nep-bec New Economics Papers
on Business Economics
Issue of 2007‒10‒13
28 papers chosen by
Christian Calmes
University of Quebec in Ottawa

  1. Financial structure, Managerial Compensation and Monitoring By Cerasi, Vittoria; Daltung, Sonja
  2. Stock-Based Compensation and CEO (Dis)Incentives By Benmelech, Effi; Kandel, Eugene; Veronesi, Pietro
  3. Management of Multi-projects In a Process oriented Organization By Macheridis, Nikos; Nilsson, Carl-Henrik
  4. Financial Frictions, Investment and Tobin’s q By Lorenzoni, Guido; Walentin, Karl
  5. Employment and Hours of Work By Noritaka Kudoh; Masaru Sasaki
  6. Mergers & Acquisitions and Innovation Performance in the Telecommunications Equipment Industry By Tseveen Gantumur; Andreas Stephan
  7. Real-Time Measurement of Business Conditions By S. Boragan Aruoba; Francis X. Diebold; Chiara Scotti
  8. A market microstructure explanation of IPOs underpricing By Patarick Leoni
  9. Imperfect competition, technical progress and capital accumulation By Biancamaria D'Onofrio; Bertrand Wigniolle
  10. Why do women’s wages increase so slowly throughout their career? A dynamic model of statistical discrimination By Nathalie Havet; Catherine Sofer
  11. Who’s Afraid of a Globalized World? Foreign Direct Investments, Local Knowledge and Allocation of Talents By Giovanni Pica; José V. Rodríguez Mora
  12. Vertical integration and product innovation By Arijit Mukherjee2; Piercarlo Zanchettin
  13. Unmeasured investment and the puzzling U.S. boom in the 1990s (technical appendix) By Ellen R. McGrattan; Edward C. Prescott
  14. Reference Points and the Theory of the Firm By Oliver D. Hart
  16. The Response of Business Fixed Investment to Changes in Energy Prices: A Test of Some Hypotheses About the Transmission of Energy Price Shocks By Edelstein, Paul; Kilian, Lutz
  17. Precautionary Demand for Labor in Search Equilibrium By Noritaka Kudoh; Masaru Sasaki
  18. Production Planning and Inventories Optimization: A Backward Approach in the Convex Storage Cost Case By Elyès Jouini; Marie Chazal; Rabah Tahraoui
  19. Hiring People-like-Yourself: A Representation of Discrimination on the Job Market By Ariane Szafarz
  20. Intermediated quantities and returns By Rajnish Mehra; Facundo Piguillem; Edward C. Prescott
  21. How do intangible assets create economic value? an application to banks By Alfredo Martín-Oliver; Vicente Salas-Fumas
  22. Innovation, Ownership and Profitability By James H. Love; Stephen Roper; Jun Du
  23. "Bank Distress and the Borrowers' Productivity" By Keiichiro Kobayashi; Noriyuki Yanagawa
  24. Self-Employment and Labor Market Policies By Alok Kumar; Herbert J. Schuetze
  25. Human Capital Depreciation During Family-related Career Interruptions in Male and Female Occupations By Dennis Görlich; Andries de Grip
  26. Global Yield Curve Dynamics and Interactions: A Dynamic Nelson-Siegel Approach By Francis X. Diebold; Canlin Li; Vivian Z. Yue
  27. Network Multipliers and the Optimality of Indirect Communication By Andrea Galeotti; Sanjeev Goyal
  28. A Brief History of Production Functions By Mishra, SK

  1. By: Cerasi, Vittoria (Statistics Department, Università degli Studi di Milano); Daltung, Sonja (Financial Institutions and Markets, Ministry of Finance, Financial Law and Economics Division)
    Abstract: When a firm has external debt and monitoring by shareholders is essential, managerial bonuses are shown to be an optimal solution. A small managerial bonus linked to firm's performance not only reduces moral hazard between managers and shareholders, but also between creditors and monitoring shareholders. A negative relation between corporate bond yields and managerial bonuses can be predicted. Furthermore, the model shows how higher managerial pay-performance sensitivity goes hand in hand with greater company leverage and lower company diversification. These predictions find some support in the empirical literature.
    Keywords: Keywords: Managerial Compensation; Financial Structure; Monitoring; Diversification.
    JEL: G32 M12
    Date: 2007–06–01
  2. By: Benmelech, Effi; Kandel, Eugene; Veronesi, Pietro
    Abstract: Stock-based compensation is the standard solution to agency problems between shareholders and managers. In a dynamic rational expectations equilibrium model with asymmetric information we show that although stock-based compensation causes managers to work harder, it also induces them to hide any worsening of the firm’s investment opportunities by following largely sub-optimal investment policies. This problem is especially severe for growth firms, whose stock prices then become overvalued while managers hide the bad news to shareholders. We find that a firm-specific compensation package based on both stock and earnings performance instead induces a combination of high effort, truth revelation and optimal investments. The model produces numerous predictions that are consistent with the empirical evidence.
    Keywords: CEO compensation; Sub-optimal investments
    JEL: G31 G34 G35
    Date: 2007–10
  3. By: Macheridis, Nikos (Department of Business Administration, School of Economics and Management, Lund University); Nilsson, Carl-Henrik (Department of Business Administration, School of Economics and Management, Lund University)
    Abstract: When projects are used as an organisational platform to conduct business, a project can be the only project in the organisation or one amongst several others. The latter case is called multi-project organisation. Usually an organization with a multi-project environment has a base organisation, which can be functional, matrix structure or another. The purpose of this article is to develop a model based on a process oriented organization as a complement to functional or matrix organizational structures. The article is written from a management point of view. Management of Multi-projects in a process-oriented organisation is analysed from a strategic point of view as well as from an operational point of view. Theoretical conclusions as well as practical recommendations are presented.
    Keywords: Multiproject; Processes; Managing Projects; Project Office; Systems Approach.
    Date: 2006–10–03
  4. By: Lorenzoni, Guido (Department of Economics, MIT); Walentin, Karl (Research Department, Central Bank of Sweden)
    Abstract: We develop a model of investment with financial constraints and use it to investigate the relation between investment and Tobin’s q. Afirm is financed partly by insiders, who control its assets, and partly by outside investors. When their wealth is scarce, insiders earn a rate of return higher than the market rate of return, i.e., they receive a quasi rent on invested capital. This rent is priced into the value of the firm, so Tobin’s q is driven by two forces: changes in the value of invested capital, and changes in the valu of the insiders’ future rents per unit of capital. This weakens the correlation between q and investment, relative to the frictionless benchmark. We present a calibrated version of the model, which, due to this effect, generates realistic correlations between investment, q, and cash flow.
    Keywords: Financial constraints; investment; Tobin’s q; limited enforcement.
    JEL: E22 E30 E44 G30
    Date: 2007–06–01
  5. By: Noritaka Kudoh (Department of Economics, Hokkaido University); Masaru Sasaki (Department of Economics, Osaka University)
    Abstract: This paper develops a dynamic model of the labor market in which the degree of substitution between employment and hours of work is determined as part of a search equilibrium. Each firm chooses the demand for working hours and the number of vacancies, and the hourly wage rate is determined by Nash bargaining. A firm increases the demand for hours as recruitment becomes more costly. Labor market tightness influences the composition of labor demand through its impact on the wage rate. Restricting working hours can expand employment, but doing so is not necessarily efficient. When there are two industries that differ in their equipment costs, workers employed by firms with higher equipment costs work longer and earn more.
    Keywords: employment, hours of work, search frictions.
    JEL: J21 J23 J31 J64
    Date: 2007–10
  6. By: Tseveen Gantumur; Andreas Stephan
    Abstract: The telecommunications in the 1990s witnessed an enormous worldwide round of Mergers & Acquisitions (M&A). This paper examines the innovation determinants of M&A activity and the consequences of M&A transactions on the technological potential and the innovation performance. We examine the telecommunications equipment industry over the period 1988-2002 using a newly constructed data set with firm-level data describing M&A and innovation activity as well as financial characteristics. Based on a matching propensity score procedure, the study provides evidence that M&A realize significantly positive changes to the firm's post-merger innovation performance.
    Keywords: Mergers & Acquisitions, Innovation Performance, Telecommunications Equipment Industry
    JEL: L63 O30 L10
    Date: 2007
  7. By: S. Boragan Aruoba (Department of Economics, University of Maryland); Francis X. Diebold (Department of Economics, University of Pennsylvania); Chiara Scotti (Division of International Finance, Federal Reserve Board)
    Abstract: We construct a framework for measuring economic activity in real time (e.g., minute-by-minute), using a variety of stock and flow data observed at mixed frequencies. Specifically, we propose a dynamic factor model that permits exact filtering, and we explore the efficacy of our methods both in a simulation study and in a detailed empirical example.
    Keywords: Business cycle, Expansion, Recession, State space model, Macroeconomic forecasting, Dynamic factor model
    JEL: E32 E37 C01 C22
    Date: 2007–07–24
  8. By: Patarick Leoni (Economics Department, National University of Ireland, Maynooth)
    Abstract: In a typical IPO game with first-price auctions, we argue that risk-averse investors always underbid in equilibrium because of subjective interpretations of the firm' communication about its actual value and resulting risk aversion about the likelihood of facing investors with higher valuations. We show that the noisier the investors' inferences of the firm' value (in the sense of first-order stochastic dominance) the higher the underbidding level. Our finding is independent of winner's curse effects and possible irrationality, and allows for a testable theory.
    Keywords: IPO underpricing; first-price auction; risk aversion; firm' communication
    JEL: C7 D81 G12 G32
    Date: 2007
  9. By: Biancamaria D'Onofrio (Dipartimento di Matematica - [Università degli studi di Roma I - La Sapienza]); Bertrand Wigniolle (CES - Centre d'économie de la Sorbonne - [CNRS : UMR8174] - [Université Panthéon-Sorbonne - Paris I])
    Abstract: This paper explores the consequences of imperfect competition on capital accumulation. The framework is an OLG growth model with altruistic agents. Two types of long run equilibria exist : egoistic or altruistic. We assume both competitive and non-competitive firms exist, the latter being endowed with more productive technology. They behave strategically on the labor market : they take into account the impact of their demand for labor on the equilibrium wage and on their profit. The effect of technical progress for a non-competitive firm depends on the initial productivity of the firm and on the type of steady state (egoistic or altruistic). An increase in the productivity of the most productive firm has a negative impact on capital accumulation in an egoistic steady state, and a positive one in an altruistic steady state. An increase in the productivity of the competitive sector can have various effects on capital accumulation. If the productivity levels of the non-competitive firms are close enough, capital accumulation increases in an egoistic steady state and decreases in an altruistic one. But, the impact of increasing productivity in the competitive sector can be reversed if the productivity of the less productive non-competitive firm is low enough.
    Keywords: Imperfect competition, capital accumulation, technical progress.
    Date: 2006–12
  10. By: Nathalie Havet (University of Lyon, Lyon, F-69003, France; CNRS, UMR 5824, GATE, Ecully, F-69130, France; ENS LSH, Lyon, F-69007, France ; Centre Leon Berard, Lyon, F-69003, France); Catherine Sofer (Université Paris1-Panthéon-Sorbonne, and Paris School of Economics)
    Abstract: The aim of this paper is to explain the growing wage differentials between men and women during their working careers. We provide a dynamic model of statistical discrimination, which integrates specific human capital decisions: on-the-job training investment and wages are endogenously determined. We reveal a small wage differential at the beginning of women’s career, followed by a larger wage differential; this is partly due to a lower level of human capital investment by women and partly because firms smooth training costs between different periods.
    Keywords: gender gaps, gender wage gap, specific human capital, statistical discrimination
    JEL: J16 J24 J31 J62 J71
    Date: 2007–10
  11. By: Giovanni Pica (University of Salerno and CSEF); José V. Rodríguez Mora (University of Southampton,UPF, CREA, CEPR, CES-ifo and IZA)
    Abstract: We study the distributional effects of globalization within a model of heterogeneous agents where both managerial talent and knowledge of the local economic environment are required in order to set up a firm in a given country. Therefore, agents willing to set up a firm in a foreign country need to incur a learning cost that depends on how different is the foreign entrepreneurial environments from the domestic one. In this context, we show that globalization fosters FDI and raises wages, output and productivity. Moreover, it benefits workers and highly talented multinational entrepreneurs, while harming low-ability domestic producers. The effects of openness follow from highly efficient foreign entrepreneurs driving inefficient local firms out of the market. We provide empirical evidence consistent with the implications of the model, showing a significant negative effect of the distance between nationwide regulations indexes on bilateral FDI flows.
    Keywords: Multinational Firms, Heterogeneous Agents, Policy Harmonization
    JEL: E61 F23 F41
    Date: 2007–10–01
  12. By: Arijit Mukherjee2; Piercarlo Zanchettin
    Abstract: We study vertical integration and product innovation (in the form of horizontal product differentiation) as interdependent strategic choices of vertically related firms. We consider product innovation in the downstream market as a strategic decision of innovative firms facing a threat of vertical integration and market foreclosure by an upstream monopolist. Our main finding is that, although product differentiation allows to soften product market competition and to avoid market foreclosure, the downstream market may prefer less product differentiation to deter vertical integration. Therefore, less product innovation can be a possible social cost of a lenient antitrust policy.
    Keywords: Vertical Integration; product innovation; market foreclosure; duopoly
    JEL: D43 L13
    Date: 2007–10
  13. By: Ellen R. McGrattan; Edward C. Prescott
    Date: 2007
  14. By: Oliver D. Hart
    Abstract: In this article I argue that it has been hard to make progress on Coase's theory of the firm agenda because of the difficulty of formalizing haggling costs. I propose an approach that tries to move things forward using the idea of aggrievement costs, and apply it to the question of whether a transaction should be placed inside a firm (in-house production) or in the market place (outsourcing).
    JEL: D23 D86 K12
    Date: 2007–10
  15. By: Mark Mink; Jan P.A.M. Jacobs; Jakob de Haan
    Abstract: We develop multivariate measures of synchronicity and co-movement of business cycles. In addition to synchronicity, the co-movement measure takes differences between cycle amplitudes into account that have been overlooked in most previous studies. We apply the new measures to the euro area. Synchronicity and co-movement for the region as a whole do not exhibit a clear upward tendency. Although several countries saw the similarity of their business cycle vis-`a-vis the euro area reference cycle increase, national business cycles remain fairly diverse. Changes in business cycle amplitudes cause most of the observed change in cycle co-movement.
    JEL: E32 F02 F42
    Date: 2007–09
  16. By: Edelstein, Paul; Kilian, Lutz
    Abstract: Changes in firms’ investment expenditures are considered one of the primary channels through which energy price shocks are transmitted to the economy. It is widely believed that the response of business fixed investment to energy price increases differs from its response to energy price decreases. We show that the apparent asymmetry in the estimated responses of business fixed investment in equipment and structures cannot be reconciled with standard theoretical explanations of asymmetric responses. Rather this evidence is an artifact (1) of the aggregation of mining-related expenditures by the oil, natural gas, and coal mining industry and all other expenditures, and (2) of ignoring an exogenous shift in investment caused by the 1986 Tax Reform Act. After controlling for these factors, formal statistical tests are unable to reject the assumption of symmetric responses to energy price shocks for all components of investment in structures. For nonresidential equipment there is weak statistical evidence of classical asymmetries in some components, but not in the aggregate. Once symmetry is imposed and mining-related expenditures are excluded, the estimated response of business fixed investment in equipment and structures tends to be small and mostly statistically insignificant. Historical decompositions show that energy price shocks have played a minor role in driving fluctuations in nonresidential fixed investment other than investment in mining. Our conclusions are largely robust to defining energy price shocks in terms of percent changes, large percent changes or net percent changes of energy prices; they are also robust to using alternative measures of energy prices and to weighting energy prices by the energy share in value added.
    Keywords: 1986 Tax Reform Act; Asymmetric responses; Equipment; Nonresidential fixed investment; Oil price shocks; Structures
    JEL: E22 E32 Q43
    Date: 2007–10
  17. By: Noritaka Kudoh (Department of Economics, Hokkaido University); Masaru Sasaki (Department of Economics, Osaka University)
    Abstract: This paper studies firmsf job creation decisions in a labor market with search frictions. A simple labor market search model is developed in which a firm can search for a second employee while producing with a first worker. A firm expands employment even if the instantaneous payoff to a large firm is less than that of staying small--a firm has a precautionary motive to expand its size. In addition, this motive is enhanced by a greater market tightness. Because of this effect, firmsf decisions become interdependent--a firm creates a vacancy if it expects other firms to do the same, creating strategic complementarity among firms and thereby self-fulfilling multiple equilibria.
    Keywords: labor demand, firm size distribution.
    JEL: E24 J23
    Date: 2007–10
  18. By: Elyès Jouini (CEREMADE - CEntre de REcherches en MAthématiques de la DEcision - [CNRS : UMR7534] - [Université Paris Dauphine - Paris IX]); Marie Chazal (D-MATH - Department of Mathematics - [Eidgenössiche Technische Hochschule Zürich]); Rabah Tahraoui (CEREMADE - CEntre de REcherches en MAthématiques de la DEcision - [CNRS : UMR7534] - [Université Paris Dauphine - Paris IX])
    Abstract: As in [3], we study the deterministic optimization problem of a profit-maximizing firm which plans its sales/production schedule. The firm knows the revenue associated to a given level of sales, as well as its production and storage costs. The revenue and the production cost are assumed to be respectively concave and convex. Here, we also assume that the storage cost is convex. This allows us to relate the optimal planning problem to the study of an integro-di_erential backward equation, from which we obtain<br />an explicit construction of the optimal plan.
    Keywords: Production planning, inventory management, integro-dfferential backward<br />equations.
    Date: 2007–08–16
  19. By: Ariane Szafarz (Centre Emile Bernheim, Solvay Business School, Université Libre de Bruxelles, Brussels, and DULBEA, Université Libre de Bruxelles.)
    Abstract: This paper offers a new representation of discrimination on the job market based on the most recent findings in the socio-psychological academic literature about human behaviour. Put it simply, it is assumed that the agents prefer working with people like themselves. This "affinity" principle is modelled through a distance between an individual (the candidate for a job) and the staff of the firm. Contrary to the classical view according to which discrimination results from asymmetric information, this new model provides a rationale for the presence of discriminative attitudes on the job market even when full information is available on the skill levels of all candidates for a working position.
    Keywords: discrimination, affinity, skill
    JEL: J71 J70
    Date: 2007–10
  20. By: Rajnish Mehra; Facundo Piguillem; Edward C. Prescott
    Abstract: There is a large amount of intermediated borrowing and lending between households. Some of it is intergenerational, but most is between older households. The average difference in borrowing and lending rates is over 2 percent. In this paper, we develop a model economy that displays these facts and matches not only the returns on assets but also their quantities. The heterogeneity giving rise to borrowing and lending and differences in equity holdings depends on differences in the strength of the bequest motive. In equilibrium, the lenders are annuity holders and the borrowers are those who have equity holdings, who live off its income when retired, and who leave a bequest. The borrowing rate and return on equity are the same in the absence of aggregate uncertainty. The divergence between borrowing and lending rates can thus give rise to an equity premium, even in a world without aggregate uncertainty.
    Date: 2007
  21. By: Alfredo Martín-Oliver (Universidad de Zaragoza); Vicente Salas-Fumas (Banco de España)
    Abstract: This paper examines the determinants of economic value and investment behavior of Spanish banks under the theory of investment for a multi-asset firm, focusing on three key issues: i) the distinction between immaterial and intangible assets and how each of them is related to the economic value of the firm; ii) the test of whether the accumulation of intangibles is a consequence of incurring adjustment costs or, on the contrary, intangibles are accumulated at no cost; iii) how to account for market power in the valuation of the multi-assets firm. The empirical results quantify the contribution of material, immaterial (information technology and advertising) and intangible (organization capital) assets to economic value of Spanish banks, separated from the contribution of market power. We find that intangible assets build up from adjustment costs of investments in IT and rents from market power split evenly the economic value of the bank above the replacement cost of material and immaterial assets.
    Keywords: Intangibles, IT capital, adjustment costs, valuation of banks, investment of banks
    JEL: G21 D21
    Date: 2007–10
  22. By: James H. Love; Stephen Roper; Jun Du
    Abstract: This paper considers the relationship between innovation, ownership and profitability for a panel of manufacturing plants in Ireland and Northern Ireland. Previous literature suggests that innovators are persistently more profitable than non-innovators, but little is known about how this link is moderated by external versus domestic ownership. We consider the link between innovation and profits separately for innovators and non-innovators, and for indigenous innovators and non-innovators and externally-owned plants. We also consider the determinants of innovation over the distribution of plant-level profitability, and find that the determinants of profitability – including innovation and external ownership – vary over the distribution from low to high profitability plants. We find support for the view that innovators and non-innovators have different profitability determinants, and that the profitability of externally-owned plants depends on very different factors to that of indigenously-owned enterprises.
    Keywords: Innovation; Ownership; Profitability; Ireland; Northern Ireland
    JEL: O32 F14 L60
    Date: 2007
  23. By: Keiichiro Kobayashi (Research Institute of Economy, Trade, and Industry); Noriyuki Yanagawa (Faculty of Economics, University of Toyama)
    Abstract: In this paper, we propose a theoretical model in which a banking crisis (or bank distress) causes declines in the aggregate productivity. When borrowing firms need additional bank loans to continue their businesses, a high probability of bank failure discourages ex ante investments (i.e., "specialization") by the firms that enhance their productivity. In a general equilibrium setting, we also show that there may be multiple equilibria, in one of which bank distress continues and the borrowers' productivity is low, and in the other equilibrium, banks are healthy and the borrowers' productivity is high. We show that the bank capital requirement may be effective to eliminate the bad equilibrium and may lead the economy to the good equilibrium in which the productivity of borrowing firms and the aggregate output are both high and the probability of bank failure is low.
    Date: 2007–10
  24. By: Alok Kumar (Department of Economics, University of Victoria); Herbert J. Schuetze (Department of Economics, University of Victoria)
    Abstract: We develop a model of self-employment in the search and matching frame-work of Mortensen and Pissarides. We integrate two strands of theoretical literature: models of self-employment and models of unemployment. Our model explains many empirical findings which are not explained by the existing models of self-employment. In our model, higher minimum wage and unemployment benefits have negative effect on self-employment. These results are supported by empirical evidence. In addition, in our model self-employed earn less, on average, than wage employed workers in equilibrium due to frictions in the labor market. Thus our model provides a novel explanation to one of the key puzzles identified in the empirical literature. We also find that a higher business tax and a lower wage tax reduce self-employment.
    Keywords: Self-employment, occupational choice, unemployment, search and matching, wage tax, business tax, minimum wage, unemployment benefits, job-creation
    JEL: J23 J58 J64
    Date: 2007–10–05
  25. By: Dennis Görlich; Andries de Grip
    Abstract: This study investigates the relation between human capital depreciation during family-related career interruptions and occupational choice of women in the (West) German labour market. In contrast to other studies that do not explicitly focus on family-related career interruptions, we find that short-term human capital depreciation during these career interruptions is significantly lower in female occupations than in male occupations. This holds for both high- and low-skilled occupations. Our findings support the self-selection hypothesis with respect to occupational sex segregation, i.e., women might deliberately choose female occupations because of lower short-term wage penalties for family-related career interruptions. Moreover, we find that particularly men employed in high-skilled male occupations face large short-run as well as long run wage penalties when they have a family related career break.
    Keywords: skills obsolescence, occupational segregation, GSOEP, parental leave
    JEL: J24 J13 D13
    Date: 2007–09
  26. By: Francis X. Diebold (Department of Economics, University of Pennsylvania); Canlin Li (Graduate School of Management, University of California, Riverside); Vivian Z. Yue (Department of Economics, New York University)
    Abstract: The popular Nelson-Siegel (1987) yield curve is routinely fit to cross sections of intra-country bond yields, and Diebold and Li (2006) have recently proposed a dynamized version. In this paper we extend Diebold-Li to a global context, modeling a potentially large set of country yield curves in a framework that allows for both global and country-specific factors. In an empirical analysis of term structures of government bond yields for the Germany, Japan, the U.K. and the U.S., we find that global yield factors do indeed exist and are economically important, generally explaining significant fractions of country yield curve dynamics, with interesting differences across countries.
    Keywords: Term Structure, Interest Rate, Dynamic Factor Model, Global Yield, World Yield, Bond Market
    JEL: G1 E4 C5
    Date: 2007–05–30
  27. By: Andrea Galeotti; Sanjeev Goyal
    Abstract: We study the problem of a firm M which wishes to inform a community of individuals about its product. Information travels within the community because of the social interactions between individuals. Our interest is in understanding how the firm can incorporate the network of social interactions in the design of its communication strategy. We study a model of undirected networks and start by showing that social interactions appear in the payoff of the firm in the form of a network multiplier. We establish that the network multiplier is an increasing function of both the mean and the variance in the distribution of connections of the network. This implies in particular that denser and more dispersed degree distributions are better for the firm. We then show that the degree distribution of the neighbour first order dominates the degree distribution of a node at large and so it is always better for a firm to use indirect communication, i.e., viz. picking the neighbour of a node rather than a node itself as the target of communication. Finally, we show that the advantages of indirect communication are increasing with dispersion in the degree distribution.
    Date: 2007–09–28
  28. By: Mishra, SK
    Abstract: This paper gives an outline of evolution of the concept and econometrics of production function, which was one of the central apparatus of neo-classical economics. It shows how the famous Cobb-Douglas production function was indeed invented by von Thunen and Wicksell, how the CES production function was formulated, how the elasticity of substitution was made a variable and finally how Sato’s function incorporated biased technical changes. It covers almost all specifications proposed during 1950-1975, and further the LINEX production functions and incorporation of energy as an input. The paper in divided into (1) single product functions, (2) joint product functions, and (3) aggregate production functions. It also discusses the ‘capital controversy’ and its impacts.
    Keywords: Production function; Cobb-Douglas; CES; Transcendental; translog; Zellner-Revankar; VES; Bruno; Kadiyala; Diewert; Kummel; Mundlak; Engineering production function; Multi-output; joint product; Data Envelopment; Household production function; Humbug production function; capital controversy; Cambridge controversy.
    JEL: C30 C20 D24 B16 B13
    Date: 2007–10–09

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