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on Business Economics |
| By: | Andreas Roider (University of Bonn, CEPR and IZA) |
| Abstract: | This paper studies a partial-contracting model where an agent may provide effort to increase a project’s scope before some later decisions have to be taken. Consistent with existing empirical evidence, we find a positive relationship between exogenous risk and delegation. That is, we show that only if exogenous risk is sufficiently large, the risk-neutral principal may prefer to delegate authority over decisions to the risk-averse agent. Intuitively, for incentive reasons, the principal may optimally want to allow the agent to reduce his risk exposure. Nevertheless, even endogenous risk may be higher when the risk-averse agent has control. |
| Keywords: | delegation, authority, risk, partial contracting |
| JEL: | D86 D21 D23 G34 L14 |
| Date: | 2007–10 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp3117&r=bec |
| By: | Sarah Brown; Gaia Garino; Christopher Martin (Department of Economics, The University of Sheffield) |
| Keywords: | Firm Performance; Labour Turnover; Quit Rates |
| JEL: | J21 J23 E3 F4 |
| Date: | 2007–09 |
| URL: | http://d.repec.org/n?u=RePEc:shf:wpaper:2007012&r=bec |
| By: | Francesc Dilme (Universitat de Barcelona) |
| Abstract: | Most of the large firms organization schemes consist in hierarchical structures of tiers with different wage levels. Traditionally the existence of this kind of organizations has been associated to the separation of productive and managerial or supervision tasks and to differences in the skills of the workers. However, many firms now employ workers with similar skills, and then the hierarchical structure can be related to an incentive scheme to ensure that workers supply effort. The model we present investigates how firm owners should determine the optimal wage distribution in order to maximize profits. |
| Keywords: | optimal hierarchies, efficiency wages, firm structure, incentives scheme, moral hazard |
| JEL: | M11 L23 M51 J31 |
| Date: | 2007 |
| URL: | http://d.repec.org/n?u=RePEc:bar:bedcje:2007185&r=bec |
| By: | Piero Gottardi (Dipartimento di Scienze Economiche, Università di Venezia); Alberto Bisin (Department of Economics, New York University); Adriano Rampini (Fuqua School of Business, Duke University) |
| Abstract: | Incentive compensation induces correlation between the portfolio of managers and the cash flow of the firms they manage. This correlation exposes managers to risk and hence gives them an incentive to hedge against the poor performance of their firms. We study the agency problem between shareholders and a manager when the manager can hedge his compensation using financial markets and shareholders can monitor the manager’s portfolio in order to keep him from hedging, but monitoring is costly. We find that the optimal incentive compensation and governance provisions have the following properties: (i) the manager’s portfolio is monitored only when the firm performs poorly, (ii) the manager’s compensation is more sensitive to firm performance when the cost of monitoring is higher or when hedging markets are more developed, and (iii) conditional on the firm’s performance, the manager’s compensation is lower when his portfolio is monitored, even if no hedging is revealed by monitoring. Moreover, the model suggests that the optimal level of portfolio monitoring is higher for managers of firms whose performance can be hedged more easily, such as larger firms and firms in more developed financial markets. |
| Keywords: | Executive Compensation, Incentives, Monitoring, Corporate Governance |
| JEL: | G30 D82 |
| Date: | 2007 |
| URL: | http://d.repec.org/n?u=RePEc:ven:wpaper:24_07&r=bec |
| By: | Mika Maliranta; Rita Asplund |
| Abstract: | ABSTRACT : We study how upgrading the skills of the personnel affects a firm’s performance. Two different strategies are examined : 1) providing formal training and 2) strategic recruitment and separation policy. The use of register-based longitudinal employer-employee data supplemented with a survey on vocational training provides an opportunity to shed fresh light on the issue and allows us to address the usual econometric problems. We find that internally (but not externally) organized training stimulates subsequent growth of performance but only when combined with the implementation of new process or product technology. Hiring highly skilled workers is initially costly to firms but is productivity-enhancing in the long run. |
| Keywords: | productivity, profitability, training, education, hiring |
| JEL: | J24 M5 O3 D2 |
| Date: | 2007–11–16 |
| URL: | http://d.repec.org/n?u=RePEc:rif:dpaper:1105&r=bec |
| By: | Uschi Backes-Gellner (Institute for Strategy and Business Economics, University of Zurich); Simone Tuor (Institute for Strategy and Business Economics, University of Zurich) |
| Abstract: | Avoiding labor shortages for skilled employees is one of the major challenges for highly competitive firms acting in tight labor markets. The ability to avoid labor shortages on the company level, for example measured by the share of vacant jobs, is distributed very unevenly and cannot in general be explained by differences in wages and compensation packages as standard economic theory would suggest. In our paper we present a theoretical explanation for large and persisting inter-firm differences in job vacancy rates. Many psychological studies show that unobservable job and company characteristics such as work atmosphere or individual self determination are crucial for employees’ job choices. However, since these characteristics are not reliably observable to an outsider, we argue that potential employees use other, on the surface nonessential company characteristics as signals for their preferred characteristics in their job decision. To derive empirically testable hypotheses we reverse Spence’s labor market signaling model and study how employers can reliably signal the quality of their work climate and labor relations to potential employees. We use a rich data set from approximately 700 firms to test our hypotheses and do find in fact that formal features of labor relations which on the surface may not seem relevant for recruitment success of skilled workers nevertheless exert significant effects on recruitment success and job vacancies. |
| Keywords: | Further training; Investing in human capital; Costs-benefit ratio |
| JEL: | M5 M12 M53 |
| Date: | 2007–01 |
| URL: | http://d.repec.org/n?u=RePEc:iso:educat:0010&r=bec |
| By: | Guido Friebel (Toulouse School of Economics, CEPR and IZA); Wendelin Schnedler (University of Heidelberg and IZA) |
| Abstract: | We investigate a team setting in which workers have different degrees of commitment to the outcome of their work. We show that if there are complementarities in production and if the team manager has some information about team members, interventions that the manager undertakes in order to assure certain efforts may have destructive effects: they can distort the way workers perceive their fellow workers and they may also lead to a reduction of effort by those workers that care most about output. Moreover, interventions may hinder the development of a cooperative organizational culture in which workers trust each other. Thus, our framework provides some first insights into the costs and benefits of interventions in teams. It identifies that team governance is driven by the importance of tasks that cannot be monitored. The more important these tasks, the more likely it is that teams are empowered. |
| Keywords: | team work, incentives, informed principal, intrinsic motivation |
| JEL: | M54 D86 |
| Date: | 2007–11 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp3143&r=bec |
| By: | Xiao-Yuan Dong (University of Winnipeg); Derek C. Jones (Hamilton College, Mondragon University and University of Michigan); Takao Kato (Colgate University, Columbia Business School, University of Tokyo, Aarhus School of Business and IZA) |
| Abstract: | By using a large new panel of individual data, including objective measures of worker performance, we provide some of the most rigorous evidence to date on several related dimensions of enduring debates surrounding upward-sloping earnings-tenure profiles. Most importantly we provide the first direct test of the relative validity of human capital and agency explanations in accounting for upward-sloping earnings-tenure profiles; our findings strongly support the agency view. Our second area of interest concerns employee ownership (many workers at our case are employee owners). Consistent with agency theory we find that earnings-tenure profiles for employee owners are not upward-sloping but horizontal. In addition we find that pay-performance sensitivities are substantially weaker for employee owners than for other workers. Finally we investigate the impact of residential policies in China. We find that again consistent with the agency view, earnings-tenure profiles are considerably steeper for urban workers than for migrant workers with far more limited alternative employment opportunities. |
| Keywords: | earnings, tenure, seniority, performance, human capital, agency, employee ownership |
| JEL: | J3 M5 L6 |
| Date: | 2007–10 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp3122&r=bec |
| By: | Kerem Cakirer (Department of Business Economics and Public Policy, Indiana University Kelley School of Business) |
| Abstract: | This paper studies endogenous integration decisions of firms and its competitive effects in a complementary market setting where downstream firms sell a product which must have a compatible variety of products that are supplied by upstream firms. I present the conditions under which a downstream firm will prefer integrating with an upstream firm, and conditions under a counter merger of firms occur. The analysis shows that a vertical merger is more likely to occur whenever one of the upstream firm is significantly productive than the other. Competitive effect of a integration of two firms can lead to a counter integration of rivals post integration. Counter integration is likely whenever both upstream firms are highly productive. In addition to a vertical merger and two vertical mergers, contracting under independent ownership can also be the method of procuring. As a result, no integration activity can be observed. The results are obtained in a general two downstream firms and two upstream firms market setting that allows efficient compatibility contracts between upstream and downstream producers. |
| Keywords: | Endogenous Vertical Integration, Positive Externality, Complementary Products, Product Variety |
| JEL: | D21 L22 L4 |
| Date: | 2007–11 |
| URL: | http://d.repec.org/n?u=RePEc:iuk:wpaper:2007-18&r=bec |
| By: | David B. Audretsch (Max Planck Institute of Economics and Indiana University); Erik E. Lehmann (University of Augsburg and Max Planck Institute of Economics); Lawrence A. Plummer (Clemson University and Max Planck Institute of Economics) |
| Abstract: | An important literature has made a fundamental link between corporate governance and corporate strategy. According to agency theory, assigning managers stock options aligns their interests with the interests of the owners of the firm. This paper suggests that this may not apply in the context of new ventures. Instead, an alternative perspective offered in this paper suggests that if contracts are incomplete, then managerial stock ownership not only provides a mechanism to align managerial incentives with the owners' goals, as agency theory predicts, it also grants top managers residual control rights to be used in subsequent negotiations with the owners. The ability to exercise residual control rights improves the ex post bargaining position of the CEO as an asset owner, thereby increasing her incentive to make relationship-specific investments that are specific to the new venture. Thus, in the context of new venture strategy assigning asset ownership to those who have the most important relationship-specific resources or who have indispensable human capital is a crucial source of subsequent competitive advantage. This theory of entrepreneurial governance is tested using patent ownership as a proxy for both relationship-specific investments and indispensable human capital of the CEO of the new venture. The empirical results support the main hypothesis posited by the entrepreneurial governance model. |
| Keywords: | managerial equity ownership, new ventures, property rights, governance, knowledge, innovation |
| JEL: | M13 L R30 |
| Date: | 2007–11–12 |
| URL: | http://d.repec.org/n?u=RePEc:jrp:jrpwrp:2007-086&r=bec |
| By: | Mattias Ganslandt (Research Institute of Industrial Economics (IFN)); Lars Persson (Research Institute of Industrial Economics (IFN) and CEPR); Helder Vasconcelos (Universidade Católica Portuguesa and CEPR) |
| Abstract: | In their merger control, EU and the US have considered symmetric size distribution (cost structure) of firms to be a factor potentially leading to collusion. We show that forbidding mergers leading to symmetric market structures can induce mergers leading to asymmetric market structures with higher risk of collusion, when firms face indivisible costs of collusion. In particular, we show that if the rule determining the collusive outcome has the property that the large (efficient) firm benefits sufficiently more from collusion when industry asymmetries increase, collusion can become more likely when firms are moderately asymmetric. |
| Keywords: | Collusion; Cost Asymmetries; Merger Policy |
| JEL: | D43 L41 |
| Date: | 2007–10 |
| URL: | http://d.repec.org/n?u=RePEc:pca:wpaper:28&r=bec |
| By: | David G. Blanchflower (Dartmouth College, NBER, Bank of England and IZA); Andrew J. Oswald (University of Warwick and IZA) |
| Abstract: | This paper documents some of the patterns in modern microeconomic data on young people’s employment, attitudes and entrepreneurial behaviour. Among other sources, the paper uses the Eurobarometer Surveys; the Labour Force Surveys from Canada and the Current Population Survey in the United States. The first conclusion is that self-employed individuals - a special but well-defined entrepreneurial group - report markedly greater wellbeing than equivalent employees. Their job satisfaction and life-satisfaction are all higher than workers of identical personal characteristics. The second conclusion is that individuals say they would like to be self-employed. There is, according to the survey data, a large pool of potentially entrepreneurial people. Across the West, many millions of employees would apparently prefer to be self-employed. Third, we showed that another important determinant of being self-employed is having a self-employed parent. This appears to help young people to set up in business themselves. It is unclear whether this is done by inheriting the business, or working in the family firm or actually setting up a new business entirely. |
| Keywords: | youth entrepreneurship, self-employment |
| JEL: | J21 |
| Date: | 2007–11 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp3139&r=bec |
| By: | Ramon Casadesus-Masanell (Harvard Business School); Barry Nalebuff (Yale School of Management); David B. Yoffie (Harvard Business School) |
| Abstract: | In Cournot's model of complements, the producers of A and B are both monopolists. This paper extends Cournot's model to allow for competition between complements on one side of the market. Consider two complements, A and B, where the A+B bundle is valuable only when purchased together. Good A is supplied by a monopolist(e.g., Microsoft) and there is competition in the B goods from vertically differentiated suppliers (e.g., Intel and AMD). In this simple game, there may not be a pure-strategy equilibria. In the standard case where marginal costs are weakly positive, there is no pure strategy where the lower quality B firm obtains positive market share. We also consider the case where A has negative marginal costs, as would arise when A can expect to make upgrade sales to an installed base. When profits from the installed base are sufficiently large, a pure strategy equilibrium exists with two B firms active in the market. Although there is competition in the complement market, the monopoly Firm A may earn lower profits in this environment. Consequently, A may prefer to accept lower future profits in order to interact with a monopolist complement in B. |
| Keywords: | AMD, complementors, complements, co-opetition, equilibrium non-existence, installed base, Intel, Microsoft, pricing. |
| JEL: | C72 D43 K21 L13 L15 M21 |
| Date: | 2007–08 |
| URL: | http://d.repec.org/n?u=RePEc:net:wpaper:0744&r=bec |
| By: | Oliver Budzinski (Faculty of Business Administration and Economics, Philipps Universitaet Marburg); Jürgen-Peter Kretschmer (Faculty of Business Administration and Economics, Philipps Universitaet Marburg) |
| Abstract: | We demonstrate that the popular Farrell-Shapiro-framework (FSF) for the analysis of mergers in oligopolies relies regarding its policy conclusions sensitively on the assumption that rational agents will only propose privately profitable mergers. If this assumption held, a positive external effect of a proposed merger would represent a sufficient condition to allow the merger. However, the empirical picture on mergers and acquisitions reveals a significant share of unprofitable mergers and economic theory, moreover, demonstrates that privately unprofitable mergers can be the result of rational action. Therefore, we extend the FSF by explicitly allowing for unprofitable mergers to occur with some frequency. This exerts a considerable impact on merger policy conclusions: while several insights of the original FSF are corroborated (f.i. efficiency defence), a positive external effect does not represent a sufficient condition for the allowance of a merger anymore. Applying such a rule would cause a considerable amount of false positives. In addition, we conclude that the FSF need to be explicitly complemented by a freedom of competition principle in order to make it workable as a basis for an economics-based merger policy. |
| Keywords: | oligopoly theory, horizontal merger policy, profitability of mergers, freedom of competition, antitrust |
| JEL: | L13 L41 K21 D43 |
| Date: | 2007 |
| URL: | http://d.repec.org/n?u=RePEc:mar:volksw:200714&r=bec |
| By: | Michele Moretto (Università di Padova) |
| Abstract: | We examine the effect of competition on investment decisions in an industry in which each firm has a completely irreversible investment opportunity and the product market has positive externalities for a small market size and negative externalities for a large market size. In the latter case, which corresponds to the traditional competitive industries, firms invest sequentially as market profitability develops. In the former case, which corresponds to industries in which investment is mutually beneficial, firms invest simultaneously after the market's profitability has developed sufficiently to gain all network benefits and to recover the option value of waiting. These extensions of a real options analysis may help explain rapid and sudden developments such as recent Internet investment, or explain the late take-off phenomenon of prolonged start-up problems, such as the case of fax machine production. |
| Keywords: | Irreversible Investments, Real Options, Network Effects |
| JEL: | C61 D81 G31 |
| Date: | 2007–11 |
| URL: | http://d.repec.org/n?u=RePEc:pad:wpaper:0058&r=bec |
| By: | Wolfgang Steffen; Johannes Stephan |
| Abstract: | This paper assess determinants of productivity gaps between firms in the European transition countries and regions and firms in West Germany. The analysis is conducted at the firm level by use of a unique database constructed by field work. The determinants tested in a simple econometric regression model are focussed upon the issue of human capital and modern market-oriented management. The results are novel in as much as a solution was established for the puzzling results in related research with respect to a comparison of formal qualification between East and West. Furthermore, the analysis was able to establish that the kind of human capital and expertise mostly needed in the post-socialist firms are related to the particular requirements of a competitive marketbased economic environment. Finally, the analysis also finds empirical support for the role of capital deepening in productivity catch-up, as well as the case that the gaps in labour productivity are most importantly rooted in a more labour-intense production, which does not give rise to a competitive disadvantage. |
| Keywords: | Productivity gap, Central East Europe, East Germany, firm-level analysis 1 |
| JEL: | L6 M2 |
| Date: | 2007–11 |
| URL: | http://d.repec.org/n?u=RePEc:iwh:dispap:11-07&r=bec |
| By: | Francis X. Diebold (University of Pennsylvania and NBER); Kamil Yýlmaz |
| Abstract: | Notwithstanding its impressive contributions to empirical financial economics, there remains a significant gap in the volatility literature, namely its relative neglect of the connection between macroeconomic fundamentals and asset return volatility. We progress by analyzing a broad international cross section of stock markets. We find a clear link between macroeconomic fundamentals and stock market volatilities, with volatile fundamentals translating into volatile stock markets. |
| Keywords: | Financial market, equity market, asset return, risk, variance, asset pricing |
| JEL: | G1 E0 |
| Date: | 2004–03 |
| URL: | http://d.repec.org/n?u=RePEc:koc:wpaper:0711&r=bec |
| By: | David G. Blanchflower (Dartmouth College, NBER, Bank of England and IZA) |
| Abstract: | In this paper I examine changes in self-employment that have occurred since the early 1980s in the United States. It is a companion paper to a recent equivalent paper relating to the UK. Data on random samples of twenty million US workers are examined taken from the Basic Monthly files of the CPS (BMCPS), the 2000 Census and the 2005 American Community Survey (ACS). In contrast to the official definition of self-employment which simply counts the numbers of unincorporated self-employed, we also include the incorporated self-employed who are paid wages and salaries. The paper presents evidence on trends in self-employment for the US as a whole as well as in construction. Construction is particularly important given that it accounts for a fifth of all self-employment and self-employment rates are roughly double the national rates. It is also important given the existence of public sector procurement programs that primarily exist in construction that have the intended purpose of assisting firms owned by women and minorities. I document the fact that self-employment rates of white women and minorities in comparison to those of white males have increased in construction and elsewhere as have self-employment earnings. Despite this substantial disparities remain. I also find evidence of discrimination in the small business credit market. Firms owned by minorities in general and blacks in particular are much more likely to have their loans denied and pay higher interest than is the case for white males. |
| Keywords: | entrepreneurship, self-employment, discrimination |
| JEL: | J15 |
| Date: | 2007–10 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp3130&r=bec |
| By: | Gehrig, Thomas; Shy, Oz; Stenbacka, Rune |
| Abstract: | We evaluate behaviour-based price discrimination from an antitrust perspective by focusing on an industry with inherited market dominance. Under horizontal differentiation behaviour-based pricing does not by itself lead to persistence of dominance unless the dominant firm is protected by significantly higher switching costs than its small rival. This result continues to hold even if the dominant firm can use behaviour-based pricing to compete against an entrant with no access to consumers' purchase histories. Under vertical differentiation behaviour-based pricing enhances the dominance of the high-quality seller and, hence, consumer welfare. |
| Keywords: | behavior-based pricing; consumer loyalty; horizontal and vertical differentiation; market dominance; poaching; price discrimination |
| JEL: | D4 L1 L41 |
| Date: | 2007–11 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:6571&r=bec |
| By: | Bourlès, Renaud |
| Abstract: | The aim of this paper is to analyze the impact of the existence of mutual firms on the behavior of an insurance company and more precisely to study in which situations a private insurance firm may emerge in presence of an incumbent mutual firm. Our approach differs from the existing literature as we integrate the investment choices of the company and the fact that, because it commits on a fix contract, it can become insolvent. In such a situation we are able to characterize the unique optimal choices of an entrant company and the conditions favoring or preventing its appearance. |
| Keywords: | Insurance market, Mutual firms, Commitment, Insolvency |
| JEL: | G22 D8 L1 |
| Date: | 2007–06–29 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:5821&r=bec |
| By: | Arghya Ghosh (University of New South Wales); Takao Kato (Colgate University, Columbia Business School, University of Tokyo, Aarhus School of Business and IZA); Hodaka Morita (University of New South Wales) |
| Abstract: | Does competitive pressure foster innovation? In addressing this important question, prior studies ignored a distinction between discrete innovation aiming at entirely new technology and continuous improvement consisting of numerous incremental improvements and modifications made upon the existing technology. This paper shows that distinguishing between these two types of innovation will lead to a much richer understanding of the interplay between firms’ incentives to innovate and competitive pressure. In particular, our model predicts that, in contrast to previous theoretical findings, an increase in competitive pressure measured by product substitutability may decrease firms’ incentives to conduct continuous improvement, and that an increase in the size of discrete innovation may decrease firms’ incentives to conduct continuous improvement. A unique feature of this paper is its exploration of the model’s real-world relevance and usefulness through field research. Motivated by recent declines in levels of continuous improvement in Japanese manufacturing, we conducted extensive field research at two Japanese manufacturing firms. After presenting our findings, we demonstrate that our model guides us to focus on several key changes taking place at these two firms; discover their interconnectedness; and finally ascertain powerful underlying forces behind each firm’s decision to weaken its investment in traditional continuous improvement activities. |
| Keywords: | competitive pressure, continuous improvement, discrete innovation, field research, location model, product substitutability, small group activities, technical progress |
| JEL: | L10 L60 M50 O30 |
| Date: | 2007–10 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp3132&r=bec |
| By: | Oyama, Daisuke; Sato, Yasuhiro; Tabuchi, Takatoshi; Thisse, Jacques-François |
| Abstract: | This paper investigates the impacts of progressive trade openness, technological externalities, and heterogeneity of individuals on the formation of entrepreneurship in a two-country occupation choice model. We show that trade opening gives rise to a non-monotonic process of international specialization, in which the share of entrepreneurial firms in the large (small) country first increases (decreases) and then decreases (increases), with the global economy exhibiting first de-industrialization and then re-industrialization. When countries have the same size, we also show that strong technological externalities make the symmetric equilibrium unstable, generating equilibrium multiplicity, while sufficient heterogeneity of individuals leads to the stability and uniqueness of the symmetric equilibrium. |
| Keywords: | entrepreneurship; externality; heterogeneity; stability; trade liberalization |
| JEL: | F12 F16 J24 O14 R12 |
| Date: | 2007–11 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:6567&r=bec |
| By: | Werner Bönte (Max Planck Institute of Economics, Entrepreneurship, Growth, and Public Policy Group); Oliver Falck (Ifo Institute for Economic Research and CESifo); Stephan Heblich (Max Planck Institute of Economics, Entrepreneurship, Growth, and Public Policy Group) |
| Abstract: | Demographic change will be one of the major challenges for economic policy in the developed world in the next decades. In this article, we analyze the relationship between age structure and the number of startups. We argue that an individual's decision to start a business is determined by his or her age and, therefore, that a change in a region's age distribution affects the expected number of startups in the region. Using German regional data, we estimate a count-data model and find that the expected number of startups is positively influenced by the fraction of individuals of working age? 20-64 years old. A more detailed analysis of the working-age distribution suggests that startups in knowledge-based (high-tech) manufacturing industries are affected by changes in this distribution whereas firms in other industries are not. In particular, increases in the fraction of individuals in the 20-30 age range and individuals in the 40-50 age range have a positive effect on the number of high-tech startups. |
| Keywords: | Demography, Age Distribution, Entrepreneurship, Innovation, Region |
| JEL: | J1 L26 O3 R11 |
| Date: | 2007–11–12 |
| URL: | http://d.repec.org/n?u=RePEc:jrp:jrpwrp:2007-084&r=bec |
| By: | Beard, Rodney |
| Abstract: | Impact analysis of changes in production inputs may be simplified if one can apply a constant adjustment factor to profit. In particular, if a production function can be found for which the elasticity of profit is constant and this function has desirable properties, then one can use the input elasticity of profit to study the impact of input changes on profit. In this paper such a production function is derived from first principles. |
| Keywords: | Impact analysis; Production economics; elasticities |
| JEL: | D24 M21 |
| Date: | 2007–11 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:5796&r=bec |