nep-bec New Economics Papers
on Business Economics
Issue of 2006‒10‒28
twenty-two papers chosen by
Christian Calmes
Universite du Quebec en Outaouais

  1. Concentrated Ownership and Labour Relations By Mueller, Holger M; Philippon, Thomas
  2. CEO Power, Compensation and Governance By Albuquerque, Rui; Miao, Jianjun
  3. Labour Contracts, Equal Treatment and Wage-Unemployment Dynamics By Andy Snell; Jonathan Thomas
  4. Technology, Information and the Decentralization of the Firm By Acemoglu, Daron; Aghion, Philippe; Lelarge, Claire; Van Reenen, John; Zilibotti, Fabrizio
  5. Bankruptcy and Collateral in Debt Constrained Models By Timothy J Kehoe; David K Levine
  6. Why Do Worker-Firm Matches Dissolve? By Gielen, Anne; van Ours, Jan C
  7. Analayse de la valeur acquise en contexte d'interdépendance des chemins: la solution PNET By Lavagnon Ika
  8. Shocking Aspects of Canadian Labour Markets By Bayoumi, Tamim; Sutton, Bennett; Swiston, Andrew J.
  9. Financing a Portfolio of Projects By Inderst, Roman; Mueller, Holger M; Muennich, Felix
  10. Firms’ Heterogeneous Sensitivities to the Business Cycle, and the Cross-Section of Expected Returns By François Gourio;
  11. Wage Dynamics and Promotions Inside and Between Firms By António Dias da Silva; Bas van der Klaauw
  12. Financial Structure and Macroeconomic Volatility: Theory and Evidence By Huizinga, Harry; Zhu, Dantao
  13. Do Entrenched Manager Pay Their Workers More? By Cronqvist, Henrik; Heyman, Fredrik; Nilsson, Mattias; Svaleryd, Helena; Vlachos, Jonas
  14. Competition, Innovation and Growth with Limited Commitment By Marimon, Ramon; Quadrini, Vincenzo
  15. Productivité, informations et connaissances : les implications du basculement d'une logique "processus" à une logique "produit" By Bernard Billaudot
  16. Innovation and firm growth in "complex technology" sectors : a quantile regression approach. By Alex Coad; Rekha Rao
  17. The entrepreneur’s mode of entry: Business takeover or new venture start? By Simon C. Parker; C. Mirjam van Praag
  18. Modularité : l'émergence de nouvelles compétences organisationnelles dans les industries de biens complexes ? By Florent Catel; Jean-Charles Monateri
  19. Strategy and Organization Improving Organizational Learning By Tarondeau, Jean-Claude
  20. Subjective evaluation of performance through individual evaluation interview : theory and empirical evidence from France. By Marc-Arthur Diaye; Nathalie Greenan; Michal W. Urdanivia
  21. Entreprise-réseau, plateau de conception et compétences : de la notion de "compétences distribuées" à celle d'"acteur compétent By Yvan Renou
  22. Incentives for Managers and Inequality Among Workers: Evidence from a Firm Level Experiment By Bandiera, Oriana; Barankay, Iwan; Rasul, Imran

  1. By: Mueller, Holger M; Philippon, Thomas
    Abstract: Political struggles between the emerging European liberal states and the Catholic church in the 18th and 19th centuries provoked the formation of highly oppositional labour movements, resulting in Catholic countries having conflictual labour relations until the present. Based on the premise that differences in the quality of labor relations across countries are, at least partly, the outcome of historical and cultural developments, we examine whether these differences have implications for the prevalence of family ownership. Controlling for differences in minority shareholder protection, we find that countries with hostile labour relations have significantly more concentrated ownership than countries with cooperative labour relations. This relationship is strikingly robust and holds even when we instrument our survey measure of the quality of labour relations using either the fraction of Catholics or Protestants 1900. It also holds when we replace our survey measure of the quality of labour relations with actual strike data from the 1960s. As it turns out, differences in strike activity in the 1960s across Western countries can predict differences in ownership concentration thirty years later. Finally, the relationship also holds for Canadian time-series data, for which we document a markedly strong correlation between strike activity and changes in ownership concentration during the second half of the 20th century.
    Keywords: labour relations; ownership concentration; strikes
    JEL: G32 J52 J53
    Date: 2006–07
  2. By: Albuquerque, Rui; Miao, Jianjun
    Abstract: This paper presents a contracting model of governance based on the premise that CEOs are the main promoters of governance change. CEOs use their power to extract higher pay or private benefits, and different governance structures are preferred by different CEOs as they favour one or the other type of compensation. The model explains why good countrywide investor protection breeds good firm governance and predicts a 'race to the top' in firm-governance quality after the Sarbanes-Oxley Act. However, such governance changes may be associated with higher rather than lower CEO pay as CEOs substitute away from private benefits. The model also provides an explanation for the observed correlation of CEO pay and firm governance based on CEO power. Finally, we discuss the optimality of introducing randomness in CEO hiring, for example, by evaluating CEOs based on qualitative characteristics, or soft skills, that are prone to diverse judgements.
    Keywords: CEO compensation; CEO power; investor protection; moral hazard
    JEL: G34 J33 K00
    Date: 2006–09
  3. By: Andy Snell; Jonathan Thomas
    Abstract: This paper analyses a model in which .rms cannot pay discriminate based on year of entry to a .rm, and develops an equilibrium model of wage dynamics and unemployment. The model is developed under the assumption of worker mobility, so that workers can costlessly quit jobs at any time. Firms on the other hand are committed to contracts. Thus the model is related to Beaudry and DiNardo (1991). We solve for the dynamics of wages and unemployment, and show that real wages do not necessarily clear the labor market. Using sectoral productivity data from the post-war US economy, we assess the ability of the model to match actual unemployment and wage series. We also show that equal treatment follows in our model from the assumption of at-will employment contracting.
    Keywords: Labor contracts, business cycle, unemployment, equal treatment, cohort effects
    JEL: E32 J41
  4. By: Acemoglu, Daron; Aghion, Philippe; Lelarge, Claire; Van Reenen, John; Zilibotti, Fabrizio
    Abstract: This paper develops a framework to analyze the relationship between the diffusion of new technologies and the decentralization decisions of firms. Centralized control relies on the information of the principal, which we equate with publicly available information. Decentralized control, on the other hand, delegates authority to a manager with superior information. However, the manager can use her informational advantage to make choices that are not in the best interest of the principal. As the available public information about the specific technology increases, the trade-off shifts in favor of centralization. We show that firms closer to the technological frontier, firms in more heterogeneous environments and younger firms are more likely to choose decentralization. Using three datasets of French and British firms in the 1990s, we report robust correlations consistent with these predictions.
    Keywords: decentralization; heterogeneity; learning; the theory of the firm
    JEL: F23 O31 O32 O33
    Date: 2006–05
  5. By: Timothy J Kehoe; David K Levine
    Date: 2006–10–13
  6. By: Gielen, Anne; van Ours, Jan C
    Abstract: In a dynamic labor market worker-firm matches dissolve frequently causing workers to separate and firms to look for replacements. A separation may be initiated by the worker (a quit) or the firm (a layoff), or may result from a joint decision. A dissolution of a worker-firm match may be inefficient if it can be prevented by wage renegotiation. In this paper we study worker separations in the Dutch labor market. From an analysis of matched worker-firm data we conclude that both quits and layoffs are less likely to occur in high quality matches. We also find that workers with a high propensity to quit are offered higher wages to prevent them to quit. Similarly, workers with a high layoff probability give up some of their wage to prevent them from being laid-off. Despite these wage renegotiations some inefficiency in separations remains. However, there is a clear difference between quits and layoffs. Whereas inefficient quits are rare inefficient layoffs occur frequently. These phenomena may be related to downward wage rigidity. While it is easy to renegotiate higher wages to prevent quits it is much more difficult to renegotiate lower wages to prevent layoffs even if that would overall be beneficial to the workers involved.
    Keywords: layoffs; matched worker-firm dataset; quits; separations
    JEL: J31 J63 M51
    Date: 2006–07
  7. By: Lavagnon Ika (Département des sciences administratives, Université du Québec (Outaouais))
    Abstract: En gestion de projet, le dépassement des délais ou des coûts est fréquent. Le contrôle de projet ou la mesure de la performance s’avère important. À cet égard, l’outil de mesure de performance disponible est la valeur acquise, laquelle repose sur une planification de base PERT / CPM. Dans un travail récent, Ika (2004), après avoir relevé un certain nombre d’erreurs pouvant être considérées dans la détermination de la valeur acquise, a proposé une méthode pour analyser la valeur acquise dans un contexte d’interdépendance des chemins, dans les conditions d’une distribution bêta de la durée des activités, d’un PERT avec deux estimations et de la méthode stochastique PNET (Probabilistic network evaluation technique). Dans cet article, nous présentons, à l’aide d’un traitement numérique, une procédure rigoureuse pour déterminer la distribution du nombre d’activités complétées sur un chemin ou sur le projet dans son ensemble à un temps t et établir un intervalle de confiance autour de la valeur acquise.
    Keywords: Gestion de projet, Valeur acquise, PERT/CPM, Performance de projet, Interdépendance des chemins.
    JEL: M
    Date: 2006–10–26
  8. By: Bayoumi, Tamim; Sutton, Bennett; Swiston, Andrew J.
    Abstract: We analyze the flexibility of the Canadian labour market across provinces in both an inter- and intra-national context using macroeconomic data on employment, unemployment, participation, and (for Canada) migration and real wages. We find that Canadian labour markets respond in a similar manner to their U.S. counterparts and are more flexible than those in major euro area countries. Within Canada, the results indicate that labour markets in Ontario and provinces further west are more flexible, particularly with regard to migration, while those further east are less so.
    Keywords: economic flexibility; labour market; migration
    JEL: E24 J21 J61
    Date: 2006–09
  9. By: Inderst, Roman; Mueller, Holger M; Muennich, Felix
    Abstract: This paper shows that investors financing a portfolio of projects may use the depth of their financial pockets to overcome entrepreneurial incentive problems. While competition for scarce informed capital at the refinancing stage increases the investor’s ex post bargaining position, it may nevertheless improve entrepreneurs’ ex ante incentives. This is because projects funded by investors with 'shallow pockets' must have not only a positive NPV at the refinancing stage, but one that is higher than that of competing portfolio projects. We also show that, besides mitigating moral hazard, committing to shallow pockets may have benefits in dealing with adverse selection problems. Our paper may help to understand provisions used in venture capital finance that limit a fund’s initial capital and make it difficult to add on more capital once the initial venture capital fund is raised. Our paper also provides a number of empirical implications, some of which have not yet been tested.
    Keywords: deep versus shallow pockets; venture capital portfolio
    JEL: G31 G32
    Date: 2006–06
  10. By: François Gourio (Department of Economics, Boston University);
    Abstract: In this paper, I propose and test a simple technology-based theory of firms’ sensitivities to aggregate shocks. I show that when the elasticity of substitution between capital and labor is below unity, low profitability firms are more sensitive to aggregate shocks, i.e. to the business cycle. Since the wage is smoother than productivity, revenues are more procyclical than costs, making profits, the residual procyclical. Firms with low profitability are more procyclical since the residual is smaller and the amplification greater. I study the asset pricing implications of this technology and find that it can explain the riskiness of small and “value” firms (Fama and French 1996). These firms are less profitable and are thus more procyclical. I find empirically that the cross-section of expected returns is well explained by differences in sensitivities of firms’ earnings to GDP growth, or by differences in profitability. The model yields rich empirical implications by linking a firm’s real behavior (the elasticity of output, employment and profits to an aggregate shock) to its financial characteristics (the firm’s betas and its average return). I next embed my partial equilibrium model in a full DSGE model to conduct a GE analysis. Empirically I show that firms with low margins are indeed more sensitive to the business cycle in their employment, sales or profits.
    Keywords: Cross-Section of Returns, Book-to-Market, Value Premium, Productivity Heterogeneity.
    JEL: E44 G12
    Date: 2006–02
  11. By: António Dias da Silva (Free University Amsterdam and Tinbergen Institute); Bas van der Klaauw (Free University Amsterdam, Tinbergen Institute, Scholar, IFAU, CEPR and IZA Bonn)
    Abstract: We focus on the dynamic relation between wage increases, promotions and job changes. We relate our empirical analyses to the theoretical model of Gibbons and Waldman (1999). In the empirical analyses we use the Portuguese matched employer-employee data Quadros de Pessoal. We conclude from finding significant serial correlation in wage increases and promotion rates that employer learning about the worker's ability might be important. Furthermore, we find that the Portuguese labor market is not competitive. Finally, we argue that employer-reported promotion relate to a large extent to wage increases rather than changes in job tasks and complexity.
    Keywords: learning, competition, dynamic panel data models, matched employeremployee data
    JEL: M5 J6 L2
    Date: 2006–10
  12. By: Huizinga, Harry; Zhu, Dantao
    Abstract: This paper presents a simple model capturing differences between debt and equity finance to examine how financial structure matters for macroeconomic volatility. Debt finance is relatively cheap in the sense that debt holders need to verify relatively few profitability states, but debt finance may lead to costly bankruptcy. At the aggregate level, a more debt-based financial structure leads to a higher bankruptcy rate. Therefore, aggregate output is more variable in case of a heavy reliance on debt finance. This paper provides empirical evidence that countries with more equity finance have a lower variance of GDP and a lower probability of episodes of negative economic growth.
    Keywords: bankruptcy costs; financial structure; macroeconomic volatility
    JEL: C24 E32 E44 G33
    Date: 2006–06
  13. By: Cronqvist, Henrik (The Ohio State University); Heyman, Fredrik (Research Institute of Industrial Economies); Nilsson, Mattias (Worcester Polytechnic Institute); Svaleryd, Helena (Research Institute of Industrial Economies); Vlachos, Jonas (SITE, Stockholm School of Economcs, and CEPR)
    Abstract: We present evidence on whether managerial entrenchment affects workers' pay, using a large panel dataset that matches public firms with detailed data on their subsidiaries and workers. We find that CEOs with a stronger grip on control pay their workers higher wages, but CEO ownership of cash flow rights mitigates such behavior. Unionized workers and executives are found to get a larger share of the higher pay. These findings do not seem to be driven by productivity differences or reverse causality, and are robust to a series of robustness checks. Our evidence is consistent with an agency model in which entrenched managers pay higher wages because they come with direct private benefits for the manager, such as lower-effort wage bargaining and better CEO-employee relations, and suggests more broadly an important link between the corporate governance of large public firms and labor market outcomes.
    Keywords: Corporate governance; agency problems; private benefits; matched employer-employee data; wages
    JEL: G32 G34 J31
    Date: 2006–09–15
  14. By: Marimon, Ramon; Quadrini, Vincenzo
    Abstract: We study how barriers to competition - such as, restrictions to business start-up and strict enforcement of covenants or IPR - affect the investment in knowledge capital when contracts are not enforceable. These barriers lower the competition for human capital and reduce the incentive to accumulate knowledge. We show in a dynamic general equilibrium model that this mechanism has the potential to account for significant cross-country income inequality.
    Keywords: contract enforcement; economic growth; human capital
    JEL: L14 O4
    Date: 2006–09
  15. By: Bernard Billaudot (LEPII - Laboratoire d'Economie de la Production et de l'Intégration Internationale - [CNRS : FRE2664] - [Université Pierre Mendès-France - Grenoble II])
    Abstract: Cette communication part d'un schéma général liant la compétitivité de la firme à sa productivité alors conçue de façon originale comme une catégorie économique relative (avantage/désavantage vis-à-vis d'un concurrent) et d'une analyse de la formation de cette dernière selon deux composantes : productivité de processus et productivité de produit ; on montre que chacune de ces composantes n'implique pas le même type de relation client-fournisseur à l'amont et à l'aval. En retenant ensuite la proposition que la nouvelle ère dans laquelle sont entrées les entreprises se caractérise par une prééminence de la productivité de produit sur la productivité de processus à l'inverse de ce qu'il en était à l'époque fordiste, on tente de rendre compte logiquement des changements qui sont intervenus dans les relations client-fournisseur en matière de partage d'information et de conjugaison de connaissances (savoirs pratiques) déterminants des compétences distinctes.
    Keywords: produit ; productivité ; réseau ; rentabilité ; compétitivité ; relations clients fournisseurs ; organisation de l'entreprise
    Date: 2006–10–09
  16. By: Alex Coad (Panthéon-Sorbonne Economie); Rekha Rao (S. Anna School of Advanced Studies, Pisa, Italy)
    Abstract: Innovation is commonly seeb as the principal engine of economic development. In this paper, we investigate the microfoundations of economic growth by relating innovation to sales growth at the firm-level, for incumbent firms in four "complex technology" sectors. The average firm, which experiences only modest growth, may grow for a number of reasons that may not be related to "innovativeness". However, given that firms are heterogeneous and that growth rates distributions are typically heavy-tailed, it may be misleading to use regression techniques that focus on the average firm. Using a quantile regression approach, we observe that innovativeness is of crucial importance for a handful of "superstar" fast-growth firms.
    Keywords: Innovation, firm growth, quantile regression.
    JEL: O31 L25
    Date: 2006–06
  17. By: Simon C. Parker; C. Mirjam van Praag
    Abstract: We analyse the decision to become an entrepreneur by either taking over an established business or starting a new venture from scratch. A model is developed which predicts how several individual- and firm-specific characteristics influence entrepreneurs'entry mode. The new venture creation mode is associated with higher levels of schooling and wealth, whereas managerial experience, new venture start-up capital requirements and risk promote the takeover mode. Entrepreneurs whose parents run a family firm are predicted to invest the least in schooling, since schooling reduces search costs and these individuals have the lowest probability of needing to search for a business opportunity outside their family. A sample of data on entrepreneurs from the Netherlands provides broad support for the theory; implications for policy-makers concerned about the survival of family firms lacking within-family successors are discussed.
    Date: 2006–10
  18. By: Florent Catel (LEPII - Laboratoire d'Economie de la Production et de l'Intégration Internationale - [CNRS : FRE2664] - [Université Pierre Mendès-France - Grenoble II]); Jean-Charles Monateri (LEPII - Laboratoire d'Economie de la Production et de l'Intégration Internationale - [CNRS : FRE2664] - [Université Pierre Mendès-France - Grenoble II])
    Abstract: L'objet de cette communication est de proposer une analyse, centrée sur les compétences, de la dimension organisationnelle du concept de modularité de l'architecture d'un produit complexe. Notre point de départ est constitué par la caractérisation de l'architecture du produit. Il s'agit d'une grille de lecture qui s'impose à nous en permettant la classification des produits sur un continuum allant de modularité totale à intégralité totale. Nous montrons ensuite que les implications organisationnelles du design modulaire d'un produit sont généralement envisagées dans le cadre théorique du corpus "Williamsonnien". Enfin, et c'est la proposition centrale de cette communication, nous suggérons qu'une approche autour des compétences révèle la modularité dans son rôle de mobilisateur et coordinateur de compétences. Plus précisément, Le choix de l'architecture du produit peut influencer l'efficacité avec laquelle la firme combine et articule des ressources toujours plus complexes et diversifiées. Ce choix est donc fondamental dans la structuration des industries de produits complexes.
    Keywords: organisation de la production ; produit ; organisation industrielle ; compétence ; entreprise industrielle ; modularité
    Date: 2006–10–09
  19. By: Tarondeau, Jean-Claude (ESSEC Business School)
    Abstract: Living art organizations present a special interest in a research stressing cognitive processes and development of intangible resources like knowledge and capabilities. In living art organizations, production processes like rehearsals and tunings whose goals are to develop both tacit and tangible capabilities are readily observable and have undeniable effects on performance quality, revenues and costs. The observations of four opera houses support the conjecture that strategy and organizations could be preconditions for learning.
    Keywords: Cognitive Process; Learning; Living Art Organization; Organization; Strategy
    JEL: Z11
    Date: 2006–10
  20. By: Marc-Arthur Diaye (Centre d'Etudes de l'Emploi et Université d'Evry (EPEE)); Nathalie Greenan (Centre d'Etudes de l'Emploi); Michal W. Urdanivia (Panthéon-Sorbonne Economie et Centre d'Etudes de l'Emploi)
    Abstract: Individual evaluation interviews have become a widespread practice. 52 % of employees in French manufacturing firms over 50 employees declared an annual individual evaluation interview in 1997. However whereas the problem of constructing an optimal contract with subjective evaluation (which is defined simply as a signal in most papers) receives a large attention, firm-level evaluation interviews are strikingly left aside from economic analysis. This paper aims at identifying the underlying logics of individual evaluation interviews in the case of individual production and of team production. Especially, it aims at analyzing the relationships between effort, wage distribution within the firms and individual evaluation interviews. From a theoretical standpoint, three papers by Alchian and Demsetz (1972), by Che and Yoo (2001) and by MacLeod (2003) are closely related to our paper and from an empirical point of view, a recent paper by Engellandt and Riphahn (2004). We test in our paper four predictions. First, evaluation interviews have a positive impact on effort. Second, evaluation interviews increase the effort through two effects : the classical incentive effect and also a high selection effect. Third, evaluation interviews are associated with positive beliefs regarding wage and work recognition. Finally, evaluation interviews are associated with monetary gains for employees. These predictions are tested using a matched employer/employee survey on Computerization and Organizational Change(survey "Changements Organisationnels et Informatisation", C.O.I.), conducted in 1997 over a sample of about 4 000 firms and 9 000 employees.
    Keywords: Subjective evaluation, Principal-Agent model, personnel economics, super-modularity.
    JEL: M50 M54
    Date: 2006–09
  21. By: Yvan Renou (LEPII - Laboratoire d'Economie de la Production et de l'Intégration Internationale - [CNRS : FRE2664] - [Université Pierre Mendès-France - Grenoble II])
    Abstract: Cette communication s'intéresse à une forme particulière des "organisations orientées conception" (A. Hatchuel, B. Weil, H. Le Masson, 2002) : le réseau vertical d'entreprises. On propose d'interroger le dispositif de coordination qui caractérise certaines d'entre elles (à savoir le plateau de conception) à travers le prisme des compétences. Pour cela, après être revenu sur la nature particulière de ce dispositif, on interroge certains travaux de l'Economie des Compétences (au sens de N. Foss, 1993) quant à leur aptitude à rendre compte de ces dernières. Après avoir mis en évidence les apports et les limites de cette approche, on propose d'avoir recours aux travaux de B. Billaudot (2002) qui invitent à appréhender les nouvelles formes organisationnelles à partir de catégories d'analyse renouvelées, s'inspirant en cela des travaux de G.B. Richardson (1972) et de A. Giddens (1987). On s'intéressera plus particulièrement à la notion de compétence des acteurs au sein des plateaux de conception, celle-ci se révélant être moins le résultat de l'apprentissage d'un monde donné (i.e un ensemble de savoirs, savoirs-faire et de savoirs-être) que la capacité de comprendre et de se positionner à l'intérieur d'un monde en construction.
    Keywords: réseau ; compétence ; conception ; intégration verticale ; conception ; coopération industrielle ; organisation industrielle
    Date: 2006–10–16
  22. By: Bandiera, Oriana; Barankay, Iwan; Rasul, Imran
    Abstract: We present evidence from a firm level experiment in which we engineered an exogenous change in managerial compensation from fixed wages to performance pay based on the average productivity of lower-tier workers. Theory suggests that managerial incentives affect both the mean and dispersion of workers’ productivity through two channels. First, managers respond to incentives by targeting their efforts towards more able workers, implying that both the mean and the dispersion increase. Second, managers select out the least able workers, implying that the mean increases but the dispersion may decrease. In our field experiment we find that the introduction of managerial performance pay raises both the mean and dispersion of worker productivity. Analysis of individual level productivity data shows that managers target their effort towards high ability workers, and the least able workers are less likely to be selected into employment. These results highlight the interplay between the provision of managerial incentives and earnings inequality among lower-tier workers.
    Keywords: earnings inequality; managerial incentives; selection; targeting
    JEL: J33 M52
    Date: 2006–04

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