nep-bec New Economics Papers
on Business Economics
Issue of 2007‒03‒10
thirty-one papers chosen by
Christian Calmes
University of Quebec in Ottawa

  1. Financing Constraints and Fixed-Term Employment Contracts By Andrea Caggese; Vicente Cuñat
  2. Entrepreneurial Risk, Investment and Innovation By Andrea Caggese
  3. Downstream Competition, Bargaining and Welfare By George Symeonidis
  4. International Success of British Companies By George S. Yip; Alan M. Rugman; Alina Kudina
  5. Organisational Structure, Communication and Group Ethics By Matthew Ellman; Paul Pezanis-Christou
  6. Learning-by-Doing, Organizational Forgetting and Industry Dynamics By Besanko, David; Doraszelski, Ulrich; Kryukov, Yaroslav; Satterthwaite, Mark
  7. The cost of ownership in microfinance organization By Mersland, Roy
  8. Firm-Specific Advantages Intra-Regional Sales and Performance of Multinational Enterprises By Alan M. Rugman; Nessara Sukpanich
  9. Gender and family firms: an interdisciplinary approach By Paloma Fernandez Perez; Eleanor Hamilton
  10. Financing Constraints, Irreversibility, and Investment Dynamics By Andrea Caggese
  11. ROUTINE AS DEVIATION By Cunha, Joao Vieira da; Cunha, Miguel Pina e; Chia, Robert
  12. Irreversible Investment in Stochastically Cyclical Markets By Francisco Ruiz-Aliseda; Jianjun Wu
  13. Testing Financing Constraints on Firm Investment using Variable Capital By Andrea Caggese
  14. Globalisation of production and innovation: how outsourcing is reshaping an advanced manufacturing area. By Lucia Cusmano; Maria Luisa Mancusi; Andrea Morrison
  15. Do Larger Severance Payments Increase Individual Job Duration? By Pietro Garibaldi; Lia Pacelli
  16. Strategic Merger Waves: A Theory of Musical Chairs By Toxvaerd, Flavio
  17. Sorting, Selection, and Industry Shakeouts By Peter Thompson; Mihaela Pintea
  18. Does Offshoring Pay? Firm-Level Evidence from Japan By Alexander HIJZEN; INUI Tomohiko; TODO Yasuyuki
  19. The Regional Focus of Asian Multinational Enterprises By Simon Collinson; Alan M. Rugman
  20. Hidden champions - how young and small technology-oriented firms can attain high export-sales ratios By Fryges, Helmut
  21. Are Sunk Costs a Barrier to Entry? By Cabral, Luís M B; Ross, Thomas
  22. Macroeconomic uncertainty and banks' lending decisions: The case of Italy By Mario Quagliariello
  23. A Predictive Comparison of Some Simple Long Memory and Short Memory Models of Daily U.S. Stock Returns, With Emphasis on Business Cycle Effects By Norman Swanson; Geetesh Bhardwaj
  24. Innovation and skill upgrading: The role of external vs internal labour markets. By Luc Behaghel; Eve Caroli; Emmanuelle Walkowiak
  25. Trust and reciprocity in incentive contracting By Rigdon, Mary
  26. The Effect of Competition on Wages and Productivity: Evidence from the UK By George Symeonidis
  27. Embodied Technical Change And The Fluctuations Of Wages and Unemployment By Michael Reiter
  28. Agency and Anxiety By Michael T. Rauh; Giulio Seccia
  29. On the robust effects of technology shocks on hours worked and output By Fabio Canova; Claudio Michelacci
  30. Wage inequality, segregation by skill and the price of capital in an assignment model By Ángel Gavilán
  31. Firm Heterogeneity and Firm Behavior with Conditional Policies By Svetlana Demidova; Kala Krishna

  1. By: Andrea Caggese; Vicente Cuñat
    Abstract: This paper studies the interactions between financing constraints and the employment decisions of firms when both fixed-term and permanent employment contracts are available. We first develop a dynamic model that shows the effects of financing constraints and firing costs on employment decisions. Once calibrated, the model shows that financially constrained firms tend to use more intensely fixed term workers, and to make them absorb a larger fraction of the total employment volatility than financially unconstrained firms do. We test and confirm the predictions of the model on a unique panel data of Italian manufacturing firms with detailed information about the type of workers employed by the firms and about firm financing constraints.
    Date: 2006–06
  2. By: Andrea Caggese
    Abstract: In this paper I develop a general equilibrium model with risk averse entrepreneurial firms and with public firms. The model predicts that an increase in uncertainty reduces the propensity of entrepreneurial firms to innovate, while it does not affect the propensity of public firms to innovate. Furthermore, it predicts that the negative effect of uncertainty on innovation is stronger for the less diversified entrepreneurial firms, and is stronger in the absence of financing frictions in the economy. In the second part of the paper I test these predictions on a dataset of small and medium Italian manufacturing firms.
    Date: 2006–12
  3. By: George Symeonidis
    Abstract: I analyse the effects of downstream competition when there is bargaining between downstream firms and upstream agents (firms or unions). When bargaining is over a uniform input price, a decrease in the intensity of competition (or a merger) between downstream firms may raise consumer surplus and overall welfare. When bargaining is over a two-part tariff, a decrease in the intensity of competition reduces downstream profits and upstream utility and raises consumer surplus and overall welfare. In both cases, standard welfare results of oligopoly theory can be reversed: less competition can be unprofitable for firms and/or beneficial for consumers and society as a whole.
    Date: 2007–03–02
  4. By: George S. Yip (London Business School); Alan M. Rugman (Department of Business Economics and Public Policy, Indiana University Kelley School of Business); Alina Kudina (University College London)
    Abstract: This paper examines the international success of British companies in a matrix combining global market share and international revenues. We identify those industry segments in which British companies are most successful internationally, and also investigate whether these are attractive industries in terms of profitability and growth. We find that the industries with the largest global market shares for British companies are Mining, Casinos (and Gaming), Oil Companies (Major), Distillers & Brewers, and Water Utilities. Four of the top ten might be considered to be “sin” industries. The industries with the highest international revenues are Precious Metals, Pharmaceuticals, Industrial (Diversified), Oil Companies (Secondary), and Mining. We also find that virtually all of the largest British firms average over a 10% global market share, in the “British Winners” segment of our matrix. However, we find the second measure, the extent of internationalization, to be ambiguous. The manufacturing (product-based) firms tried to be highly internationalized, as they compete globally, but the largest British services firms (financials, retailers) tend to have low internationalization, and therefore appear to benefit from a still somewhat regulated home market. In addition, British companies have done a good job of building up global market shares in higher growth industries. We provide recommendations for managers as to how British companies with different combinations of global market share and extent of internationalisation can improve their positions. Our methodology can also be applied to analyzing companies from other nations.
    Date: 2006
  5. By: Matthew Ellman; Paul Pezanis-Christou
    Abstract: This paper investigates experimentally how organisational decision processes affect the moral motivations of actors inside a firm and firm's resulting willingness to forego profits in order to reduce harming a third party. In a "vertical" treatment, one insider unilaterally sets the harm-reduction strategy; the other can only accept or quit. In a "horizontal" treatment, the insiders decide by consensus. Our 2-by-2 design also controls for communication effects. In our data, communication makes vertical firms more ethical, because voice leads subordinates to feel responsible for what their firms do (mitigating "responsibility-alleviation"). These firms are also more ethical than the horizontal firms in which our bargaining data reveal a dynamic form of "responsibility dilution" and our chat data indicate an enhanced "insider-outsider" e ffect.
    Keywords: experimental economics, group decision-making, organisational structure,
    JEL: C91 C92 D21 D63 D64 D70
    Date: 2007–02–01
  6. By: Besanko, David; Doraszelski, Ulrich; Kryukov, Yaroslav; Satterthwaite, Mark
    Abstract: Learning-by-doing and organizational forgetting have been shown to be important in a variety of industrial settings. This paper provides a general model of dynamic competition that accounts for these economic fundamentals and shows how they shape industry structure and dynamics. Previously obtained results regarding the dominance properties of firms' pricing behaviour no longer hold in this more general setting. We show that organizational forgetting does not simply negate learning-by-doing. Rather, learning-by-doing and organizational forgetting are distinct economic forces. In particular, a model with both learning-by-doing and organizational forgetting can give rise to aggressive pricing behaviour, market dominance, and multiple equilibria, whereas a model with learning-by-doing alone cannot.
    Keywords: dynamic games; learning-by-doing; organizational forgetting
    JEL: C73 D43
    Date: 2007–03
  7. By: Mersland, Roy
    Abstract: This article analyses the cost of ownership in microfinance organizations. We specifically compare the ownership-cost of Shareholders Firms (SHFs), Non Profit Organizations (NPOs) and Cooperatives (COOPs). A paradoxical situation motivates us: Most providers of microfinance, both historically and today, are NPOs or COOPs, while several policy papers advocate SHFs. Based on an extension of Hansmann’s (1996) economic theory of ownership we propose that cost variables related to market contracting of microfinance services favor NPOs and COOPs, whereas most cost variables related to the practice of ownership favor SHFs. We conclude that in severe imperfect markets, where most microfinance organizations operate, NPOs and COOPs are still needed.
    Keywords: Microfinance; ownership; corporate governance; nonprofits; transformation; global study
    JEL: O16 G32
    Date: 2007–01–15
  8. By: Alan M. Rugman (Department of Business Economics and Public Policy, Indiana University Kelley School of Business); Nessara Sukpanich (Thammasat University)
    Abstract: This paper is an extension of recent work that has examined the intra-regional sales of large multinational enterprises (MNEs). First, we examine the interaction between the performance of MNEs and four proxies for their firm-specific advantages (FSAs). This includes: firm size, knowledge (as represented by R&D), marketing ability, and industry type. We find that FSAs in R&D and service sector type are best exploited within the home region. In contrast, the FSA firm size is better exploited by global and bi-regional firms. Second, we find that a service MNE tends to be more home-region oriented and has a higher proportion of intra-regional sales than a manufacturing firm.
    Keywords: firm-specific advantages, intra-regional sales, multinational enterprises, performance, geographic scope, and home region
    Date: 2006
  9. By: Paloma Fernandez Perez; Eleanor Hamilton (Universitat de Barcelona)
    Abstract: This study contributes to developing our understanding of gender and family business, a topic so crucial to recent policies about competitive growth. It does so by providing an interdisciplinary synthesis of some major theoretical debates. It also contributes to this understanding by illuminating the role of women and their participation in the practices of the family and the business. Finally, it explores gender relations and the notion that leadership in family business may take complex forms crafted within constantly changing relationships. Leadership is introduced as a concept that captures the reality of women and men in family firms in a better way than other concepts used by historians or economists like ownership and management.
    Keywords: genere, gender, empresa familiar, family firms, leadership, lideratge
    JEL: J16 M20 N01 D10 N80
    Date: 2007
  10. By: Andrea Caggese
    Abstract: We develop a model of an industry with many heterogeneous firms that face both financing constraints and irreversibility constraints. The financing constraint implies that firms cannot borrow unless the debt is secured by collateral; the irreversibility constraint that they can only sell their fixed capital by selling their business. We use this model to examine the cyclical behavior of aggregate fixed investment, variable capital investment, and output in the presence of persistent idiosyncratic and aggregate shocks. Our model yields three main results. First, the effect of the irreversibility constraint on fixed capital investment is reinforced by the financing constraint. Second, the effect of the financing constraint on variable capital investment is reinforced by the irreversibility constraint. Finally, the interaction between the two constraints is key for explaining why input inventories and material deliveries of US manufacturing firms are so volatile and procyclical, and also why they are highly asymmetrical over the business cycle.
    Keywords: Financing Constraints, Irreversibility, Investment
    JEL: D21 E22 E32 G31
    Date: 2001–06
  11. By: Cunha, Joao Vieira da; Cunha, Miguel Pina e; Chia, Robert
    Abstract: We draw on evidence scattered across thick descriptions of organizations to outline an alternative model of routine. Instead of defining routine as a process of compliance with prescribed rules and procedures we define it as a process of deviation from the prescribed elements of organizations, resulting from the mutual constitution of repetitive work and improvisation. This view of routine underscores its adaptive nature and suggests that flexibility can be achieved not only by nimble and openly innovative organizations but also by large and organizations engaging in ‘closet’ innovation.
    Date: 2007
  12. By: Francisco Ruiz-Aliseda; Jianjun Wu
    Abstract: This paper presents a new framework for studying irreversible (dis)investment when a market follows a random number of random-length cycles (such as a high-tech product market). It is assumed that a firm facing such market evolution is always unsure about whether the current cycle is the last one, although it can update its beliefs about the probability of facing a permanent decline by observing that no further growth phase arrives. We show that the existence of regime shifts in fluctuating markets suffices for an option value of waiting to (dis)invest to arise, and we provide a marginal interpretation of the optimal (dis)investment policies, absent in the real options literature. The paper also shows that, despite the stochastic process of the underlying variable has a continuous sample path, the discreteness in the regime changes implies that the sample path of the firm’s value experiences jumps whenever the regime switches all of a sudden, irrespective of whether the firm is active or not.
    Keywords: Real Options, Regime-Switching, Bad News Principle, Signal Extraction Problem, Entry and Exit, Industry Life Cycles
    JEL: D92 G31 L12
    Date: 2007–03
  13. By: Andrea Caggese
    Abstract: We consider a dynamic multifactor model of investment with financing imperfections, adjustment costs and fixed and variable capital. We use the model to derive a test of financing constraints based on a reduced form variable capital equation. Simulation results show that this test correctly identifies financially constrained firms even when the estimation of firms’ investment opportunities is very noisy. In addition, the test is well specified in the presence of both concave and convex adjustment costs of fixed capital. We confirm empirically the validity of this test on a sample of small Italian manufacturing companies.
    Keywords: Financing Constraints, Investment
    JEL: D21 G31
    Date: 2003–02
  14. By: Lucia Cusmano (CESPRI – Bocconi University, Milano, Italy and Insubria University, Varese, Italy); Maria Luisa Mancusi (Bocconi University, Milan, Italy.); Andrea Morrison (Università del Piemonte Orientale, Novara, Italy.)
    Abstract: Pervasive outsourcing is transforming business models and productive relations in advanced manufacturing areas. In particular, the international dimension of outsourcing, off-shoring, has been attracting great attention, as it leads to the emergence of global value chains and internationally distributed innovation processes, affecting the position of regions and countries in the international division of labour. The present paper investigates the diversified patterns of outsourcing and off-shoring across industries which have been characterising the recent dynamics of Lombardy, the Italian leading economic region. Based on a large firm-level survey, the work investigates extent, depth, regional embeddedness and degree of internationalisation of outsourcing processes, differentiating between stages of production, research and service activities. The evidence suggests that fragmentation is remarkably wide and interests all the industrial sectors to a similar extent. However, outsourcing has a clear regional dimension, concerning services at most, and taking the form of extended producer-driven chains, highly embedded in the regional system. Regionally confined fragmentation is driven by final producers of relatively small size, which nevertheless exhibit high skill intensity. Off-shoring is still, on the other hand, a limited phenomenon, encompassing only a minor fraction of the process of deverticalisation. The evidence depicts off-shoring as part of a wider process of internationalisation by mostly large firms or group subsidiaries at intermediate stages of the value chain, which increasingly rely on international intra-industry trade. The international outsourcing trend appears to be strongly driven by export-oriented firms, whereas foreign direct investment per se seems to play a minor role.
    Keywords: Outsourcing, Offshoring, R&D, Regional system.
    JEL: D21 F23 L22 L23 O32
    Date: 2007–03
  15. By: Pietro Garibaldi; Lia Pacelli
    Abstract: This paper analyzes the effect of severance payments on the probability of separation at given tenure, wages and other individual and firm characteristics. It studies a mandatory deferred wage scheme of the Italian labour market (Trattamento di Fine Rapporto, TFR). Deferred wages increase job duration if two conditions hold: wages are rigidly set outside the employer-employee relationship, and past provisions are accumulated at interest rates that are below market rates. Under such circumstances, workers who withdraw from their accumulated stock of unpaid wages should experience, at given tenure, a subsequent increase in the probability of separation. This prediction appears empirically robust and quantitatively sizeable. A withdrawal of 60% of the TFR stock 60% of the TFR stock (the median observed withdrawal) increases the instantaneous hazard rate by almost 20%. In other words, an individual with at least ten years of tenure that experiences an early withdrawal increases his/her hazard rate from 10% to about 12%. The empirical result takes into account the existence of unobserved heterogeneity and a variety of further robustness tests.
    Keywords: labor markets, severance payments, wage schemes, job tenure, job separation.
    JEL: J0 J3 J6
    Date: 2007
  16. By: Toxvaerd, Flavio
    Abstract: This paper proposes an explanation of merger waves based on the interaction between competitive pressure and irreversibility of mergers in an uncertain environment. A set of acquirers compete over time for scarce targets. At each point in time, an acquirer can either postpone a takeover attempt, or raid immediately. By postponing the takeover attempt, an acquirer may gain from more favourable future market conditions, but runs the risk of being preempted by rivals. First, a complete information model is considered, and it is shown that the above tradeoff leads to a continuum of subgame perfect equilibria in monotone strategies that are strictly Pareto ranked. All these equilibria share the feature that all acquirers rush simultaneously in merger waves. The model is then extended to a dynamic global game by introducing slightly noisy private information about merger profitability. This game is shown to have a unique Markov perfect Bayesian equilibrium in monotone strategies, and the timing of the merger wave can thus be predicted. Last, the comparative dynamics predictions of the model are related to stylized facts.
    Keywords: dynamic global games; merger waves; preemption; real options games
    JEL: C73 D92 G34 L13
    Date: 2007–03
  17. By: Peter Thompson (Department of Economics, Florida International University); Mihaela Pintea (Department of Economics, Florida International University)
    Abstract: A number of plausible theories offer explanations for the propensity of many young industries to undergo a shakeout phase, during which the number of firms declines sharply in the face of continued rising output. However, none of the theories considers the role of labor market sorting. This paper presents a model in which individual abilities are complements in production, but frictions permit only gradual sorting among firms. The quality distribution of firms becomes wider over time, inducing exit of firms that have ended up with predominantly low-quality workers. The model does not ensure that a shakeout takes place, but when it does it will be characterized by rising output alongside a declining price, an increasing average wage, and a widening of the distributions across firms of employment, output, productivity and average wages.
    Keywords: Shakeouts, industry evolution, O-ring production functions.
    JEL: L1 J62
    Date: 2007–03
  18. By: Alexander HIJZEN; INUI Tomohiko; TODO Yasuyuki
    Abstract: This paper explores the impact of offshoring, or contracting out of business activities to foreign providers, on firm productivity, using Japanese firm-level data for the period 1994-2000. We find that offshoring has generally a positive effect on productivity growth. This effect is robust to controlling for the possible endogeneity of offshoring with respect to unobserved productivity shocks. Our preferred specification suggests that a one percent increase in offshoring intensity raises productivity growth by 0.17 percent. For the average offshoring firm this implies a 1.8 percent increase in annual productivity growth. These results do not appear to depend much on either the level of technological sophistication of a firms' industry or a firms' international orientation. However, we find that the scope for productivity improvements from offshoring depends negatively on the initial level of productivity of the firm.
    Date: 2007–03
  19. By: Simon Collinson (Warwick Business School, University of Warwick); Alan M. Rugman (Department of Business Economics and Public Policy, Indiana University Kelley School of Business)
    Abstract: In recent issues of this journal a debate has raged concerning the appropriate nature of academic research in the Asia Pacific region. In keeping with the expressed desire for both rigor and regional relevance in this research, we wish to demonstrate a strong commonality between the performance of large Asian firms and others from Europe and North America. The large Asian firms mostly operate on an intra-regional basis. It has been assumed that the path to success for Asian firms is globalization, yet we show that the literature supporting this is confined to a handful of unrepresentative case studies.
    Keywords: Asian multinationals, regional strategy, internationalization, bibliometric analysis, firm-specific advantages
    Date: 2007
  20. By: Fryges, Helmut
    Abstract: Determinants of a firm’s export-sales ratio (degree of internationalisation) are frequently discussed in the literature related to individual firms’ export activities. Stylised facts show a positive relationship between firm size and firm age on the one hand and the firm’s export-sales ratio on the other hand. However, anecdotic evidence and recent empirical results revealed that it is not size or age per se that leads to a high export-sales ratio. This paper analyses the export-sales ratio of a sample of young technology-oriented firms in Germany and the UK. The empirical results confirm that neither youth nor smallness are necessarily an obstacle to realising a high degree of internationalisation. However, this requires that the firms possess firm-specific assets in order to overcome barriers to entry into the foreign market. These firm-specific assets may be acquired via conducting own R&D activities, buying novel technology from other companies, or by employing internationally experienced managers.
    Keywords: High-technology industries, export-sales ratio, fractional logit model
    JEL: F23 L60 L86
    Date: 2006
  21. By: Cabral, Luís M B; Ross, Thomas
    Abstract: The received wisdom is that sunk costs create a barrier to entry - if entry fails, then the entrant, unable to recover sunk costs, incurs greater losses. In a strategic context where an incumbent may prey on the entrant, sunk entry costs have a countervailing effect: they may effectively commit the entrant to stay in the market. By providing the entrant with commitment power, sunk investments may soften the reactions of incumbents. The net effect may imply that entry is more profitable when sunk costs are greater.
    Keywords: barriers to entry; sunk costs
    JEL: L13
    Date: 2007–03
  22. By: Mario Quagliariello (Banca d’Italia)
    Abstract: This paper discusses the role that macroeconomic uncertainty plays in banks’ decisions on the optimal asset allocation. Using a portfolio model recently proposed in the literature, the paper aims at disentangling how Italian banks choose between loans and risk-free assets when uncertainty on macroeconomic conditions increases. The econometric results confirm that macroeconomic uncertainty is a significant determinant of banks’ investment decisions, also after controlling for other factors. In periods of increasing turmoil, banks’ ability to accurately forecast future returns is hindered and herding behaviour tends to emerge, as witnessed by the reduction of the cross-sectional variance of the share of loans held in portfolio.
    Keywords: bank, business cycle, uncertainty, lending decisions, GARCH
    JEL: E44 G21 G28
  23. By: Norman Swanson (Rutgers University); Geetesh Bhardwaj (Rutgerst University)
    Abstract: This chapter builds on previous work by Bhardwaj and Swanson (2004) who address the notion that many fractional I(d) processes may fall into the “empty box” category, as discussed in Granger (1999). However, rather than focusing primarily on linear models, as do Bhardwaj and Swanson, we analyze the business cycle effects on the forecasting performance of these ARFIMA, AR, MA, ARMA, GARCH, and STAR models. This is done via examination of ex ante forecasting evidence based on an updated version of the absolute returns series examined by Ding, Granger and Engle (1993); and via the use of Diebold and Mariano (1995) and Clark and McCracken (2001) predictive accuracy tests. Results are presented for a variety of forecast horizons and for recursive and rolling estimation schemes. We find that the business cycle does not seem to have an effect on the relative forecasting performance of ARFIMA models.
    Keywords: fractional integration, long horizon prediction, long memory, parameter estimation error, stock returns
    JEL: C15 C22 C53
    Date: 2006–09–22
  24. By: Luc Behaghel; Eve Caroli; Emmanuelle Walkowiak
    Abstract: Following technical and organisational changes, firms may react to increasing skill requirements either by training (on the internal labour market) or hiring the new skills, or a combination of the two. Using matched datasets with about 1,000 French plants, we assess the role of these external and internal labour market strategies. We show that skill upgrading following technological and organisational changes takes place mostly through internal labour markets adjustments, except for the adoption of the Internet which gives rise to both internal and external types of adjustments. We then consider the determinants of the strategies used by individual firms: do some firms mainly rely on one strategy while other firms prevalently choose another strategy, and why? We show that firms' size and localisation are critical in explaining such differences. Skill upgrading strategies relying on the external labour market seem to be prevalently adopted by small urban plants.
    Date: 2007
  25. By: Rigdon, Mary
    Abstract: Principals can attempt to get agents to perform certain actions preferable to the principal by using ex post punishments or rewards to align incentives. Field data is mixed on whether, and to what extent, such informal incentive contracting (paradoxically) crowds out efficient solutions to the agency problem. This paper explores, via a novel set of laboratory experiments, the impact of ex post incentives on informal contracts between principals and agents in bargaining environments in which there are gains from exchange and when there is an opportunity for the principal to relay a no-cost demand of the division of those gains. Incentive contracting in these environments does not crowd-out off-equilibrium cooperation, and at high incentive levels cooperation is crowded in.
    Keywords: incentives; trust; reciprocity; organizations; experimental economics
    JEL: D01 D02 D00
    Date: 2005–05
  26. By: George Symeonidis
    Abstract: This paper examines the impact of competition on wages and productivity using a panel data set of UK manufacturing industries over 1954-1973. The introduction of cartel law in the UK in the late 1950s caused an intensification of price competition in previously cartelized manufacturing industries, but it did not affect those industries which were not cartelized. The econometric results from a comparison of the two groups of industries before and after the introduction of cartel law provide strong evidence of a negative effect of collusion on labour productivity growth. There is no evidence of any effect of collusion on wages. These results are robust to controlling for the potential endogeneity of collusion and are further strengthened by a comparison with US data.
    Date: 2007–03–02
  27. By: Michael Reiter
    Abstract: The paper shows that a matching model where technological change is partially embodied in the job match is successful in explaining the variability of unemployment and vacancies. If we incorporate long-term wage contracts into the model, it also explains a number of stylized facts on the dynamics of real wages, which have been found in the empirical labor literature.
    Keywords: Unemployment, wage dynamics, embodied technical change
    JEL: E24 E32 J64
    Date: 2006–10
  28. By: Michael T. Rauh (Department of Business Economics and Public Policy, Indiana University Kelley School of Business); Giulio Seccia (Department of Economics, University of Southampton)
    Abstract: In this paper, we introduce the psychological concept of anxiety into agency theory. An important benchmark in the anxiety literature is the inverted-U hypothesis which states that an increase in anxiety improves performance when anxiety is low but reduces it when anxiety is high. We consider a version of the Holmstrom-Milgrom linear principal-agent model where the agent conforms to the inverted-U hypothesis and investigate the nature of the optimal linear contract. We find that although high-powered incentives can be demotivational, a profit-maximizing principal never offers them. In contrast, the principal may optimally engage in a demotivational level of monitoring. Moreover, since risk can be motivational, the principal may refrain from eliminating it even when monitoring is costless. Indeed, the principal may even add pure noise to the contract in order to motivate the agent, contradicting the informativeness principle. Finally, incentives and monitoring can be strategic substitutes or complements in our model.
    JEL: L0
    Date: 2006–09
  29. By: Fabio Canova; Claudio Michelacci
    Abstract: We analyze the effects of neutral and investment-specific technology shocks on hours worked and output. Low frequency movements in hours are captured in a variety of ways. Hours robustly fall in response to neutral shocks and robustly increase in response to investment specific shocks. The percentage of the variance of hours (output) explained by neutral shocks is small (large); the opposite is true for investment specific shocks. News shocks and other shocks are uncorrelated with the estimated neutral and investment specific shocks.
    Keywords: Technology disturbances, structural VARs, low frequency movements, news shocks
    JEL: E00 J60 O33
    Date: 2006–11
  30. By: Ángel Gavilán (Banco de España)
    Abstract: Some pieces of empirical evidence suggest that in the U.S., over the last few decades, (i) wage inequality between-plants has risen much more than wage inequality within-plants and (ii) there has been an increase in the segregation of workers by skill into separate plants. This paper presents a frictionless assignment model in which these two features can be explained simultaneously as the result of the decline in the relative price of capital. Additional implications of the model regarding the skill premium and the dispersion in labor productivity across plants are also consistent with the empirical evidence.
    Keywords: wage inequality, segregation by skill, assignment model, price of capital
    JEL: C78 J31 J24
    Date: 2006–06
  31. By: Svetlana Demidova; Kala Krishna
    Abstract: This paper shows that the result of Ju and Krishna (2002, 2005), i.e., the non-monotonicity in the comparative statics across regimes, disappears, if exporters differ in their productivities, which provides very different predictions about the results of policy changes.
    JEL: F1
    Date: 2007–03

This nep-bec issue is ©2007 by Christian Calmes. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.