nep-bec New Economics Papers
on Business Economics
Issue of 2009‒01‒31
43 papers chosen by
Christian Calmes
Universite du Quebec en Outaouais

  1. Technological Change and the Growing Inequality in Managerial Compensation By Hanno Lustig; Chad Syverson; Stijn Van Nieuwerburgh
  2. Firm size, managerial practices and innovativeness: some evidence from Finnish manufacturing By Heli Koski; Luigi Marengo; Iiro Mäkinen
  3. Waiting to Merge By Fumagalli, Eileen; Nilssen, Tore
  4. Social Connections and Incentives in the Workplace: Evidence from Personnel Data By Bandiera, Oriana; Barankay, Iwan; Rasul, Imran
  5. How Working Time Reduction Affects Employment and Earnings By Santos Raposo, P.M.; Ours, J.C. van
  6. Worker Directors: A German Product that Didn’t Export? By John T. Addison; Claus Schnabel
  7. The Demand for Youth: Implications for the Hours Volatility Puzzle By Nir Jaimovich; Seth Pruitt; Henry E. Siu
  8. Screening and short-term contracts By Dimitri Paolini
  9. Last-In First-Out Oligopoly Dynamics By Jaap H. Abbring; Jeffrey R. Campbell
  10. Union wage demands with footloose firms By Damiaan Persyn
  11. Composition of Supervisory Boards in Germany: Inside or Outside Control of Banks? By Ettore Andreani; Kathrin Dummann; Doris Neuberger
  12. Occupational upgrading and the business cycle in West Germany By Büttner, Thomas; Jacobebbinghaus, Peter; Ludsteck, Johannes
  13. Authority versus Persuasion By Eric J. Van den Steen
  14. Self-interest and organizational performance: an empirical examination with U.S. and Brazilian managers By Lazzarini, Sergio G.; Islam, Gazi; Mesquita, Luiz F.
  15. Bank Ties and Firm Performance in Japan: Some Evidence since FY2002 By Patrick McGuire
  16. Does Employment Protection Legislation Affect Firm Investment? The European Case By Giorgio Calcagnini; Germana Giombini
  17. Product Differentiation and Profitability in German Manufacturing Firms By Nils Braakmann; Joachim Wagner
  18. Enhancing Market Power by Reducing Switching Costs By Bouckaert, J.M.C.; Degryse, H.A.; Provoost, T.
  19. Accounting for Oil Price Variation and Weakening Impact of the Oil Crisis By Naohisa Hirakata; Nao Sudo
  20. The Dividend Policy of German Firms By Andres, C.; Betzer, A.; Goergen, M.; Renneboog, L.D.R.
  21. Persistence and Determinants of Firm Profit in Emerging Markets By Andreas Stephan; Andriy Tsapin
  22. Where do Firms Export, How Much and Why? By Lawless, Martina; Whelan, Karl
  23. Unraveling the Age-Productivity Nexus: Confronting Perceptions of Employers and Employees By Dalen, H.P. van; Henkens, K.; Schippers, J.
  24. Adaptation and the Boundary of Multinational Firms By Arnaud Costinot; Lindsay Oldenski; James E. Rauch
  25. Principal-Agent Problem with Minimum Performance Insurance: The Case of Mandatory Individual Pension Accounts By Juan Manuel Julio Román
  26. The Financial and Operating Performance of Privatized Firms in Sweden By Tatahi, Motasam; Heshmati, Almas
  27. Better Safe than Sorry? Ex Ante and Ex Post Moral Hazard in Dynamic Insurance Data By Abbring, J.H.; Chiappori, P.A.; Zavadil, T.
  28. Firms’ Investment in the Presence of Labor and Financial Market Imperfections By Giorgio Calcagnini; Germana Giombini; Enrico Saltari
  29. A Model of Partnership Fornmation By Talman, A.J.J.; Yang, Z.F.
  30. Privatization, Government's Preference and Unionization Structure: A Mixed Oligopoly Approach By Kangsik, Choi
  31. Global Imbalances and Financial Fragility By Ricardo J. Caballero; Arvind Krishnamurthy
  32. What Drives US Foreign Borrowing? Evidence on External Adjustment to Transitory and Permanent Shocks. By Giancarlo Corsetti; Panagiotis Th. Konstantinou
  33. On the Tacit Collusion Equilibria of an Investment Timing Game By Richard Ruble; Bruno Versaevel
  34. A Principal-Agent Model of Sequential Testing By Dino Gerardi; Lucas Maestri
  35. Bank Competition Efficiency in Europe: A Frontier Approach By Wilko Bolt; David Humphrey
  36. What Determines the Financing Decision in Corporate Takeovers: Cost of Capital, Agency Problems or the Means of Payment? By Martynova, M.; Renneboog, L.D.R.
  37. Who Makes a Good Leader? Social Preferences and Leading-by-Example By Gächter, Simon; Nosenzo, Daniele; Renner, Elke; Sefton, Martin
  38. Alternating offers bargaining with loss aversion By Driesen Bram; Perea Andrés; Peters Hans
  39. Dynamics of the Gender Gap for Young Professionals in the Corporate and Financial Sectors By Marianne Bertrand; Claudia Goldin; Lawrence F. Katz
  40. Retirement Income Security and Well-Being in Canada By Michael Baker; Jonathan Gruber; Kevin S. Milligan
  41. Mind the (approximation) gap: a robustness analysis By Russell Cooper; Jonathan L. Willis
  42. A Model of Discovery By Michele Boldrin; David K Levine
  43. Business cycle volatility and inventories behavior:new evidence for the Euro Area By Tatiana Cesaroni; Louis Maccini; Marco Malgarini

  1. By: Hanno Lustig; Chad Syverson; Stijn Van Nieuwerburgh
    Abstract: Three of the most fundamental changes in US corporations since the early 1970s have been (1) the increased importance of organizational capital in production, (2) the increase in managerial income inequality and pay-performance sensitivity, and (3) the secular decrease in labor market reallocation. Our paper develops a simple explanation for these changes: a shift in the composition of productivity growth away from vintage-specific to general growth. This shift has stimulated the accumulation of organizational capital in existing firms and reduced the need for reallocating workers to new firms. We characterize the optimal managerial compensation contract when firms accumulate organizational capital but risk-averse managers cannot commit to staying with the firm. A calibrated version of the model reproduces the increase in managerial compensation inequality and the increased sensitivity of pay to performance in the data over the last three decades.
    JEL: E2 G3
    Date: 2009–01
  2. By: Heli Koski; Luigi Marengo; Iiro Mäkinen
    Abstract: In this study we use a survey data on 398 Finnish manufacturing firms for the years 2002 and 2005 to empirically explore whether and which organizational factors explain why certain firms produce larger innovative research output than others, and whether the incentives to innovate that certain organizational practices generate differ between small and large firms, and between those firms that are operating in low-tech and high-tech industries. Our study indicates that there appear to be vast differences in the organizational practices leading to more innovation both between small and large firms, and between the firms that operate in high- and low-tech industries. While innovation in small firms benefits from the practices that enhance employee participation in decision-making, large firms that have more decentralized decision-making patterns do not seem to innovate more than those with a more bureaucratic decision-making structure. The most efficient incentive for innovation among the sampled companies seems to be the ownership of a firm's stocks by employees and/or managers. Performance based wages also relates positively to innovation, but only when it is combined with a systematic monitoring of the firm's performance.
    Keywords: Innovation, firm size, organizational practices, HRM practices
    JEL: L25 M54 O31
    Date: 2009–01–26
  3. By: Fumagalli, Eileen (IEFE, Università Bocconi, Milan); Nilssen, Tore (Dept. of Economics, University of Oslo)
    Abstract: We set up a sequential merger to study a firm's incentives to pass up on an opportunity to merge with another firm. We find that such incentives may exist when there are efficiency gains from a merger, firms are of different sizes, there is an anthitrust authority present to approve mergers, and there is sufficient alignment of interests between the antitrust authority and the firms. We point out three dstinctive motives for not merging: the external-effect motive, the bargaining-power motive, and the pill-sweetening motive.
    Keywords: Mergers; merger incentives;
    JEL: G34 L11 L13 L41
    Date: 2008–06–30
  4. By: Bandiera, Oriana (London School of Economics); Barankay, Iwan (University of Pennsylvania); Rasul, Imran (University College London)
    Abstract: We present evidence on the effect of social connections between workers and managers on productivity in the workplace. To evaluate whether the existence of social connections is beneficial to the firm's overall performance, we explore how the effects of social connections vary with the strength of managerial incentives and worker's ability. To do so, we combine panel data on individual worker's productivity from personnel records with a natural field experiment in which we engineered an exogenous change in managerial incentives, from fixed wages, to bonuses based on the average productivity of the workers managed. We find that when managers are paid fixed wages, they favor workers to whom they are socially connected irrespective of the worker's ability, but when they are paid performance bonuses, they target their effort towards high ability workers irrespective of whether they are socially connected to them or not. Although social connections increase the performance of connected workers, we find that favoring connected workers is detrimental for the firm's overall performance.
    Keywords: natural field experiment, managerial incentives, favoritism
    JEL: J33 M52 M54
    Date: 2008–12
  5. By: Santos Raposo, P.M.; Ours, J.C. van (Tilburg University, Center for Economic Research)
    Abstract: December 1, 1996 Portugal introduced a new law on working hours which gradually reduced the standard workweek from 44 hours to 40 hours. We study how this mandatory working hours reduction affected employment and earnings of workers involved. We find for workers who were affected by the new law that working hours decreased, while hourly wages increased, keeping monthly earnings approximately constant. We also find that the working hours reduction did not lead to an increased job loss of workers directly affected. Finally, we find that workers who themselves were not directly affected were influenced by the working hours reduction indirectly. If they worked in a firm with many workers working more than 40 hours before the change in law was introduced.
    Keywords: Workweek reduction;policy reform;employment dynamics;earnings
    JEL: J22 J31 J63 J81
    Date: 2008
  6. By: John T. Addison (School of Management, Queen’s University Belfast (U.K.), Moore School of Business, University of South Carolina (U.S.A), and GEMF, Universidade de Coimbra (Portugal)); Claus Schnabel (Lehrstuhl für Arbeitsmarkt- und Regionalpolitik, Universität Erlangen-Nürnberg (Germany))
    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: 2009–02
  7. By: Nir Jaimovich; Seth Pruitt; Henry E. Siu
    Abstract: The employment and hours worked of young individuals fluctuate much more over the business cycle than those of prime-aged individuals. Understanding the mechanism underlying this observation is key to explaining the volatility of aggregate hours over the cycle. We argue that the joint behavior of age-specific hours and wages in the U.S. data point to differences in the cyclical characteristics of labor demand. To articulate this view, we consider a production technology displaying capital-experience complementarity. We estimate the key parameters governing the degree of complementarity and show that the model can account for the behavior of age-specific hours and wages while generating a series of aggregate hours that is nearly as volatile as output.
    JEL: E0 E32
    Date: 2009–01
  8. By: Dimitri Paolini
    Abstract: This article studies the behavior of the firm when it is searching to fill a vacancy. The principal hypothesis is that the firm can offer two kinds of contracts to the workers, short-term or long-term contracts. We suppose that the worker’s bargaining power over the wage is different according to the type of contract. We utilize this framework to study the firms’ optimal policy choice and its welfare implications.
    Keywords: Search, Temporary Employment.
    JEL: J31 J41 J64
    Date: 2008
  9. By: Jaap H. Abbring; Jeffrey R. Campbell
    Abstract: This paper extends the static analysis of oligopoly structure into an infinite-horizon setting with sunk costs and demand uncertainty. The observation that exit rates decline with firm age motivates the assumption of last-in first-out dynamics: An entrant expects to produce no longer than any incumbent. This selects an essentially unique Markov-perfect equilibrium. With mild restrictions on the demand shocks, sequences of thresholds describe firms' equilibrium entry and survival decisions. Bresnahan and Reiss's (1993) empirical analysis of oligopolists' entry and exit assumes that such thresholds govern the evolution of the number of competitors. Our analysis provides an infinite-horizon game-theoretic foundation for that structure.
    JEL: L13
    Date: 2009–01
  10. By: Damiaan Persyn
    Abstract: This paper analyses the wage demands of a sector-level monopoly union facing internationally mobile firms. A simple two-country economic geography model is used to describe how firms relocate in function of international dierences in production costs and market size. The union sets wages in function of the firm level labour demand elasticity and the responsiveness of firms to relocate internationally. If countries are suffciently symmetric lower foreign wages and lower trade costs necessarily lead to lower union wage demands. With asymmetric countries these intuitive properties do not always hold. But even for symmetric countries it holds that small increases in market size or trade costs makes union wages more sensitive to the foreign wage level.
    Keywords: Unions, globalisation, economic geography
    JEL: J50 J31 F16
    Date: 2009
  11. By: Ettore Andreani (University of Rostock); Kathrin Dummann (University of Rostock); Doris Neuberger (University of Rostock)
    Abstract: This paper examines the composition of supervisory boards of German banks for a sample of 41 large banks in the period 1999-2006. We find that the supervisory board structure reflects both outside control by shareholders and inside control by stakeholders. Most of the non-employee board members are representatives of other banks and industrial companies. The high presence of former executives and German board members indicates inside control. In banks controlled by other banks or insurance companies it is less likely that the chairperson of the supervisory board is a former executive of the same bank. Over time, inside networking through the supervisory board decreased.
    Keywords: corporate governance, dual board system, principal agent theory, stakeholder theory, banks
    JEL: G21 G34
    Date: 2009
  12. By: Büttner, Thomas (Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany]); Jacobebbinghaus, Peter (Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany]); Ludsteck, Johannes (Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany])
    Abstract: "The occupational skill structure depends on the business cycle if employers respond to shortages of applicants during upturns by lowering their hiring standards. The notion and relevance of hiring standards adjustment was advanced by Reder (1955) and investigated formally in a search-theoretic framework by Mortensen (1970). Devereux (2002) implements empirical tests for these theories and finds affirmative evidence for the U.S labour market. We replicate his analysis using German employment register data. Regarding the occupational skill composition we obtain somewhat lower but qualitatively similar responses to the business cycle despite of well known institutional differences between the U.S. and German labour market. The responsiveness of occupational composition wages to the business cycle is considerably lower in Germany." (author's abstract, IAB-Doku) ((en))
    Keywords: Konjunkturabhängigkeit, berufliche Qualifikation, Qualifikationsanforderungen, Personalanpassung, Personaleinstellung, Lohnhöhe, Geschlechterverteilung
    JEL: J62 J31 J41 C24
    Date: 2009–01–20
  13. By: Eric J. Van den Steen (Harvard Business School, Strategy Unit)
    Abstract: This paper studies a principal's trade-off between using persuasion versus using interpersonal authority to get the agent to 'do the right thing' from the principal's perspective (when the principal and agent openly disagree on the right course of action). It shows that persuasion and authority are complements at low levels of effectiveness but substitutes at high levels. Furthermore, the principal will rely more on persuasion when agent motivation is more important for the execution of the project, when the agent has strong intrinsic or extrinsic incentives, and, for a wide range of settings, when the principal is more confident about the right course of action.
    Date: 2009–01
  14. By: Lazzarini, Sergio G.; Islam, Gazi; Mesquita, Luiz F.
    Date: 2008–10
  15. By: Patrick McGuire (Senior economist, Monetary and Economic Department, Bank for International Settlements (E-mail:
    Abstract: Since the mid-1990s, major Japanese banks have sold off a significant portion of their holdings of corporate equity. Using information on the identity of Japanese firmsf top 10 shareholders, this paper explores the process of banksf equity disposal. There is some evidence that, after FY2001, banksf sales of equity accelerated, even holdings in firms for which the bank served as the main bank. However, affiliation with a main bank - proxied by firm-bank loan and shareholding ties - continues to be negatively associated with firm performance through FY2004. Regression estimates suggest that firms with strong bank ties are less profitable, face higher interest payments, and yet do not seem to enjoy lower stock price volatility than other firms. These effects are strongest for firms with a history of outside financing options, consistent with earlier arguments that the benefits of main bank relationships accrue to the banks themselves.
    Keywords: Cross-Shareholding, Main Bank, Japanese Banks, Firm Performance
    JEL: G21 G32 L25
    Date: 2009–01
  16. By: Giorgio Calcagnini (Dipartimento di Economia e Metodi Quantitativi, Università di Urbino); Germana Giombini (Dipartimento di Economia e Metodi Quantitativi, Università di Urbino (Italy))
    Abstract: This paper aims at analyzing the impact of Employment Protection Legislation (EPL) on rms' investment policies in the presence of financial imperfections. Our results show that investment is positively correlated to measures of internal funds available to firms and negatively to the level of national labour market regulation. Moreover, the latter is stronger wherever financial market imperfections are larger: firms with better access to financial markets are in a position to determine their optimal investment policy, even in the presence of stringent Employment Protection Laws, than those facing financial constraints. Our results support the effort put forward by European institutions in recent years to reform both markets.
    Keywords: Employment Protection Legislation, Financial Constraints, Investments.
    JEL: J30 D92 C23
    Date: 2009
  17. By: Nils Braakmann (Institute of Economics, University of Lüneburg); Joachim Wagner (Institute of Economics, University of Lüneburg)
    Abstract: We use a unique rich newly built data set for German manufacturing enterprises to investigate the product differentiation – firm performance relationship. We find that an increase in the degree of product diversification has a negative impact on profitability when observed and unobserved firm characteristics are controlled for. The effects are statistically significant and large from an economic point of view. This helps to understand the – at least, at a first glance – surprising fact that nearly 40 percent of all manufacturing enterprises with at least 20 employees in Germany are singleproduct firms according to a detailed classification of products, and that multi-product enterprises with a large number of goods are a rare species.
    Keywords: Product differentiation, profitability. Germany
    JEL: D21 L60
    Date: 2009–01
  18. By: Bouckaert, J.M.C.; Degryse, H.A.; Provoost, T. (Tilburg University, Center for Economic Research)
    JEL: D43 G28
    Date: 2008
  19. By: Naohisa Hirakata (Associate Director, Financial Systems and Bank Examination Department, Bank of Japan (E-mail:; Nao Sudo (Institute for Monetary and Economic Studies, Bank of Japan (E-mail:
    Abstract: Recent empirical studies reveal that the oil price-output relationship is weakening in the US. Oil price-output correlation is less negative, and output reduction in response to oil price rise is more moderate after mid 1980s. In contrast to the conventional view that there have been changes in the economic structures that have made output less responsive to oil price shocks, we show that what have changed are the sources of oil price variation. We develop a DSGE model where oil price and US output are endogenously determined by the exogenous movements of US TFP and the oil supply. Having no changes in economic structure, our model yields dynamics of the oil price and output that show a weakening in the oil price-output relationship. There are changes in the way that the exogenous variables evolve. Two changes are important. First, oil supply variation has become moderate in recent years. Second, oil supply shortage is no longer followed by a large decline in TFP. We show that less volatile oil supply variation results in less negative oil price- output correlations, and a smaller TFP decline during oil supply shortfall implies a smaller output decline during oil price increases.
    Keywords: Oil Price Accounting, DSGE Model, Total Factor Productivity (TFP)
    JEL: E32 E37 Q41
    Date: 2009–01
  20. By: Andres, C.; Betzer, A.; Goergen, M.; Renneboog, L.D.R. (Tilburg University, Center for Economic Research)
    Abstract: German firms pay out a lower proportion of their cash flows, but a higher proportion of their published profits than UK and US firms. We estimate partial adjustment models and report two major findings. First, German firms base their dividend decisions on cash flows rather than published earnings as (i)published earnings do not correctly reflect performance because German firms retain parts of their earnings to build up legal reserves, (ii) German accounting is conservative, (iii) published earnings are subject to more smoothing than cash flows. Second, to the opposite of UK and US firms, German firms have more flexible dividend policies as they are willing to cut the dividend when profitability is only temporarily down.
    Keywords: Dividend policy;payout policy;target payout ratio;Lintner dividend model;dividend smoothing;partial adjustment model;corporate governance.
    JEL: G32 G35
    Date: 2008
  21. By: Andreas Stephan; Andriy Tsapin
    Keywords: Profit, Persistence, Convergence, Markov chain analysis, Ukraine
    JEL: G32 G30
    Date: 2008
  22. By: Lawless, Martina (Central Bank and Financial Services Authority of Ireland); Whelan, Karl (University College Dublin)
    Abstract: The empirical finding that exporting firms are more productive on average than non-exporters has provoked a large theoretical literature based on models such as Melitz (2003), where more productive firms are more likely to overcome costs associated with trade. This paper provides a systematic empirical assessment of the Melitz framework using a unique Irish dataset that includes information on destinations and firm characteristics such as productivity. We find a number of interesting deviations from the model's predictions including a high degree of unpredictable idiosyncratic participation in export markets by firms, a relatively weak positive correlation between the extent of export participation and export sales, and a limited role for productivity in explaining firm exporting behavior. We illustrate the effect of firm heterogeneity on gravity regressions of aggregate trade flows and show how past exporting to a particular market has a strong impact on the current probability of exporting there.
    Date: 2008–09
  23. By: Dalen, H.P. van; Henkens, K.; Schippers, J. (Tilburg University, Center for Economic Research)
    Abstract: What determines the perceived productivity of young and older workers? In this study we present evidence for (Dutch) employers and employees. By confronting the perceptions of employers and employees some remarkable similarities and differences are revealed. It turns out that productivity perceptions are biased by the age group to which one belongs and the position in the hierarchy in the organization. The young favor the young, the old favor the old and employers discount productivity compared to employees. However, there are also remarkable similarities across employer and employees. By distinguishing the various underlying dimensions of productivity of young and older workers we tested whether ‘soft’ skills and abilities within the organization are just as important as the ‘hard’ dimensions - cognitive and physically based skills - in the eye of employers and employees. It appears that employers and employees weight the soft and the hard dimensions of skills in a uniform way: hard skills are far more important than soft skills no matter whether the worker is old or young. By sharing the stereotypical images the problem of age discrimination may therefore not only be due to employers’ behaviors and attitudes, but also due to those of employees.
    Keywords: aging;stereotypes;productivity;employers
    JEL: D21 J24 J71 M51
    Date: 2009
  24. By: Arnaud Costinot; Lindsay Oldenski; James E. Rauch
    Abstract: What determines the boundary of multinational firms? According to Williamson (1975), a potential rationale for vertical integration is to facilitate adaptation in a world where uncertainty is resolved over time. This paper offers the first empirical analysis of the impact of adaptation on the boundary of multinational firms. To do so, we first develop a ranking of sectors in terms of their "routineness" by merging two sets of data: (i) ratings of occupations by their intensities in "problem solving" from the U.S. Department of Labor's Occupational Information Network; and (ii) U.S. employment shares of occupations by sectors from the Bureau of Labor Statistics Occupational Employment Statistics. Using U.S. Census trade data, we then demonstrate that, in line with adaptation theories of the firm, the share of intrafirm trade tends to be higher in less routine sectors. This result is robust to inclusion of other variables known to influence the U.S. intrafirm import share such as capital intensity, R&D intensity, relationship specificity, intermediation and productivity dispersion. Our most conservative estimate suggests that a one standard deviation decrease in average routineness raises the share of intrafirm imports by 0.26 standard deviations, or an additional 7% of import value that is intrafirm.
    JEL: F23 L14
    Date: 2009–01
  25. By: Juan Manuel Julio Román
    Abstract: A minimum performance insurance in the Principal-Agent problem is wealth reducing to the principal. This result points to further ine±- ciencies in mandatory individual Pension Funds' contracts, particularly the one established in the 1993's 100th Law in Colombia.
    Date: 2009–01–14
  26. By: Tatahi, Motasam (European Business School London); Heshmati, Almas (Seoul National University)
    Abstract: This paper examines the change in operating and financial performance of Swedish firms that were either partly or fully privatized during the period of 1989-2007. Two different methods are used to empirically investigate the performance of privatized firms. First, accounting data prior to and after the privatization are employed to measure the operating performance of privatized firms. We have found no significant difference in performances under state and private ownerships. Second, a return-based event study is found useful to measure the financial performance of privatized firms, since all the firms in the sample that were privatized have used an initial public offering (IPO). This approach allows comparison to the rest of the IPOs that were launched in the same period. It is found that the cumulative returns for the privatized firms are significantly different to private counterparts. Overall results, however, show that the privatization in Sweden was not as successful as it might have been expected and in comparison with those in other countries.
    Keywords: Sweden, efficiency, performance measure, privatization, ratio analysis, event-study, public and private relationship
    JEL: C12 D21 L25 L33
    Date: 2009–01
  27. By: Abbring, J.H.; Chiappori, P.A.; Zavadil, T. (Tilburg University, Center for Economic Research)
    Abstract: This paper empirically analyzes moral hazard in car insurance using a dynamic theory of an insuree's dynamic risk (ex ante moral hazard) and claim (ex post moral hazard) choices and Dutch longitudinal micro data. We use the theory to characterize the heterogeneous dynamic changes in incentives to avoid claims that are generated by the Dutch experience-rating scheme, and their effects on claim times and sizes under moral hazard. We develop tests that exploit these structural implications of moral hazard and experience rating. Unlike much of the earlier literature, we find evidence of moral hazard.
    Keywords: insurance;moral hazard;selection;state dependence;event-history analysis.
    JEL: D82 G22 C41 C14
    Date: 2008
  28. By: Giorgio Calcagnini (Dipartimento di Economia e Metodi Quantitativi, Università di Urbino); Germana Giombini (Dipartimento di Economia e Metodi Quantitativi, Università di Urbino (Italy)); Enrico Saltari (Dipartimento di Economia Pubblica, Università di Roma “La Sapienza”)
    Abstract: This paper analyses how financial and labor market imperfections jointly influence investment. The contemporaneous presence of imperfections in both markets gives rise to a negative correlation between EPL and investment: firms facing negative shocks see their financial constraints worsen in countries with greater labor market rigidities. Internal funds have an overall positive impact on investment, notwithstanding the presence of labor market rigidities acts as a disincentive to the use internal funds for financing new projects. If capital is sunk and the legal environment favors ex-post profit appropriation by workers, firms use internal funds for ends alternative to fixed investment. Our results support the effort put forward by European institutions to reform both markets.
    Keywords: Investment Models, Financing Constraints, Labor Protection Legislation, Panel Data Models
    JEL: E2 G31 J50 C33
    Date: 2009
  29. By: Talman, A.J.J.; Yang, Z.F. (Tilburg University, Center for Economic Research)
    Abstract: This paper presents a model of partnership formation. A set of agents wants to conduct some business or other activities. Agents may act alone or seek a partner for cooperation and need in the latter case to consider with whom to cooperate and how to share the profit in a collaborative and competitive environment. We pro- vide necessary and su±cient conditions under which an equilibrium can be attained. In equilibrium, the partner formation and the payoff distribution are endogenously determined. Every agent realizes his full potential and has no incentive to deviate from either staying independent or from the endogenously determined partner and payoff. The partnership formation problem contains the classical assignment market problem as a special case.
    Keywords: Partnership formation;equilibrium;indivisibility;assignment market.
    JEL: C62 C72 D02
    Date: 2008
  30. By: Kangsik, Choi
    Abstract: By introducing the government's preference for tax revenues into the theoretical framework of unionized mixed oligopolies, this study investigates the efficiency of privatization. The results show that (i) regardless of the government's preference for tax revenues, its incentive to privatize a public firm depends on the number of the private firms and (ii) social welfare can decrease with an increase in the number of firms depending on the level of government's preference for tax revenue. Moreover, if the number of private firms and the government's preference for tax revenue are sufficiently small, then social welfare under a unionized privatized oligopoly is greater than under a unionized mixed oligopoly while the government has an incentive not to privatize the public firm, and vice versa if only the number of firms is sufficiently large.
    Keywords: Government's Preference; Social Welfare; Tax; Privatization; Union.
    JEL: J51 L13 C7 D43 A11 H44 C72
    Date: 2009–01–27
  31. By: Ricardo J. Caballero; Arvind Krishnamurthy
    Abstract: The U.S. is currently engulfed in the most severe financial crisis since the Great Depression. A key structural factor behind this crisis is the large demand for riskless assets from the rest of the world. In this paper we present a model to show how such demand not only triggered a sharp rise in U.S. asset prices, but also exposed the U.S. financial sector to a downturn by concentrating risk onto its balance sheet. In addition to highlighting the role of capital flows in facilitating the securitization boom, our analysis speaks to the broader issue of global imbalances. While in emerging markets the concern with capital flows is in their speculative nature, in the U.S. the risk in capital inflows derives from the opposite concern: capital flows into the U.S. are mostly non-speculative and in search of safety. As a result, the U.S. sells riskless assets to foreigners, and in so doing, it raises the effective leverage of its financial institutions. In other words, as global imbalances rise, the U.S. increasingly specializes in holding its "toxic waste."
    JEL: E44 F32 F37 G12 G15
    Date: 2009–01
  32. By: Giancarlo Corsetti (Department of Economics, European University Institute); Panagiotis Th. Konstantinou (Department of Economics, University of Macedonia)
    Abstract: The joint dynamics of US net output, consumption, and (valuation-adjusted) foreign assets and liabilities, characterized empirically following Lettau and Ludvigson [2004], is shown to be strikingly consistent with current account theory. While US consumption is virtually insulated from transitory shocks, these contribute considerably to the variation in net output and, even more so, in gross foreign positions, arguably smoothing temporary variations in returns. A single permanent shock – naturally interpreted as a productivity shock – raises consumption swiftly while causing net output to adjust only gradually. This leads to persistent, procyclical external deficits but, interestingly, moves gross assets and liabilities in the same direction.
    Keywords: Current Account; Net ForeignWealth; Consumption Smoothing; Intertemporal Approach to the Current Account; International Adjustment Mechanism; Permanent-Transitory Decomposition.
    JEL: C32 E21 F32 F41
    Date: 2009–01
  33. By: Richard Ruble (EMLYON Business School, Ecully, F-69134, France); Bruno Versaevel (EMLYON Business School, Ecully, F-69134, France; and GATE, CNRS, Ecully, F-69130)
    Abstract: This note further characterizes the tacit collusion equilibria in the investment timing game of Boyer, Lasserre and Moreaux [1]. Tacit collusion equilibria may or may not exist, and when they do may involve either finite time investments (type 1) or infinite delay (type 2). The relationship between equilibria and common demand forms is not immediately apparent. We provide the full necessary and sufficient conditions for existence. A simple condition on demand primitives is derived that determines the type of equilibria. Common demand forms are then shown to illustrate both finite-time and infinite-delay tacit collusion.
    Keywords: Real options; Duopoly; Collusion; Investment
    JEL: C73 D43 D92 L13
    Date: 2008
  34. By: Dino Gerardi; Lucas Maestri
    Date: 2009–01–15
  35. By: Wilko Bolt; David Humphrey
    Abstract: There are numerous ways to indicate the degree of banking competition across countries. Antitrust authorities rely on the structure-conduct-performance paradigm while academics prefer price mark-ups (Lerner index) or correlations of input costs with output prices (H-statistic). These measures are not always strongly correlated when contrasted across countries or positively correlated within countries over time. Frontier efficiency analysis is used to devise an alternative indicator of competition and rank European countries by their dispersion from a \competition frontier". The frontier is determined by how well payment and other costs explain variations in loan-deposit rate spread and non-interestactivity revenues.
    Keywords: Banking competition; frontier analysis; European banks
    JEL: C31 F21 F23 F43 O47
    Date: 2009–01
  36. By: Martynova, M.; Renneboog, L.D.R. (Tilburg University, Center for Economic Research)
    Abstract: While the means of payment in takeovers has been a focal point in the takeover literature, what has largely been ignored is the analysis of how the takeover bid is financed and what its impact is on the expected value creation of the takeover. This paper investigates the sources of transaction financing in European corporate takeovers launched during the period 1993- 2001 (the fifth takeover wave). Using a unique dataset, we show that the external sources of financing (debt and equity) are frequently employed in takeovers involving cash payments. Acquisitions with the same means of payment but different sources of transaction funding are quite distinct. For instance, a significantly negative price revision following the announcement of a takeover is not unique to the equity-paid M&As; it is also observed in any other deals that involve equity financing (including cash-paid and mixed-paid M&As). Also, acquisitions financed with internally generated funds significantly underperform those financed with debt. Our multinomial logit and nested logit analyses show that the takeover financing decision is influenced by the bidder’s pecking order preferences, its growth potential, and its corporate governance environment, all of which are related to the cost of external capital. There is also evidence that the choice of equity versus internal cash or debt financing is influenced by the bidder’s strategic preferences with respect to the means of payment. We find no evidence of financing decisions driven by agency conflicts between managers and shareholders or between shareholders and creditors.
    Keywords: mergers and acquisitions;takeovers;means of payment;financing decision;cost of capital;agency problem;pecking order;corporate governance regulation;nested logit.
    JEL: G34
    Date: 2008
  37. By: Gächter, Simon (University of Nottingham); Nosenzo, Daniele (University of Nottingham); Renner, Elke (University of Nottingham); Sefton, Martin (University of Nottingham)
    Abstract: We examine the effects of social preferences and beliefs about the social preferences of others in a simple leader-follower voluntary contributions game. We find that groups perform best when led by those who are reciprocally oriented. Part of the effect can be explained by a false consensus effect: selfish players tend to think it more likely that they are matched with another selfish player and reciprocators tend to think it more likely that they are matched with another reciprocator. Thus, reciprocators contribute more as leaders partly because they are more optimistic than selfish players about the reciprocal responses of followers. However, even after controlling for beliefs we find that reciprocally-oriented leaders contribute more than selfish leaders. Thus, we conclude that differing leader contributions by differing types of leader must in large part reflect social motivations.
    Keywords: reciprocity, contribution preferences, leadership, leading-by-example, false consensus effect
    JEL: A13 C92
    Date: 2008–12
  38. By: Driesen Bram; Perea Andrés; Peters Hans (METEOR)
    Abstract: The Rubinstein alternating offers bargaining game is reconsidered under the assumption that each player is loss averse and the associated reference point is equal to the highest turned down offer of the opponent in the past. This makes the payoffs and therefore potential equilibrium strategies dependent on the history of play. A subgame perfect equilibrium is constructed, in which the strategies depend on the history of play throughthe current reference points. It is shown that this equilibrium is unique under some assumptions that it shares with the equilibrium in the classical model: immediate acceptance of equilibrium offers, indifference between acceptance and rejection of such offers, and strategies depending only on the current reference points. It is also shown that in this equilibrium loss aversion is a disadvantage. Moreover, a relation with asymmetric Nashbargaining is established, where a player’s bargaining power is negatively related to own loss aversion and positively to the opponent’s loss aversion.
    Keywords: mathematical economics;
    Date: 2009
  39. By: Marianne Bertrand; Claudia Goldin; Lawrence F. Katz
    Abstract: This paper assesses the relative importance of various explanations for the gender gap in career outcomes for highly-educated workers in the U.S. corporate and financial sectors. The careers of MBAs, who graduated between 1990 and 2006 from a top U.S. business school, are studied to understand how career dynamics differ by gender. Although male and female MBAs have nearly identical (labor) incomes at the outset of their careers, their earnings soon diverge, with the male earnings advantage reaching almost 60 log points at ten to 16 years after MBA completion. We identify three proximate reasons for the large and rising gender gap in earnings: differences in training prior to MBA graduation; differences in career interruptions; and differences in weekly hours. These three determinants can explain the bulk of gender differences in earnings across the years following MBA completion. The presence of children is the main contributor to the lesser job experience, greater career discontinuity and shorter work hours for female MBAs. Some MBA mothers, especially those with well-off spouses, decide to slow down within a few years following their first birth. Disparities in the productive characteristics of male and female MBAs are small, but the pecuniary penalties from shorter hours and any job discontinuity are enormous for MBAs.
    JEL: J16 J24 J44
    Date: 2009–01
  40. By: Michael Baker; Jonathan Gruber; Kevin S. Milligan
    Abstract: A large international literature has documented the labor market distortions associated with social security benefits for near-retirees. In this paper, we investigate the 'other side' of social security programs, seeking to document improvements in wellbeing arising from the provision of public pensions. To the extent households adjust their savings and employment behavior to account for enhanced retirement benefits, the positive impact of the benefits may be crowded out. We proceed by using the large variation across birth cohorts in income security entitlements in Canada that arise from reforms to the programs over the past 35 years. This variation allows us to explore the effects of benefits on elderly well-being while controlling for other factors that affect well-being over time and by age. We examine measures of income, consumption, poverty, and happiness. For income, we find large increases in income corresponding to retirement benefit increases, suggesting little crowd out. Consumption also shows increases, although smaller in magnitude than for income. We find larger retirement benefits diminish income poverty rates, but have no discernable impact on consumption poverty measures. This could indicate smoothing of consumption through savings or other mechanisms. Finally, our limited happiness measures show no definitive effect.
    JEL: H55 J14 J26
    Date: 2009–01
  41. By: Russell Cooper; Jonathan L. Willis
    Abstract: This note continues the discussion of the results reported by Ricardo Caballero and Eduardo Engel (1993), hereafter CE, and Ricardo Caballero, Eduardo Engel, and John Haltiwanger (1997), hereafter CEH, by responding to the results reported in Christian Bayer (2008). Russell Cooper and Jonathan Willis (2004), hereafter CW, find that the aggregate nonlinearities reported in CE and CEH may be the consequence of mismeasurement of the employment gap rather than nonlinearities in plant-level adjustment. Bayer reassesses this finding in the context of the CE model in the case where static employment gaps are observed and concludes that the CW result is not robust to alternative shock processes. We concur with Bayer's assessment that the nonlinearity finding is sensitive to the aggregate profitability shock process. We argue, however, that Bayer's finding does not imply that the mismeasurement problem goes away. Instead, the nonlinearity created by mismeasurement is directly related to the level of the aggregate shock. Once the empirical specification properly incorporates the aggregate shock, the nonlinearity test is robust to alternative shock processes and confirms the results in CW. More importantly, we demonstrate that the CW findings are robust to alternative shock processes for the natural case of unobserved gaps as examined by CE and CEH.
    Date: 2009
  42. By: Michele Boldrin; David K Levine
    Date: 2009–01–20
  43. By: Tatiana Cesaroni (MEF-Treasury Ministry of Economy); Louis Maccini (John Hopkins University); Marco Malgarini (ISAE - Institute for Studies and Economic Analyses)
    Abstract: In recent years a number of studies have investigated stylised facts concerning the most important US macroeconomic time series(Stock and Watson, 2002; McConnell and Perez-Quiros, 2000; Blanchard and Simon, 2001; Arias, Hansen, and Ohanian, 2006); One of the main results of the analysis concerns a marked volatility reduction emerging from the data since the early eighties. In this respect, the aim of this paper is twofold. Firstly, it analyzes the Euro Area business cycle stylised facts in order to gain better understanding of the European economy as compared with that of the US. Secondly, it explores the technological innovation hypothesis as an explanation of the ‘Great Moderation’, focusing on the advances in inventory management techniques due to computerisation.
    Keywords: Business cycle stylized facts, European survey data, Inventory behaviour.
    JEL: C32 E32
    Date: 2009–01

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