amount of cash in the mix bid is more important, because of capital gains tax compensations. We introduce a relevant limited liability problem in the model, since the AA cannot ask higher transfers than those underlying to the all cash procedure. In this context we show that inefficient Insiders divest more than their First Best and make an all cash offer, whereas efficient Insider divest their First best and incorporate less cash in the global bid.
    Keywords: Merger control, structural remedies, asymmetric information, Medium of paiement, Limited liability
    JEL: L51 D82 L41
    Date: 2006
  14. By: Kliebenstein, James; Hurley, Terence; Orazem, Peter; Miller, D; May, S.
    Keywords: Work, Job, Employees
    Date: 2006–05–16
  15. By: Nick Bloom; John Van Reenen
    Abstract: We use an innovative survey tool to collect management practice data from 732 medium sized manufacturing firms in the US, France, Germany and the UK. These measures of managerial practice are strongly associated with firm-level productivity, profitability, Tobin’s Q, sales growth and survival rates. Management practices also display significant cross-country differences with US firms on average better managed than European firms, and significant within-country differences with a long tail of extremely badly managed firms. We find that poor management practices are more prevalent when (a) product market competition is weak and/or when (b) family-owned firms pass management control down to the eldest sons (primo geniture). European firms report lower levels of competition, while French and British firms also report substantially higher levels of primo geniture due to the influence of Norman legal origin and generous estate duty for family firms. We calculate that product market competition and family firms account for about half of the long tail of badly managed firms and up to two thirds of the American advantage over Europe in management practices.
    JEL: L2 M2 O32 O33
    Date: 2006–05
  16. By: Bernd Fitzenberger (Goethe University of Frankfurt, ZEW, IFS and IZA Bonn); Aderonke Osikominu (Goethe University of Frankfurt); Robert Völter (Goethe University of Frankfurt and CDSEM, University of Mannheim)
    Abstract: Long-term public sector sponsored training programs often show little or negative short-run employment effects and often it is not possible to assess whether positive long-run effects exist. Based on unique administrative data, this paper estimates the long-run differential employment effects of three different types of training programs in West Germany. We use inflows into unemployment for the years 1986/87 and 1993/94 and apply local linear matching based on the estimated propensity score to estimate the effects of training programs starting during 1 to 2, 3 to 4, and 5 to 8 quarters of unemployment. The results show a negative lock-in effect for the period right after the beginning of the program and significantly positive treatment effects on employment rates in the medium- and long-run. The differential effects of the three programs compared to one another are mainly driven by differences in the length of the lock-in periods.
    Keywords: multiple treatments, training programs, employment effects, local linear matching, administrative data, active labor market programs
    JEL: C14 J68 H43
    Date: 2006–05
  17. By: Prema-chandra Athukorala; Archanun Kohpaiboon
    Abstract: This paper examines patterns and determinants of overseas R&D expenditure of US-based manufacturing MNEs using a new panel dataset over the period 1990-2001. It is found that inter-country differences in R&D intensity of operation of US MNE affiliates are fundamentally determined by the domestic market size, overall R&D capability and cost of hiring R&D personnel. The impact of domestic market orientation of affiliates on R&D propensity varies among countries depending on their stage of global economic integration. Intellectual property protection seems to matter largely for mature economies with complementary endowments. There is no evidence to suggest that financial incentives have a significant impact on inter-country differences in R&D intensity when controlled for other relevant variables. Nor is there a statistically significant relationship between the size of the capital stock of MNEs and R&D intensity of their operation across countries. Overall, our findings serve as a caution against paying too much attention by host country governments on turning MNEs affiliates into technology creators as part of their foreign direct investment policy.
    Keywords: R&D, multinational enterprises, foreign direct investment
    JEL: F21 O19 O31 O32
    Date: 2006
  18. By: John K. Dagsvik, Tom Kornstad and Terje Skjerpen (Statistics Norway)
    Abstract: In this paper we analyze labor force participation with particular reference to the discouraged worker effect. The theoretical point of departure is a simple model where the worker evaluates the expected utility of searching for work, and decides to participate in the labor market if the expected utility of the search exceeds the utility of not working. With suitable assumptions about unobserved and observed heterogeneity we derive an empirical model for the probability that the worker will be unemployed or employed as a function of the probability of getting a job, given that the worker searches for work. The model is estimated on Norwegian micro-data consisting of independent cross sections over 15 years. The results indicate that there is a substantial discouraged worker effect.
    Keywords: Discouraged workers; Labor force participation; Random utility modelling
    JEL: J21 J22 J64
    Date: 2006–04
  19. By: Hitoshi Matsushiima (Faculty of Economics, University of Tokyo)
    Abstract: We investigate the moral hazard problem in which the principal delegates multiple tasks to two agents. She imperfectly monitors the action choices by observing the public signals that are correlated through the macro shock and that satisfy conditional independence. When the number of tasks is sufficiently high, relative performance evaluation functions effectively for unique implementation, where the desirable action choices are supported by an approximate Nash equilibrium, and any approximate Nash equilibrium virtually induces the first-best allocation. Thus, this is an extremely effective method through which the principal divides the workers into two groups and makes them compete with each other.
    Date: 2006–04
  20. By: Richard Blundell (Department of Economics, University College London and IFS); Amanda Gosling (Department of Economics, Essex Univeristy, IFS and CEPR); Hidehiko Ichimura (Faculty of Economics, University of Tokyo and RIETI); Costas Meghir (Department of Economics, University College London, IFS and CEPR)
    Abstract: This paper examines changes in the distribution of wages using bounds to allow for the impact of non-random selection into work. We show that worst case bounds can be informative. However, since employment rates in the UK are often low they are not informative about changes in educational or gender wage differentials. Thus we explore ways to tighten these bounds using restrictions motivated from economic theory. With these assumptions we find convincing evidence of an increase in inequality within education groups, changes in educational differentials and increases in the relative wages of women.
    Date: 2006–05
  21. By: Casari, Marco; Luini, Luigi
    Abstract: Punishing the free-riders of a team can promote group efficiency but is costly for the punisher. For this reason, economists see punishment as a second-order public good. We show in an experiment that subjects do not value punishment for its deterrence but instead for the satisfaction of retaliating. Punishment choices are made with little strategic reasoning.
    Keywords: experiments ; public goods ; informal punishment ; emotions ; legal systems
    JEL: C91 C92 D23
    Date: 2006–04

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