nep-bec New Economics Papers
on Business Economics
Issue of 2008‒03‒25
thirteen papers chosen by
Christian Calmes
University of Quebec in Ottawa

  1. Implicationsof Endogenous Group Formation for Efficient Risk-Sharing By Tessa Bold
  2. Rent-sharing under Different Bargaining Regimes:Evidence from Linked Employer-Employee Data By Michael Rusinek; François Rycx
  3. A Solution to the Default Risk-Business Cycle Disconnect By Enrique G. Mendoza; Vivian Z. Yue
  4. Employer-to-Employer Flows in the United States: Estimates Using Linked Employer-Employee Data By Melissa Bjelland; Bruce Fallick; John Haltiwanger; Erika McEntarfer
  5. Investment and Value: A Neoclassical Benchmark By Janice Eberly; Sergio Rebelo; Nicolas Vincent
  6. Costly External Finance and Investment Efficiency in a Market Equilibrium Model By Jan Zabojnik
  7. Stock Market Volatility and Learning By Albert Marcet; Klaus Adam; Juan Pablo Nicolini
  8. Business Intelligence – Improving Performance of Reengineering Project By Stefanescu, Andy
  9. Housing market spillovers: Evidence from an estimated DSGE model By Matteo Iacoviello; Stefano Neri
  10. Total factor productivity and the role of entrepreneurship By Hugo Erken; Piet Donselaar; Roy Thurik
  11. On the importance of borrowing constraints for house price dynamics By Eerola, Essi; Määttänen, Niku
  12. Information and Human Capital Management By Heski Bar-Isaac; Ian Jewitt; Clare Leaver
  13. Firms on SourceForge By Eilhard, Jan

  1. By: Tessa Bold
    Abstract: This paper models the implications of endogenous group formation for efficient risk-sharing contracts in the dynamic limited commitment model. Endogenising group formation requires that any risk-sharing arrangement is not only stable with respect to individual deviations but also with respect to deviations by sub-groups. This requirement alters the central predictions of the dynamic limited commitment model for efficient bilateral risk-sharing. Firstly, consumption of constrained agents depends on the previous history of shocks and the interaction of the history of shocks with the current income realizations of other constrained agents. As a consequence, the efficient contract does not display amnesia. Secondly, the covariance between current consumption and past income can take on negative values. Based on the first result, we derive a formal test for the presence of endogenous group formation under limited commitment. In addition, we show how this test can be extended to distinguish a limited commitment/perfect information environment from a full commitment/imperfect information environment empirically.
    Keywords: Risk-Sharing, Limited Commitment, Endogenous Group Formation
    JEL: D02 D86 C72
    Date: 2008
  2. By: Michael Rusinek (DULBEA, Université libre de Bruxelles, Brussels); François Rycx (DULBEA, Université libre de Bruxelles, Brussels, and IZA, Bonn)
    Abstract: The authors of this paper use detailed linked employer-employee data from a 2003 survey in Belgium to examine how collective bargaining features affect the extent of rent-sharing. Their results show that there is substantially more rent-sharing in decentralized than in centralized industries, even when controlling for the endogeneity of profits, for heterogeneity among workers and firms and for differences in characteristics between bargaining regimes. Moreover, in centralized industries, rent-sharing is found only for workers that are covered by a firm agreement. Finally, results indicate that within decentralized industries, both firm and industry bargaining generate rent-sharing to the same extent.
    Keywords: Rent-sharing, collective bargaining, propensity score matching.
    JEL: J31 J51
    Date: 2008–03
  3. By: Enrique G. Mendoza; Vivian Z. Yue
    Abstract: Models of business cycles in emerging economies explain the negative correlation between country spreads and output by modeling default risk as an exogenous interest rate on working capital. Models of strategic default explain the cyclical properties of sovereign spreads by assuming an exogenous output cost of default with special features, and they underestimate debt-output ratios by a wide margin. This paper proposes a solution to this default risk-business cycle disconnect based on a model of sovereign default with endogenous output dynamics. The model replicates observed V-shaped output dynamics around default episodes, countercyclical sovereign spreads, and high debt ratios, and it also matches the variability of consumption and the countercyclical fluctuations of net exports. Three features of the model are key for these results: (1) working capital loans pay for imported inputs; (2) imported inputs support more efficient factor allocations than when these inputs are produced internally; and (3) default on the foreign obligations of firms and the government occurs simultaneously.
    JEL: E32 E44 F32 F34
    Date: 2008–03
  4. By: Melissa Bjelland; Bruce Fallick; John Haltiwanger; Erika McEntarfer
    Abstract: We use administrative data linking workers and firms to study employer-to-employer flows. After discussing how to identify such flows in quarterly data, we investigate their basic empirical patterns. We find that the pace of employer-to-employer flows is high, representing about 4 percent of employment and 30 percent of separations each quarter. The pace of employer-to-employer flows is highly procyclical, and varies systematically across worker, job and employer characteristics. Our findings regarding job tenure and earnings dynamics suggest that for those workers moving directly to new jobs, the new jobs are generally better jobs; however, this pattern is highly procyclical. There are rich patterns in terms of origin and destination of industries. We find somewhat surprisingly that more than half of the workers making employer-to-employer transitions switch even broadly-defined industries (NAICS super-sectors).
    JEL: E24 J62 J63
    Date: 2008–03
  5. By: Janice Eberly; Sergio Rebelo; Nicolas Vincent
    Abstract: Which investment model best fits firm-level data? To answer this question we estimate alternative models using Compustat data. Surprisingly, the two best-performing specifications are based on Hayashi's (1982) model. This model's foremost implication, that Q is a sufficient statistic for determining a firm's investment decision, has been often rejected because cash-flow and lagged-investment effects are present in investment regressions. However, we find that these regression results are quite fragile and ineffectual for evaluating model performance. So, forget what investment regressions tell you. Models based on Hayashi (1982) provide a very good description of investment behavior at the firm level.
    JEL: E22
    Date: 2008–03
  6. By: Jan Zabojnik
    Abstract: The corporate finance literature suggests that a financially constrained firm invests less than an identical unconstrained firm. This does not imply that financial frictions cause firms to invest less than they would in a frictionless economy. When firms compete for investment funds, an increase in financial frictions can lead individual firms to increase their investment levels. A greater than the frictionless level of investment is likely in low productivity firms, in cash-rich firms, and in firms with cheap external capital. Government programs that make capital cheaper for small firms may lead to lower levels of investment for all firms and decrease efficiency.
    Keywords: Financial Frictions, Investment distortions
    JEL: O16 E22 E44 G20
    Date: 2008–03
  7. By: Albert Marcet; Klaus Adam; Juan Pablo Nicolini
    Abstract: Introducing bounded rationality in a standard consumption-based asset pricing model with time separable preferences strongly improves empirical performance. Learning causes momentum and mean reversion of returns and thereby excess volatility, persistence of price-dividend ratios, long-horizon return predictability and a risk premium, as in the habit model of Campbell and Cochrane (1999), but for lower risk aversion. This is obtained, even though our learning scheme introduces just one free parameter and we only consider learning schemes that imply small deviations from full rationality. The findings are robust to the learning rule used and other model features. What is key is that agents forecast future stock prices using past information on prices.
    JEL: G12 D84
    Date: 2008–01–25
  8. By: Stefanescu, Andy
    Abstract: Traditional competitive intelligence solutions are typically one-sided. Intelligence firms deliver either technology tools to facilitate the intelligence process, independent research deliverables that supplement internal analysis or general consulting to guide the process. Once the solution or report is delivered, the firm is on his own, to piece together these cookie-cutter components into an effective, integrated business intelligence function. The task of reengineering project is to produce intelligence - a unique combination of hardware, software, communications, information and human - and process facts and judgements, opinions and evidence through the complex calculus of human reasoning. It make the chaotic intelligible, the inchoate coherent and the disorganised clear-cut. In the course of a year, it will gather and evaluate millions of different pieces of information, improving reengineering project. They will organise each information element into one or more of more than 3,000 distinct categories and select the most salient items for distribution to the consumers who depend upon their work. The specific information may vary from day to day, but the results always have the impeccable, clock-like precision and reliability.
    Keywords: intelligence; business intelligence tools; organisational change; reengineering
    JEL: M00 L21 M21
    Date: 2008–03–16
  9. By: Matteo Iacoviello (Boston College); Stefano Neri (Bank of Italy, Economics and International Relations)
    Abstract: The ability of a two-sector model to quantify the contribution of the housing market to business fluctuations is investigated using U.S. data and Bayesian methods. The estimated model, which contains nominal and real rigidities and collateral constraints, displays the following features: first, a large fraction of the upward trend in real housing prices over the last 40 years can be accounted for by slow technological progress in the housing sector; second, residential investment and housing prices are very sensitive to monetary policy and housing demand shocks; third, the wealth effects from housing on consumption are positive and significant, and have become more important over time. The structural nature of the model allows identifying and quantifying the sources of fluctuations in house prices and residential investment and measuring the contribution of housing booms and busts to business cycles.
    Keywords: House prices, Collateral Constraints, Bayesian methods, Two-sector Models
    JEL: E32 E44 E47 R21 R31
    Date: 2008–01
  10. By: Hugo Erken (Ministry of Economic Affairs, Erasmus University Rotterdam); Piet Donselaar (Ministry of Economic Affairs); Roy Thurik (Erasmus University Rotterdam; Max Planck Institute of Economics; EIM Business and Policy Research)
    Abstract: Total factor productivity of twenty OECD countries for a recent period (1971-2002) is explained using six different models based on the established literature. Traditionally, entrepreneurship is not dealt with in these models. In the present paper it is shown that - when this variable is added - in all models there is a significant influence of entrepreneurship while the remaining effects mainly stay the same. Entrepreneurship is measured as the business ownership rate (number of business owners per workforce) corrected for the level of economic development (GDP per capita).
    Keywords: Total factor productivity, research and development, entrepreneurship, OECD
    JEL: E20 L26 M13 O10 O30 O40 O50
    Date: 2008–03–14
  11. By: Eerola, Essi (University of Helsinki and HECER); Määttänen, Niku (The Research Institute of the Finnish Economy)
    Abstract: We study how a household borrowing constraint the the form of a down payment requirement affects house price dynamics in an OLG model with standard preferences. We find that in certain situations the borrowing constraint shapes house price dynamics substantially. The importance of the constraint depends very much on whether house price changes are driven by interest rate or aggregate income shocks. Moreover, because of the borrowing constraint, house price dynamics display substantial asymmetries between large positive and large negative income shocks. These results are related to the fact that the share of borrowing-constrained households is different following different shocks.
    Keywords: house prices; dynamics; borrowing constraints; down payment constraint
    JEL: E21 R21
    Date: 2008–03–17
  12. By: Heski Bar-Isaac; Ian Jewitt; Clare Leaver
    Abstract: An increasingly important organisational design problem for many firms is to recoup general human capital rents while maintaining the attractive career prospects for workers. We explore the role of information management in this context. In our model, an information management policy determines the statistic of worker performance that will be available to outside recruiters. Choosing different statistics affects the extent of regression to the mean which, we show, in turn affects the incidence of adverse selection among retained and released workers. Using this observation, we detail how optimal information management policies vary across firms with different human capital management priorities. This view of human capital management via information management has strong implications for labour market outcomes. We discuss the impact on average wages, wage inequality, wage skewness and labour turnover rates.
    Keywords: Human Capital, Information Disclosure, Regression to the Mean, Adverse Selection, Turnover, Wage Distribution, Human Resource Management
    JEL: D82 J24 L21
    Date: 2007
  13. By: Eilhard, Jan
    Abstract: This paper explores empirically what factors influence a firm’s decision to contribute and to take leadership in open source projects. Increasing firms’ participation in the development of open source software (OSS) is generally perceived as a puzzle. Assuming that firms face a ”Make-or-Buy” decision before using OSS, we argue that contribution is in fact the best way for them to keep control of their supplier in a context where incomplete open source licenses govern transactions. Building on this proposition, we derive predictions on the drivers of firms’ contribution and leadership in open source projects, and test them on a unique dataset of 4,808 open source projects extracted from Sourceforge. Our empirical findings confirm the predictions and lend support to our hypotheses.
    Keywords: Open source; transaction cost; governance; firm boundaries; software
    JEL: D23 L17
    Date: 2008–01–28

This nep-bec issue is ©2008 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.
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