nep-bec New Economics Papers
on Business Economics
Issue of 2009‒12‒19
fifteen papers chosen by
Christian Calmes
Universite du Quebec en Outaouais

  1. Productivity, Welfare and Reallocation: Theory and Firm-Level Evidence By Susanto Basu; Luigi Pascali; Fabio Schiantarelli; Luis Serven
  2. Entrepreneurial Human Capital, Complementary Assets, and Takeover Probability By Thorsten V. Braun; Sebastian Krispin; Erik E. Lehmann
  3. Investment Shocks and the Relative Price of Investment By Justiniano, Alejandro; Primiceri, Giorgio E.; Tambalotti, Andrea
  4. The "suite" smell of success: complementary personnel practices and firm performance By Richard Fabling; Arthur Grimes
  5. Technology Shocks and Business Cycle: An Analysis Based on the Malmquist Index By Mark J. Lee
  6. Heterogeneity matters: labour productivity differentiated by age and skills By Muriel Roger; Malgorzata Wasmer
  7. Capital requirements and business cycles with credit market imperfections By Agénor, P.-R.; Alper, K.; Pereira da Silva, L.
  8. Wages and Productivity Growth in a Dynamic Oligopoly By Helmut Bester; Chrysovalantou Milliou; Emmanuel Petrakis
  9. To shape the future: How labor market entry conditions affect individuals' long-run wage profiles By Beatrice Brunner; Andreas Kuhn
  10. "Realized Volatility Risk" By David E. Allen; Michael McAleer; Marcel Scharth
  11. Competition Builds Trust By Francois, Patrick; Fujiwara, Thomas; van Ypersele, Tanguy
  12. Employers’ Preferences for Gender, Age, Height and Beauty: Direct Evidence By Peter Kuhn; Kailing Shen
  13. Produce or Speculate? Asset Bubbles, Occupational Choice and Efficiency By Cahuc, Pierre; Challe, Edouard
  14. Risk-Adjusted Gamma Discounting By Martin L. Weitzman
  15. Do expectations matter? The Great Moderation revisited By Canova, Fabio; Gambetti, Luca

  1. By: Susanto Basu; Luigi Pascali; Fabio Schiantarelli; Luis Serven
    Abstract: We prove that the change in welfare of a representative consumer is summarized by the current and expected future values of the standard Solow productivity residual. The equivalence holds if the representative household maximizes utility while taking prices parametrically. This result justifies TFP as the right summary measure of welfare (even in situations where it does not properly measure technology) and makes it possible to calculate the contributions of disaggregated units (industries or firms) to aggregate welfare using readily available TFP data. Based on this finding, we compute firm and industry contributions to welfare for a set of European OECD countries (Belgium, France, Great Britain, Italy, Spain), using industry-level (EU-KLEMS) and firm-level (Amadeus) data. After adding further assumptions about technology and market structure (firms minimize costs and face common factor prices), we show that welfare change can be decomposed into three components that reflect respectively technical change, aggregate distortions and allocative efficiency. Using the appropriate firm-level data, we assess the importance of each of these components as sources of welfare improvement in the same set of European countries.
    JEL: D24 D9 E20 O47
    Date: 2009–12
  2. By: Thorsten V. Braun (University of Augsburg, Department of Economics); Sebastian Krispin (University of Augsburg, Department of Economics); Erik E. Lehmann (University of Augsburg, Department of Economics)
    Abstract: Gaining access to technologies, competencies, and knowledge is observed as one of the major motives for corporate mergers and acquisitions. In this paper we show that a knowledge-based firm’s probability of being a takeover target is influenced by whether relevant specific human capital aimed for in acquisitions is directly accumulated within a specific firm or is bound to its founder or manager owner. We analyze the incentive effects of different arrangements of ownership in a firm’s assets in the spirit of the Grossman-Hart-Moore incomplete contracts theory of the firm. This approach highlights the organizational significance of ownership of complementary assets. In a small theoretical model we assume that the entrepreneur’s specific human capital, as measured by the patents they own, and the physical assets of their firm are productive only when used together. Our results show that it is not worthwhile for an acquirer to purchase the alienable assets of this firm due to weakened incentives for the initial owner. Regression analysis using a hand collected dataset of all German IPOs in the period from 1997 to 2006 subsequently provides empirical support for this prediction. This paper adds to previous research in that it puts empirical evidence to the Grossman-Hart-Moore framework of incomplete contracts or property rights respectively. Secondly, we show that relevant specific human capital that is accumulated by a firm’s founder or manager owner significantly decreases that firm’s probability of being a takeover target.
    Keywords: ownership structure, property rights, mergers & acquisitions
    JEL: G32 D23 G34
    Date: 2009–12
  3. By: Justiniano, Alejandro; Primiceri, Giorgio E.; Tambalotti, Andrea
    Abstract: We estimate a New-Neoclassical Synthesis business cycle model with two investment shocks. The first, an investment-specific technology shock, affects the transformation of consumption into investment goods and is identified with the relative price of investment. The second shock affects the production of installed capital from investment goods or, more broadly, the transformation of savings into the future capital input. We find that this shock is the most important driver of U.S. business cycle fluctuations in the post-war period and that it is likely to proxy for more fundamental disturbances to the functioning of the financial sector. To corroborate this interpretation, we show that it correlates strongly with interest rate spreads and that it played a particularly important role in the recession of 2008.
    Keywords: Business cycles; DSGE model; financial factors; investment-specific technology
    JEL: C11 E22 E30
    Date: 2009–12
  4. By: Richard Fabling; Arthur Grimes (Reserve Bank of New Zealand)
    Abstract: How do personnel practices affect firm performance?To examine this issue we use a panel of over 1,500 New Zealand firms, drawn from a diverse range of industries.The panel comprises respondents to official surveys of management practices in 2001 and 2005. These surveys ask a wide range of comparable qualitative questions covering organisational practices including human resource management (HRM). To this panel, we link longitudinal firm performance data from Statistics New Zealand's Longitudinal Business Database. We find that suites of complementary HRM-related practices impact positively on firm productivity and wages; effects on employee turnover depend on the practices considered.
    JEL: D21 L20 O31
    Date: 2009–12
  5. By: Mark J. Lee (Department of Economics, Towson University)
    Abstract: The goal of this study examines the quantitative implications of the Malmquist index in a standard Real Business Cycle (RBC) model as a measure of technology shock. To achieve this, the paper first investigates the empirical validity of the equivalence proposition on the two technology shock measures: a relatively new Malmquist Index and the predominant Solow residual. On the basis of permutation tests, this paper shows the observational equivalence of the two measures. Then, the role of technology shock measured by the Malmquist index in the RBC model is examined. The study uncovers that the RBC model with the Malmquist index successfully replicates the stylized U.S. business cycle features documented in the existing literature. Finally, this paper discusses potential benefits of the Malmquist index in the business cycle studies.
    Keywords: Malmquist Index, Observational Equivalence, Solow Residual, RBC Model, Aggregate Technology Shocks
    Date: 2009–12
  6. By: Muriel Roger; Malgorzata Wasmer
    Abstract: This study aims at evaluating the actual profile of marginal productivity across the age groups within the workforce. As age-productivity profile might differ between occupations, we differentiate the workforce simultaneously by skills (low-skilled, high-skilled) and by age (young, middle-aged, old). Estimating a production function with a nested constant-elasticity-of-substitution (CES) specification in labour allows the imperfect substitution between different categories of workers. We use French dataset for manufacturing, services and trade sectors. Labour productivity is found to be the lowest for the low-skilled older workers while high-skilled senior employees in manufacturing and trade are the most productive group. Throughout the sectors, wage rates vary considerably less than productivity and wage profiles are steeper for high-skilled workers. The relative productivity over wage ratio is found to be sector-specific. It is the highest for young workers in manufacturing while in services and trade it is the highest for the mid-age employees.
    Date: 2009
  7. By: Agénor, P.-R.; Alper, K.; Pereira da Silva, L.
    Abstract: The business cycle effects of bank capital regulatory regimes are examined in a New Keynesian model with credit market imperfections and a cost channel of monetary policy. Key features of the model are that bank capital increases incentives for banks to monitor borrowers, thereby reducing the probability of default, and excess capital generates benefits in terms of reduced regulatory scrutiny. Basel I and Basel II-type regulatory regimes are defined, and the model is calibrated for a middle-income country. Simulations of supply and demand shocks show that, depending on the elasticity that relates the repayment probability to the capital-loan ratio, a Basel II-type regime may be less procyclical than a Basel I-type regime.
    Keywords: Banks&Banking Reform,Debt Markets,Access to Finance,Economic Theory&Research,Emerging Markets
    Date: 2009–12–01
  8. By: Helmut Bester (Free University Berlin); Chrysovalantou Milliou (Athens University of Economics and Business); Emmanuel Petrakis (University of Crete)
    Abstract: This paper studies the innovation dynamics of an oligopolistic industry. The firms compete not only in the output market but also by engaging in productivity enhancing innovations to reduce labor costs. Rent sharing may generate productivity dependent wage differentials. Productivity growth creates intertemporal spill-over effects, which affect the incentives for innovation at subsequent dates. Over time the industry equilibrium approaches a steady state. The paper characterizes the evolution of the industry's innovation behavior and its market structure on the adjustment path.
    Keywords: innovation, laborproductivity, oligopoly, wagedifferentials, productivitygrowth, industrydynamics
    JEL: D24 D42 D92 J31
    Date: 2009–11
  9. By: Beatrice Brunner; Andreas Kuhn
    Abstract: We study the long-run effects of initial labor market conditions on wages for a large sample of male individuals entering the Austrian labor market between 1978 and 2000. We find a robust negative effect of unfavorable entry conditions on starting wages. This initial effect turns out to be quite persistent and even though wages do catch up later on, large effects on lifetime earnings result. We also show that initial labor market conditions have smaller and less persistent effects for blue-collar workers than for white-collar workers. We further show that some of the long-run adjustment takes place through changes in job-mobility and employment patterns as well as in job tenure. Finally, we find that adjustments at the aggregate level are key to explain wages' adjustment process in the longer run.
    Keywords: Labor market cohorts, initial labor market conditions, long-run wage profiles, persistence of labor market shocks, unemployment, business cycle
    JEL: E3 J2 J3 J6 M5
    Date: 2009–11
  10. By: David E. Allen (School of Accounting, Finance and Economics, Edith Cowan University); Michael McAleer (Econometric Institute, Erasmus School of Economics, Erasmus University Rotterdam and Tinbergen Institute); Marcel Scharth (VU University Amsterdam and Tinbergen Institute)
    Abstract: In this paper we document that realized variation measures constructed from high-frequency returns reveal a large degree of volatility risk in stock and index returns, where we characterize volatility risk by the extent to which forecasting errors in realized volatility are substantive. Even though returns standardized by ex post quadratic variation measures are nearly gaussian, this unpredictability brings considerably more uncertainty to the empirically relevant ex ante distribution of returns. Carefully modeling this volatility risk is fundamental. We propose a dually asymmetric realized volatility (DARV) model, which incorporates the important fact that realized volatility series are systematically more volatile in high volatility periods. Returns in this framework display time varying volatility, skewness and kurtosis. We provide a detailed account of the empirical advantages of the model using data on the S&P 500 index and eight other indexes and stocks.
    Date: 2009–12
  11. By: Francois, Patrick; Fujiwara, Thomas; van Ypersele, Tanguy
    Abstract: This paper shows that (firm-level) competition has a positive impact on (individual-level) trust. Using US states’ banking de-regulation from the mid 1970s, we first show that an increase in competition had a causal impact on trust, measured in the General Social Survey (GSS). We develop a model which explains why increased competition within a state increases trust. The model also predicts a positive correlation between trust and sectoral competitiveness in the cross-section. We explore this implication using the 2004 wave of the GSS which we match with US census of firms competition measures. The model’s predictions are strongly borne out.
    Keywords: Trust
    Date: 2009–12–02
  12. By: Peter Kuhn; Kailing Shen
    Abstract: We study firms’ advertised preferences for gender, age, height and beauty in a sample of ads from a Chinese internet job board, and interpret these patterns using a simple employer search model. We find that these characteristics are widely and highly valued by Chinese employers, though employers’ valuations are highly specific to detailed jobs and occupations. Consistent with our model, advertised preferences for gender, age, height and beauty all become less prevalent as job skill requirements rise. Cross-sectional patterns suggest some role for customer discrimination, product market competition, and corporate culture. Using the recent collapse of China’s labor market as a natural experiment, we find that firms’ advertised education and experience requirements respond to changing labor market conditions in the direction predicted by our model, while firms’ advertised preferences for age, gender, height and beauty do not.
    JEL: J6 J7
    Date: 2009–12
  13. By: Cahuc, Pierre; Challe, Edouard
    Abstract: We study the macroeconomic effects of rational asset bubbles in an overlapping-generations economy where asset trading requires specialized intermediaries and where agents freely choose between working in the production or in the financial sector. Frictions in the market for deposits create rents in the financial sector that affect workers' choice of occupation. When rents are large, the private gains associated with trading asset bubbles may lead too many workers to become speculators, thereby causing rational bubbles to lose their efficiency properties. Moreover, if speculation can be carried out by skilled labor only, then asset bubbles displace skilled workers away from the productive sector and raise income and consumption inequalities.
    Keywords: dynamic efficiency; occupational choice; Rational bubbles
    JEL: E22 E44 G21
    Date: 2009–12
  14. By: Martin L. Weitzman
    Abstract: It is widely recognized that the economics of distant-future events, like climate change, is critically dependent upon the choice of a discount rate. Unfortunately, it is unclear how to discount distant-future events when the future discount rate itself is unknown. In previous work, an analytically-tractable approach called "gamma discounting" was proposed, which gave a declining discount rate schedule as a simple closed-form function of time. This paper extends the previous gamma approach by using a Ramsey optimal growth model, combined with uncertainty about future productivity, in order to "risk adjust" all probabilities by marginal utility weights. Some basic numerical examples are given, which suggest that the overall effect of risk-adjusted gamma discounting on lowering distant-future discount rates may be significant. The driving force is a "fear factor" from risk aversion to permanent productivity shocks representing catastrophic future states of the world.
    JEL: Q54
    Date: 2009–12
  15. By: Canova, Fabio; Gambetti, Luca
    Abstract: We examine the role of expectations in the Great Moderation episode. We derive theoretical restrictions in a New-Keynesian model and test them using measures of expectations obtained from survey data, the Greenbook and bond markets. Expectations explain the dynamics of inflation and interest rates but their importance is roughly unchanged over time. Systems with and without expectations display similar reduced form characteristics. Results are robust to changes in the structure of the empirical model.
    Keywords: Expectations; Indeterminacy; Term structure; VARs
    JEL: C11 E12 E32 E62
    Date: 2009–12

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