nep-bec New Economics Papers
on Business Economics
Issue of 2008‒08‒14
fourteen papers chosen by
Christian Calmes
University of Quebec in Ottawa

  1. What Do Japanese Unions Do for Productivity?: An Empirical Analysis Using Firm-Level Data By MORIKAWA Masayuki
  2. A Note on the Dynamics of Incentive Contracts By Sun, Ching-jen
  3. Correlated Poisson Processes with Unobserved Heterogeneity: Estimating the Determinants of Paid and Unpaid Leave By Georges Dionne; Benoit Dostie
  4. The Impact of Social Comparisons on Reciprocity By Simon Gaechter; Daniele Nosenzo; Martin Sefton
  5. Stimulating Strategically Aligned Behaviour among Employees By Riel, C.B.M. van; Berens, G.A.J.M.; Dijkstra, M.
  6. A large firm model of the labor market with entry, exit and search frictions By Alexandre Janiak
  7. The Effects of Derivatives on Firm Risk and Value By Bartram, Söhnke M.; Brown, Gregory W.; Conrad, Jennifer
  8. Offshoring and Occupational Wages: Some empirical evidence By Bigsten, Arne; Durevall, Dick; Munshi, Farzana
  9. Rhineland Exit? By Bovenberg, Lans; Teulings, Coen
  10. Response bias in job satisfaction surveys: English general practitioners By H Gravelle; AR Hole, I Hussein
  11. Cost-Benefit analysis of transport investments in distorted economies By Calthrop E.; De Borger B.; Proost S.
  12. Foundations of High Impact Entrepreneurship By Zoltan J. Acs
  13. Housing bubbles By Óscar J. Arce; J. David López-Salido
  14. Caveat Venditor: The Conditional Effect of Relationship-Specific Investment on Contractual Behavior By Peter Murrell; Radu Paun

  1. By: MORIKAWA Masayuki
    Abstract: This paper empirically analyzes the relationship between union presence and firm performance in areas such as productivity and profitability by using data on a large number of Japanese firms, covering both manufacturing and non-manufacturing industries. Results indicate that the presence of labor unions has large positive effects on productivity level and growth. The effects of union presence on wages are also positive and the magnitude is similar to that of productivity. I find no negative effect for the presence of unions on firm profitability. These results differ from studies in the U.S. The number of employees decreases more for unionized firms than non-unionized firms. Most of the difference in employment is attributable to the change in the number of part-time workers. In order to enhance the productivity of the service sector, close cooperation between management and unions is required.
    Date: 2008–07
  2. By: Sun, Ching-jen
    Abstract: Laffont and Tirole [3] show that when the uncertainty about the agent's ability is small, the equilibrium must involve a large amount of pooling, but it is not necessary to be a partition equilibrium. They construct a nonpartition continuation equilibrium for a given first-period menu of contracts and conjecture that this continuation equilibrium need not be suboptimal for the whole game under small uncertainty. We show that, irrespective of the amount of uncertainty, this nonpartition continuation equilibrium generates a smaller payoff for the principal than a different menu of contracts with a partition continuation equilibrium. In this sense, Laffont and Tirole's menu of contracts, giving rise to a nonpartition continuation equilibrium, is not optimal. An intuition behind this result is provided that may shed some light on the problem of dynamic contracting without commitment.
    Keywords: Incentive Contracts; Dynamic Contracting; Commitment; Partition Equilibrium; Ratchet Effect; Bunching.
    JEL: D86 L51
    Date: 2007–08
  3. By: Georges Dionne; Benoit Dostie
    Abstract: Using linked employer-employee data from the Canadian Workplace and Employee Survey 1999-2004, we provide new evidence on how the cost of absence affects labor supply decisions. We use a particular feature of the data by which total absences are divided into three separate categories: sick paid days, other paid days and unpaid days. This division introduces variations in the way workers are compensated for absence (the cost of absence) and allows us to estimate more precisely how variations in such costs affect absenteeism decisions. We find an absence elasticity of -0.37. We also find unobserved heterogeneity to play different roles for workers and workplaces: some workers are more frequently absent whatever the reason, but paid and unpaid leaves are negatively correlated at the workplace level.
    Keywords: Absenteeism, Linked Employer-Employee Data, Unobserved Heterogeneity, Count Data Model, Correlated Random Effects
    JEL: J22 M52
    Date: 2008
  4. By: Simon Gaechter (University of Nottingham); Daniele Nosenzo (University of Nottingham); Martin Sefton (University of Nottingham)
    Abstract: We investigate the effects of pay comparison information (i.e. information about what coworkers earn) and effort comparison information (information about how co-workers perform) in experimental firms composed of one employer and two employees. Exposure to pay comparison information in isolation from effort comparison information does not appear to affect reciprocity toward employers: in this case own wage is a powerful determinant of own effort, but co-worker wages have no effect. By contrast, we find that exposure to both pieces of social information systematically influences employees’ reciprocity. A generous wage offer is virtually ineffective if an employee is matched with a lazy co-worker who is also paid generously: in such circumstances the employee tends to expend low effort irrespective of her own wage. Reciprocity is more pronounced when the co-worker is hard-working, as effort is strongly and positively related to own wage in this case. Reciprocity is also pronounced when the employer pays unequal wages to the employees: in this case the co-worker’s effort decision is disregarded and effort decisions are again strongly and positively related to own wage. On average exposure to social information weakens reciprocity, though we find substantial heterogeneity in responses across individuals, and find that sometimes social information has beneficial effects. We suggest that group composition may be an important tool for harnessing the positive effects of social comparison processes.
    Keywords: Reciprocity, gift-exchange, social information, social comparisons, pay comparisons, peer effects
    JEL: A13 C92 J31
    Date: 2008–08
  5. By: Riel, C.B.M. van; Berens, G.A.J.M.; Dijkstra, M. (Erasmus Research Institute of Management (ERIM), RSM Erasmus University)
    Abstract: Strategically aligned behaviour (SAB), i.e., employee action that is consistent with the company’s strategy, is of vital importance to companies. This study provides insights into the way managers can promote such behaviour among employees by stimulating employee motivation and by informing employees, and by stimulating the development of their capabilities. The results of surveys conducted in three organisations suggest that, first, efforts by management aimed at motivating and informing employees (both managers and non-managers), and at developing their capabilities, each have an influence on SAB. Second, among the efforts to stimulate motivation among employees, providing a rationale for the strategy and an open communication climate have a stronger effect than participation in decision making and supportiveness. Third, the perceptions of the different types of managerial efforts influence each other. For this reason, the efforts have direct as well as indirect effects on SAB. Fourth, each of the efforts acts as a necessary condition for SAB to occur. Finally, the effect of informing efforts appears to be stronger for managerial employees than for non-managerial employees, and also for employees who have a better understanding of the organisation’s strategy.
    Keywords: capability development;employee behaviour;information;motivation;strategic alignment;strategic change
    Date: 2008–08–01
  6. By: Alexandre Janiak
    Abstract: I augment the standard large-firm matching model with a firm process of entry and exit. This extension requires the analysis of firm-level dynamics, which I present in this note. I also show the equivalence of the model with the one-worker firm model from Pissarides (2000). JEL: J63.
    Date: 2008
  7. By: Bartram, Söhnke M.; Brown, Gregory W.; Conrad, Jennifer
    Abstract: Using a sample of 6,888 non-financial firms from 47 countries, we examine the effect of derivative use on firms’ risk measures and value. We control for endogeneity by matching users and non-users on the basis of their propensity to hedge. We also use a new technique to estimate the effect of omitted variable bias on our inferences. We find strong evidence that the use of financial derivatives reduces both total risk and systematic risk. The effect of derivative use on firm value is positive but weak, and is more sensitive to endogeneity and omitted variable concerns. This increased sensitivity could account for the mixed evidence in the literature on the effect of hedging on firm value.
    Keywords: Derivatives; risk management; hedging; international finance
    JEL: F4 F3 G3
    Date: 2006–10–01
  8. By: Bigsten, Arne (Department of Economics, School of Business, Economics and Law, Göteborg University); Durevall, Dick (Department of Economics, School of Business, Economics and Law, Göteborg University); Munshi, Farzana (Department of Economics, School of Business, Economics and Law, Göteborg University)
    Abstract: Offshoring has changed the pattern of international competition; labor in specific occupations rather than whole firms and sectors are now facing competition. Accordingly, wages in offshorable occupations are affected in new ways. In this paper we investigate the effects of offshoring of electronically traded services on relative occupational wages in 13 countries in the 1990-2003 period. Our findings show that increased exports of IT-related services lead to higher relative wages in offshorable occupations, whereas increased imports of such service reduce them. There is also some evidence that the impact of offshoring on relative wages is larger the lower the level GDP per capita.
    Keywords: Offshoring; globalization; occupational wages; service trade
    JEL: F15 F16 J31
    Date: 2008–08–05
  9. By: Bovenberg, Lans (Tinbergen Institute); Teulings, Coen (CPB Netherlands Bureau for Economic Policy Analysis)
    Abstract: We argue in favour of the shareholder model of the firm for three main reasons. First, serving multiple stakeholders leads to ill-defined property rights. What sounds like a fair compromise between stakeholders can easily evolve in a permanent struggle between the stakeholders about the ultimate goal of the company. In many cases, the vague Rhineland principles no longer offer much protection to workers. Second, giving workers a claim on the surplus of the firm raises the cost of capital for investments in jobs, which harms the position of job seekers, including new entrants to the labour market. Third, and most importantly, making shareholders the ultimate owner of the firm provides the best possible diversification of firm-specific risks. Whereas globalisation has increased firm-specific risk by intensifying competition, globalisation of capital markets has also greatly increased the scope for diversification of firm-specific risk. Diversification of this risk on the capital market is an efficient form of social insurance. Reducing the claims of workers on the surplus of the firm can be seen as the next step in the emancipation of workers. Workers derive their security not from the firm that employs them but from the value of their own human capital. In such a world, global trade in corporate control, global competition and creative destruction associated with these developments are more legitimate. Coordination in wage bargaining and collective norms on what is proper compensation play an important role in reducing the claim of workers on the firm’s surplus, thereby protecting workers against firm-specific risks. Indeed, in Denmark, workers bear less firm-specific risk than workers in the United States do. Collective action thus has an important role to play. Politicians, however, also face the temptation to please voters and incumbent workers with short-run gains at the expense of exposing workers to firm-specific risks and reducing job creation. This is why corporate governance legislation that gives moral legitimacy to the claim of insiders on the surplus of the firm is damaging. The transition from the Rhineland model (in which management serves the interests of all stakeholders) towards the shareholder model is fraught with difficulties. While society reaps long-run gains in efficiency, in the short run a generation of insiders has to give up their rights without benefiting from increased job creation and higher starting wages. Whereas the claims of older workers on the surplus of a firm may thus have some legitimacy, younger cohorts should be denied such moral claims. These problems require extreme political skill to solve. In particular, they may require some grandfathering provisions or temporary explicit transfers from younger to older generations.
    Keywords: wagesetting, optimal risk sharing, employment protection, corporate governance
    Date: 2008–08
  10. By: H Gravelle; AR Hole, I Hussein
    Abstract: Job satisfaction affects propensity to quit, actual quits, and job performance. Hence it is of interest to survey workers to investigate their satisfaction and the factors affecting satisfaction. But survey respondents may be untypical of the workforce in unobservable respects which are correlated with satisfaction. In particular satisfaction may affect the propensity to respond to job satisfaction surveys, so that estimates of average satisfaction and the effects of determinants of satisfaction may be biased. We examine response bias using data from a postal job satisfaction survey of family doctors. We link all the sampled doctors to an administrative database and so have information on the characteristics of responders and non-responders. Thus we can control for both selection on observables and on unobservables. Allowing for selection increases the estimate of mean job satisfaction in 2005 by between 0.4 to 1.0 from uncorrected sample mean of 5.27 (on a 1 to 7 scale). Correction for response bias also increase the estimated change in mean job satisfaction between 2004 and 2005 from 0.60 to 1.03. Estimates of the determinants of job satisfaction are insensitive to response bias.
    Keywords: Job satisfaction. Response bias. Sample selection. Family practitioners.
    JEL: J28 J44 I18
    Date: 2008–07
  11. By: Calthrop E.; De Borger B.; Proost S.
    Abstract: This paper deals with costs-benefit analysis of investment in transport infrastructure. Its contribution is twofold. Firstly, we develop a general equilibrium model to explore the impact of a small budgetary-neutral investment in transport infrastructure in a second-best setting, where other markets in the economy are distorted by taxes or external costs. The model incorporates different transport modes that are used both for intermediate inputs (freight) and for final consumption (passenger travel). An intuitive operational expression for the net economic benefit of an investment is derived that depends on the way the investment is financed. This expression generalizes recent findings in the literature. Secondly, we illustrate the results numerically using a small example. Our findings show that both the specific financing instrument used and the labour market consequences may have large implications for the net benefits of transport investments. Significant errors may be made in limiting cost-benefit analysis to transport markets only.
    Date: 2008–06
  12. By: Zoltan J. Acs (George Mason University; Max Planck Institute of Economics)
    Abstract: This survey reviews the theoretical literature on high impact entrepreneurship. The survey is guided in part by the recent classification changes at the Journal of Economic Literature (JEL) regarding entrepreneurship. The board voted to create a new classification code, L26, for entrepreneurship. The JEL intends to use this code for all articles and books that focus on economic questions related to entrepreneurial activity. Publications related to questions on occupational choice issues will be cross classified with J23; those focusing on innovation and entrepreneurship will be cross classified with O31; those focusing on finance will be cross classified with G24 Investment Banking, venture capital, brokerage and rating agencies; those focusing on new firms, start ups; and business related publications on how to be an entrepreneur will be cross classified (or solely classified) with M13. What does this economic literature tell us about entrepreneurship? In order to answer the questions this review covers the intersection of entrepreneurship with labor markets, innovation and capital markets - the three pillars of high impact entrepreneurship.
    Keywords: Entrepreneurship, High Impact Firms, Occupational Choice, Innovation, Finance, Policy, leveraged startups.
    JEL: L26 O31 J23 G24
    Date: 2008–08–12
  13. By: Óscar J. Arce (Banco de España); J. David López-Salido (Federal Reserve Board)
    Abstract: In this paper we use the notion of a housing bubble as an equilibrium in which some investors hold houses only for resale purposes and not for the expectation of a dividend, either in the form of rents or utility. We provide a life-cycle model where households face collateral constraints that tie their credit capacity to the value of their houses and examine the conditions under which housing bubbles can emerge. In such equilibria, the total housing stock is held by owners that extract utility from their homes, landlords that obtain rents, and investors. We show that an economy with tighter collateral constraints is more prone to bubbles which, in turn, tend to have a larger size but are less fragile in face of funddraining shocks. Our environment also allows for pure bubbles on useless assets. We find that multiple equilibria in which the economy moves endogenously from a pure bubble to a housing bubble regime and vice versa are possible. This suggests that high asset price volatility may be a natural consequence of asset shortages (or excess funding) that depress interest rates sufficiently so as to sustain an initial bubble. We also examine some welfare implications of the two types of bubbles and discuss some mechanisms to rule out equilibria with housing bubbles.
    Keywords: collateral constraints, buy-to-let investment, housing bubbles, switching bubbles, welfare
    JEL: G21 R21 R31
    Date: 2008–08
  14. By: Peter Murrell (Department of Economics, University of Maryland); Radu Paun (Competition Council of Romania)
    Abstract: We offer a new perspective on the effect of relationship-specific investment on contract complexity, which has broad implications because complex contracts and vertical integration are substitutes. A simple model using transaction cost economics (TCE) predicts that buyer and seller relationship-specific investments have opposite effects on contract complexity. The model also predicts the signs of biases in OLS estimates of the effect of relationship-specific investments: unobserved heterogeneity causes downward bias in the estimated difference between the effects of buyer and seller specific investment, reducing the probability of finding opposite effects. We examine these predictions using data on agreements made by Romanian firms. When accounting for unobserved heterogeneity, seller relationship-specific investment has a positive effect on contract complexity while buyer investment has a negative effect. OLS estimates do not generate this result. The unique contribution of the paper is in simultaneously implementing TCE empirically, countering the problem of unobserved heterogeneity, generating estimates of the effects of specific investment that have opposite signs on opposite sides of the agreement, and explaining patterns of bias in the OLS estimates. Additionally, regional variation in court quality affects the complexity of contracts, suggesting that even moderate amounts of legal reform can have appreciable effects.
    Keywords: transaction cost economics, TCE, contract, contract complexity, property-rights theory, relationship-specific investment, legal system, transition, Romania
    JEL: D23 K12 L14 L22 O17 P3
    Date: 2008–07

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