nep-bec New Economics Papers
on Business Economics
Issue of 2010‒04‒24
thirty papers chosen by
Christian Calmes
Universite du Quebec en Outaouais

  1. Real Wages and the Business Cycle: Accounting for Worker and Firm Heterogeneity By Anabela Carneiro; Paulo Guimaraes; Pedro Portugal
  2. Monitoring managers: does it matter? By Francesca Cornelli; Zbigniew Kominek; Alexander Ljungqvist
  3. Hierarchical Structures and Dynamic Incentives By Dongsoo Shin; Roland Strausz
  4. Why Do Within Firm-Product Export Prices Differ across Markets? By Holger G”rg; L szl¢ Halpern; Bal zs Murak”zy
  5. The Effects of Uncertainty about Oil Prices in G-7 By Don Bredin; John Elder; Stilianos Fountas
  6. Corporate Social Responsibility and Corporate Financial Performance: Evidence from Korea By Choi, Jong-Seo; Kwak, Young-Min; Choe, Chongwoo
  7. The Role of Executives in Hostile Takeover Attempts By Mohd, Irfan
  8. Death of Canadian Manufacturing Plants: Heterogeneous Responses to Changes in Tariffs and Real Exchange Rates By Baldwin, John R.; Yan, Beiling
  9. Determinants of Profitability: An Analysis of Large Australian Firms By Andreas Stierwald
  10. Agency Costs, Mispricing, and Ownership Structure By Sergey Chernenko; C. Fritz Foley; Robin Greenwood
  11. Cyclical patterns of employment, utilization and profitability By Ben Zipperer; Peter Skott
  12. Models of Growth and Firm Heterogeneity By Erzo G. J. Luttmer
  13. Productivity, wages, and the returns to firm-provided training: who is grabbing the biggest share? By Ana Sofia Lopes; Paulino Teixeira
  14. Insider Trading, Option Exercises and Private Benefits of Control By Peter Cziraki; Prof. Dr. Luc Renneboog; Peter de Goeij
  15. Prospects for Global Current Account Rebalancing By Kimberly Beaton; Carlos de Resende; René Lalonde; Stephen Snudden
  16. Trade Unions and Industrial Relations in Switzerland By Oesch, Daniel
  17. Classical vs wavelet-based filters Comparative study and application to business cycle. By Ibrahim Ahamada; Philippe Jolivaldt
  18. Tapping the Supercomputer Under Your Desk: Solving Dynamic Equilibrium Models with Graphics Processors By Eric M. Aldrich; Jesús Fernández-Villaverde; A. Ronald Gallant; Juan F. Rubio-Ramírez
  19. Intergenerational Earnings Mobility and the Inheritance of Employers By Corak, Miles; Piraino, Patrizio
  20. The Power of some Standard tests of stationarity against changes in the unconditional variance. By Ibrahim Ahamada; Mohamed Boutahar
  21. Productivity distribution, firm heterogeneity, and agglomeration: Evidence from firm-level data By OKUBO Toshihiro; TOMIURA Eiichi
  22. Developing the model of the credit risk assessment of the commercial bank credit loans portfolio By Pustovalova, Tatiana A.
  23. Eppur si Muove! Spain: Growing without a Model By Michele Boldrin; José Ignacio Conde-Ruiz; Javier Díaz Giménez
  24. Ex ante Investment, Ex post Remedy, and Product Liability By Chen, Yongmin; Hua, Xinyu
  25. Spectral Risk Measures: Properties and Limitations By Kevin Dowd; John Cotter; Ghulam Sorwar
  27. Dynamic Bertrand Oligopoly By Andrew Ledvina; Ronnie Sircar
  28. A note on GDP now-/forecasting with dynamic versus static factor models along a business cycle By Buss, Ginters
  29. Tariff Rates, Offshoring and Productivity: vidence from German and Austrian Firm-Level Data By Thorsten Hansen
  30. On the Stationarity of Current Account Deficits in the European Union By Mark J. Holmes; Jesús Otero; Theodore Panagiotidis

  1. By: Anabela Carneiro (cef.up, Faculdade de Economia, Universidade do Porto); Paulo Guimaraes (University of South Carolina, cef.up, and IZA Bonn); Pedro Portugal (Banco de Portugal, Universidade NOVA de Lisboa, and IZA Bonn)
    Abstract: Using a longitudinal matched employer-employee data set for Portugal over the 1986-2005 period, this study analyzes the heterogeneity in wages responses to aggregate labor market conditions for newly hired workers and existing workers. Accounting for both worker and firm heterogeneity, the data support the hypothesis that entry wages are much more procyclical than current wages. A one-point increase in the unemployment rate decreases wages of newly hired male workers by around 2.8% and by just 1.4% for workers in continuing jobs. Since we estimate the fixed effects, we were able to show that unobserved heterogeneity plays a non-trivial role in the cyclicality of wages. In particular, worker fixed effects of new hires and separating workers behave countercyclically, whereas firm fixed effects exhibit a procyclical pattern. Finally, the results reveal, for all workers, a wage-productivity elasticity of 1.2, slightly above the one-for-one response predicted by the Mortensen-Pissarides model.
    Keywords: wage cyclicality; hires; firm-specific effects; compositional effects; labor productivity
    JEL: J31 E24 E32
    Date: 2009–11
  2. By: Francesca Cornelli (London Business School and the Center for Economic Policy Research); Zbigniew Kominek; Alexander Ljungqvist (New York University's Stern School of Business and CEPR)
    Abstract: We test under what circumstances boards discipline managers and whether such interventions improve performance. We exploit exogenous variation due to the staggered adoption of corporate governance laws in formerly communist countries coupled with detailed “hard” information about the board’s performance expectations and “soft” information about board and CEO actions and the board’s beliefs about CEO competence in 473 mostly private sector companies backed by private equity funds between 1993 and 2008. We find that CEOs are fired when the company underperforms relative to the board’s expectations, suggesting that boards use performance to update their beliefs. CEOs are especially likely to be fired when evidence has mounted that they are incompetent and when board power has increased following corporate governance reforms. In contrast, CEOs are not fired when performance deteriorates due to factors deemed explicitly to be beyond their control, nor are they fired for making “honest mistakes”. Following forced CEO turnover, companies see performance improvements and their investors are considerably more likely to eventually sell them at a profit.
    Keywords: Corporate governance, large shareholders, boards of directors, CEO turnover, legal reforms, transition economies, private equity.
    JEL: G34 G24 G32 K22 O16 P21
    Date: 2010–01
  3. By: Dongsoo Shin (Santa Clara University); Roland Strausz (Humboldt-Universität zu Berlin)
    Abstract: We study the optimal hierarchical structure of an organization under limited commit- ment. The organization cannot make a long term commitment to wages and output levels, while it can commit to its hierarchical structure. We show that the optimal hierarchical structure is horizontal when it is highly likely that the employees are efficient or inefficient. By contrast, when such likelihood is intermediate or output does not expand very fast over time, the optimal hierarchical structure is vertical - with a vertical hierarchy, the organi- zation can mitigate dynamic incentive problems linked to limited commitment.
    Keywords: Dynamic Incentives, Organization Design
    JEL: D82 D86
    Date: 2010–04
  4. By: Holger G”rg (Christian-Albrechts-University Kiel, CEPR); L szl¢ Halpern (Institute of Economics - Hungarian Academy of Sciences); Bal zs Murak”zy (Institute of Economics - Hungarian Academy of Sciences)
    Abstract: In this paper we analyse the relationship between gravity variables and f.o.b. export unit values using Hungarian firm-product-destination data. By taking firm-product level selection into account we show that export unit values increase with distance even for particular firm-product combinations. This cannot be explained by models assuming firm- or even firm-product level selection and constant markups. The differences are important quantitatively; price differences in Hungarian exports between Germany and the US are about 30%. We also show that unit values are positively related to GDP/capita and that there is a weak negative relationship between unit values and market size. We propose two possible explanations: first, firms may export different quality versions of the same product to different markets. Secondly, directly exporting firms may capture part of the markups on transport costs in their f.o.b. prices.
    Keywords: export, price, selection, Hungary
    JEL: D40 F12
    Date: 2010–02
  5. By: Don Bredin (University College Dublin); John Elder (North Dakota State University); Stilianos Fountas (University of Macedonia)
    Abstract: The failure of decreases in oil prices to produce expansions that mirror the contractions associated with higher oil prices has been a topic of considerable interest. We investigate for the G-7 one explanation for this feature - the role of uncertainty about oil prices. In particular, we examine the link between oil price uncertainty and industrial production utilizing a very general and °exible empirical methodology that is based on a structural VAR modi¯ed to accommodate multivariate GARCH in mean. Our primary result is that oil price uncertainty has had a negative and signi¯cant e®ect on industrial production in four of the G-7 countries - Canada, France, UK and US. Impulse-response analysis suggests that, in the short-run, both positive and negative oil shocks may be contractionary. Our result helps explain why the sudden collapse in oil prices in the mid-1980's failed to produce rapid expansion in the G-7, and why the steady increases in oil prices from 2003-2007 did not induce recessions.
    Keywords: Oil, Volatility, Vector autoregression, Multivariate GARCH-in-Mean VAR.
    JEL: E32 C32
    Date: 2010–04–13
  6. By: Choi, Jong-Seo; Kwak, Young-Min; Choe, Chongwoo
    Abstract: This paper studies the empirical relation between corporate social responsibility (CSR) and corporate financial performance in Korea using a sample of 1122 firm-years during 2002-2008. We measure corporate social responsibility by both an equal-weighted CSR index and a stakeholder-weighted CSR index suggested by Akpinar et al. (2008). Corporate financial performance is measured by ROE, ROA and Tobin’s Q. We find a positive and significant relation between corporate financial performance and the stakeholder-weighted CSR index, but not the equal-weighted CSR index. This finding is robust to alternative model specifications and several additional tests, providing evidence in support of instrumental stakeholder theory.
    Keywords: corporate social responsibility; corporate financial performance; KEJI index; instrumental stakeholder theory
    JEL: M14 D21 L21 G30
    Date: 2010–04–17
  7. By: Mohd, Irfan
    Abstract: This paper proposes a two-stage game theoretic model in which the discretionary power of executives acts as an implicit defense against hostile takeovers. Following managerial enterprise models, this paper analyzes the effects of target’s executives’ discretionary power over R&D and advertising in defeating hostile takeover attempts. It is shown that in vertically differentiated industries, in equilibrium, target’s executive keep low level of R&D and advertising to make their firm an unattractive target for hostile takeovers. The model reveals that the executives are influenced by their self-interest of monetary and non-monetary benefits and this self-interest behavior makes the industry less differentiated. Additionally, the firm’s takeover (hostile or friendly) is endogenously determined by the executives.
    Keywords: Executives Discretion; Hostile Takeovers; Vertical Differentiation; R&D; Advertising
    JEL: G34 L15
    Date: 2010–01–20
  8. By: Baldwin, John R.; Yan, Beiling
    Abstract: We examine the simultaneous effects of real-exchange-rate movements and of tariff reductions on plant death in Canadian manufacturing industries between 1979 and 1996. We find that both currency appreciation and tariff cuts increase the probability of plant death, but that tariff reductions have a much greater effect. Consistent with the implications of recent international-trade models involving heterogeneous firms, we further find that the effect of exchange-rate movements and tariff cuts on exit are heterogeneous across plants - particularly pronounced among least efficient plants. Our results reveal multi-dimensional heterogeneity that current models featuring one-dimensional heterogeneity (efficiency differences among plants) cannot fully explain. There are significant and substantial differences between exporters and non-exporters, and between domestic- and foreign- controlled plants. Exporters and foreign-owned plants have much lower failure rates; however, their survival is more sensitive to changes in tariffs and real exchange rates, whether differences in their efficiency levels are controlled or not.
    Keywords: Manufacturing, Business performance and ownership, Business adaptation and adjustment, Entry, exit, mergers and growth
    Date: 2010–04–14
  9. By: Andreas Stierwald (Melbourne Institute of Applied Economic and Social Research, The University of Melbourne)
    Abstract: This paper identifies the determinants of firm profitability and quantifies their relative importance. Using a panel of large Australian firms for the period 1995 to 2005, the analysis estimates a dynamic profit model that, unlike most existing research, directly includes measures of productivity and productivity persistence. Descriptive statistics illustrate that the sample is characterized by a large amount of profit heterogeneity, and that substantial differences exist between industries and across firms. Estimation results indicate that firm profitability is predominantly determined by firm-level characteristics, and that sector effects are relevant, but to a much smaller extent. The analysis also reveals that, among firm effects, productivity and productivity persistence enhance profitability.
    Keywords: Firm Performance, Determinants of Profit, Dynamic Panel Bias, Total Factor Productivity
    JEL: C23 D24 L25
    Date: 2010–04
  10. By: Sergey Chernenko; C. Fritz Foley; Robin Greenwood
    Abstract: Standard theories of corporate ownership assume that because markets are efficient, insiders ultimately bear agency costs and therefore have a strong incentive to minimize conflicts of interest with outside investors. We show that if equity is overvalued, however, mispricing offsets agency costs and can induce a controlling shareholder to list equity. Higher valuations support listings associated with greater agency costs. We test the predictions that follow from this idea on a sample of publicly listed corporate subsidiaries in Japan. When there is greater scope for expropriation by the parent firm, minority shareholders fare poorly after listing. Parent firms often repurchase subsidiaries at large discounts to valuations at the time of listing and experience positive abnormal returns when repurchases are announced.
    JEL: G14 G3 G32 K22
    Date: 2010–04
  11. By: Ben Zipperer (University of Massachusetts Amherst); Peter Skott (University of Massachusetts Amherst)
    Abstract: The interaction between income distribution, accumulation, employment and the utilization of capital is central to macroeconomic models in the `heterodox' tradition. This paper examines the stylized pattern of these variables using US data for the period after 1948. We look at the trends and cycles in individual time series and examine the bivariate cycical patterns among the variables. JEL Categories: E12, E32, O41
    Keywords: growth, business cycles, aggregate demand, instability, income distribution, utilization rate, investment function, pricing.
    Date: 2010–04
  12. By: Erzo G. J. Luttmer (Department of Economics, University of Minnesota and Federal Reserve Bank of Minnesota)
    Abstract: Although employment at individual firms tends to be highly non-stationary, the employment size distribution of all firms in the United States appears to be stationary. It closely resembles a Pareto distribution. There is a lot of entry and exit, mostly of small firms. This paper surveys general equilibrium models that can be used to interpret these facts and explores the role of innovation by new and incumbent firms in determining aggregate growth. The existence of a balanced growth path with a stationary employment size distribution depends crucially on assumptions made about the cost of entry. Some type of labor must be an essential input in setting up new firms.
    Keywords: firm size distribution, organization capital, heterogeneous productivity, selection.
    JEL: L1 O4
    Date: 2010–04–13
  13. By: Ana Sofia Lopes (Departamento de Gestão e Economia, ESTG/Instituto Politécnico de Leiria, Portugal, and GEMF); Paulino Teixeira (GEMF/Faculdade de Economia, Universidade de Coimbra, Portugal)
    Abstract: In spite of the importance of workplace training in human capital accumulation, relatively little is known on its returns for workers and firms. Our investigation tries to fill this gap by developing an alternative modelling that examines the determinants of firm productivity and wages, on the one hand, and the internal rate of return to firm training investments, on the other. Our estimates, obtained using a firm-level dataset in which we have detailed information on firm-provided training, indicate that an additional hour of training per worker implies some 0.1 percent increase in productivity. We also found that 2/3 of the gains in productivity are captured by firms and 1/3 by workers. In turn, the internal rate of return for an average firm in our sample is equal to 11 percent while for workers it is considerably higher at 24 percent. As expected, the dispersion across firms is very high, with 66 percent of firms having a positive internal rate of return for an annual depreciation rate of 35 percent.
    Keywords: Firm-Provided Training, Internal Rate of Return, Human Capital, Productivity, Earnings.
    JEL: J24 J31 I2
    Date: 2010–04
  14. By: Peter Cziraki (PhD candidate, Department of Finance, Tilburg University); Prof. Dr. Luc Renneboog (Department of Finance, Tilburg University); Peter de Goeij (Department of Finance, Tilburg University)
    Abstract: We investigate patterns of abnormal stock performance around insider trades and option exercises on the Dutch market. Listed firms in the Netherlands have a long tradition of employing many anti-shareholder mechanisms limiting shareholders rights. Our results imply that insider transactions are more profitable at firms where shareholder rights are not restricted by antishareholder mechanisms. This finding goes against the monitoring hypothesis which states that more shareholder orientation and stronger blockholders would reduce the gains from insider trading. We show robust support for the substitution hypothesis as insiders of firms which effectively curtail shareholder rights enjoy valuable private benefits of control in lieu of engaging in insider trading to exploit their position.
    Keywords: insider trading, management stock options, timing by insiders, corporate governance, antishareholder mechanisms, anti-takeover mechanisms
    JEL: G14 G34 M52
    Date: 2010–03
  15. By: Kimberly Beaton; Carlos de Resende; René Lalonde; Stephen Snudden
    Abstract: The authors use the Bank of Canada's version of the Global Economy Model, a multi-country, multi-sector dynamic stochastic general-equilibrium model with an active banking system (the BoC-GEM-FIN), to study the evolution of global current account balances following the recent global financial crisis. More specifically, they use several shocks from the model to generate a simulated baseline scenario that mimics: (i) the initial, pre-crisis state of disequilibrium in global current account balances, and (ii) the effects of the crisis, including those of the policy responses undertaken worldwide. The authors find that a sufficient set of conditions and policies for a sustainable resolution of the global current account imbalances relies on three key elements: (i) a continuous upward adjustment of U.S. private savings, (ii) fiscal consolidation in advanced countries, and (iii) an orderly adjustment of exchange rates. These three criteria facilitate a gradual decline in the U.S. current account deficit going forward. A fourth key element, the implementation of policies aimed at stimulating domestic demand in emerging Asia, is needed to ensure that the counterpart of the decrease in the U.S. current account deficit is mainly a reduction in the surpluses of emerging Asia. Sensitivity analysis based on deviations from these conditions illustrates the factors behind the main results and the costs associated with the alternative scenarios considered.
    Keywords: Balance of payments and components; Business fluctuations and cycles; International topics; Recent economic and financial developments
    JEL: E21 F01 F32
    Date: 2010
  16. By: Oesch, Daniel
    Abstract: Switzerland's system of industrial relations was for a long time synonymous for stability. Once the system of collective bargaining had been put into place at the beginning of the 1950s, Swiss trade unions settled into their role as subordinate partners in decentralized and consensual industrial relations. Stability came to an abrupt end in the 1990s, a decade that confronted trade unions with three major challenges. The first and foremost challenge arose from the unusually long recession of the early 1990s, which dealt a severe blow to membership in the traditional union strongholds. A second challenge was raised by the neoliberal turn in business organizations, which caught trade unions on the wrong foot. Thirdly, trade unions were challenged, at the end of the 1990s, by the imminent opening up of Switzerland’s labour market to the European Union. The liberalization of labour migration was threatening to undermine unions’ influence on wage-setting. These challenges – notably declining membership and the questioning of collective bargaining – put unions under pressure to initiate revitalization efforts. They took place on three different fronts. First, Swiss unions responded to the harsher economic context by investing more resources into political action, using direct democratic instruments to block neoliberal reforms. In parallel, they began to adopt new means of recruitment, targeting hitherto almost union-free private services, and resorted more frequently to strikes. Finally, the European wave of union mergers also seized the Swiss labour movement. Starting in the mid-1990s and gaining pace after 2000, a series of union mergers led to a profound restructuring of organized labour in Switzerland.
    Keywords: trade unions; collective bargaining; corporatism; strike; Switzerland; minimum wages; union density; union merger
    JEL: J51 J21 J5
    Date: 2010
  17. By: Ibrahim Ahamada (Centre d'Economie de la Sorbonne); Philippe Jolivaldt (Centre d'Economie de la Sorbonne)
    Abstract: In this article, we compare the performance of Hodrickk-Prescott and Baxter-King filters with a method of filtering based on the multi-resolution properties of wavelets. We show that overall the three methods remain comparable if the theoretical cyclical component is defined in the usual waveband, ranging between six and thirty two quarters. However the approach based on wavelets provides information about the business cycle, for example, its stability over time which the other two filters do not provide. Based on Monte Carlo simulation experiments, our method applied to the American GDP using growth rate data shows that the estimate of the business cycle component is richer in information than that deduced from the level of GDP and includes additional information about the post 1980 period of great moderation.
    Keywords: Filters HP, wavelets, Monte Carlo Simulation, break, business cycles.
    JEL: C15 C22 C65 E32
    Date: 2010–03
  18. By: Eric M. Aldrich; Jesús Fernández-Villaverde; A. Ronald Gallant; Juan F. Rubio-Ramírez
    Abstract: This paper shows how to build algorithms that use graphics processing units (GPUs) installed in most modern computers to solve dynamic equilibrium models in economics. In particular, we rely on the compute unified device architecture (CUDA) of NVIDIA GPUs. We illustrate the power of the approach by solving a simple real business cycle model with value function iteration. We document improvements in speed of around 200 times and suggest that even further gains are likely.
    JEL: C87 E0
    Date: 2010–04
  19. By: Corak, Miles (University of Ottawa); Piraino, Patrizio (Statistics Canada)
    Abstract: Our analysis of intergenerational earnings mobility modifies the Becker-Tomes model to incorporate the intergenerational transmission of employers, which is predicted to increase the intergenerational elasticity of earnings. About 6% of young Canadian men have the same main employer as their fathers but this is positively related to paternal earnings and rises discretely at the top of the distribution. We use a switching regression model and identify two regimes associated with the inheritance of employers that have different intergenerational earnings elasticities. The model also demonstrates that the inheritance of employers plays a role in understanding observed nonlinearities.
    Keywords: intergenerational mobility, job search, networks
    JEL: J62 J64 J24
    Date: 2010–04
  20. By: Ibrahim Ahamada (Centre d'Economie de la Sorbonne); Mohamed Boutahar (GREQAM - Université Aix-Marseille II)
    Abstract: Abrupt changes in the unconditional variance of returns have been recently revealed in many empirical studies. In this paper, we show that traditional KPSS-based tests have a low power against nonstationarities stemming from changes in the unconditional variance. More precisely, we show that even under very strong abrupt changes in the unconditional variance, the asymptotic moments of the statistics of these tests remain unchanged. To overcome this problem, we use some CUSUM-based tests adapted for small samples. These tests do not compete with KPSS-based tests and can be considered as complementary. CUSUM-based tests confirm the presence of strong abrupt changes in the unconditional variance of stock returns, whereas KPSS-based tests do not. Consequently, traditional stationary models are not always appropriate to describe stock returns. Finally, we show how a model allowing abrupt changes in the unconditional variance is well appropriate for CAC 40 stock returns.
    Keywords: KPSS test, panel stationarity test, unconditional variance, abrupt changes, stock returns, size-power curve.
    JEL: C12 C15 C23
    Date: 2010–04
  21. By: OKUBO Toshihiro; TOMIURA Eiichi
    Abstract: This paper empirically examines how productivity distributions of firms vary across regions based on Japanfs manufacturing census data. We confirm the established finding of higher average productivity in core regions, but find that firm productivity is distributed with wide dispersions, especially in core regions. Our firm-level estimates demonstrate that the productivity distribution of firms tends to be noticeably left-skewed deviating from the normal distribution, especially in regions with weak market potential but also in agglomerated or urbanized regions. These findings suggest that agglomeration economies are likely to accommodate heterogeneous firms to co-exist in the same region.
    Date: 2010–04
  22. By: Pustovalova, Tatiana A.
    Abstract: Over the past decade, commercial banks have devoted many resources to developing internal models to better quantify their financial risks and assign economic capital. These efforts have been recognized and encouraged by bank regulators. Recently, banks have extended these efforts into the field of credit risk modeling. The Basel Committee on Banking Supervision proposes a capital adequacy framework that allows banks to calculate capital requirement for their banking books using internal assessments of key risk drivers. Hence the need for systems to assess credit risk. In this work, we describe the case of successful application of VAR methodology for credit risk estimation. Executive summary is available at pp. 32.
    Keywords: banking, credit risk, default, Basel 2, value of risk,
    Date: 2010
  23. By: Michele Boldrin; José Ignacio Conde-Ruiz; Javier Díaz Giménez
    Abstract: The purpose of this article is to analyze the growth of the Spanish economy since the advent of democracy until today. In the first part, the specificities of the growth model are analysed, showing that the empirical evidence is not consistent with the conclusions of the standard growth models (i.e. neoclassical growth model with exogenous TFP). More precisely, in the last 30 years Spain has experienced two long growth cycles which, far from being balanced, have shown major differences in the path of the relevant aggregated ratios. While the first cycle (1978-1993) showed a relatively small increase in employment and a considerable rise in productivity, the second cycle (1994-08) proved exactly the opposite: a spectacular increase in employment and a small gain in productivity. In the second part we develop a dynamic general equilibrium model of technology adoption dynamic à la Boldrin and Levine (2002), trying to account qualitatively for the main Spanish growth facts. We show that the characteristics of the labor market in Spain, with a dual system that protects permanent workers at the expense of temporary ones and an inefficient collective wage bargaining system have played a very relevant role in explaining the growth patterns of the last 30 years.
    Date: 2010–03
  24. By: Chen, Yongmin; Hua, Xinyu
    Abstract: Low-quality products may cause consumer harm. A firm can reduce the probability of low quality through ex ante investment before sales, and can take remedy actions such as product recalls if it learns after sales that product quality is low. An increase in the firm's product liability increases its incentive for ex post remedy; more ex post remedy, however, may reduce the firm's ex ante quality investment. On the other hand, higher product liability increases consumer demand for the product, resulting in high output and hence greater return to ex ante investment. The trade-off between these two effects, the "substitution effect" and the "output effect", can lead to an inverted U-shaped relationship between ex ante investment and product liability. We find that the firm always prefers full liability whereas consumers might be better off with less than full liability. Full product liability tends to be socially optimal when the potential consumer loss from low quality is sufficiently high; otherwise partial liability can be socially optimal.
    Keywords: Ex ante Investment; Product Recall; Liability
    JEL: K13 L15
    Date: 2010–04–12
  25. By: Kevin Dowd (Centre for Risk and Insurance Studies, Nottingham University Business School); John Cotter (Centre for Financial Markets, School of Business, University College Dublin); Ghulam Sorwar (Nottingham University Business School)
    Abstract: Spectral risk measures (SRMs) are risk measures that take account of user risk-aversion, but to date there has been little guidance on the choice of utility function underlying them. This paper addresses this issue by examining alternative approaches based on exponential and power utility functions. A number of problems are identified with both types of spectral risk measure. The general lesson is that users of spectral risk measures must be careful to select utility functions that fit the features of the particular problems they are dealing with, and should be especially careful when using power SRMs.
    Keywords: coherent risk measures, spectral risk measures, exponential utility, power utility
    JEL: G15
    Date: 2010–04–13
  26. By: Francesco Aiello; Valeria Pupo; Fernanda Ricotta (Dipartimento di Economia e Statistica, Università della Calabria)
    Abstract: Questo lavoro presenta un'analisi territoriale della produttività totale dei fattori (PTF) in Italia dal 1998 al 2006, utilizzando dati di impresa. L'aspetto territoriale è approfondito scomponendo la PTF negli effetti within-firms e between-firm. Queste due componenti sono calcolate per l'intero campione e per sottogruppi di imprese in modo da tener conto dell'appartenenza settoriale delle imprese, del contenuto innovativo delle produzioni, nonché della loro internazionalizzazione. I risultati dell'articolo sono tre. Il primo conferma il ruolo della PTF quale fattore in grado di spiegare l'andamento in Italia della produttività del lavoro. Il secondo risultato indica che in Italia si è avviato un ammodernamento del sistema industriale che ha consentito di ridurre gli effetti derivanti dal rallentamento della produttività. Infine, si mostra come questo processo di ristrutturazione abbia avuto esiti differenti nelle diverse aree del paese, senza tuttavia modificare il dualismo tecnologico dell'economia italiana.
    Keywords: Settore manifatturiero, Produttività totale dei fattori, Mezzogiorno.
    JEL: L60 O14 R11
    Date: 2010–04
  27. By: Andrew Ledvina; Ronnie Sircar
    Abstract: We study continuous time Bertrand oligopolies in which a small number of firms producing similar goods compete with one another by setting prices. We first analyze a static version of this game in order to better understand the strategies played in the dynamic setting. Within the static game, we characterize the Nash equilibrium when there are $N$ players with heterogeneous costs. In the dynamic game with uncertain market demand, firms of different sizes have different lifetime capacities which deplete over time according to the market demand for their good. We setup the nonzero-sum stochastic differential game and its associated system of HJB partial differential equations in the case of linear demand functions. We characterize certain qualitative features of the game using an asymptotic approximation in the limit of small competition. The equilibrium of the game is further studied using numerical solutions. We find that consumers benefit the most when a market is structured with many firms of the same relative size producing highly substitutable goods. However, a large degree of substitutability does not always lead to large drops in price, for example when two firms have a large difference in their size.
    Date: 2010–04
  28. By: Buss, Ginters
    Abstract: We build a small-scale factor model for the GDP of one of the hardest hit economies during the latest recession to study the exact dynamic versus static factor model performance along a business cycle, with an emphasis placing on nowcasting performance during a pronounced switch of business cycle phases due to the latest recession. We compare the factor models' nowcasting performance to a random walk, autoregressive and the best-performing nowcasting models at our hands, which are vector autoregressive (VAR) models. It is shown that a small-scale static factor-augmented VAR (FAVAR) model tends to improve upon the nowcasting performance of the VAR models when the model span and the nowcasting period stretch beyond a single business cycle phase, while exact dynamic factor models tend to fail to detect the timing and depth of the recession regardless of ARMA specifications. As regards the case when the model span and the nowcasting period are contained within a single business cycle phase, static and dynamic factor models appear to show similar performance with potentially slight superiority of dynamic factor models if the factor-forming set of variables and factor dynamics are carefully selected.
    Keywords: nowcasting; business cycle; static versus dynamic factors; small-scale FAVAR; VAR; GDP
    JEL: C32 C53 C52 C22
    Date: 2010–04–16
  29. By: Thorsten Hansen (University of Munich)
    Abstract: This paper studies the impact of trade liberalization in terms of tariff cuts within the Eastern European enlargement on German and Austrian firm productivity. Unique matching of data from 1994 to 2003 suggests that tariff reductions raise parent firm productivity significantly. A ten percentage point decrease in tariff rates can lead to total factor productivity gains of up to 2 percent. The data allow distinction between three types of tariffs: output, intra-firm and input tariff rates. The size of the results strongly depends on the type of tariff and country analyzed.
    JEL: F12 F13 F23 L22 L23 O14
    Date: 2010–04
  30. By: Mark J. Holmes (Department of Economics, Waikato University, New Zealand); Jesús Otero (Facultad de Economía, Universidad del Rosario, Colombia); Theodore Panagiotidis (Department of Economics, University of Macedonia, Greece)
    Abstract: In this paper, we test for the stationarity of EU current account deficits. Our testing strategy addresses two key concerns with regard to unit root panel data testing, namely (i) the identification of which panel members are stationary, and (ii) the presence of cross-sectional dependence. For this purpose, we employ an AR-based bootstrap approach to the Hadri (2000) test. While there is only mixed evidence that current account stationarity applies when examining individual countries, this does not appear to be case when considering panels comprising both EU and non-EU members.
    Keywords: Heterogeneous dynamic panels, current account stationarity, mean reversion, panel stationarity test
    JEL: C33 F32 F41
    Date: 2010–01

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