nep-bec New Economics Papers
on Business Economics
Issue of 2009‒07‒03
eighteen papers chosen by
Christian Calmes
Universite du Quebec en Outaouais

  1. Endogenous managerial incentive contracts in a differentiated duopoly, with and without commitment By Constantine Manasakis; Evangelos Mitrokostas; Emmanuel Petrakis
  2. Risk Allocation, Debt Fueled Expansion and Financial Crisis By Paul Beaudry; Amartya Lahiri
  3. Maintenance and investment : Complements or Substitutes ? A Reappraisal By Raouf, BOUCEKKINE; Giorgio, FABBRI; Fausto, GOZZI
  4. Constraints on Income Distribution and Production Efficiency In Economies with Ramsey Taxation By Blackorby, Charles; Murty, Sushama
  5. Capital misallocation and aggregate factor productivity By Azariadis, Costas; Kaas, Leo
  6. Do Multinationals or Domestic Firms Face Higher Effective Tax Rates? By Kevin S. Markle; Douglas Shackelford
  7. Credit Constraints, Cyclical Fiscal Policy and Industry Growth By Philippe Aghion; David Hemous; Enisse Kharroubi
  8. Human Capital Accumulation and Labour Market Equilibrium By Burdett, Ken; Carrillo-Tudela, Carlos; Coles, Melvyn
  9. Analyzing the Extent and Influence of Occupational Licensing on the Labor Market By Morris M. Kleiner; Alan B. Krueger
  10. Top Executive Turnover in Japanese Non-listed Firms: Causes and Consequences By Uesugi, Iichiro; Saito, Yukiko
  11. The planned decision to transfer an entrepreneurial company By Leroy, H.; Manigart, S.; Meuleman, M.
  12. Entrepreneurship, Wage Employment and Control in an Occupational Choice Framework By Douhan, Robin; van Praag, Mirjam
  13. Entrepreneurial exit and entrepreneurial engagement By Roy Thurik; Jolanda Hessels; Isabel Grilo; Peter van der Zwan
  14. Foreign Acquisition, Plant Survival, and Employment Growth By Bandick, Roger; Görg, Holger
  15. Export Intensity and Productivity By Rosario Crinò; Paolo Epifani
  16. Is Employer-Based Health Insurance a Barrier to Entrepreneurship? By Robert W Fairlie; Kanika Kapur; Susan Gates
  17. "Business Cycle Implications of Internal Consumption Habit for New Keynesian Models" By Takashi Kano; James M. Nason
  18. The international dimension of productivity and demand shocks in the U.S. economy By Giancarlo Corsetti; Luca Dedola; Sylvain Leduc

  1. By: Constantine Manasakis (Department of Economics, University of Crete, Greece); Evangelos Mitrokostas (Department of Economics, University of Crete); Emmanuel Petrakis (Department of Economics, University of Crete, Greece)
    Abstract: In a differentiated Cournot duopoly, we examine the contracts that firms' owners use to compensate their managers and the resulting output levels, profits and social welfare. If products are either sufficiently differentiated or sufficiently close substitutes, owners use Relative Performance contracts. For intermediate levels of product substitutability, they use Market Share contracts. When owners do not commit over the types of contracts, each type is an owner's best response to his rival's choice. Product substitutability has differential effects on output levels and profits, depending on the configuration of contracts in the industry. Finally, managerial incentive contracts are welfare enhancing if they increase consumers' surplus.
    Keywords: Oligopoly; Managerial delegation; Endogenous contracts
    JEL: D43 L21
    Date: 2009–06–15
  2. By: Paul Beaudry; Amartya Lahiri
    Abstract: In this paper we discuss how several macroeconomic features of the 2001-2009 period may have resulted from a process in which financial markets were trying to allocate risk between heterogeneous agents when productive investment opportunities are scarce. We begin by showing how heterogeneity in terms of risk tolerance can cause financial markets to propagate transitory shocks and induce higher output volatility, albeit with a higher mean. We then show how this simple heterogeneous agent framework can explain an expansion driven by the growth in consumer debt, and why the equilibrium path of such an economy is likely fragile. In particular, we demonstrate that the emergence of a small amount of asymmetric information can make the economy susceptible to changes in expectations that can induce large reversals of financial flows, the freezing of assets and a recession that can persist despite high productivity.
    JEL: E3 E4
    Date: 2009–06
  3. By: Raouf, BOUCEKKINE (UNIVERSITE CATHOLIQUE DE LOUVAIN, Institut de Recherches Economiques et Sociales (IRES)); Giorgio, FABBRI; Fausto, GOZZI
    Abstract: A benchmark AK optimal growth model with maintenance expenditures and endogeneous utilization of capital is considered within an explicit vintage capital framework. Scrapping is endogenous, and the model allows for a clean distinction between age and usage dependent capital depreciation and obsolescence. It is also shown that in this set-up past investment profile completely determines the size of current maintenance expenditures. Among other findings, a closed-form solution to optimal dynamics is provided taking advantage of very recent development in optimal control of infinite dimensional systems. More importantly, and in contrast to the pre-existing literature, we study investment and maintenance co-movements without any postulated ad-hoc depreciation function. In particular, we find that optimal investment and maintenance do move together in the short-run in response to neutral technological shocks, which seems to be more consistent with the data
    Keywords: Maintenance; investment; optimal control; dynamic programming; infinite dimensional problem
    JEL: E22 E32 O40
    Date: 2009–04–18
  4. By: Blackorby, Charles (Department of Economics, University of Warwick); Murty, Sushama (Department of Economics, University of Warwick)
    Abstract: We study the link between second-best production efficiency and the constraints on income distribution imposed by private ownership of firms in economies with Ramsey taxation. We review the result of Dasgupta and Stiglitz [1972], Mirrlees [1972], Hahn [1973], and Sadka [1977] about firm-specific profit taxation leading to second-best production efficiency. Problems in the proofs of this result in these papers have been identified by Reinhorn [2005]. We provide an alternative, and with some hope a more intuitive, proof of this result. The mechanism employed in our proof is also used to show second-best production efficiency under some configuarations of private ownership without any (or at best, uniform) profit taxation. The results obtained raise questions about the genericity of the phenomenon of second-best production inefficiency and about recovering social shadow prices in such economies.
    Keywords: Ramsey taxation ; production inefficiency ; general equilibrium ; private ownership
    JEL: H21
    Date: 2009
  5. By: Azariadis, Costas; Kaas, Leo
    Abstract: We propose a sectoral-shift theory of aggregate factor productivity for a class of economies with AK technologies, limited loan enforcement, a constant production possibilities frontier, and finitely many sectors producing the same good. Both the growth rate and total factor productivity in these economies respond to random and persistent endogenous fluctuations in the sectoral distribution of physical capital which, in turn, responds to persistent and reversible exogenous shifts in relative sector productivities. Surplus capital from less productive sectors is lent to more productive ones in the form of secured collateral loans, as in Kiyotaki-Moore (1997), and also as unsecured reputational loans suggested in Bulow-Rogoff (1989). Endogenous debt limits slow down capital reallocation, preventing the equalization of risk-adjusted equity yields across sectors. Economy-wide factor productivity and the aggregate growth rate are both negatively correlated with the dispersion of sectoral rates of return, sectoral TFP and sectoral growth rates. If sector productivities follow a symmetric two-state Markov process, many of our economies converge to a limit cycle alternating between mild expansions and abrupt contractions. We also find highly periodic and volatile limit cycles in economies with small amounts of collateral.
    Keywords: TFP; misallocation; sectoral shocks; collateral; reputation
    JEL: E32 O47 D90
    Date: 2009–06–15
  6. By: Kevin S. Markle; Douglas Shackelford
    Abstract: To our knowledge, this paper provides the most comprehensive analysis of firm-level corporate income tax expenses to date. We use publicly available financial statement information to estimate firm-level effective tax rates (ETRs) for 10,642 corporations from 85 countries from 1988 to 2007. We find that multinationals and domestic-only companies face similar ETRs. We also find that, on average, ETRs declined by seven percentage points or 20% over the period. German, Japanese, Australian and Canadian decreases were large. American, British, and French declines were more modest. Nonetheless, because ETRs were falling worldwide, the ordinal rank from high-tax countries to low-tax countries changed little. Japanese firms always faced the highest ETRs. ETRs for tax havens and countries from the Middle East and Asia (ignoring Japan) were always lower than those for the U.S. and European countries. These findings should provide some empirical underpinning for ongoing policy debates about the taxation of multinational profits.
    JEL: F23 H25 K34 M41
    Date: 2009–06
  7. By: Philippe Aghion; David Hemous; Enisse Kharroubi
    Abstract: This paper evaluates whether the cyclical pattern of fiscal policy can affect growth. We first build a simple endogenous growth model where entrepreneurs can invest either in short-run projects or in long-term growth enhancing projects. Long-term projects involve a liquidity risk which credit constrained firms try to overcome by borrowing on the basis of their short-run profits. By increasing firms' market size in recessions, a countercyclical fiscal policy will boost investment in productivity-enhancing long-term projects, and the more so in sectors that rely more on external financing or which display lower asset tangibility. Second, the paper tests this prediction using Rajan and Zingales (1998)'s diff-and-diff methodology on a panel data sample of manufacturing industries across 17 OECD countries over the period 1980-2005. The evidence confirms that the positive effects of a more countercyclical fiscal policy on value added growth, productivity growth, and R&D expenditure, are indeed larger in industries with heavier reliance on external finance or lower asset tangibility.
    JEL: E32 E62
    Date: 2009–06
  8. By: Burdett, Ken (University of Pennsylvania); Carrillo-Tudela, Carlos (University of Leicester); Coles, Melvyn (University of Essex)
    Abstract: We analyse an equilibrium labour market with on-the-job search and experience effects (where workers learn-by-doing). The analysis yields a standard Mincer wage equation with worker fixed effects and endogenously determined firm fixed effects. It shows that learning-by-doing increases equilibrium wage dispersion consistent with the data. Equilibrium sorting - where over time more experienced workers also tend to find and quit to better paid employment - has a significant impact on wage inequality. As the model yields a cross section distribution of wages paid with the 'right' structure (the density of wages paid is single peaked with a 'fat' Pareto right tail) and yields the 'right' time profile of worker wage outcomes (the initial 10 years of a worker's career are characterised by several job changes and rapid wage growth) it yields a new, coherent statistical structure for future applied work.
    Keywords: search, wage dispersion, human capital accumulation
    JEL: J24 J42 J64
    Date: 2009–06
  9. By: Morris M. Kleiner (University of Minnesota and NBER); Alan B. Krueger (Princeton University and NBER)
    Abstract: This study examines the extent and influence of occupational licensing in the U.S. using a specially designed national labor force survey. Specifically, we provide new ways of measuring occupational licensing and consider what types of regulatory requirements and what level of government oversight contribute to wage gains and variability. Estimates from the survey indicated that 35 percent of employees were either licensed or certified by the government, and that 29 percent were fully licensed. Another 3 percent stated that all who worked in their job would eventually be required to be certified or licensed, bringing the total that are or eventually must be licensed or certified by government to 38 percent. We find that licensing is associated with about 14 percent higher wages, but the effect of governmental certification on pay is much smaller. Licensing by multiple political jurisdictions is associated with the highest wage gains relative to only local licensing. Specific requirements by the government for a worker to enter an occupation, such as education level and long internships, are positively associated with wages. We find little association between licensing and the variance of wages, in contrast to unions. Overall, our results show that occupational licensing is an important labor market phenomenon that can be measured in labor force surveys.
    Date: 2009–05
  10. By: Uesugi, Iichiro; Saito, Yukiko
    Abstract: We examine the pattern of top executive turnover among small non-listed businesses in Japan using a unique panel data set of about 25,000 firms for 2001-2007 and find the following. First, the likelihood of a change in top executive among non-listed firms is independent of their ex-ante performance, especially when the firms are owned by the top executives themselves or by their relatives. Second, non-listed firms which experienced a top executive turnover saw an improvement in ex-post performance relative to firms without turnover. The extent of the improvement is similar between non-listed firms and listed firms. All of the above results indicate that underperforming non-listed firms do not face disciplinary pressure to replace their executive, but that once new top executives are in place, they exert high managerial effort and thus significantly improve their firm's profitability.
    Date: 2009–03
  11. By: Leroy, H.; Manigart, S.; Meuleman, M. (Vlerick Leuven Gent Management School)
    Abstract: We expand and test Ajzen’s Theory of Planned Behavior (TPB) to explain the transfer of an entrepreneurial venture upon exit. Our results confirm TPB: transfer intentions and perceived control over the transfer are the main drivers of the likelihood to transfer. In addition, contextual business characteristics complement TPB in explaining transfer outcomes. While intangibility of firm assets directly impacts transfer outcomes, business viability is partially mediated via transfer intentions. These results shed more light on the role of implicit planning in transfer decisions and help to better understand contextual factors impacting the process of entrepreneurial exits.
    Keywords: entrepreneurial exit, exit process, transfer decision, Theory of Planned Behavior
    Date: 2009–05–18
  12. By: Douhan, Robin (IFN - Research Institute of Industrial Economics); van Praag, Mirjam (University of Amsterdam)
    Abstract: We combine two empirical observations in a general equilibrium occupational choice model. The first is that entrepreneurs have more control than employees over the employment of and accruals from assets, such as human capital. The second observation is that entrepreneurs enjoy higher returns to human capital than employees. We present an intuitive model showing that more control (observation 1) may be an explanation for higher returns (observation 2); its main outcome is that returns to ability are higher in higher control environments. This provides a theoretical underpinning for the control-based explanation for higher returns to human capital for entrepreneurs.
    Keywords: entrepreneurship, ability, occupational choice, human capital, wage structure
    JEL: L26 I20 J24 J31
    Date: 2009–06
  13. By: Roy Thurik; Jolanda Hessels; Isabel Grilo; Peter van der Zwan
    Abstract: Arguing that entrepreneurial exit is an indicator of accumulated entrepreneurial human capital (like ability and experience) we investigate whether such an exit in the recent past positively relates to posterior engagement in various stages of the entrepreneurial process (i.e. potential, intentional, nascent, young, and established entrepreneurship). We use individual-level data for 24 countries that participated in the Global Entrepreneurship Monitor during the years 2004, 2005 and 2006 (some 350,000 observations). Our findings indeed show that recent exit experience decreases the probability of undertaking no entrepreneurial activity, and that it increases the probabilities of being a potential or an intentional entrepreneur. We also investigate under what conditions recent exit increases engagement in entrepreneurial activities. Most important factors that influence entrepreneurial (re-)engagement are gender, fear of failure and knowing an entrepreneur, while educational attainment does not seem to be relevant. Also, some interesting country differences are found.  
    Date: 2009–06–12
  14. By: Bandick, Roger (Aarhus School of Business); Görg, Holger (Kiel Institute for the World Economy)
    Abstract: This paper analyses the effect of foreign acquisition on survival probability and employment growth of target plant using data on Swedish manufacturing plants during the period 1993-2002. An improvement over previous studies is that we take into account firm level heterogeneity by separating the targeted plants into those within Swedish MNEs, Swedish exporting non-MNEs, and purely domestic firms before foreign takeover. The results, controlling for possible endogeneity of the acquisition dummy using an IV and propensity score matching approach suggest that acquisition by foreign owners increases the lifetime of the acquired plants only if the plant was an exporter. The effect differs depending on whether the acquisition is horizontal or vertical. We also find robust positive employment growth effects only for exporters, and only if the takeover is vertical, not horizontal.
    Keywords: acquisitions, plant survival, employment growth, multinational enterprises
    JEL: F23 L23
    Date: 2009–06
  15. By: Rosario Crinò (Institut d’Analisi Economica CSIC, Barcelona); Paolo Epifani (Department of Economics, and KITeS, Bocconi University, Milan)
    Abstract: We study, both theoretically and empirically, how export intensity (the ratio of exports to sales) is related to firm productivity. Using a representative sample of Italian manufacturing firms, we find that Total Factor Productivity (TFP) is strongly negatively correlated with export intensity to low-income destinations and uncorrelated with export intensity to high-income destinations, conditional on exporting. To account for these facts, which are not easily predicted by existing heterogeneous-firms models, we extend the Melitz’s (2003) model by allowing for endogenous product quality and for non-iceberg trade costs. Under plausible assumptions, our model predicts that the elasticity of export intensity to productivity is increasing in per capita income of the foreign destinations and decreasing in their distance. We find that these two variables can jointly explain the sign, size and ranking of the TFP elasticities of export intensity across individual foreign destinations.
    Keywords: Export Intensity; TFP; Heterogeneous Firms; Product Quality; Per Unit Trade Costs.
    JEL: F1
    Date: 2009–06–01
  16. By: Robert W Fairlie (University of California); Kanika Kapur (University College Dublin); Susan Gates (RAND)
    Abstract: The focus on employer-provided health insurance in the United States may restrict business creation. We address the limited research on the topic of “entrepreneurship lock” by using recent panel data from matched Current Population Surveys. We use difference-indifference models to estimate the interaction between having a spouse with employer-based health insurance and potential demand for health care. We find evidence of a larger negative effect of health insurance demand on the entrepreneurship probability for those without spousal coverage than for those with spousal coverage. We also take a new approach in the literature to examine the question of whether employer-based health insurance discourages entrepreneurship by exploiting the discontinuity created at age 65 through the qualification for Medicare. Using a novel procedure of identifying age in months from matched monthly CPS data, we compare the probability of business ownership among male workers in the months just before turning age 65 and in the months just after turning age 65. We find that business ownership rates increase from just under age 65 to just over age 65, whereas we find no change in business ownership rates from just before to just after for other ages 55-75. Our estimates provide some evidence that "entrepreneurship lock" exists, which raises concerns that the bundling of health insurance and employment may create an inefficient allocation of which or when workers start businesses.
    Date: 2009–01–19
  17. By: Takashi Kano (Faculty of Economics, University of Tokyo); James M. Nason (Research Department, Federal Reserve Bank of Atlanta)
    Abstract: This paper studies the implications of internal consumption habit for propagation and monetary transmission in new Keynesian dynamic stochastic general equilibrium (NKDSGE) models. Bayesian methods are employed to evaluate the role of internal consumption habit in NKDSGE model propagation and monetary transmission. Simulation experiments show that internal consumption habit often improves NKDSGE model fit to output and consumption growth spectra by dampening business cycle periodicity. Nonetheless, habit NKDSGE model fit is vulnerable to the nominal rigidity, to the choice of monetary policy rule, to the frequencies used for evaluation, and to spectra identified by permanent productivity shocks.
    Date: 2009–06
  18. By: Giancarlo Corsetti; Luca Dedola; Sylvain Leduc
    Abstract: Identifying productivity and real demand shocks in the US with sign restrictions based on standard theory, we provide evidence on real and financial channels of their international propagation. Productivity gains in US manufacturing have substantial macroeconomic effects, raising US consumption, investment and the terms of trade, relative to the rest of the world, while lowering US net exports. Significant international nancial adjustment occurs via a rise in the global value of the US stock market, portfolio shifts in US foreign assets and liabilities, and especially real dollar appreciation. Positive demand shocks to US manufacturing also lead to real appreciation and raise investment, but have otherwise limited effects on trade flows. This evidence suggests a fundamental role of cross-country endogenous demand and wealth movements in shaping international macroeconomic interdependence.
    Keywords: Productivity ; Trade ; Foreign exchange rates
    Date: 2009

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