nep-bec New Economics Papers
on Business Economics
Issue of 2010‒07‒17
eighteen papers chosen by
Christian Calmes
Universite du Quebec en Outaouais

  1. Optimal Incentive Contracts under Moral Hazard When the Agent Is Free to Leave By Englmaier, Florian; Muehlheusser, Gerd; Roider, Andreas
  2. Capital Structure with Opportunistic Stakeholders' Coalitions By Elie Appelbaum; Sanjay Banerji
  3. QR-GARCH-M Model for Risk-Return Tradeoff in U.S. Stock Returns and Business Cycles By Nyberg, Henri
  4. What drives Endogenous Growth in the United States? By Dennis Wesselbaum
  5. Competition and innovation: does the distance to the technology frontier matter? By Simon Alder
  6. Beyond the mean gender wage gap: Decomposition of differences in wage distributions using quantile regression By Heinze, Anja
  7. U.S. Bank Behavior in the Wake of the 2007-2009 Financial Crisis By Adolfo Barajas; Ralph Chami; Dalia Hakura; Thomas F. Cosimano
  8. Innovation, competition and incentives for R&D By Wörter, Martin; Rammer, Christian; Arvanitis, Spyros
  9. Mixed oligopoly, vertical product differentiation and fixed qualitydependent costs By Stefan Lutz; Mario Pezzino
  10. "Exclusive Dealing and the Market Power of Buyers" By Ryoko Oki; Noriyuki Yanagawa
  11. Uniform and Nonuniform Staggering of Wage Contracts By Danziger, Leif
  12. Optimal Contract Design with Unilateral Market Option By Antonio Nicita; Simone Sepe
  13. The Wage-Productivity Gap Revisited: Is the Labour Share Neutral to Employment? By Marika Karanassou; Hector Sala
  14. The Restructuring of Technological Capabilities through Corporate Expansion By Grazia Santangelo; John Cantwell
  15. Residential Land Use Regulation and the US Housing Price Cycle Between 2000 and 2009 By Huang, Haifang; Tang, Yao
  16. Advertising Collusion in Retail Markets By Kyle Bagwell; Gea M. Lee
  17. The State of Collective Bargaining and Worker Representation in Germany: The Erosion Continues By Addison, John T.; Bryson, Alex; Teixeira, Paulino; Pahnke, André; Bellmann, Lutz
  18. Incomplete Contracts: Foundations and Applications By Pei, Di

  1. By: Englmaier, Florian (University of Munich); Muehlheusser, Gerd (University of Bielefeld); Roider, Andreas (University of Heidelberg)
    Abstract: We characterize optimal incentive contracts in a moral hazard framework extended in two directions. First, after effort provision, the agent is free to leave and pursue some ex-post outside option. Second, the value of this outside option is increasing in effort, and hence endogenous. Optimal contracts may entail properties such as inducing first-best effort and surplus, or non-responsiveness with respect to changes in verifiable parameters. Moreover, while always socially inefficient, separation might occur in equilibrium. Except for the latter, these findings are robust to renegotiation. When the outside option is exogenous instead, the standard results obtain.
    Keywords: moral hazard, limited commitment, ex-post outside option, limited liability
    JEL: D86 D82 K31 M52
    Date: 2010–06
  2. By: Elie Appelbaum (Department of Economics, York University, Toronto, Canada); Sanjay Banerji (Finance Group, Essex Business School, University of Essex, Colchester, United Kingdom)
    Abstract: This paper shows that stakeholders' multilateral opportunistic behaviour during financial distress may lead to premature liquidation of the firm. Consequently, the firm will use its capital structure to mitigate the costs of such opportunism. Specifically, the firm will reduce its debt so that the probability of multilateral opportunism is zero; namely, it will use only safe debt. The paper predicts that the debt-equity ratio will decrease with risk, the number of contracts, the difficulty in writing them and in achieving franchising arrangements, the supplier's importance in opportunistic coalitions and a decrease in the firm's size, or the supplier's adjustment costs.
    Keywords: Incomplete Contracts, Opportunistic Behaviour, Bankruptcy, Capital Structure.
    JEL: D0 C7 G3 L2
    Date: 2010–05
  3. By: Nyberg, Henri
    Abstract: In the empirical finance literature findings on the risk return tradeoff in excess stock market returns are ambiguous. In this study, we develop a new QR-GARCH-M model combining a probit model for a binary business cycle indicator and a regime switching GARCH-in-mean model for excess stock market return with the business cycle indicator defining the regime. Estimation results show that there is statistically significant variation in the U.S. excess stock returns over the business cycle. However, consistent with the conditional ICAPM, there is a positive risk-return relationship between volatility and expected return independent of the state of the economy.
    Keywords: Regime switching GARCH model; GARCH-in-mean model; probit model; stock return; risk-return tradeoff; business cycle
    JEL: C32 E32 G12 E44
    Date: 2010–04
  4. By: Dennis Wesselbaum
    Abstract: This paper estimates whether learning-by-doing effects or cleansing effects of recessions drive the endogenous component of productivity in the United States. Using Bayesian estimation techniques we find that external and internal learning-by-doing effects dominate. We find no evidence for cleansing effects of recessions. Furthermore, the exogenous component of productivity growth is close to the two percent pace
    Keywords: Business Cycles, Cleansing Effects of Recessions, Endogenous Growth, Learning-by-Doing
    JEL: C11 E32 O40
    Date: 2010–07
  5. By: Simon Alder
    Abstract: This paper provides new evidence on the relationship between innovation, competition and distance to the technology frontier, using enterprise surveys from 40 developing and transition countries. Different from previous empirical studies, the distance to frontier is measured by a firm's technology level relative to its main competitor. This self-reported comparison allows to capture a crucial determinant of a firm's business strategy and its response to competition. The findings from the empirical analysis are as follows. Firstly, firms with more advanced technology compared to their main competitors have more product innovations. Secondly, there is evidence that innovation and competition are more positively correlated at low levels of competition than at high levels. With some measures of competition, the correlation is highest at intermediate levels of competition, which suggests an inverted-U relationship. Thirdly, in certain specifications, competition is most positively correlated with product innovation when a firm is more advanced than its main competitor. In other cases, this correlation is strongest for firms that are at the same technology level as their competitors. However, the differences in the correlations between more and less advanced firms are not always significant.
    Keywords: Market structure, competition, innovation, technology adaption, growth
    JEL: O16 O31 O33 O38 O40 L16
    Date: 2010–07
  6. By: Heinze, Anja
    Abstract: Using linked employer-employee data, this study measures and decomposes the differences in the earnings distribution between male and female employees in Germany. I extend the traditional decomposition to disentangle the effect of human capital characteristics and the effect of firm characteristics in explaining the gender wage gap. Furthermore, I implement the decomposition across the whole wage distribution with the method proposed by Machado and Mata (2005). Thereby, I take into account the dependence between the human capital endowment of individuals and workplace characteristics. The selection of women into less successful and productive firms explains a sizeable part of the gap. This selection is more pronounced in the lower part of the wage distribution than in the upper tail. In addition, women also benefit from the success of firms by rent-sharing to a lesser extent than their male colleagues. This is the source of the largest part of the pay gap. Gender differences in human capital endowment as well as differences in returns to human capital are less responsible for the wage differential. --
    Keywords: gender wage gap,decomposition,quantile regression
    JEL: J16 J31
    Date: 2010
  7. By: Adolfo Barajas; Ralph Chami; Dalia Hakura; Thomas F. Cosimano
    Abstract: The paper examines the slowdown of lending by large U.S. banks over the period 2007Q3 - 2009Q2, focusing on: (i) whether capital or liquidity was the binding constraint; (ii) factors influencing banks’ decision to hold capital; and (iii) their pricing behavior. Using quarterly data for the largest U.S. banks, the paper finds that capital, rather than liquidity, constrained lending. Banks took actions to increase capital by slowing lending and raising profit margins, not fully passing through the Federal Reserve’s interest rate cuts. Banks optimally choose capital based on the expected future demand for loans and the marginal cost of capital.
    Date: 2010–05–28
  8. By: Wörter, Martin; Rammer, Christian; Arvanitis, Spyros
    Abstract: This paper analyses the relationship between past innovation output, competition, and future innovation input in a dynamic econometric setting. We distinguish two dimensions of competition that correspond to the concepts of product substitutability and entry barriers due to fixed costs. Based on firm-level panel data for Germany and Switzerland we obtain consistent results for both countries. Innovation output in t-1 as measured by the sales share of innovative products is positively related to the degree of product obsolescence in t, and negatively to the degree of substitutability in t in both countries. Further, we find that rapid product obsolescence provides positive incentives for higher - primarily product-oriented - R&D investments in t+1, while high substitutability exerts negative incentives for future R&D investment. --
    Keywords: Innovation,R&D,Competition
    JEL: O3
    Date: 2010
  9. By: Stefan Lutz; Mario Pezzino
    Date: 2010
  10. By: Ryoko Oki (Graduate School of Economics, University of Tokyo); Noriyuki Yanagawa (Faculty of Economics, University of Tokyo)
    Abstract: This paper examines the effects of exclusive dealing contracts offered by an incumbent distributor. The effectiveness of exclusive dealing contracts offered by distributors is quite different from those offered by incumbent manufacturers. The traditional literature has focused solely on exclusive dealing contracts made by incumbent manufacturers and has derived multiple equilibria within homogeneous price competition models. In contrast, this paper asserts that exclusive dealing contracts made by a distributor generate a unique equilibrium and that an efficient entrant must be excluded under the equilibrium as long as distributors have sufficient bargaining power.
    Date: 2010–07
  11. By: Danziger, Leif (Ben Gurion University)
    Abstract: This paper provides a model that can account for the almost uniform staggering of wage contracts in some countries as well as for the markedly nonuniform staggering in others. In the model, short and long contracts as well as long contracts concluded in different periods are strategic substitutes, which provides a powerful rationale for staggering. We show that for realistic parameter values, there is a continuum of possible equilibria with various degrees of staggering of long contracts. If the contracting cost is not too large, then the lowest possible degree of staggering decreases with the contracting cost and increases with monetary uncertainty.
    Keywords: uniform staggering, nonuniform staggering, monetary policy shocks, strategic substitutability, wage contracts, contract duration
    JEL: E31 E32 J41
    Date: 2010–06
  12. By: Antonio Nicita; Simone Sepe
    Abstract: Contrary to previous literature, we show that the assignment of authority decision matters in optimal contract design with bilateral specific self-investments. This is the case when we enlarge the set of the states of nature, to explicitly consider the event that a party's market option turns out to be binding ex-post. We show that, under this setting, simple contracts protected by specific performance remedies may generate hold-up and thus parties' incentives to under-invest. However, investment efficiency is enhanced when authority is assigned to the party with ex-post binding market option. Our results suggest a neglected rationale for vertical integration as a remedy against hold-up
    Keywords: incomplete contracts, outside options, mechanism design
    JEL: K12 L22 J41 C70
    Date: 2010–05
  13. By: Marika Karanassou (Queen Mary, University of London and IZA); Hector Sala (Universitat Autònoma de Barcelona and IZA)
    Abstract: This paper challenges the prevailing view of the neutrality of the labour income share to labour demand, and investigates its impact on the evolution of employment. Whilst maintaining the assumption of a unitary long-run elasticity of wages with respect to productivity, we demonstrate that productivity growth affects the labour share in the long run due to frictional growth (that is, the interplay of wage dynamics and productivity growth). In the light of this result, we consider a stylised labour demand equation and show that the labour share is a driving force of employment. We substantiate our analytical exposition by providing empirical models of wage setting and employment equations for France, Germany, Italy, Japan, Spain, the UK, and the US over the 1960-2008 period. Our findings show that the timevarying labour share of these countries has significantly influenced their employment trajectories across decades. This indicates that the evolution of the labour income share (or, equivalently, the wage-productivity gap) deserves the attention of policy makers.
    Keywords: Wages, Productivity, Labour income share, Employment
    JEL: E24 E25 O47
    Date: 2010–07
  14. By: Grazia Santangelo; John Cantwell
    Abstract: This paper analyses the restructuring of technological capabilities following M&A-based growth in large industrial firms with a substantial technological knowledge base. In particular, we focus on the restructuring of those technological capabilities that are of a general purpose kind (namely ICT) or related to the core capabilities of a firm. We develop and test a conceptual framework grounded on a co-evolutionary view, that relates the motivations and environment for corporate expansion to the firm-specific pattern of restructuring in the composition of corporate technological capabilities. We find that distinct patterns of technological capability restructuring are associated with each combination of the motivations and environment for firm growth. In particular, inter-industry contexts reduce technological relatedness in market motivated expansions, while relatedness has also declined in more recent technology-motivated growth in general. The acquisition of ICT is common as well to both technology-motivated inter-industry deals and more recent market-motivated deals. However, we speculate that any similarities in the outcomes of these alternative motives for firm growth arise for quite different purposes.
    Date: 2010
  15. By: Huang, Haifang (University of Alberta, Department of Economics); Tang, Yao (Department of Economics, Bowdoin College)
    Abstract: In a sample covering more than 300 cities in the US between January 2000 and July 2009, we find that more restrictive residential land use regulations and geographic land constraints are linked to larger booms and busts in housing prices. The natural and man-made constraints also amplify price responses to an initial positive mortgage-credit supply shock, leading to greater price increases in the boom and subsequently bigger losses.
    Keywords: residential land use regulation; credit expansion; housing prices
    JEL: R30
    Date: 2010–07–07
  16. By: Kyle Bagwell (Stanford University); Gea M. Lee (School of Economics, Singapore Management University)
    Abstract: We analyze non-price advertising by retail firms, when the firms are privately informed about their respective costs of production. In a static advertising game, an advertising equilibrium exists in which lower-cost firms select higher advertising levels. In this equilibrium, informed consumers rationally employ an advertising search rule in which they buy from the highest- advertising firm, since lower-cost firms also select lower prices. In a repeated advertising game, colluding fims face a tradeoff: the use of advertising can promote productive efficiency but only if sufficient current or future advertising expenses are incurred. At one extreme, if firms pool at zero advertising, they sacrifice productive efficiency but also eliminate current and future advertising expenses. Focusing on symmetric perfect public equilibria for the repeated advertising game, we establish conditions under which optimal collusion entails pooling at zero advertising. More generally, full or partial pooling is observed in optimal collusion. Such collusive agreements reduce consumer welfare, since they restrict informed consumers' ability to locate the lowest available price in the market.
    Date: 2009–12
  17. By: Addison, John T. (University of South Carolina); Bryson, Alex (National Institute of Economic and Social Research); Teixeira, Paulino (University of Coimbra); Pahnke, André (IAB, Nürnberg); Bellmann, Lutz (IAB, Nürnberg)
    Abstract: This paper investigates trends in collective bargaining and worker representation in Germany from 2000 to 2008. It seeks to update and widen earlier analyses pointing to a decline in collective bargaining, while providing more information on the dual system as a whole. Using data from the IAB Employment Panel and the German Employment Register, we report evidence of a systematic and continuing erosion of the dual system. Not unnaturally the decline is led by developments in western Germany. Arguably, the path of erosion will continue until rough and ready convergence is reached with eastern Germany. Expressed differently, if the process of decentralization underpinning these developments once was ‘regulated’ it no longer appears to be so.
    Keywords: erosion of the dual system, collective bargaining/works council coverage, eastern and western Germany, institutional transitions, permanent stayers, newly-founded firms, closing/failing firms
    JEL: J50 J53
    Date: 2010–06
  18. By: Pei, Di
    Abstract: More than twenty years have elapsed since Oliver Hart's Fisher-Schultz lecture on the topic of incomplete contracts. Incomplete contract theory (ICT) has become a rigorous and widely used approach in dealing with various issues. It's applications include firm theory (hierarchies, ownership and control rights, authority,etc.), international trade (judicial quality as comparative advantage, intra-firm trade, etc.), scope of organizations (including the government, see Hart et. al. 1997) and many others. However, it's theoretical foundations have been seriously debated since its first emergence, and even today, the debate is not coming to an end. We will review several significant works on the foundations on ICT, and from comparing their differences in assumptions, methodology and results, we could get some merit on the critical disagreement over these issues, and from these critical disagreements, we could also capture the central ideas for future research on this field. The critical comments on Hart and Moore's 2008 paper about reference point may also suggest that ICT desperately need a solid foundation.
    Keywords: incomplete contracts; unforeseen contingencies; unverifiable; renegotiation; property rights; transaction costs; complexity; implementation mechanism
    JEL: D23 D86
    Date: 2010–05–31

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