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on Business Economics |
| By: | Christian A. Ruzzier (Harvard Business School) |
| Abstract: | It is often argued that competition forces managers to make better choices, thus favoring managerial autonomy in decision making. I formalize and challenge this idea. Suppose that managers care about keeping their position or avoiding interference, and that they can make strategic choices that affect both the expected profits of the firm and their riskiness. Even if competition at first pushes the manager towards profit maximization as commonly argued, I show that further increases in competitive forces might as well lead him to take excessive risks if the threat on his position is strong enough. To curb this possibility, the principal-owner optimally reduces the degree of autonomy granted to the manager. Hence higher levels of managerial autonomy are more likely for intermediate levels of competition. |
| Keywords: | product-market competition, authority, decision making, delegation, autonomy |
| JEL: | D23 L22 M12 M21 |
| Date: | 2009–01 |
| URL: | http://d.repec.org/n?u=RePEc:hbs:wpaper:09-082&r=bec |
| By: | Gian Luca Clementi (New York University, USA and The Rimini Centre of Economic Analisys, Italy); Thomas Cooley (New York University and NBER, USA); Sonia Di Giannatale (Centro de Investigaci´on y Docencia Econ´omicas, M´exico) |
| Abstract: | We study the problem of an investor that buys an equity stake in an entrepreneurial venture, under the assumption that the former cannot monitor the latter’s operations. The dynamics implied by the optimal incentive scheme is rich andquite different from that induced by other models of repeated moral hazard. In particular, our framework generates a rationale for firm decline. As young firms accumulate capital, the claims of both investor (outside equity) and entrepreneur (inside equity) increase. At some juncture, however, even as the latter keeps on growing, capital and firm value start declining and so does the value of outside equity. The reason is that incentive provision becomes costlier as inside equity grows. In turn, this leads to a decline in the constrained–efficient level of effort and therefore to a drop in the return to investment. In the long run, the entrepreneur gains control of all cash–flow rights and the capital stock converges to a constant value. |
| Keywords: | Principal–Agent, Moral Hazard, Hidden Action, Incentives, Firm Dynamics. |
| JEL: | D82 D86 D92 G32 |
| Date: | 2008–01 |
| URL: | http://d.repec.org/n?u=RePEc:rim:rimwps:33-08&r=bec |
| By: | Sungbae An (Singapore Management University); Yongsung Chang (University of Rochester); Sun-Bin Kim (Korea University) |
| Abstract: | Accounting for observed fluctuations in aggregate employment, consumption, and real wage using the optimality conditions of a representative household often requires preferences that are incompatible with economic priors (e.g., Mankiw, Rotemberg, and Summers 1985). This discrepancy between the equilibrium model and the aggregate data is often viewed as evidence of the failure of labor-market clearing. We argue that such a conclusion is premature. We construct a model economy where all prices are flexible and all markets clear at all times but household decisions are not readily aggregated because of incomplete capital markets and the indivisible nature of the labor supply. We demonstrate that if we were to explain the model-generated aggregate time series using decisions of a fictitious" stand-in household, such a household is likely to have a non-concave or unstable utility. Our analysis suggests that the representative-agent model often fails to represent an equilibrium outcome of a heterogeneous-agent economy. |
| Keywords: | Representative-agent model, Aggregation, Heterogeneity, Incomplete Markets, Indivisible Labor, GMM Estimation |
| JEL: | E24 E32 J21 J22 |
| Date: | 2008–09 |
| URL: | http://d.repec.org/n?u=RePEc:roc:rocher:542&r=bec |
| By: | Christian Calmès (Département des sciences administratives, Université du Québec (Outaouais), et LRSP); Raymond Théoret (Département de stratégie des affaires, Université du Québec (Montréal), et Chaire d'information financière et organisationnelle) |
| Abstract: | This paper revisits the impact of OBS activities on Canadian banks risk-return trade-off. Recent studies (Stiroh and Rumble 2006, Calmès and Liu 2007) suggest that increasing OBS activities do not necessarily yield straightforward diversification benefits. However, adding a risk premium to earlier accounting returns models by resorting to an ARCH-M procedure, an updated sample reveals that the Canadian banks risk-return trade-off displays a structural break, around 1997. In the second subperiod (1997-2007) of our sample, we find that the share of noninterest income no longer negatively impacts banks returns. Relatedly, we find that a risk premium emerges while, in the first period (1988-1996), the volatility variable is not significant in any returns equations. Our results are thus consistent with a maturation process story. |
| Keywords: | Regulatory changes; Noninterest income; Diversification; Structural break; Risk premium. |
| JEL: | G20 G21 |
| Date: | 2009–01–12 |
| URL: | http://d.repec.org/n?u=RePEc:pqs:wpaper:022009&r=bec |
| By: | Michael Rusinek (DULBEA, Solvay Brussels School of Economics and Management, Université Libre de Bruxelles, Brussels); François Rycx (Centre Emile Bernheim, DULBEA, Solvay Brussels School of Economics and Management, Université Libre de Bruxelles, Brussels and IZA-Bonn.) |
| Abstract: | In many European countries, the majority of workers have their wages directly defined by industry-level agreements. In addition, for some workers, industry agreements are complemented by firm-specific agreements. Yet, the relative importance of firm and industry agreements (in other words, the degree of centralization) differs drastically across industries. The authors of this paper use unique linked employer-employee data from a 2003 survey in Belgium to examine how these 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: | 2009–01 |
| URL: | http://d.repec.org/n?u=RePEc:sol:wpaper:09-004&r=bec |
| By: | Gu, Wulong; Macdonald, Ryan |
| Abstract: | This paper makes use of a growth accounting framework to examine the importance of public capital for private sector productivity growth. Most measures of multifactor productivity consider only the inputs of the business sector. This paper produces an alternate measure of multifactor productivity for the business sector that incorporates the impact of public capital. It uses the estimate of the elasticity of business sector output with respect to public capital derived from Macdonald (2008). Over the period, the conventional estimate of MFP growth averages 0.4% per year. About half of this growth is attributable to public capital. |
| Keywords: | Economic accounts, Productivity accounts |
| Date: | 2009–01–14 |
| URL: | http://d.repec.org/n?u=RePEc:stc:stcp6e:2008021e&r=bec |
| By: | Thierry Lallemand (DULBEA, Solvay Brussels School of Economics and Management, Université Libre de Bruxelles, Brussels); François Rycx (Centre Emile Bernheim, DULBEA, Solvay Brussels School of Economics and Management, Université Libre de Bruxelles, Brussels and IZA-Bonn.) |
| Abstract: | This paper investigates the effects of the workforce age structure on the productivity of large Belgian firms. More precisely, it examines different scenarios of changes in the proportion of young (16-29 years), middle-aged (30-49 years) and old (more than 49 years) workers and their expected effects on firm productivity. Using detailed matched employer-employee data, we find that a higher share of young (old) workers within firms is favourable (harmful) for firm value added per capita. Results also show that age structure effects on productivity are stronger in ICT than in non-ICT firms. |
| Keywords: | Firm performance, Workforce age structure, Demographic changes |
| JEL: | J21 J31 L25 |
| Date: | 2009–01 |
| URL: | http://d.repec.org/n?u=RePEc:sol:wpaper:09-002&r=bec |
| By: | Kangsik, Choi |
| Abstract: | We investigate a differentiated mixed duopoly in which private and public firms can choose to strategically set prices or quantities by facing a union bargaining process. For the case of a unionized mixed duopoly, only public firm is able to choose a type of contract based on the degree of substitutability in the equilibrium. Focusing on the case of substitute goods, we show that Bertrand (respectively, Cournot) competition entails higher social welfare than Cournot (respectively, Bertrand) competition if the degree of substitutability is relatively small (respectively, large). Thus, there are multiple Nash equilibria in the contract stage of the game. As a result, Singh and Vives' ranking of social welfare is reversed in a range of substitution values for which it is a dominant strategy for public firm to choose either quantity or price contracts. |
| Keywords: | Wage Bargaining; Union; Cournot-Bertrand Competition; Mixed Duopoly. |
| JEL: | J51 L13 C7 D43 H44 |
| Date: | 2008–09–25 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:12787&r=bec |
| By: | Sharon Harrison; Mark Weder |
| Abstract: | In this paper, we address the causes of the Roaring Twenties in the United States. In particular, we use a version of the real business cycle model to test the hypothesis that an extraordinary pace of productivity growth was the driving factor. Our motivation comes from the abundance of evidence of signi?cant technological progress during this period, fed by innovations in manufacturing and the widespread introduction of electricity. Our estimated total factor productivity series generate arti?cial model output that shows high conformity with the data: the model economy sucessfully replicates the boom years from 1922-1929. |
| Keywords: | Real Business Cycles, Roaring Twenties. |
| JEL: | E32 N12 |
| Date: | 2009–01 |
| URL: | http://d.repec.org/n?u=RePEc:san:cdmawp:0901&r=bec |
| By: | Barth, Erling (Institute for Social Research, Oslo); Dale-Olsen, Harald (Institute for Social Research, Oslo) |
| Abstract: | Motivated by models of worker flows, we argue in this paper that monopsonistic discrimination may be a substantial factor behind the overall gender wage gap. On matched employer-employee data from Norway, we estimate establishment-specific wage premiums separately for men and women, conditioning on fixed individual effects. Regressions of worker turnover on the wage premium identify less wage elastic labour supply facing each establishment of women than that of men. Workforce gender composition is strongly related to employers' wage policies. The results suggest that 70-90 percent of the gender wage gap for low-educated workers may be attributed to differences in labour market frictions between men and women, while the similar figures for high-educated workers ranges from 20 to 70 percent. |
| Keywords: | gender wage gap, monopsony |
| JEL: | J16 J31 J42 J63 J71 |
| Date: | 2009–01 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp3930&r=bec |
| By: | Andrew Sharpe; Jean-François Arsenault; Peter Harrison |
| Abstract: | The most direct mechanism by which labour productivity affects living standards is through real wages, that is, wages adjusted to reflect the cost of living. Between 1980 and 2005, the median real earnings of Canadians workers stagnated, while labour productivity rose 37 per cent. This report analyzes the reasons for this situation. It identifies four factors of roughly equal importance: rising earning inequalities; falling terms of trade for labour; a decrease in labour’s share of GDP; and measurement issues. This report also explores the relationship between labour productivity and real wages by province and by sector, as well as in the United States and in other high-income countries. |
| Keywords: | Productivity, Real Wages, Earnings, Labour Share, Inequalities |
| JEL: | E20 E25 O51 O40 J38 J39 |
| Date: | 2008–12 |
| URL: | http://d.repec.org/n?u=RePEc:sls:resrep:0808&r=bec |
| By: | Joseph A. Clougherty; Tomaso Duso |
| Abstract: | It is commonly perceived that firms do not want to be outsiders to a merger between competitor firms. We instead argue that it is beneficial to be a non-merging rival firm to a large horizontal merger. Using a sample of mergers with expert-identification of relevant rivals and the event-study methodology, we find rivals generally experience positive abnormal returns at the merger announcement date. Further, we find that the stock reaction of rivals to merger events is not sensitive to merger waves; hence, ‘future acquisition probability’ does not drive the positive abnormal returns of rivals. We then build a conceptual framework that encompasses the impact of merger events on both merging and rival firms in order to provide a schematic to elicit more information on merger type. <br> <br> <i>ZUSAMMENFASSUNG - (Die Wirkung von horizontalen Zusammenschlüssen auf Wettbewerber: Der Nutzen einer Außenseiterposition bei Fusionen) <br>Es ist gemeinhin bekannt, dass Unternehmen nicht Außenseiter einer Fusion zwischen eigenen Wettbewerbern sein wollen. In dieser Arbeit zeigen wir, dass es für Unternehmen durchaus vorteilhaft sein kann, sich an einem großen horizontalen Zusammenschluss nicht zu beteiligen. Anhand einer Datenbank von großen Fusionen, in denen die relevanten Wettbewerber der fusionierenden Unternehmen von Experten der Europäischen Kommission identifiziert worden sind, und Mithilfe einer Ereignisstudienmethode, bestätigen wir empirisch, dass Wettbewerber durchschnittlich positive abnormale Gewinne bei der Ankündigung eines Zusammenschlusses erzielen. Darüber hinaus stellen wir fest, dass die Reaktion der Aktienkurse von Konkurrenten bei der Ankündigung eines Zusammenschlusses nicht anfällig für Fusionswellen ist, und dass die abnormalen Gewinne nicht von der "künftigen Firmenübernahmewahrscheinlichkeit" getrieben sind. Schließlich wird in der Studie ein konzeptioneller Rahmen entwickelt, der die Auswirkungen der Fusion sowohl auf die fusionierenden Unternehmen und als auch auf die Wettbewerber zusammenfasst, um die Art des Zusammenschlusses besser identifizieren zu können.<i> |
| Keywords: | Rivals, Mergers, Acquisitions, Event-Study |
| JEL: | G34 G14 M20 L22 |
| Date: | 2008–05 |
| URL: | http://d.repec.org/n?u=RePEc:wzb:wzebiv:fsiv2008-17&r=bec |
| By: | Niels Bosma (Urban and Regional research Centre Utrecht (URU), Utrecht University, Utrecht, The Netherlands); Erik Stam (Tjalling Koopmans Institute, Utrecht School of Economics, Utrecht University, Utrecht, The Netherlands; Centre for Technology Management, University of Cambridge, Cambridge, United Kingdom; Scientific Council for Government Policy (WRR), The Hague, The Netherlands; Max Planck Institute of Economics - Entrepreneurship, Growth and Public Policy group, Jena, Germany); Veronique Schutjens (Urban and Regional research Centre Utrecht (URU), Utrecht University, Utrecht, The Netherlands) |
| Abstract: | Do firm entry and exit improve the competitiveness of regions? If so, is this a universal mechanism or is it contingent on the type of industry or region in which creative destruction takes place? This paper analyses the effect of firm entry and exit on the competitiveness of regions, measured by total factor productivity (TFP) growth. Based on a study across 40 regions in the Netherlands over the period 1988-2002, we find that firm entry is related to productivity growth in services, but not in manufacturing. The positive impact found in services does not necessarily imply that new firms are more efficient than incumbent firms; high degrees of creative destruction may also improve the efficiency of incumbent firms. We also find that the impact of firm dynamics on regional productivity in services is higher in regions exhibiting diverse but related economic activities. |
| Keywords: | firm entry, firm exit, turbulence, regional competitiveness, total factor productivity |
| JEL: | L10 M13 O18 R11 |
| Date: | 2009–01–12 |
| URL: | http://d.repec.org/n?u=RePEc:jrp:jrpwrp:2009-003&r=bec |
| By: | Vicente Cuñat; Maria Guadalupe |
| Abstract: | This paper studies the effect of changes in foreign competition on the structure of compensation and incentives of U.S. executives. We measure foreign competition as import penetration and use tariffs and exchange rates as instrumental variables to estimate its causal effect on pay. We find that higher foreign competition leads to more incentive provision in a variety of ways. First, it increases the sensitivity of pay to performance. Second, it increases whithin-firm pay differentials between executive levels, with CEOs typically experiencing the largest wage increases, partly because they receive the steepest incentive contracts. Finally, higher foreign competition is also associated with a higher demand for talent. These results indicate that increased foreign competition can explain some of the recent trends in compensation structures. |
| Keywords: | Incentives, Performance-related-pay, Wage Structure, Promotions, Demand for talent, Globalization, Product Market Competition |
| JEL: | M52 L1 J31 |
| Date: | 2009–01 |
| URL: | http://d.repec.org/n?u=RePEc:upf:upfgen:1134&r=bec |
| By: | Addison, John T. (University of South Carolina); Schnabel, Claus (University of Erlangen-Nuremberg) |
| Abstract: | Despite its lack of attractiveness to other countries, the German system of quasi-parity codetermination at company level has held up remarkably well. We recount the theoretical arguments for and against codetermination and survey the empirical evidence on the effects of the institution, tracing the three phases of a still sparse literature. Recent findings hold out the prospect that good corporate governance might include employee representation by virtue of the monitoring function and the reduction in agency costs, while yet cautioning that the optimal level of representation is likely below parity. And although the German system may be better than its reputation among foreigners, it might have to adapt to globalization and the availability of alternative forms of corporate governance in the EU. |
| Keywords: | codetermination, board-level employee representation, firm performance, Germany |
| JEL: | J50 |
| Date: | 2009–01 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp3918&r=bec |
| By: | Iga Magda (The Polish Ministry of Labour and Social Policy); François Rycx (Centre Emile Bernheim, DULBEA, Solvay Brussels School of Economics and Management, Université Libre de Bruxelles, Brussels and IZA-Bonn.); Ilan Tojerow (DULBEA, Solvay Brussels School of Economics and Management, Université Libre de Bruxelles, Brussels and NBB and IZA-Bonn.); Daphné Valsamis (DULBEA, Solvay Brussels School of Economics and Management, Université Libre de Bruxelles, Brussels.) |
| Abstract: | This study compares the structure and determinants of inter-industry wage differentials in Eastern and Western European countries (namely Belgium, Italy, the Netherlands, Norway, Portugal and Spain compared with Latvia, Lithuania, the Czech Republic, Poland and Slovakia). To do so, we use a unique harmonised, linked employer–employee data set, the 2002 European Structure of Earnings Survey. Findings show substantial differences in earnings across sectors in all countries, even when controlling for a wide range of employee, job and employer characteristics. The hierarchy of sectors in terms of wages appears to be quite similar in Eastern and Western European countries. Among high-wage sectors, we find the energy (coke, petroleum, gas, electricity and nuclear power), chemical, financial and computer industries. In contrast, it is in the traditional sectors (wood and cork industry, textile, clothing and leather industry, hotels and restaurants, and retailing) that wages are lowest. Further results suggest that the dispersion of inter-industry wage differentials fluctuates considerably across countries. It is relatively small in Norway and Belgium, large in the Netherlands, Italy, Spain, Poland and the Czech Republic, and very large in Portugal, Latvia, Lithuania and Slovakia. Our findings support the hypothesis of a negative relationship between the dispersion of inter-industry wage differentials and a country’s degree of corporatism. |
| Keywords: | Inter-industry wage differentials, Collective bargaining, Europe, Matched employer-employee data. |
| JEL: | J31 J51 |
| Date: | 2009–01 |
| URL: | http://d.repec.org/n?u=RePEc:sol:wpaper:09-003&r=bec |
| By: | Tatiana Cesaroni (MEF) |
| Abstract: | This paper investigates the underlying sources of the Italian industrial sector fluctuations. It concentrates in particular on the role of different shocks on the manufacturing business cycle. To this end, it considers both domestic shocks (to hours worked and to technology) and external shocks (i.e. competitiveness and world trade shocks). The former concern internal conditions such as labour market and productivity dynamics; the latter relate to the effects of economic integration, globalization and the world economy scenario on the manufacturing sector performance. The findings show that although the cyclical fluctuations are mainly determined by productivity shock, hours worked and world trade shocks also contribute significantly to explaining the manufacturing business cycle. |
| Keywords: | Business cycle, Italian Industry performance,SVAR model, Economic integration, World trade |
| JEL: | C32 E32 F41 |
| Date: | 2008–10 |
| URL: | http://d.repec.org/n?u=RePEc:isa:wpaper:106&r=bec |
| By: | Nikolaj Malchow-Møller (University of Southern Denmark); James R. Markusen (University of Colorado, Boulder); Bertel Schjerning (Department of Economics, University of Copenhagen) |
| Abstract: | Many papers have documented a wage premium in foreign-owned and large firms. However, there is very little formal theory in the literature and empirical analyses are typically not based on hypotheses which are rigorously derived from theory. This paper contributes to the theory-empirics gap by developing a model that allows for two “pure” explanations for the wage premium. The first is a heterogenous-worker explanation along the lines of Yeaple (2005), where firms that select more scaleintensive technologies select ex-ante more productive workers. In this case, the wage premium is a pure selection phenomenon. The second explanation builds on the heterogeneous-firm model of Melitz (2003) combined with on-the-job learning as in Markusen (2001). Productivity differences between firms are internalized by ex-ante homogeneous workers, so the wage premium is a pure learning phenomenon due to ex-post higher productivity in foreign firms. Our model yields a number of precise empirical hypotheses. When these predictions are tested on Danish matched employer-employee data, we find that both explanations play a role in explaining the observed wage premium. Specifically, the foreign- and large-firm premiums explained by selection are in the neighborhood of 30-65% of the total premium, with the remainder consistent with learning. There is also considerable support for a number of other predictions specific to the worker-learning explanation. |
| Date: | 2009–01 |
| URL: | http://d.repec.org/n?u=RePEc:kud:kuieca:2009_02&r=bec |
| By: | Emanuela Ciapanna (Bank of Italy, Economic Research Department) |
| Abstract: | We analyze the problem of strategic poaching of consultants by clients with particular reference to the business consulting industry. This article presents a market equilibrium in a mixed economy where three categories of agents, consulting groups, client firms and consultants strategically interact with each other. At each date the consulting group faces a new client firm that requires a task to be implemented. We show that under very general conditions, when a matching pair of clients and consultants meets, a dominant strategy will be played, where the consultant is captured by the client and the consulting group matches (whenever possible) the client's request. The novelty of this model is that the quality of the consulting services does not only depend on the consulting group's assignment strategy , but also on the capturing behavior of the clients. In this sense, the clients impose a consumption externality on each other, which is a source of inefficiency in this otherwise competitive market. |
| Keywords: | strategic poaching, two-sided matching, Nash bargaining, consumption externality. |
| JEL: | D62 J41 L22 L84 M54 |
| Date: | 2008–04 |
| URL: | http://d.repec.org/n?u=RePEc:bdi:wptemi:td_665_08&r=bec |
| By: | Christian Helmers; Natalia Trofimenko |
| Abstract: | We evaluate the impact of firm-specific export subsidies on exports in Colombia. Using a two-stage Heckman selection procedure, we obtain firm-specific predicted subsidy amounts that can be explained by the characteristics that determine the firms’ eligibility for the government support and its amount. Drawing on the accounts of the discretionary allocation of subsidies in developing countries, we regard the discrepancy between the predicted and the observed subsidy amounts as a proxy for the firm’s ties to government officials. Controlling for observable and unobservable firm characteristics and persistence in exports, we find that although, in general, subsidies exhibit positive impact on export volumes, this impact is diminishing in subsidy size and in the degree of firm’s connectedness to government officials |
| Keywords: | export subsidies, exports, Heckman selection, System GMM |
| JEL: | F10 F13 L20 H20 |
| Date: | 2009–01 |
| URL: | http://d.repec.org/n?u=RePEc:kie:kieliw:1476&r=bec |
| By: | Cellini, Roberto; Lambertini, Luca; Sterlacchini, Alessandro |
| Abstract: | We study the product and process innovation choice of firms in which a managerial incentive à la Vickers (1985) is present. Taking a two-stage dynamic game approach, we show that managerial firms are led to over-invest in process innovation, as compared to standard profit-maximising firms, while they under-invest in product innovation. The reason is that process innovation allows to decrease cost, and this is consistent with a convenient increase in the production level. On the opposite, product innovation allows increasing price, which is in contrast with the taste for output expansion embodied in the objective function of firms run by managers. Preliminary empirical evidence on Italian companies suggests that in fact the managerial nature of firm associates with significantly smaller efforts in product innovation while the effect on process innovation is positive but non-significant. |
| Keywords: | Process innovation; Product innovation; R&D; Managerial incentive |
| JEL: | O32 O31 D43 C72 |
| Date: | 2009–01 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:12935&r=bec |