nep-bec New Economics Papers
on Business Economics
Issue of 2006‒12‒04
eighteen papers chosen by
Christian Calmes
Universite du Quebec en Outaouais

  1. Gold Rush Fever in Business Cycles By Paul Beaudry; Fabrice Collard; Franck Portier
  2. Entrepreneurship and market order: Some historical evidence By Bitros, George; Minoglou, Ioanna
  3. Entrepreneurship by circumstances and abilities: the mediating role of job satisfaction and moderating role of self-efficacy By Wong, Poh Kam; Lee, Lena; Leung, Aegean
  4. Entry and Vertical Disintegration By Alain de Fontenay; Christiaan Hogendorn
  5. How does An Entrepreneur’s Ability Influence the Propensity to Exploit Novel Opportunities? The Moderating Role of Personality and Environment By Lee, Lena; Wong, Poh Kam
  6. Equity Security Prices, Investors’ Planning Horizon, and Corporate Financial Planning By Salvary, Stanley C. W.
  7. Technological knowledge and the theory of the firm: The role of idiosyncratic factors in the quest for the economics of distinctive competences By Antonelli Cristiano
  8. Excessive(?) Entry of National Telecom Networks, 1990-2001 By Christiaan Hogendorn
  9. The Political Economy of Global Outsourcing By Sharma, Chanchal Kumar
  10. Entrepreneurship and Economic Theory By Khalil, Elias
  11. Models of knowledge and systems of governance By Antonelli Cristiano
  12. East Asian Financial Crisis of 1997 Revisited: Is it Possible to Devise an Early Warning System? By Feridun, Mete
  13. On R&D Investment By Khazabi, Massoud
  14. Explicit Evidence on an Implicit Contract By Young, Andrew; Levy, Daniel
  15. Long-term labour productivity and GDP projections for the EU25 Member States : a production function framework By Carone, Giuseppe; Denis, Cécile; Mc Morrow, Kieran; Mourre, Gilles; Röger, Werner
  16. Depreciation, Deterioration and Obsolescence when there is Embodied or Disembodied Technical Change By Diewert, W. Erwin; Wykoff, Frank C.
  17. On Privatisation and Restructuring By Schröder, Philipp J.H.
  18. Contagion effect in banking system - measures based on randomised loss scenarios By Hałaj, Grzegorz

  1. By: Paul Beaudry; Fabrice Collard; Franck Portier
    Abstract: Gold rushes are periods of economic boom, generally associated with large increases in expenditures aimed at securing claims near new found veins of gold. An interesting aspect of gold rushes is that, from a social point of view, much of the increased activity is wasteful since it contributes simply to the expansion of the stock of money. In this paper, we explore whether business cycle fluctuations may sometimes be driven by a phenomenon akin to a gold rush. In particular, we present a model where the opening of new market opportunities causes an economic expansion by favoring competition for market share, which is essentially a dissolution of rents. We call such an episode a market rush. We construct a simple model of a market rush that can be embedded into an otherwise standard Dynamic General Equilibrium model, and show how market rushes can help explain important features of the data. We use a simulated-moment estimator to quantify the role of market rushes in fluctuations. We find that market rushes may account for over half the short run volatility in hours worked and a third of the short run volatility of output.
    JEL: E32
    Date: 2006–11
  2. By: Bitros, George; Minoglou, Ioanna
    Abstract: Our objective here is to establish the proposition that creative entrepreneurship gives rise to a market order which is optimally adjusted to facilitate the introduction and the diffusion of innovations, particularly those that take the form of new markets, new organizational schemes, new management devices and new methods and means of doing business. To substantiate this claim we extract from the existing historical literature and employ the ideal type entrepreneurial method of the Greek diaspora network. The interpretation we offer is that this method showed a high degree of operational flexibility and institutional adaptability and that it is these two proper-ties that explain its marked tenacity over time. The key ingredient for its success is traced to the self-regulatory robustness of the network, which was secured by the commitment of its partners to a moral order based on the triptych of ‘trust, reliability and reciprocity’ as well as to their ac-ceptance in advance of the sanctions in case of transgressions. Moreover, the embeddedness of the branches of the network in the Greek communities abroad, called Paroikies, where the Greek Orthodox Church provided moral leadership and maintained the community ties, reinforced the adherence of network partners to the rules of ethical business conduct. But in our view the domi-nant force in the design of the core mechanism that made the Greek diaspora network such a suc-cess was entrepreneurship.
    Keywords: Entrepreneurship; Institutions; Networks; International Business Organizations
    JEL: N84 L22 N83 L14
    Date: 2006–10–24
  3. By: Wong, Poh Kam; Lee, Lena; Leung, Aegean
    Abstract: Prior studies have found that job dissatisfaction and self-efficacy are significant factors influencing individuals’ entrepreneurial propensity. Existing literature on entrepreneurship often regards job dissatisfaction as an entrepreneurial push factor and self-efficacy as an entrepreneurial pull factor. The argument is that individuals who are dissatisfied with their jobs are more likely to seek alternative mode of employment such as self-employment. In other words, poor job circumstances may push individuals to leave their paid employment to start their own businesses. On the other hand, personal abilities such as self-efficacy may pull individuals toward starting their own businesses in areas where they are confident and competent in. Despite the importance of job dissatisfaction and self-efficacy for new venture creation, few if any studies have examined the entrepreneurial phenomena from a holistic perspective. Utilizing concepts from the P-E fit and self-efficacy literatures, this paper argues that the path to entrepreneurship is a multi-faceted interactive process between individuals’ personal attributes and their work environment. We specifically examined how IT professional’s personal attributes such as innovation orientation and self-efficacy condition individuals for an entrepreneurial career in unsatisfactory work environments.
    JEL: M2
    Date: 2006
  4. By: Alain de Fontenay (CITI, Columbia University); Christiaan Hogendorn (Economics Department, Wesleyan University)
    Abstract: We formalize and extend George Stigler’s famous article “The division of labor is limited by the extent of the market.” We emphasize economies of scale in intermediate goods production as a determinant of firm boundaries and vertical control. We show that there are potential coordination failures which may prevent efficient vertical disintegration, and we discuss how these might be either overcome or used to the advantage of incumbent firms.
    Keywords: entry, vertical integration, specialization
    JEL: D23 L22 L23
    Date: 2005–12
  5. By: Lee, Lena; Wong, Poh Kam
    Abstract: While prior research has examined the influence of entrepreneurs’ ability and personality on entrepreneurial behavior separately, our study’s contribution is to confirm their joint effects, as well as their interaction effects with the dynamism of the environment on entrepreneurs’ opportunity exploitation behavior. Our study’s findings are consistent with the emerging opportunity-exploiter nexus framework of Shane and Venkataraman, which posits that the rate and nature of entrepreneurial exploitation activities are jointly determined by the nexus of environmental factors that shape the emergence of opportunities and the supply of opportunity-seekers with the right entrepreneurial personalities and abilities to exploit such opportunities. Specifically, we found that highly critical entrepreneurs who are high in extraversion, agreeableness, openness to experience, independence, and emotional stability have higher propensity to exploit novel opportunities in uncertain environments.
    Keywords: Personality; ability; opportunity exploitation
    JEL: M2
    Date: 2006
  6. By: Salvary, Stanley C. W.
    Abstract: Information contained in security prices are relevant to different segments of the financial community. Given the most appropriate methodology, each segment attempts to extract the information relevant to its decision. This paper posits that the net present value (NPV) of a firm's equity security (share market price less book value of that share) contains information relating to the average planning horizon (APH) of the equity investors. Given general uncertainty and volatile financial market conditions, this study suggests that the messages contained in the NPV may be potentially useful for corporate financial planning.
    Keywords: value decreasing business acquisitions; risk unrelated to market movements; investors’ average planning horizon; information on market expectation; clientele theory of ownership; financial policy decisions; financial and business risks; multi-periods investment decisions; aggregation of expectations; negative risk premium; dividend clientele; repurchasing firms; dividend increasing firms.
    JEL: G32 G3
    Date: 2006–01–22
  7. By: Antonelli Cristiano (University of Turin)
    Abstract: This paper elaborates a theory of the firm that combines the intuitions of Edith Penrose with the analysis of localized technological knowledge. The analysis of the characteristics of knowledge indivisibility and of idiosyncratic factors pIay a key role in shaping the intentionai strategy of firms about the direction of technology strategies. The firm is viewed as a Iearning agent that, induced by market forces and buiIding upon Iearning processes, elaborates and impiements intentionally strategies of knowledge generation. These strategies include the necessary identification of the externai sources of compiementary technoiogicai knowledge and of the idiosyncratic production factors that is convenient to lise intensiveIy. Learning, in fact is a necessary, but not sufficient condition for the generation of new knowledge. The anaIysis of the conditions for the intentional generation of technoiogicai and organizationai knowledge becomes crociato The analysis of the combined effects of internai Iearning, externai knowledge and intensive lise of idiosyncratic factors by means of the introduction of biased technological change CUlli intentional decision­making provides key inputs to understanding the path dependent and idiosyncratic features of the knowledge generated by the firm as the basis for its distinctive competences.
    Date: 2005–07
  8. By: Christiaan Hogendorn (Economics Department, Wesleyan University)
    Abstract: We document entry and capacity expansion in US long-distance fiber-optic networks before and during the “telecom boom.” We disentangle the many swaps and leases between networks in order to measure owned route miles versus route miles shared with other carriers. Entry appears much more moderate when these shared miles are not counted. Strategic behavior can lead to excessive entry, and we find evidence of such behavior regarding total miles (including swaps and leases) but not regarding owned miles. We conclude that entry was excessive only with regard to swaps and leases, but not with regard to the physical building of the networks.
    Keywords: telecommunications, investment, preemption
    JEL: L11 L13 L96
    Date: 2006–01
  9. By: Sharma, Chanchal Kumar
    Abstract: What is outsourcing and why India is being considered as BPO destination of the world? Why jobs are coming to India and why there is a downturn in the US economy and loss of jobs in that country. Even though these are two different things that happened simultaneously, they sadly managed to be mixed up. Academicians are groping to understand the phenomenon and are still in the process of disentangling themselves from the wave of confusion that exists. Politicization of the issue has made the concept of outsourcing a highly debatable, perplexing and controversial. The debate has conceptual, moral, economic, political and policy dimensions. The debate centers on the theoretical issue of globalization verses protectionism. In addition, it has a moral and human dimension that compels one to ponder over the hopeless uncertainty and misery that has dawned upon of those displaced due to outsourcing in the developed countries. Apart from these, there are certain practical policy issues that have become part of the debate such as theft of crucial information by the offshore workers, threat to the safety of Intellectual Property and the concern over the quality of services being delivered by the BPO companies in India and other developing countries. Finally the political dimension of this contentious issue that has forced the federal government of USA to make a law against outsourcing of the government contracts cannot be ignored. A fall out of Globalization, outsourcing is being discussed around the world from a renewed perspective, sometimes with delight and at other times with fury, depending upon which side of outsourcing the person is supporting. Taking exception from the subjective and partial treatment as the supporters and opponents of the phenomenon around the globe are offering, like six blind men trying to expound the outlines of an elephant the paper deals with the theme in its totality, while avoiding the prejudiced approach of a religious enthusiast. To the supporters the problem of job loss is not very serious thus they oppose protectionist attitude of the U.S government. But the fact is that the problem of job loss is quite critical yet pursuing protectionism as stipulated by the opponents is not a solution. Supporters have relied upon the traditional ‘job replacement argument’ to dissipate the fears regarding job loss. But it has been argued that the problem of job loss is serious and no replacements are going to take place in near future to substitute the quantum of jobs being lost. Thus unemployment, intended or unintended, will be the consequence. But protectionism, far from solving the problem, will create the new ones. Paper suggests certain alternatives on the basis of the model of job-protection exemplified by the British government.
    Keywords: Outsoursing; Bpo; USA; India; Political Economy
    JEL: G0 Z0
    Date: 2004–11
  10. By: Khalil, Elias
    Abstract: Let us define entrepreneurship as creativity and the evolution of novelty. Let us suppose, the main thesis of the chapter, that entrepreneurship is an action that does not differ from everyday action such as walking, driving, or chewing gum. If the definition and supposition are granted we can conclude that the theory of everyday action, such as walking or chewing gum, is one and the same as the theory of evolution. The conclusion is definitely strange if not extraordinary. It is based on a subtle but subversive thesis: There is no difference between everyday action and creativity or evolution. This conclusion is extraordinary only because it goes against the dominant dogmas in economics (i.e., neoclassical theory) and evolutionary biology (i.e., neo-Darwinian theory). Both dogmas draw a radical divide between action and evolution. For neo-Darwinian theory, action is phenotype ultimately determined by genotype—while the genotype evolves according to another mechanism. For neoclassical economics, action is determined by rational calculation of the efficient allocation of given resources—while resources evolve according to another mechanism. To undermine the radical divide between the theory of action and the theory of evolution, this chapter shows how everyday action—from walking, fetching water, to fishing—is entrepreneurial at first level of approximation—and hence should be the basis of the theory of evolution.
    Keywords: Action; Evolution; neo-Darwinism; neoclassical theory; Austrian Economics; classical economics; Alfred Whitehead; John Dewey.
    JEL: D29 D20
    Date: 2006–10–13
  11. By: Antonelli Cristiano (University of Turin)
    Date: 2005–01
  12. By: Feridun, Mete
    Abstract: This study examines the causes of the East Asian financial crisis and presents an early warning system based on data from Mmalaysia, Iindonesia, Tthailand, Ssingapore, and Pphilippines during 1982:1–1998:1 through a panel probit regression model using 20 monthly macroeconomic and financial sector variables. Results indicate that the significant variables are current account/GDPgdp, domestic credit/terms of trade, lending and deposit rate spread, and foreign direct investment/GDPgdp. Evidence further suggests that the probability of the crisis increases with an increase in domestic credit/Mm1, imports, and foreign direct investment/Tthe probability of the crisis increases with a decrease in exports, stock prices, terms of trade, current account, and lending and deposit rate spread. model correctly indicates 64% of the crises and 77% of the tranquil periods even with a cut-off probability of 10%.
    Keywords: Asian financial crisis; probit model; early warning systems
    JEL: F0
    Date: 2006–01
  13. By: Khazabi, Massoud
    Abstract: The paper presents a theoretical model of R&D investment and extensively studies the capitalization policy of development-related costs. It is shown that a firm’s R&D investment policy and capitalizing related costs are influenced by a set of variables such as stock market effects and corporate income tax rates. These results are sharper when spill-over effects are introduced. Interest rates, tax rates, production’s marginal cost, stock market indices and speed of development benefits’ revelation would alter the firm’s disclosure and innovation policies conspicuously.
    Keywords: R&D; Development; Innovation; Capitalization; Expensing; Corporate Income Tax; Disclosure
    JEL: L12 L13 L51
    Date: 2006–08
  14. By: Young, Andrew; Levy, Daniel
    Abstract: We offer the first direct evidence of an implicit contract in a goods market. The evidence we offer comes from the market for Coca-Cola. We demonstrate that the Coca-Cola Company left a substantial amount of written evidence of its implicit contract with its consumers—a very explicit form of an implicit contract. In general, observing implicit contracts directly is difficult because of their implicit nature. To overcome the difficulty, we adopt a narrative approach. Based on the analysis of a large number of historical documents obtained from the Coca-Cola Archives and other sources, we offer evidence of the Coca-Cola Company not only saying that it had an important implicit contract with its consumers, but also acting on it. This study makes an additional and unique contribution by exploring quality as a margin of adjustment available to Coca-Cola. We present evidence that the implicit contract included a promise not only of a constant nominal price but also a constant quality. We document the dedication to a 6.5oz serving of the "Secret Formula." Indeed, during a period of over 70 years, we find evidence of only a single case of true quality change. By studying the margin of adjustment the Coca-Cola Company chose in response to changes in market conditions, we demonstrate that the perceived costs of breaking the implicit contract were large. In addition, we are able to offer one piece of direct evidence on the magnitude of these costs by studying the events surrounding the failed introduction of the New Coke in 1985.
    Keywords: E12; E31; L14; L16; L66; M30; N80; A14
    JEL: L16 L14 E31
    Date: 2006–10–18
  15. By: Carone, Giuseppe; Denis, Cécile; Mc Morrow, Kieran; Mourre, Gilles; Röger, Werner
    Abstract: This paper presents the results of long run labour productivity and GDP growth rate projections (until 2050) for each of the 25 EU Member States and provides a detailed overview of the forecast methodology used. These projections were undertaken in order to provide an internationally comparable macroeconomic framework against which to assess the potential economic and fiscal effects of ageing populations. The projections presented in this paper, using a common production function methodology for all 25 countries, show the GDP growth rate effects of an assumptions-driven extrapolation of recent trends in employment and labour productivity. These base case projections reflect the working assumption of “no policy change”.Various sensitivity tests are carried out to check the GDP per capita impact of some factors which have been excluded from the baseline scenario for reasons of simplicity or because of a lack of consensus in the academic literature. Some of the interesting conclusions that emerge from these sensitivity tests include : • Firstly, the GDP per capita impact of changes in the participation rate assumption used in the projections is much greater than for assumed changes in the share of part-time employment (i.e. in average hours worked per worker). • Secondly, the negative effect of a change in the age-structure of the population is fairly limited, although it is accepted that the labour productivity of an individual is likely to decline after the age of 55. A very strong fall in the productivity of older workers compared with that of prime-age workers would be required to significantly depress total labour productivity. Such an outcome, on the basis of current evidence, appears rather unlikely. • Thirdly, changing the TFP growth rate targets (e.g. use of the 1990’s average instead of the long-term 1970-2004 average) could strongly affect the projections. • Finally, an assumption of productivity convergence in levels substantially alters the projections for most EU10 countries but leaves the EU15 almost unchanged. JEL classific
    Keywords: Productivity; ageing; long-term projections; production function; labour productivity; older workers
    JEL: J1 O47 J21 H55 J26 D24
    Date: 2006–08
  16. By: Diewert, W. Erwin; Wykoff, Frank C.
    Abstract: The paper considers how to measure capital in a model where technical progress is either embodied in new units of capital or it is "disembodied" and simply causes the price of capital services to fall. The disembodied case is considered in sections 2-4. Sections 2 and 3 set out standard vintage capital aggregation models when there is no embodied technical progress. Section 4 discusses disembodied obsolescence in more detail. Section 5 introduces new (more efficient) models of the capital good so that technical progress is embodied in the new models. Section 6 shows how the parameters in the Jorgenson model of capital services could be estimated by statistical agencies if their investment surveys covered sales and retirements of used assets as well as purchases of new assets. Section 7 concludes.
    JEL: C43 C81 D24 D92 E22 M4
    Date: 2006–11–23
  17. By: Schröder, Philipp J.H.
    Abstract: This essay deals with the issues of privatisation and restructuring in transition economies. The topics are addressed in both a descriptive and empirical manner. The centre of the analysis is the interrelation of privatisation, the resulting ownership form and the expected and actual effect on restructuring behaviour of firms. The essay identifies a slow progress in privatisation, paired with an overweight of insider owners. Furthermore substantial evidence on slow restructuring is collected. Overmanning and excessive social assets prevail in the privatised firms - in part regardless of the new ownership structure. Finally, the link to the government’s fiscal situation is drawn, the costs of restructuring to the government budget are identified. In presenting such account of the privatisation and restructuring situation, the essay provides a basis for formal explanations of slow privatisation and sluggish restructuring.
    Keywords: Privatization; Restructuring; Transition; Central adn Eastern Europe
    JEL: P2 P31 P26 L33
    Date: 2000
  18. By: Hałaj, Grzegorz
    Abstract: Measures of risk of domino effect (contagion) transmitted through interbank market are discussed and results on implementation of measurement procedure in banking sector are presented. It is shown how a very limited set of available data – interbank exposures and information from balance sheets and profit a loss accounts – can help in generating randomised scenarios of possible losses related to market and credit risk.
    Keywords: Contagion; banking system; interbank
    JEL: C62 G21
    Date: 2006–10

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