nep-bec New Economics Papers
on Business Economics
Issue of 2006‒09‒16
twenty-one papers chosen by
Christian Calmes
Universite du Quebec en Outaouais

  1. Mergers and CEO power By Felipe Balmaceda
  2. PERFORMANCE PAY AND WAGE INEQUALITY By Thomas Lemieux; W. Bentley Macleod; Daniel Parent
  3. Evaluations: Hidden Costs, Questionable Benefits, and Superior Alternatives By Bruno S. Frey; Margit Osterloh
  4. Does aggregate relative risk aversion change countercyclically over time? evidence from the stock market By Hui Guo; Zijun Wang; Jian Yang
  5. Renegotiation without Holdup: Anticipating Spending and Infrastructure Concessions By Eduardo Engel; Ronald Fischer; Alexander Galetovic
  6. Trend Cycle Correlation, Drift Break and the Estimation of Trend and Cycle in Canadian GDP By Arabinda Basistha
  7. Leadership As A Source Of Inspiration By Hartog, D.N. den
  8. Investment-specific technological change, skill accumulation, and wage inequality By Hui He; Zheng Liu
  9. Quantifying the Scope for Efficiency Defense in Merger Control: The Werden-Froeb-Index By Marie Goppelsroeder; Maarten Pieter Schinkel; Jan Tuinstra
  10. Banks, Distances and Financing Constraints for Firms By Pietro ALESSANDRINI; Alberto ZAZZARO; Andrea PRESBITERO
  11. Optimization of simulated inventory systems : optquest and alternatives By Kleijnen,Jack P.C.; Wan,Jie
  12. Managing Supplier Involvement in New Product Development: A Multiple-Case Study By Echtelt, F.E.A. van; Wynstra, J.Y.F.; Weele, A.J. van; Duysters, G.
  13. Career Progression and Formal versus On-the-Job Training By Jérôme Adda; Christian Dustmann; Costas Meghir; Jean-Marc Robin
  14. The Jack-of-All-Trades Entrepreneur: Innate Talent or Acquired Skill? By Olmo Silva
  15. Employee Training, Wage Dispersion and Equality in Britain By Filipe Almeida-Santos; Karen Mumford
  16. Exploring Gender Differences in Employment and Wage Trends Among Less-Skilled Workers By Rebecca M. Blank; Heidi Shierholz
  17. Econometric modeling of business Telecommunications demand using Retina and Finite Mixtues. By Massimiliano Marinucci; Teodosio Pérez Amaral
  18. Channel Performance and Incentives for Retail Cost Misrepresentation. By Rabah Amir; Thierry Leiber; Isabelle Maret
  19. Outsourcing, Offshoring, and Productivity Measurement in Manufacturing By Susan Houseman
  20. Olygopoly and Outsourcing By Subhayu Bandyopadhyay; Howard Wall
  21. Worker satisfaction and perceived fairness: result of a survey in public, and non-profit organizations By Ermanno Tortia

  1. By: Felipe Balmaceda
    Abstract: In this paper a simple model of mergers in which synergies, private benefits and CEO power play a crucial role is proposed. A merger is modeled as a bargaining process between the acquiring and target board with the gains from a merger divided according to Rubinstein’s alternating-offer game with inside options. Boards consider both firm value and CEOs’ payoff. when deciding whether or not to merge. The more powerful CEOs are, the more board members consider the consequences of a merger on CEOs’ payoffs. The model determines the optimal firm scope and yields predictions that are consistent with several empirical regularities about mergers such as: (i) inefficient mergers take place when acquiring CEOs are powerful and units are not related; (ii) target shareholders are better-o. after a merger, acquiring shareholders are sometimes worse-off., and combined value is positive; and (iii) in the presence of credit constraints, acquiring firms are more likely to merge with low-productivity firms and with firms in which CEOs are less powerful.
    Date: 2006
  2. By: Thomas Lemieux; W. Bentley Macleod; Daniel Parent
    Abstract: An increasing fraction of jobs in the U.S. labor market explicitly pay workers for their performance using a bonus, a commission, or a piece rate. In this paper, we look at the effect of the growing incidence of performance pay on wage inequality. The basic premise of the paper is that performance pay jobs have a more "competitive" pay structure that rewards productivity differences more than other jobs. Consistent with this view, we show that compensation in performance pay jobs is more closely tied to both measured (by the econometrician) and unmeasured productive characteristics of workers. We conclude that the growing incidence of performance pay accounts for 25 percent of the growth in male wage inequality between the late 1970s and the early 1990s.
    JEL: D3 J31 J33
    Date: 2006–08
  3. By: Bruno S. Frey; Margit Osterloh
    Abstract: Research evaluation is praised as the symbol of modern quality management. We claim firstly, performance evaluations in research have higher costs than normally assumed, because the evaluated persons and institutions systematically change their behavior and develop counter strategies. Moreover, intrinsic work motivation is crowded out and undesired lock-in effects take place. Secondly, the benefits of performance evaluations are questionable. Evaluations provide too little information relevant for decision-making. In addition, they lose importance due to new forms of scientific cooperation on the internet. Thirdly, there exist superior alternatives. They consist in careful selection and supportive process coaching – and then leave individuals and research institutions to direct themselves.
    Keywords: Evaluation; rankings; hidden costs; multi tasking; intrinsic motivation; control theory; selection
    JEL: C44 D02 D61 D72 H52 I23 M12
    Date: 2006–08
  4. By: Hui Guo; Zijun Wang; Jian Yang
    Abstract: Using a semiparametric estimation technique, we show that the risk-return tradeoff and the Sharpe ratio of the stock market increases monotonically with the consumption wealth ratio (CAY) across time. While early studies have commonly interpreted such a finding as evidence of the countercyclical variation in aggregate relative risk aversion (RRA), we argue that it mainly reflects changes in investment opportunities for two reasons. First, we fail to reject the null hypothesis of constant RRA after controlling for CAY as a proxy for the hedge against changes in the investment opportunity set. Second, by contrast with habit formation models but consistent with ICAPM, we find that loadings on the conditional stock market variance scaled by CAY are negatively priced in the cross-sectional regressions. For illustration, we replicate the countercyclical stock market risk-return tradeoff using simulated data from Guo's (2004) limited stock market participation model, in which RRA is constant and CAY is a proxy for shareholders' liquidity conditions.
    Keywords: Capital assets pricing model ; Stock market
    Date: 2006
  5. By: Eduardo Engel; Ronald Fischer; Alexander Galetovic
    Abstract: Infrastructure concessions are frequently renegotiated after investments are sunk, resulting in better contractual terms for the franchise holders. This paper offers a political economy explanation for renegotiations that occur with no apparent holdup. We argue that they are used by political incumbents to anticipate infrastructure spending and thereby increase the probability of winning an upcoming election. Contract renegotiations allow administrations to replicate the effects of issuing debt. Yet debt issues are incorporated in the budget, must be approved by Congress and are therefore subject to the opposition’s review. By contrast, under current accounting standards the obligations created by renegotiations circumvent the budgetary process in most countries. Hence, renegotiations allow incumbents to spend more without being subject to Congressional oversight.
    Date: 2006
  6. By: Arabinda Basistha (Department of Economics, West Virginia University)
    Abstract: This paper argues, using Monte Carlo experiments, that bivariate correlated unobserved components (UC) framework delivers more accurate estimation results for trend and cycle parameters than the univariate framework.The paper estimates stochastic trend and cyclical fluctuations in Canada from a bivariate, correlated UC model with drift breaks. In contrast to the univariate results, bivariate estimation shows a fairly volatile stochastic trend after accounting for the drift break along with a negative trend-cycle shock correlation. The estimated cyclical component is moderately large, persistent and consistent with ECRI denoted Canadian recessions.
    Keywords: Stochastic trend, Inflation, GDP, Unobserved components model
    JEL: E31 E32 E50
    Date: 2005
  7. By: Hartog, D.N. den (Erasmus Research Institute of Management (ERIM), RSM Erasmus University)
    Keywords: Inspirational leadership;transformational leadership;performance and success;vision and charisma;Shackleton;
    Date: 2001–10–05
  8. By: Hui He; Zheng Liu
    Abstract: Wage inequality between education groups in the United States has increased substantially since the early 1980s. The relative quantity of college-educated workers has also increased dramatically in the postwar period. This paper presents a unified framework where the dynamics of both skill accumulation and wage inequality arise as an equilibrium outcome driven by measured investment-specific technological change. Working through capital-skill complementarity and endogenous skill accumulation, the model is able to account for much of the observed changes in the relative quantity of skilled workers. The model also does well in replicating the observed rise in wage inequality since the early 1980s. Based on the calibrated model, we examine the quantitative effects of some hypothetical tax-policy reforms on skill formation, inequality, and welfare.
    Keywords: Wages
    Date: 2006
  9. By: Marie Goppelsroeder (Graduate Institute of International Studies, Geneva, Switzerland); Maarten Pieter Schinkel (Faculty of Economics and Business, Universiteit van Amsterdam); Jan Tuinstra (Faculty of Economics and Business, Universiteit van Amsterdam)
    Abstract: In both US and EU merger control, merger-specific efficiencies are recognized as a possible defense for horizontal mergers that raise competition concerns. We introduce the Werden-Froeb-index (WFI) to assist in evaluating these efficiencies. The index measures the average reduction in marginal costs required to restore pre-merger equilibrium prices and quantities after the merger is consummated. It has low information requirements and can deal with any number of firms in price- or quantity-competition merging fully or partially, and a large class of demand and cost functions. We show how the WFI complements Phase I merger inquiries as a screening mechanism.
    Keywords: Merger control; efficiency defense; index; HHI
    JEL: L10 L40 C43
    Date: 2006–08–25
  10. By: Pietro ALESSANDRINI (Universita' Politecnica delle Marche, Dipartimento di Economia); Alberto ZAZZARO (Universita' Politecnica delle Marche, Dipartimento di Economia); Andrea PRESBITERO ([n.a.])
    Abstract: The wave of bank mergers and acquisitions experienced in European and U.S. credit markets during the Nineties has deeply changed the geography of banking industry. While the number of bank branches has increased in almost every country, reducing the operational distance between banks and borrowers, bank decisional centres and strategic functions have been concentrated in only a few places within each nation, increasing the functional distance between banks and local communities. In this paper, we carry out a multivariate analysis to assess the correlation of functional and operational distances with local borrowers' financing constraints. We apply our analysis on Italian data at the local market level defined as provinces. Our findings consistently show that increased functional distance makes financing constraints more binding, it being positively associated with the probability of firms being rationed, investment-cash flow sensitivity, and the ratio of credit lines utilized by borrowers to credit lines make available by banks. These adverse effects are particularly evident for small firms and for firms located in southern Italian provinces. Furthermore, our findings suggest that the negative impact on financing constraints following the actual increased functional distance over the period 1996-2003 has substantially offset (and sometimes exceeded) the beneficial effects of the increased diffusion of bank branches occurring during the same period.
    Keywords: financing constraints, funtional distance, local banking system, operational proximity
    JEL: G21 G34 R51
    Date: 2006–09
  11. By: Kleijnen,Jack P.C.; Wan,Jie (Tilburg University, Center for Economic Research)
    Abstract: This article illustrates simulation optimization through an (s, S) inventory management system. In this system, the goal function to be minimized is the expected value of specific inventory costs. Moreover, specific constraints must be satisfied for some random simulation responses, namely the service or fill rate, and for some deterministic simulation inputs, namely the constraint s < S. Results are reported for three optimization methods, including the popular OptQuest method. The optimality of the resulting solutions is tested through the so-called Karesh-Kuhn-Tucker (KKT) conditions.
    Keywords: OptQuest software;Response Surface Methodology;Karesh-Kuhn-Tucker conditions; service constrained inventory system
    JEL: C0 C1 C9 C15 C44
    Date: 2006
  12. By: Echtelt, F.E.A. van; Wynstra, J.Y.F.; Weele, A.J. van; Duysters, G. (Erasmus Research Institute of Management (ERIM), RSM Erasmus University)
    Abstract: Existing studies of supplier involvement in new product development have mainly focused on project-related short-term processes and success-factors. This study validates and extends an existing exploratory framework, which comprises both long-term strategic processes and short-term operational processes that are related to supplier involvement. The empirical validation is based on a multiple-case study of supplier collaborations at a manufacturer in the copier and printer industry. The analysis of eight cases of supplier involvement reveals that the results of supplier-manufacturer collaborations and the associated issues and problems can best be explained by the patterns in the extent to which the manufacturer manages supplier involvement in the short-term ?nd the long-term. We find that our initial framework is helpful in understanding why certain collaborations are not effectively managed, yet conclude that the existing analytical distinction between four different management areas does not sufficiently reflect empirical reality. This leads us to reconceptualize and further detail the framework. Instead of four managerial areas, we propose to distinguish between the Strategic Management arena and the Operational Management arena. The Strategic Management arena contains processes that together provide long-term, strategic direction and operational support for project teams adopting supplier involvement. These processes also contribute to building up a supplier base that can meet current and future technology and capability needs. The Operational Management arena contains processes that are aimed at planning, managing and evaluating the actual collaborations in a specific development project. The results of this study suggest that success of involving suppliers in product development is reflected by the firm?s ability to capture both short-term and long-term benefits. If companies spend most of their time on operational management in development projects, they will fail to use the ?leverage? effect of planning and preparing such involvement through strategic management activities. Also, they will not be sufficiently able to capture possible long-term technology and learning benefits that may spin off from individual projects. Long-term collaboration benefits can only be captured if a company can build long-term relationships with key suppliers, where it builds learning routines and ensures that the capability sets of both parties are aligned and remain useful for future joint projects.
    Keywords: New Product Development;Innovation;R&D Management;Supplier Relations;Purchasing;
    Date: 2006–09–07
  13. By: Jérôme Adda (University College London and IFS); Christian Dustmann (University College London, IFS and IZA Bonn); Costas Meghir (University College London, IFS and IZA Bonn); Jean-Marc Robin (University of Paris 1, University College London, IFS and IZA Bonn)
    Abstract: We develop a dynamic discrete choice model of training choice, employment and wage growth, allowing for job mobility, in a world where wages depend on firm-worker matches, as well as experience and tenure and jobs take time to locate. We estimate this model on a large administrative panel data set which traces labour market transitions, mobility across firms and wages from the end of statutory schooling. We use the model to evaluate the lifecycle return to apprenticeship training and find that on average the costs outweigh the benefits; however for those who choose to train the returns are positive. We then use our model to consider the long-term lifecycle effects of two reforms: One is the introduction of an Earned Income Tax Credit in Germany, and the other is a reform to Unemployment Insurance. In both reforms we find very significant impacts of the policy on training choices and on the value of realised matches, demonstrating the importance of considering such longer term implications.
    Keywords: educational decision, apprenticeship, dynamic choice, evaluation
    JEL: I2 J6
    Date: 2006–08
  14. By: Olmo Silva (CEP, London School of Economics and IZA Bonn)
    Abstract: Cross-sectional tests of the Jack-of-All-Trades theory of entrepreneurship invariably conclude that accumulation of balanced skill-mix across different fields of expertise stimulates entrepreneurship. Yet, none of these considers individual unobservable characteristics which may simultaneously determine skill accumulation and occupational choice. Using panel techniques to control for this, I show that gathering expertise across various subjects does not increase the chances of becoming entrepreneur.
    Keywords: entrepreneurship, occupational choice, skills
    JEL: M13 J23 J24
    Date: 2006–08
  15. By: Filipe Almeida-Santos (University of York and Universidade Católica Portuguesa); Karen Mumford (University of York and IZA Bonn)
    Abstract: We use British household panel data to explore the wage returns to training incidence and intensity (duration) for 6924 employees. We find these returns differ greatly depending on the nature of the training (general or specific); who funds the training (employee or employer); and the skill levels of the recipient (white or blue collar). Using decomposition analysis, we further conclude that training is positively associated with wage dispersion in Britain and a virtuous circle of wage gains but only for white-collar employees.
    Keywords: training, wage compression, performance
    JEL: J24 J31 J41
    Date: 2006–08
  16. By: Rebecca M. Blank; Heidi Shierholz
    Abstract: In contrast to less-skilled men, less-skilled women have experienced growing labor force involvement and moderate wage increases. Compared to more-skilled women, less-skilled women have fallen behind. We investigated the reasons behind these trends in labor force participation and wages for male and female workers of different skill levels over the past 25 years, from 1979-2004. We find that less-skilled women have found themselves in an 'intermediate' place in the labor market. Like less-skilled men, they experienced deteriorating returns to education but, unlike the men, they benefited from a growing positive impact of accumulated experience on labor market outcomes. More-skilled women experienced both growing returns to education and greater accumulation of experience, leading to faster wage growth. In addition, at the same time that experience levels have grown, the returns to experience on wages and labor force participation have also risen among less-skilled women, while the returns to experience have declined among less-skilled men. The negative effect of children and marital status on wages and labor force participation has also declined markedly among women of all skill levels.
    JEL: J16 J31
    Date: 2006–08
  17. By: Massimiliano Marinucci (Universidad Complutense de Madrid. Facultad de CC. Económicas y Empresariales. Dpto. de Economía Cuantitativa.); Teodosio Pérez Amaral (Universidad Complutense de Madrid. Facultad de CC. Económicas y Empresariales. Dpto. de Economía Cuantitativa.)
    Abstract: In this paper we estimate the business telecommunications demands for local,intra-LATA and inter-LATA services, using US data from a Bill Harvesting R survey carried out during 1997. We model heterogeneity, which is present among firms due to a variety of different business telecommunication needs, by estimating normal heteroskedastic mixture regressions. The results show that a three-component mixture model fits the demand for local services well, while a two-component structure is used to model intra-LATA and inter-LATA demand. We characterize the groups in terms of their differences among the coefficients, and then use Retina to perform automatic model selection over an expanded candidate regressor set which includes heterogeneity parameters as well as transformations of the original variables. Our models improve substantially the in-sample fit as well the out-ofsample predictive ability over alternative candidate models. Retina suggests that the final demand specification should include telephone equipment variables as relevant regressors. On the other hand, the output of the firm, as well as its physical extension, have second order, yet significant effects on the demand for telecommunication services. Estimated elasticities are different for the three demands but always positive for access form (single-line or private network).
    Date: 2005
  18. By: Rabah Amir; Thierry Leiber; Isabelle Maret
    Abstract: This paper investigates the price decision making and channel performance under cost misrepresentation at the retail stage. In the standard double marginalization game, we introduce a preliminary stage, where the retailer can misrepresent her constant marginal cost. We give respective sufficient conditions on the demand function for the retailer to misrepresent her marginal cost downwards and upwards. In contrast to the literature, we prove that the opportunistic behavior of the retailer does not necessarily lower channel performance and social welfare. Indeed, a downward misrepresentation of the retail cost, which one obtains when the price elasticity of demand is not very price elastic, increases channel performance and social welfare. Illustrative examples using common specifications of demand are provided.
    Keywords: Channel Cooperation, Channels of Distribution, Decision-Making, Distribution, Game Theory, Pricing Research, Retailing and Wholesaling, Signaling, Supply Chains.
    Date: 2006
  19. By: Susan Houseman (W.E. Upjohn Institute for Employment Research)
    Abstract: Because of gaps in existing surveys and methodological problems with the computation of productivity measures, outsourcing and offshoring result in an overstatement of labor productivity and multifactor productivity growth in manufacturing. Although it is impossible to fully characterize the size of the bias, I present several pieces of evidence indicating that it is large. Any overstatement of productivity in manufacturing, which has been a driver of productivity in the American economy, may have important implications for aggregate productivity measurement, particularly to the extent that the bias arises from offshoring activities. These findings may help explain why recent high growth in labor productivity has not been associated with widespread wage gains but rather with an increase in capital's share of GDP: labor productivity growth in manufacturing, and most likely in the aggregate economy, are overstated, and the very factors that have led to the overstatement - outsourcing and offshoring - depress wages. The effects of outsourcing and offshoring on manufacturing and aggregate productivity measurement, I argue, warrant further study, and productivity measures should be interpreted with caution.
    Keywords: offshoring, productivity, manufacturing, outsourcing, measurement, houseman
    JEL: D24 D33 O47 J24
    Date: 2006–09
  20. By: Subhayu Bandyopadhyay (Department of Economics, West Virginia University and IZA, Bonn); Howard Wall (Federal Reserve Bank of St. Louis)
    Abstract: With outsourcing comes a perceived tension between the competitive pressures faced by domestic firms and the effect that outsourcing has on domestic workers. To address this tension, we present a general-equilibrium model with an oligopolistic export sector and a competitive import-competeing sector. When there is a minimum wage, an outsourcing tax might be desirable and the usual profit-shifting objectives of an export subsidy are mitigated, perhaps completely, because it might lead to higher unemployment. Also, increased international competition has no effect on the level of outsourcing, but the direction of its effect on unemployment and national income depends on the relative factor intensities of the two sectors. Under wage flexibility, an outsourcing tax cannot be justified and the profit-shifting motive is the same as in a model without outsourcing. Further, if export subsidies are not possible due to WTO regulations, it is optimal to subsidize rather than to tax outsourcing. Finally, the effect of increased foreign competition on welfare depends on the relative factor intensities of the two sectors.
    Date: 2005
  21. By: Ermanno Tortia
    Abstract: Exploiting a unique data set concerning a sample of 228 social service organizations, and on 2066 workers, the paper seeks to demonstrate that workers’ satisfaction with the job and loyalty to the organization are crucially influenced by fairness concerns. Worker well-being is increased by a higher degree of perceived fairness, and the effect is highest for procedural fairness. By sorting the organizations into public and nonprofits, the former are found to be at a disadvantage in regard to both satisfaction and perceived fairness. Nonprofits show the highest scores on most items and the gap is highest in the realm of procedural fairness.
    Date: 2006

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