nep-bec New Economics Papers
on Business Economics
Issue of 2010‒07‒10
sixteen papers chosen by
Christian Calmes
Universite du Quebec en Outaouais

  1. Slip Sliding Away: Further Union Decline in Germany and Britain By John T. Addison; Alex Bryson; André Pahnke; Paulino Teixeira
  2. Why do firms pay for liquidity provision in limit order markets? By Johannes A. Skjeltorp; Bernt Arne Ødegaard
  3. Does Product Market Competition Lead Firms to Decentralize? By Nick Bloom; Raffaella Sadun; John Van Reenen
  4. Learning-by-employing: the value of commitment By Camargo, Braz; Pastorino, Elena
  5. Ownership Concentration, Family Control and Performance of Firms By Malika Hamadi
  6. Business Cycles, Consumption and Risk-Sharing: How Different Is China? By Chadwick C. Curtis; Nelson Mark
  7. US Elasticities of Substitution and Factor-Augmentation at the Industry Level By Andrew T. Young
  8. New Approaches to Measuring Management and Firm Organization By Nick Bloom; John Van Reenen
  9. Measuring Industry Relatedness and Corporate Coherence By Giulio Bottazzi; Federico Tamagni
  10. Intra-Firm Trade and Product Contractibility (Long Version) By Andrew B. Bernard; J. Bradford Jensen; Stephen Redding; Peter K. Schott
  11. Recent Advances in the Empirics of Organizational Economics By Nicholas Bloom; Raffaella Sadun; John Van Reenen
  12. Expectations-driven cycles in the housing market By Luisa Lambertini; Caterina Mendicino; Maria Teresa Punzi
  13. Service Outsourcing and Specialization: A Theory on Endogeneous Task Scope By Akerman, Anders; Py, Loriane
  14. Markups, bargaining power and offshoring: an empirical assessment By Moreno, L; Rodríguez , D
  15. Trade Liberalization and Heterogeneous Firm Models: An Evaluation Using the Canada - US Free Trade Agreement By Holger Breinlich; Alejandro Cuñat
  16. Self-Fulfilling Risk Panics By Philippe Bacchetta; Cédric Tille; Eric van Wincoop

  1. By: John T. Addison; Alex Bryson; André Pahnke; Paulino Teixeira
    Abstract: This paper presents the first comparative analysis of the decline in collective bargaining in twoEuropean countries where that decline has been most pronounced. Using workplace-level data and acommon model, we present decompositions of changes in collective bargaining and workerrepresentation in the private sector in Germany and Britain over the period 1998-2004. In bothcountries within-effects dominate compositional changes as the source of the recent decline inunionism. Overall, the decline in collective bargaining is more pronounced in Britain than inGermany, thus continuing a trend apparent since the 1980s. Although workplace characteristics differmarkedly across the two countries, assuming counterfactual values of these characteristics makes littledifference to unionization levels. Expressed differently, the German dummy looms large.
    Keywords: union recognition, union coverage, worker representation in works councils/ joint consultative committees, patterns of erosion, behavioural and composition effects, shift share analysis
    JEL: J50 J51
    Date: 2010–03
  2. By: Johannes A. Skjeltorp (Norges Bank (Central Bank of Norway)); Bernt Arne Ødegaard (University of Stavanger and Norges Bank (Central Bank of Norway))
    Abstract: In recent years, a number of electronic limit order markets have reintroduced market makers for some securities (Designated Market Makers). This trend has mainly been initiated by financial intermediaries and listed firms themselves, without any regulatory pressure. In this paper we ask why firms are willing to pay to improve the secondary market liquidity of their shares. We show that a contributing factor in this decision is the likelihood that the firm will interact with the capital markets in the near future, either because they have capital needs, or that they are planning to repurchase shares. We also find some evidence of agency costs associated with the initiation of a market maker agreement as the probability of observing insider trades increases when liquidity improves.
    Keywords: Market liquidity, Corporate Finance, Designated Market Makers, Insider trading
    JEL: G10 G20
    Date: 2010–06–30
  3. By: Nick Bloom; Raffaella Sadun; John Van Reenen
    Abstract: There is a widespread sense that over the last two decades firms have been decentralizingdecisions to employees further down the managerial hierarchy. Economists have developed arange of theories to account for delegation, but there is less empirical evidence, especiallyacross countries. This has limited the ability to understand the phenomenon ofdecentralization. To address the empirical lacuna we have developed a research program tomeasure the internal organization of firms - including their decentralization decisions - acrossa large range of industries and countries. In this paper we investigate whether greater productmarket competition increases decentralization. For example, tougher competition may makelocal manager's information more valuable, as delays to decisions become more costly. Sinceglobalization and liberalization have increased the competitiveness of product markets, oneexplanation for the trend towards decentralization could be increased competition. Of coursethere are a range of other factors that may also be at play, including human capital,information and communication technology, culture and industrial composition. To tacklethese issues we collected detailed information on the internal organization of firms acrossnations. The few datasets that exist are either from a single industry or (at best) across manyfirms in a single country. We analyze data on almost 4,000 firms across twelve countries inEurope, North America and Asia. We find that competition does indeed seem to foster greaterdecentralization.
    Keywords: Decentralization, management practices
    JEL: L2 M2 O32 O33
    Date: 2010–01
  4. By: Camargo, Braz; Pastorino, Elena
    Abstract: We analyze a dynamic principal–agent model where an infinitely-lived principal faces asequence of finitely-lived agents who differ in their ability to produce output. The ability of anagent is initially unknown to both him and the principal. An agent’s effort affects the informationon ability that is conveyed by performance. We characterize the equilibrium contracts andshow that they display short–term commitment to employment when the impact of effort onoutput is persistent but delayed. By providing insurance against early termination, commitmentencourages agents to exert effort, and thus improves on the principal’s ability to identify theirtalent. We argue that this helps explain the use of probationary appointments in environmentsin which there exists uncertainty about individual ability.Keywords: dynamic principal–agent model, learning, commitment.
    Date: 2010–06–24
  5. By: Malika Hamadi (Luxembourg School of Finance, University of Luxembourg)
    Abstract: This paper explores the relationship between firm performance, measured by Tobin's Q and very powerful controlling shareholders in a sample of Belgian listed firms. The paper shows that overall the largest shareholders have a negative effect on firm performance. Nevertheless, in family firms the effect of large controlling shareholders on performance is positive except when they are organized in voting blocks. Firms related to coordination centers display higher performance associated with large shareholders. The paper shows that the presence of a second shareholder in the firm has no significant effect.
    Keywords: Ownership concentration, family firms, voting blocks, Tobin's q
    JEL: G3 G32 G34
    Date: 2010
  6. By: Chadwick C. Curtis; Nelson Mark
    Abstract: Can standard business-cycle methodology be applied to China? In this chapter, we address this question by examining the macroeconomic time series and identifying dimensions in which China differs from economies (such as Canada and the U.S.) that are typically the subject of business-cycle research. We show that naively applying the standard business-cycle tools to China is no more ridiculous than applying it to Canada, although the dimensions along which the model struggles is different. For China, the model cannot account for the low level of consumption (or high saving) as a proportion of income observed in the data. An examination of provincial level consumption data suggests that the absence of channels for intranational consumption risk sharing may be an important reason why the business-cycle model has trouble accounting for Chinese consumption and saving behavior.
    JEL: E21 E32 F41
    Date: 2010–07
  7. By: Andrew T. Young (Department of Economics, West Virginia University)
    Abstract: We provide industry-level estimates of the elasticity of substitution (?) between capital and labor in the US economy. We also estimate rates of factor-augmentation. Aggregate estimates are produced using the same data. Our empirical model comes from the first-order conditions associated with a CES production function. Our data represents 35 industries at roughly the 2-digit SIC level from 1960 to 2005 and covers the entire US economy. We find that aggregate US ? is less than unity and perhaps less than 0.5.The same is likely true for the large majority of individual industries. We find no consistent and/or systematic evidence that aggregate ? is either greater or less than the value-added share-weighted average of industry ?s. Also, there is still considerable variation across the industry-level ? point estimates. Technical change in the aggregate appears to be net labor-augmenting. However, at the industry-level there is little evidence that the type of technical change is uniform across industries. For many individual industries, technical change may be characterized by net capital-augmentation.
    Keywords: elasticity of substitution, factor-augmenting technical change, labor-augmenting technical change, capital-augmenting technical change, corporate taxation, industry-level studies
    JEL: O30 O31 O47 O51 E25 E23 H25
    Date: 2010
  8. By: Nick Bloom; John Van Reenen
    Abstract: We detail the methodology that we have been using to quantify managerial andorganizational practices across firms and countries in recent years. This has been used inmany pieces of research at the Centre for Economic Performance. We discuss the pros andcons of such survey tools, describing how our methods lie between the traditional surveysused by economists and the case studies more common in other parts of social science.
    Keywords: surveys, data, organization, management
    JEL: L2 M2 O32 O33
    Date: 2010–02
  9. By: Giulio Bottazzi; Federico Tamagni
    Abstract: Since the seminal work of Teece et al. (1994) firm diversification has been found to be a non-random process. The hidden deterministic nature of the diversification patterns is usually detected comparing expected (under a null hypothesys) and actual values of some statistics. Nevertheless the standard approach presents two big drawbacks, leaving unanswered several issues. First, using the observed value of a statistics provides noisy and nonhomogeneous estimates and second, the expected values are computed in a specific and privileged null hypothesis that implies spurious random effects. We show that using Monte Carlo p-scores as measure of relatedness provides cleaner and homogeneous estimates. Using the NBER database on corporate patents we investigate the effect of assuming different null hypotheses, from the less unconstrained to the fully constrained, revealing that new features in firm diversification patterns can be catched if random artifacts are ruled out.
    Keywords: corporate coherence; relatedness; null model analysis; patent data
    JEL: C1 D2 L2
    Date: 2010–07–01
  10. By: Andrew B. Bernard; J. Bradford Jensen; Stephen Redding; Peter K. Schott
    Abstract: This paper examines the determinants of intra-firm trade in U.S. imports using detailed countryproductdata. We create a new measure of product contractibility based on the degree ofintermediation in international trade for the product. We find important roles for the interaction ofcountry and product characteristics in determining intra-firm trade shares. Intra-firm trade is high forproducts with low levels of contractability sourced from countries with weak governance, for skillintensiveproducts from skill-scarce countries, and for capital-intensive products from capitalabundantcountries.
    Keywords: Related party trade, imports, contract theory, contractibility, intermedication, humancapital, physical capital
    JEL: F10 F23 L14 L23
    Date: 2010–05
  11. By: Nicholas Bloom; Raffaella Sadun; John Van Reenen
    Abstract: We present a survey of recent contributions in the empirical organizational economics, focusing onmanagement practices and decentralization. Productivity dispersion between firms and countries hasmotivated the improved measurement of firm organization across industries and countries. Thereappears to be substantial variation in management practices and decentralization between countries,but especially within countries. Much of the poorer average management quality in countries likeBrazil and India seems due to a "long tail" of poorly managed firms, which barely exist in the US.Many basic economic theories are supported by this new data. Some stylized facts include: (1)competition seems to foster improved management and decentralization; (2) larger firms, skillintensiveplants and foreign multinationals appear better managed and are more decentralized; (3)family owned and managed firms appear to have worse management; (4) firms facing an environmentof lighter labor market regulations, and more human capital intensive organizations specializerelatively more in "people management". There is evidence for complementarities between ICT,decentralization and management, but the relationship is complex and identification of theproductivity effects of organizational practices remain a challenge for future research.
    Keywords: productivity, organization, management, decentralization
    JEL: L2 M2
    Date: 2010–02
  12. By: Luisa Lambertini (College of Management); Caterina Mendicino (Banco de Portugal); Maria Teresa Punzi (Banco de Portugal)
    Abstract: This paper analyzes housing market boom-bust cycles driven by changes in households’ expectations. We explore the role of expectations not only on productivity but on several other shocks that originate in the housing market, the credit market and the conduct of monetary policy. We f nd that, in the presence of nominal rigidities, expectations on both the conduct of monetary policy and future productivity can generate housing market boom-bust cycles in accordance with the empirical f ndings. Moreover, expectations of either a future reduction in the policy rate or a temporary increase in the central bank’s inf ation target that are not fulf lled generate a macroeconomic recession. Increased access to credit generates a boom-bust cycle in most variables only if it is expected to be reversed in the near future.
    Keywords: boom-bust cycles, credit frictions, housing market
    JEL: E32 E44 E52
    Date: 2010–07
  13. By: Akerman, Anders (Dept. of Economics, Stockholm University); Py, Loriane (Paris School of Economics and Stockholm University)
    Abstract: We develop a model of outsourcing and trade in service inputs where the scope of tasks produced by both manufacturing firms and service providers is endogeneous. Manufacturing firms have to perform a fixed set of tasks in order to produce their final good but can decide to outsource some of these tasks to service providers, which, contrary to manufacturers, have the possibility to sell tasks to different manufacturers and thereby benefit from economies of scale in their task production. The key assumption is that the marginal cost of a firm (manufacturer or service provider) increases in the scope of tasks performed inside the firm: a firm which specializes in a narrow scope of tasks is more productive. Working against this incentive to produce as few tasks as possible "inhouse" is a fixed cost paid by each firm. The model yields several new predictions about trade liberalization and welfare as measured by aggregate productivity. An increase in the size of an economy raises the scale of all firms, facilitates greater specialization and therefore raises each firm's productivity. The model therefore generates gains from trade or larger market size through a "specialization effect" as opposed to the classical "variety effect" usually generated by models building on Dixit Stiglitz utility structures. Welfare increases due to adjustments in task scope allowed by the emergence of specialized service firms. Detailed Swedish data on what tasks (or occupations) are performed by workers is used to test this prediction. Indeed,we find that manufacturing firms in larger cities (controlling for firm size) perform fewer tasks inhouse than firms in smaller cities.
    Keywords: service outsourcing; division of labour; productivity; specialization
    JEL: F10 F43 L24
    Date: 2010–06–30
  14. By: Moreno, L; Rodríguez , D
    Abstract: This paper tests the pro-competitive effect of imports on product and labour markets for Spanish manufacturing firms in the period 1990-2005. In doing so, it takes into account the type of imported products: final vs intermediate. Markups are estimated following the procedure suggested by Roeger (1995) and including an efficient bargaining model. The observed heterogeneity among firms is parameterized to consider additional product standardization and market concentration. The results support the Imports as Market Discipline hypothesis for importers of final goods, while firms that offshore intermediate inputs show similar markups to non-importers. Additionally, the union bargaining power is smaller the more final-goods oriented imports are and the more homogeneous is the type of goods elaborated by firms.
    Keywords: Markups; offshoring; bargaining power
    JEL: F16 L60
    Date: 2010–04–10
  15. By: Holger Breinlich; Alejandro Cuñat
    Abstract: We examine the qualitative and quantitative predictions of a heterogeneous firm model à laMelitz (2003) in the context of the Canada - US Free Trade Agreement (CUSFTA) of 1989.We calibrate our model to the pre-trade liberalization stage, simulate the trade liberalization,and compute the resulting growth rates of Canadian industry productivity, exports andimports. We compare them with Trefler's (2004) estimates of the effects of CUSFTA. Ourresults show that our model performs well in replicating the qualitative aspects of Trefler'sresults. In particular, we correctly predict that US tariff cuts have smaller productivityenhancing effects than Canadian tariff reductions due to the entry of less efficient exporters.Quantitatively, the model tends to underpredict the impact of CUSFTA on growth rates ofproductivity, but overpredicts the increase in Canadian exports and imports. We discuss howliberalization-induced changes in the firm-level productivity distribution can reconcile themodel with the evidence.
    Keywords: Heterogeneous firm models, trade liberalization, CUSFTA, empirical evaluation
    JEL: F12 F13 F15
    Date: 2010–05
  16. By: Philippe Bacchetta; Cédric Tille; Eric van Wincoop
    Abstract: Recent crises have seen very large spikes in asset price risk without dramatic shifts in fundamentals. We propose an explanation for these risk panics based on self-fulfilling shifts in risk made possible by a negative link between the current asset price and risk about the future asset price. This link implies that risk about tomorrow's asset price depends on uncertainty about risk tomorrow. This dynamic mapping of risk into itself gives rise to the possibility of multiple equilibria and self-fulfilling shifts in risk. We show that this can generate risk panics. The impact of the panic is larger when the shift from a low to a high risk equilibrium takes place in an environment of weak fundamentals. The sharp increase in risk leads to a large drop in the asset price, decreased leverage and reduced market liquidity. We show that the model can account well for the developments during the recent financial crisis.
    JEL: E44 G11 G12
    Date: 2010–07

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