nep-bec New Economics Papers
on Business Economics
Issue of 2010‒12‒23
twenty-one papers chosen by
Christian Calmes
Universite du Quebec en Outaouais

  1. Mergers and Partial Ownership By Foros, Øystein; Kind, Hans Jarle; Shaffer, Greg
  2. Factor demand linkages, technology shocks and the business cycle By Sean HOLLY; Ivan PETRELLA
  3. Trade Unions and Unpaid Overtime in Britain By Veliziotis M
  4. Immigrants' Employment Outcomes over the Business Cycle By Orrenius, Pia M.; Zavodny, Madeline
  5. Strategic profit sharing leads to collusion in Bertrand oligopolies By José Luis Ferreira; Roberts Waddle
  6. Great Expectations: Law, Employment Contracts, and Labor Market Performance By MacLeod, W. Bentley
  7. TWO-TIER LABOR MARKETS IN THE GREAT RECESSION: FRANCE VS. SPAIN By Samuel Bentolila; Pierre Cahuc; Juan J. Dolado; Thomas Le Barbanchon
  8. Differentiating entrepreneurs from family business founders By Anaïs Hamelin
  9. The Importance of Two-Sided Heterogeneity for the Cyclicality of Labour Market Dynamics By Bachmann, Ronald; David, Peggy
  10. On the formal specification of business contracts and regulatory compliance. By Elgammal, A.F.S.A.; Turetken, O.; Heuvel, W.J.A.M. van den; Papazoglou, M.
  11. Resolution of Financial Distress under Chapter 11 By Amira Annabi; Michèle Breton; Pascal François
  12. Business Cycle Synchronization and the Euro: a Wavelet Analysis By Luís Francisco Aguiar; Maria Joana Soares
  13. The Impact of Labor Market Entry Conditions on Initial Job Assignment, Human Capital Accumulation, and Wages By Brunner, Beatrice; Kuhn, Andreas
  14. Agglomerative Forces and Cluster Shapes By William R. Kerr; Scott Duke Kominers
  15. Global Sourcing of Familiy Firms By Horgos, Daniel
  16. Price Competition on Graphs By Adriaan R. Soetevent
  17. Automobile engine variants and price discrimination By Øyvind THOMASSEN
  18. The impact of trade promotion services on Canadian exporter performance By Johannes VAN BIESEBROECK; Emily YU; Shenjie CHEN
  19. Persistence of government funding in small business finance By Ilkka Ylhäinen
  20. What's that got to do with the price of fish? Buyers behavior on the Ancona fish market By Mauro Gallegati; Gianfranco Giulioni; Alan Kirman; Antonio Palestrini
  21. The Effects of Bonus Taxes on Executive Compensation in a Principal-Agent Model By Helmut Dietl; Martin Grossmann; Markus Lang; Simon Wey

  1. By: Foros, Øystein (Dept. of Finance and Management Science, Norwegian School of Economics and Business Administration); Kind, Hans Jarle (Dept. of Economics, Norwegian School of Economics and Business Administration); Shaffer, Greg (University of Rochester and University of East Anglia)
    Abstract: In this paper we compare the profitability of a merger between two firms (one firm fully acquires another) and the profitability of a partial ownership arrangement between the same two firms in which the acquiring firm obtains corporate control over the pricing decisions of the acquired firm. We find that joint profit can be higher in the latter case because it may result in a greater dampening of competition with respect to an outside competitor. We also derive comparative statics on the prices of the acquiring firm, the acquired firm, and the outside firm and use them to explain puzzling features of the pay-TV markets in Norway and Sweden.
    Keywords: Media economics; Mergers; Corporate Control; Financial Control
    JEL: G34
    Date: 2010–12–11
  2. By: Sean HOLLY; Ivan PETRELLA
    Abstract: This paper argues that factor demand linkages can be important for the transmission of both sectoral and aggregate shocks. We show this using a panel of highly disaggregated manufacturing sectors together with sectoral structural VARs. When sectoral interactions are explicitly accounted for, a contemporaneous technology shock to all manufacturing sectors implies a positive response in both output and hours at the aggregate level. Otherwise there is a negative correlation, as in much of the existing literature. Furthermore, we find that technology shocks are important drivers of business cycle.
    Date: 2010–10
  3. By: Veliziotis M (Institute for Social and Economic Research)
    Abstract: In this paper we use British Household Panel Survey data to examine the relationship between unionization and unpaid overtime in Britain. The findings indicate that in the for-profit, non-caring sector of the economy, union covered employees supply fewer unpaid overtime hours than noncovered ones due to union protection and the weakening of economic incentives caused by union bargaining. On the other hand, in the non-profit, caring sector, union members offer more unpaid extra hours than covered non-members because of their specific pro-social motivations. Additional evidence is presented that confirms that union members are actually characterized by a specific pro-social ethos.
    Date: 2010–12–14
  4. By: Orrenius, Pia M. (Federal Reserve Bank of Dallas); Zavodny, Madeline (Agnes Scott College)
    Abstract: Immigrants have figured prominently in U.S. economic growth for decades, but the recent recession hit them hard. Immigrants’ labor market outcomes began deteriorating even before the recession was officially underway, largely as a result of the housing bust. An analysis of employment and unemployment rates over the past 15 years shows that immigrants' labor market outcomes are more cyclical than those of natives. The greater cyclicality of immigrants' employment and unemployment is concentrated among less-educated immigrants, but college-educated immigrants nonetheless have more cyclically-sensitive employment outcomes than college-educated natives.
    Keywords: business cycle, recession, employment, immigrants
    JEL: J21 J61 J64 E32
    Date: 2010–12
  5. By: José Luis Ferreira; Roberts Waddle
    Abstract: One simple way to endogenize the degree of cross ownership in an industry is that rms give away part of their pro ts. We show that this possibility of unilaterally giving pro ts away to the rival previous to Bertrand competition opens the door to multiple equilibria. In the symmetric duopoly with con- stant marginal costs any price between the cost and the monopolistic price can be sustained in a subgame perfect equilibrium. Thus, tacit collusion in the one shot game can be achieved. Further, any market share can also be sustained for any equilibrium price. These results are extended to more than two rms and to asymmetric costs.
    Keywords: Profit sharing, Oligopoly, Collusion, Cross ownership, Bertrand
    JEL: L12
    Date: 2010–10
  6. By: MacLeod, W. Bentley (Columbia University)
    Abstract: This chapter reviews the literature on employment and labor law. The goal of the review is to understand why every jurisdiction in the world has extensive employment law, particularly employment protection law, while most economic analysis of the law suggests that less employment protection would enhance welfare. The review has three parts. The first part discusses the structure of the common law and the evolution of employment protection law. The second part discusses the economic theory of contract. Finally, the empirical literature on employment and labor law is reviewed. I conclude that many aspects of employment law are consistent with the economic theory of contract – namely, that contracts are written and enforced to enhance ex ante match efficiency in the presence of asymmetric information and relationship specific investments. In contrast, empirical labor market research focuses upon ex post match efficiency in the face of an exogenous productivity shock. Hence, in order to understand the form and structure of existing employment law we need better empirical tools to assess the ex ante benefits of employment contracts.
    Keywords: employment law, labor law, employment contract, employment contract, law and economics
    JEL: J08 J33 J41 J5 K31
    Date: 2010–12
  7. By: Samuel Bentolila (CEMFI, Centro de Estudios Monetarios y Financieros); Pierre Cahuc (Ecole Polytechnique and CREST); Juan J. Dolado (Universidad Carlos III de Madrid); Thomas Le Barbanchon (Ecole Polytechnique and CREST)
    Abstract: This paper analyzes the strikingly different response of unemployment to the Great Recession in France and Spain. Their labor market institutions are similar and their unemployment rates just before the crisis were both around 8%. Yet, in France, unemployment rate has increased by 2 percentage points, whereas in Spain it has shot up to 19% by the end of 2009. We assess what part of this differential is due to the larger gap between the dismissal costs of permanent and temporary contracts and the less restrictive rules regarding the use of the latter contracts in Spain. Using a calibrated search and matching model, we estimate that about 45% of the surge in Spanish unemployment could have been avoided had Spain adopted French employment protection legislation before the crisis started.
    Keywords: Temporary contracts, unemployment, Great Recession.
    JEL: H29 J23 J38 J41 J64
    Date: 2010–11
  8. By: Anaïs Hamelin (LaRGE Research Center, Université de Strasbourg)
    Abstract: This paper develops a theoretical model predicting the difference in investment policy between entrepreneurs and family founders based on the firm ownership flexibility. Moreover, this paper provides evidence on the fact that small business with less flexible ownership structure does not exploit all their growth potential.
    Keywords: Small business, Growth, Ownership structure, Investment, Risk, Performance.
    JEL: G31 G32 L26
    Date: 2010
  9. By: Bachmann, Ronald (RWI); David, Peggy (RWI)
    Abstract: Using administrative data on individual workers' employment history and firms, we investigate the cyclicality of worker flows on the German labour market. Focusing on heterogeneities on both sides of the labour market, we find that small firms hire mainly unemployed workers, and that they do so at the beginning of an economic expansion. Later on in the expansion, hirings more frequently result from direct job-to-job transitions to larger firms. Transitions between employment and unemployment at large firms are generally found to be more cyclical. However, this stylised fact disappears when the composition of the workforce is controlled for.
    Keywords: employer-to-employer, job-to-job, business cycle, separations, accessions, worker flows
    JEL: J63 J64 J21 E24
    Date: 2010–12
  10. By: Elgammal, A.F.S.A. (Tilburg University); Turetken, O. (Tilburg University); Heuvel, W.J.A.M. van den (Tilburg University); Papazoglou, M. (Tilburg University)
    Date: 2010
  11. By: Amira Annabi; Michèle Breton; Pascal François
    Abstract: We develop a contingent claims model of a firm in financial distress with a formal account for renegotiations under the Chapter 11 bankruptcy procedure. Shareholders and two classes of creditors (senior and junior) alternatively propose a reorganization plan subject to a vote. The bankruptcy judge can intervene in any renegotiation round to impose a plan. The multiple-stage bargaining process is solved in a non-cooperative game theory setting. The calibrated model yields liquidation rate, Chapter 11 duration and percentage of deviations from the Absolute Priority Rule that are consistent with empirical evidence.
    Keywords: Credit risk, Chapter 11, Game theory, Dynamic programming
    JEL: C61 C7 G33 G34
    Date: 2010
  12. By: Luís Francisco Aguiar (Universidade do Minho - NIPE); Maria Joana Soares (Universidade do Minho)
    Abstract: We use wavelet analysis to study cycle synchronization across the EU-15 and the Euro-12 countries. Based on the wavelet transform, we propose a metric to measure and test for business cycles synchronization. Several conclusions emerge. France and Germany form the core of the Euro land, being the most synchronized countries with the rest of Europe. Portugal, Greece, Ireland and Finland do not show statistically relevant degrees of synchronization with Europe. We also show that some countries (like Spain) have a French accent, while others have a German accent (e.g. Austria). Perhaps surprisingly, we find that the French business cycle has been leading the German business cycle as well as the rest of Europe. Among the countries that may, in the future, join the Euro, the Czech Republic seems the most promising candidate.
    Keywords: Business cycle synchronization, European Union integration, Continuous wavelet transform, Wavelet distance matrix, Multidimensional scaling
    JEL: E32 C22 F02 F15 F41
    Date: 2010
  13. By: Brunner, Beatrice (University of Zurich); Kuhn, Andreas (University of Zurich)
    Abstract: We estimate the effects of labor market entry conditions on wages for male individuals first entering the Austrian labor market between 1978 and 2000. We find a large negative effect of unfavorable entry conditions on starting wages as well as a sizeable negative long-run effect. Specifically, we estimate that a one percentage point increase in the initial local unemployment rate is associated with an approximate shortfall in lifetime earnings of 6.5%. We also show that bad entry conditions are associated with lower quality of a worker's first job and that initial wage shortfalls associated with bad entry conditions only partially evaporate upon involuntary job change. These and additional findings support the view that initial job assignment, in combination with accumulation of occupation or industry-specific human capital while on this first job, plays a key role in generating the observed wage persistencies.
    Keywords: initial labor market conditions, endogenous labor market entry, initial job assignment, specific human capital
    JEL: E3 J2 J3 J6 M5
    Date: 2010–12
  14. By: William R. Kerr (Harvard Business School, Entrepreneurial Management Unit); Scott Duke Kominers (Harvard Business School)
    Abstract: We model spatial clusters of similar firms. Our model highlights how agglomerative forces lead to localized, individual connections among firms, while interaction costs generate a defined distance over which attraction forces operate. Overlapping firm interactions yield agglomeration clusters that are much larger than the underlying agglomerative forces themselves. Empirically, we demonstrate that our model's assumptions are present in the structure of technology and labor flows within Silicon Valley and its surrounding areas. Our model further identifies how the lengths over which agglomerative forces operate influence the shapes and sizes of industrial clusters; we confirm these predictions using variations across both technology clusters and industry agglomeration.
    Keywords: Agglomeration, Clusters, Industrial Organization, Silicon Valley, Entrepreneurship, Labor Markets, Technology Flows, Patents, Natural Advantages.
    JEL: J2 J6 L1 L2 L6 O3 R1 R3
    Date: 2010–12
  15. By: Horgos, Daniel (Helmut Schmidt University, Hamburg)
    Abstract: In Europe, a huge share of firms is family owned. Since family firms are known to be more risk averse concerning international transactions, an interesting question emerges: Do family firms adopt a different international sourcing pattern. Altering the Gloubal Sourcing model of Antràs and Helpman, this theoretical contribution adopts a family firm's perspective. The model shows that family firms tend to decrease international procurement. In the headquarter intensive sector, where FDI coexists with international outsourcing, family firms unambiguously decrease FDI, whereas the effect on international outsourcing is ambiguous: A substitution process may work towards an increase in international outsourcing activities.
    Keywords: Global Sourcing; Family Firms; Outsourcing; Offshoring; FDI
    JEL: D23 F10 L23
    Date: 2010–12–15
  16. By: Adriaan R. Soetevent (University of Amsterdam)
    Abstract: This paper extends Hotelling's model of price competition with quadratic transportation costs from a line to graphs. I propose an algorithm to calculate firm-level demand for any given graph, conditional on prices and firm locations. One feature of graph models of price competition is that spatial discontinuities in firm-level demand may occur. I show that the existence result of D'Aspremont et al. (1979) does not extend to simple star graphs. I conjecture that this non-existence result holds more generally for all graph models with two or more firms that cannot be reduced to a line or circle.
    Keywords: spatial competition; Hotelling; graphs
    JEL: D43 L10 R12
    Date: 2010–12–13
  17. By: Øyvind THOMASSEN
    Abstract: Using a structural model of demand for automobile engine variants, this paper finds that there is second-degree price discrimination: markups increase with engine size. Still, average markups are lower than when models have just one engine. The paper develops the first empirical demand framework suitable for markets with variants. There is an unobserved product characteristic and a consumer-specific logit term for classes of products, but both are fixed across variants. Fixed effects control for unobservables. The literature’s assumption of orthogonality between unobserved and observed product characteristics is not needed.
    Keywords: second-degree price discrimination, automobiles, discrete-choice demand models
    JEL: L11 L62 C25
    Date: 2010–04
  18. By: Johannes VAN BIESEBROECK; Emily YU; Shenjie CHEN
    Abstract: We evaluate the impact of the programs delivered by the Canadian Trade Commissioner Service (TCS) on export performance by Canadian firms. We draw on a unique set of microdata created by linking three separate firm-level databases: Statistics Canada’s Exporter Register and its Business Register, which provide information on export activity and firm characteristics, and the TCS client management database maintained by Foreign Affairs and International Trade Canada, which contains details on trade promotion services provided to Canadian firms. We apply the treatment effects analytical framework to isolate the effects of public sector trade promotion. We find that TCS programs have a consistent and positive impact on Canadian exporter performance. Exporters that access TCS services export, on average, 17.9 percent more than comparable exporters that do not. Furthermore, we also find that TCS assistance benefits exporters in terms of product and market diversification.
    Keywords: Export Promotion, Heterogeneous Firms, Canada
    JEL: F13 F14 L15
    Date: 2010–04
  19. By: Ilkka Ylhäinen
    Abstract: This paper studies the interaction of Finnish manufacturing firms and a state-owned specialized financing company, whose objective is to cure credit market imperfections. The study ex-amines how the presence of such agency affects the behavior of the firms over time. Specifically, the study analyzes whether the observed persistence in the subsidized financing originates from true state dependence or unobserved firm-specific heterogeneity. The results show that there is positive state dependence in the granted government loans and guarantees. The findings indicate that the private sector agents may adjust their financing behavior in response to the government intervention in the credit markets. The unobserved firm-specific heterogeneity accounts for much of the observed persistence, which provides another reason for why some firms are more dependent on the government funding than the others.
    Keywords: credit market imperfections, small business finance, government funding
    JEL: G21 G24 G32 H81
    Date: 2010–12–13
  20. By: Mauro Gallegati (Polytechnic University of Marche - Polytechnic University of Marche - Polytechnic University of Marche); Gianfranco Giulioni (University of Chieti-Pescara - University of Chieti-Pescara - University of Chieti-Pescara); Alan Kirman (GREQAM - Groupement de Recherche en Économie Quantitative d'Aix-Marseille - Université de la Méditerranée - Aix-Marseille II - Université Paul Cézanne - Aix-Marseille III - Ecole des Hautes Etudes en Sciences Sociales (EHESS) - CNRS : UMR6579); Antonio Palestrini (University of Teramo - University of Teramo - University of Teramo)
    Abstract: In this paper we analyze the Ancona wholesale fish market (MERITAN) where transactions take place in three simultaneous Dutch auctions. Our objective is to characterize the behavior of market participants and, in particular, buyers in such a market structure. Our analysis of the data shows that buyer-seller relationships are less important than in a pairwise bargaining market such as the Marseille Fish market but that a significant amount of “loyalty" is still present under the auction mechanism. We provide an explanation of the “declining price paradox" for the fish market of Ancona by linking the rule used by the buyers to set their bid to the relationship between the variation in the price of the last transactions in the day and the quantity of fish available on that day. In fact, the average price tends to increase for last transactions on days characterized by limited supply of fish.
    Keywords: wholesale fish market; Dutch auction
    Date: 2010–12–09
  21. By: Helmut Dietl (Institute for Strategy and Business Economics, University of Zurich); Martin Grossmann (Institute for Strategy and Business Economics, University of Zurich); Markus Lang (Institute for Strategy and Business Economics, University of Zurich); Simon Wey (Institute for Strategy and Business Economics, University of Zurich)
    Abstract: The financial crisis from 2007-2010 was the worst crisis since the Great Depression. Politicians, economists and regulators search for measures to avoid such a crisis to repeat. One prominent proposal is the introduction of bonus taxes for corporate executives. In this paper, we analyze the effects of such a bonus tax on executive compensation in a principal-agent model. Our paper shows that a bonus tax may lead to the unintended result that the effort-based compensation increases at the expense of the fixed salary. The introduction of a bonus tax can further induce the principal to offer higher bonuses even though the agent always reduces his effort. The tax-induced effort reduction by the agent decreases with an increase in the product of risk aversion and uncertainty. Moreover, a bonus tax will decrease social welfare unless the social planner puts a sufficiently high weight on tax revenue. Finally, we present simulation results for two general classes of effort cost functions.
    Keywords: Principal-agent model, bonus tax, labor taxation, executive compensation, financial regulation
    JEL: H24 J30 M52
    Date: 2010–12

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