nep-bec New Economics Papers
on Business Economics
Issue of 2011‒09‒22
thirty papers chosen by
Christian Calmes
Universite du Quebec en Outaouais

  1. Firm default and aggregate fluctuations By Tor Jacobson; Jesper Lindé; Kasper Roszbach
  2. Why Ex(Im)porters Pay More: Evidence from Matched Firm-Worker Panels By Pedro Martins; Luca David Opromolla
  3. Firm Heterogeneity, Endogenous Entry, and the Business Cycle By Gianmarco I.P. Ottaviano
  4. Distortions, Endogenous Managerial Skills and Productivity Differences By Bhattacharya, Dhritiman; Guner, Nezih; Ventura, Gustavo
  5. Aggregate Hours Worked in OECD Countries: New Measurement and Implications for Business Cycles By Lee E. Ohanian; Andrea Raffo
  6. The dynamics of a differentiated duopoly with quantity competition By Fanti, Luciano; Gori, Luca
  7. Sorting into Outsourcing: Are Profits Taxed at a Gorilla's Arm's Length? By Bauer, Christian; Langenmayr, Dominika
  8. Stability analysis in a Bertrand duopoly with different product quality and heterogeneous expectations By Fanti, Luciano; Gori, Luca
  9. Shocks, Financial Dependence, and Efficiency: Evidence from U.S. and Canadian Industries By Marcello M. Estevão; Tiago Severo
  10. Quantity Precommitment and Price Matching By Norovsambuu Tumennasan
  11. Endogenous Entry, Product Variety, and Business Cycles By Bilbiie, Florin Ovidiu; Ghironi, Fabio; Melitz, Marc J
  12. Cyclicality, Performance Measurement, and Cash Flow Liquidity in Private Equity By David T. Robinson; Berk A. Sensoy
  13. Aggregate Earnings and Macroeconomic Shocks: The Role of Labour Market Policies and Institutions By Andrea Bassanini
  14. The Cyclical Behavior of Equilibrium Unemployment and Vacancies in the US and Europe By Alejandro Justiniano; Claudio Michelacci
  15. Firms’ human capital, R&D and innovation: a study on French firms. By Gallié, Emilie-Pauline; Legros, Diego
  16. The Impact of Cultural Diversity on Innovation: Evidence from Dutch Firm-Level Data By Ceren Ozgen
  17. Matching labor’s share in a search and matching model By Christopher Reicher
  18. Capital Regulation and Tail Risk By Lev Ratnovski; Enrico Perotti; Razvan Vlahu
  19. Fordism and Taylorism are responsible for the early success and recent decline of the U.S. motor vehicle industry By Ronald Jean Degen
  20. Strategic loyalty reward in dynamic price Discrimination By Bernard Caillaud; Romain De Nijs
  21. A Competitive Model of (Super)Stars By Timothy Perri
  22. The Survival of New Firms: Do Bank Loans at Birth Matter? By Bastié Françoise, University of Caen Basse-Normandie, CREM (UMR CNRS); Cieply Sylvie, University of Caen Basse-Normandie, CREM (UMR CNRS); Cussy Pascal, University of Caen Basse-Normandie, CREM (UMR CNRS)
  23. Institutional Investor Preferences and Executive Compensation By McCahery, J.A.; Sautner, Z.
  24. Lying and Team Incentives By Conrads, Julian; Irlenbusch, Bernd; Rilke, Rainer Michael; Walkowitz, Gari
  25. Estimating Travellers’ Preferences for Competition in Commercial Passenger Rail Transport By Johannes Paha; Dirk Rompf; Christiane Warnecke
  26. Two heads are less bubbly than one: Team decision-making in an experimental asset market By Cheung, Stephen L.; Palan, Stefan
  27. Migrant Entrepreneurs and Credit Constraints under Labour Market Discrimination By Frijters, Paul; Kong, Tao; Meng, Xin
  28. The experience curve and the market size of competitive consumer durable markets By Kaldasch, Joachim
  29. Competition in Persuasion By Matthew Gentzkow; Emir Kamenica
  30. Why Are So Few Females Promoted into CEO and Vice-President Positions? Danish Empirical Evidence 1997-2007 By Smith, Nina; Smith, Valdemar; Verner, Mette

  1. By: Tor Jacobson; Jesper Lindé; Kasper Roszbach
    Abstract: This paper studies the relationship between macroeconomic fluctuations and corporate defaults while conditioning on industry affiliation and an extensive set of firm-specific factors. By using a panel data set for virtually all incorporated Swedish businesses over 1990-2009, a period which includes a full-scale banking crisis, we find strong evidence for a substantial and stable impact from aggregate fluctuations on business defaults. A standard logit model with financial ratios augmented with macroeconomic factors can account surprisingly well for the outburst in business defaults during the banking crisis, as well as the subsequent fluctuations in default frequencies. Moreover, the effects of macroeconomic variables differ across industries in an economically intuitive way. Out-of-sample evaluations show that our approach is superior to models that exclude macro information and standard well-fitting time-series models. Our analysis shows that firm-specific factors are useful in ranking firms' relative riskiness, but that macroeconomic factors are necessary to understand fluctuations in the absolute risk level.
    Date: 2011
  2. By: Pedro Martins; Luca David Opromolla
    JEL: F16 J31 F15
    Date: 2011
  3. By: Gianmarco I.P. Ottaviano
    Abstract: This paper investigates the role that the entry and exit of heterogeneous firms plays in shaping aggregate fluctuations in economic activity. In so doing, it develops a dynamic stochastic general equilibrium model in which procyclical entry and countercyclical exit along a real business cycle lead to endogenous cyclical movements in average firm productivity. These movements stem from a composition effect due to the reallocation of market shares among firms with different levels of efficiency and affect the propagation of exogenous technological shocks. Numerical analysis suggests that existing models with representative firms may overstate the actual role of procyclical entry and exit in imperfectly competitive markets as a propagation mechanism of exogenous technology shocks. The reason is that procyclical entry and countercyclical exit disproportionately involve less efficiency firms whose impact on aggregate economic activity is hampered by their smaller size.
    JEL: E20 E32 L11 L16
    Date: 2011–09
  4. By: Bhattacharya, Dhritiman (EQUIFAX); Guner, Nezih (MOVE, Barcelona); Ventura, Gustavo (Arizona State University)
    Abstract: We develop a span-of-control model where managerial skills are endogenous and the outcome of investments over the life cycle of managers. We calibrate this model to U.S plant-size data to quantify the effects of distortions that are correlated with the size of production units. These distortions lead to sharp reductions in plant productivity and the fraction of employment in large plants, with a quantitatively important role for managerial investments. We find that the model can account quite well for properties of Japanese size-distribution data, with a model-implied TFP of about 83% of the U.S. Distortions are critical in accounting for the differences in size distribution between the U.S. and Japan.
    Keywords: distortions, size, skill investments, productivity differences
    JEL: O40 E23
    Date: 2011–09
  5. By: Lee E. Ohanian; Andrea Raffo
    Abstract: We build a new quarterly dataset of aggregate hours worked consistent with standard NIPA constructs for 14 OECD countries over the last fifty years. We find that cyclical features of labor markets across countries differ markedly from the accepted empirical facts reported in the literature based on either just U.S. hours data, or based on cross-country employment data. We document that total hours worked in many OECD countries are about as volatile as output, that a relatively large fraction of labor market adjustment takes place along the intensive margin outside the United States, and that the volatility of total hours relative to output volatility has increased over time in almost all countries. We use these data to re-assess productivity and labor wedges during the Great Recession and during prior recessions. We find that the Great Recession in many OECD countries is a significant puzzle in that labor wedges are quite small, while those in the U.S. Great Recession - and those in previous European recessions - are much larger. These new data indicate that understanding cyclical labor fluctuations in OECD countries requires understanding why hours fluctuate so much more than previously considered, how and why labor markets changed so much in the last few years, why cyclical adjustment of hours per worker in countries with large firing costs is not even larger than observed, and why the Great Recession differs so much across countries.
    JEL: E0 F41 J22
    Date: 2011–09
  6. By: Fanti, Luciano; Gori, Luca
    Abstract: We analyse the dynamics of a Cournot duopoly game with heterogeneous players to investigate the effects of micro-founded differentiated products demand. The present analysis, which modifies and extends Zhang et al. (2007) (Zhang, J., Da, Q., Wang, Y., 2007. Analysis of nonlinear duopoly game with heterogeneous players. Economic Modelling 24, 138–148) and Tramontana, F., (2010) (Tramontana, F., 2010. Heterogeneous duopoly with isoelastic demand function. Economic Modelling 27, 350–357), reveals that a higher degree of product differentiation may destabilise the market equilibrium. Moreover, we show that a cascade of flip bifurcations may lead to periodic cycles and ultimately chaotic motions. Since a higher degree of product differentiation implies weaker competition, then a theoretical implication of our findings, that also constitute a policy warning for firms, is that a fiercer (weaker) competition tends to stabilise (destabilise) the unique positive Cournot-Nash equilibrium of the economy.
    Keywords: Bifurcation; Chaos; Cournot; Oligopoly; Product differentiation
    JEL: L13 D43 C62
    Date: 2011–09–17
  7. By: Bauer, Christian; Langenmayr, Dominika
    Abstract: This article analyzes profit taxation according to the arm's length principle in a new model where heterogeneous firms sort into foreign outsourcing. We show that multinational firms are able to shift profits abroad even if they fully comply with the tax code. This is because, in equilibrium, intra-firm transactions occur in firms that are better than the market at input production. Transfer prices set at market values following the arm's length principle thus systematically exceed multinationals' marginal costs. This allows for a reduction of tax payments with each unit sold. The optimal organization of firms hence provides a new rationale for the empirically observed lower tax burden of multinational corporations.
    Keywords: outsourcing; profit taxation; transfer pricing; arm's length principle; multinational firms
    JEL: F23 L22 H25
    Date: 2011–09
  8. By: Fanti, Luciano; Gori, Luca
    Abstract: We study the local stability properties of a duopoly game with price competition, different product quality and heterogeneous expectations. We show that the Nash equilibrium can loose stability through a flip bifurcation when the consumer’s type range increases. This result occurs irrespective of whether the high(low)-quality firm has either bounded rational (naïve) or naïve (bounded rational) expectations about the price that should be set in the future by the rival to maximise profits. Therefore, although, on the one hand, an increase in the consumer’s types range increases profits, on the other hand, it contributes to reduce the parametric stability region of the unique interior equilibrium. Moreover, we show that the stability region is larger when the high-quality firm has naïve expectations and the low-quality firm has bounded rational expectations. This implies that when the expectations formation mechanism of the high-quality firm becomes more complicated than the naïve one, and, in particular, it follows the mechanism proposed by Dixit (1986), the stability of the Nash equilibrium in a duopoly market with price competition becomes under increasing strain.
    Keywords: Bifurcation; Different product quality; Duopoly; Heterogeneous players; Price competition
    JEL: L13 D43 L15 C62
    Date: 2011–09–17
  9. By: Marcello M. Estevão; Tiago Severo
    Abstract: The paper investigates how changes in industries’ funding costs affect total factor productivity (TFP) growth. Based on panel regressions using 31 U.S. and Canadian industries between 1991 and 2007, and using industries’ dependence on external funding as an identification mechanism, we show that increases in the cost of funds have a statistically significant and economically meaningful negative impact on TFP growth. This effect is, however, non-monotonic across sectors with different degrees of dependence on external finance. Our findings cannot be explained by either increasing returns to scale or factor hoarding, as results are not sensitive to controlling for industry size and our calculations account for changes in factor utilization. The paper presents a theoretical model that produces the observed non-monotonic effect of financial shocks on TFP growth and suggests that financial shocks distort the allocation of factors across firms even within an industry, thus reducing TFP growth.
    Keywords: Business cycles , Canada , Economic models , External shocks , Industrial sector , Productivity , United States ,
    Date: 2011–08–17
  10. By: Norovsambuu Tumennasan (School of Economics and Management, Aarhus University, Denmark)
    Abstract: We revisit the question of whether price matching is anti-competitive in a capacity constrained duopoly setting. We show that the effect of price matching depends on capacity. Specifically, price matching has no effect when capacity is relatively low, but it benefits the firms when capacity is relatively high. Interestingly, when capacity is in an intermediate range, price matching benefits only the small firm but does not affect the large firm in any way. Therefore, one has to consider capacity seriously when evaluating if price matching is anti-competitive. If the firms choose their capacities simultaneously before pricing decisions, then the effect of price matching is either pro-competitive or ambiguous. We show that if the cost of capacity is high, then price matching can only (weakly) decrease the market price. On the other hand, if the cost of capacity is low, then the effect of price matching on the market price is ambiguous due to the multiplicity of equilibria. Therefore, this paper challenges the widely accepted belief that price matching is an anti-competititive practice if the firms choose their capacities simultaneously before pricing decisions.
    Keywords: Price matching, capacity constraint, quantity precommitment
    JEL: L00
    Date: 2011–09–12
  11. By: Bilbiie, Florin Ovidiu; Ghironi, Fabio; Melitz, Marc J
    Abstract: This paper builds a framework for the analysis of macroeconomic fluctuations that incorporates the endogenous determination of the number of producers and products over the business cycle. Economic expansions induce higher entry rates by prospective entrants subject to irreversible investment costs. The sluggish response of the number of producers (due to sunk entry costs and a time-to-build lag) generates a new and potentially important endogenous propagation mechanism for real business cycle models. The return to investment (corresponding to the creation of new productive units) determines household saving decisions, producer entry, and the allocation of labor across sectors. The model performs at least as well as the benchmark real business cycle model with respect to the implied second-moment properties of key macroeconomic aggregates. In addition, our framework jointly predicts procyclical product variety and procyclical profits even for preference specifications that imply countercyclical markups. When we include physical capital, the model can simultaneously reproduce most of the variance of GDP, hours worked, and total investment found in the data.
    Keywords: business cycle propagation; entry; markups; product creation; profits; variety
    JEL: E20 E32
    Date: 2011–09
  12. By: David T. Robinson; Berk A. Sensoy
    Abstract: Public and private equity waves move together. Using quarterly cash-flow data for a large sample of venture capital and buyout funds from 1984-2010, we investigate the implications of this co-cyclicality for understanding private equity cash flows and performance. In the cross-section, varying the beta used to assess relative performance has a large effect on inference near a beta of zero, but only a modest effect for more reasonable beta estimates. A similar message comes through in the time series. Though funds raised in hot markets underperform in absolute terms, this underperformance is sharply reduced by a comparison to the S&P 500, and disappears entirely at the levels of beta recently estimated in the literature. These findings imply that high private equity fundraising forecasts both low private equity cash flows and low market returns, suggesting a positive correlation between private equity net cash flows and public equity valuations. Examining cash flows directly, we find that this is indeed the case. While both capital calls and distributions rise with public equity valuations, distributions are more sensitive than calls. Net cash flows are therefore procyclical and private equity funds are liquidity providers (sinks) when market valuations are high (low). Venture cash flows and performance are considerably more procyclical than buyout. Debt market conditions also have a significant impact on private equity cash flows. At the same time, most cash-flow variation is idiosyncratic across funds, and most predictable variation is explained by the age of the fund.
    JEL: G10 G11 G20 G24
    Date: 2011–09
  13. By: Andrea Bassanini
    Abstract: I examine the effect of labour market policies and institutions on the transmission of macroeconomic shocks to the labour market, using both aggregate and industry-level annual data for 23 OECD countries, 23 business-sector industries and up to 29 years. I find that high and progressive labour taxes and generous unemployment benefits amplify labour income fluctuations. By contrast, statutory minimum wages reduce the difference in the sensitivity of wages to aggregate shocks between low-wage and high-wage industries. Dismissal regulations are found to mitigate the impact of shocks on both earnings and employment. Moreover, this mitigation effect is greater in industries where firms have a greater propensity to make staffing changes through dismissals. Stringent dismissal regulations also appear to reduce the counter-cyclicality of the earnings dispersion between high and low-educated labour.
    Date: 2011–09
  14. By: Alejandro Justiniano; Claudio Michelacci
    Abstract: We set-up a real business cycle model with search and matching frictions driven by several shocks, which nests full Nash Bargaining and wage rigidity as special cases and includes other transmission mechanisms suggested by the literature for the propagation and amplification of disturbances. The model is estimated using full information methods for two Anglo-Saxon countries (the US and the UK), two Continental European countries (France and Germany) and two Scandinavian countries (Norway and Sweden). We conduct inference with mixed frequency data, combining quarterly series for unemployment, vacancies, GDP, consumption, and investment, with annual data on unemployment flows. Parameters and shocks are estimated separately for each country, which can then vary in terms of search and hiring costs, workers' bargaining power, unemployment benefits levels, wage rigidity and the stochastic properties of disturbances. Overall, the structural model accounts reasonably well for differences in labor market dynamics observed between the two sides of the Atlantic and within Europe. Our estimates indicate that there is considerable cross-country variation in the contribution of technology shocks to the cyclical fluctuations of the labor market. Technology shocks alone replicate remarkably well the volatility in vacancies, unemployment and finding probabilities observed in US, with mixed success in Europe. In contrast, matching shocks and job destruction shocks play a larger role in most European countries relative to the US.
    JEL: E0 E24
    Date: 2011–09
  15. By: Gallié, Emilie-Pauline; Legros, Diego
    Abstract: This article investigates the effects of human capital and technological capital on innovation. While the role of technological capital as measured by research and development (R&D) expenditure has been intensively investigated, few studies have been made on the effect of employee training on innovation. This article explores the relationship between innovation and firm employee training. Our methodological approach contributes to the literature in three ways. We propose various indicators of firm employee training. We build a count data panel with a long time-data series to deal with the issue of firms’ heterogeneity. We propose a dynamic analysis. Using dynamic count data models on French industrial firms over the period 1986–1992, we find positive and significant effects of R&D intensity and training on patenting activity. Whatever the indicators of training our results show that the firm employee training has a positive impact on technological innovation.
    Keywords: Patents; R&D; Employee training; Count panel data; Linear feedback model;
    JEL: C23 C25 J24 L60 O31
    Date: 2011
  16. By: Ceren Ozgen (Department of Spatial Economics, VU University Amsterdam)
    Abstract: Due to the growth in international migration in recent decades, the workforce of firms in host countries has become considerably more diverse, both demographically and culturally. It is an important question for firms and for governments to ask whether there are some productivity-enhancing externalities gained from this growing diversity within firms. In recent years migration research has demonstrated positive economic impacts of cultural diversity on productivity and innovation at the regional level. However, there is a dearth of research on the links between innovation and migrant diversity at the firm level. In this paper we construct and analyse a unique linked employer-employee micro-dataset of 4582 firms, based on survey and administrative data obtained from Statistics Netherlands. Excluding firms in the hospitality industry and other industries that employ low-skilled migrants, we use the local number of restaurants with foreign cuisines and the historical presence of migrant communities as valid instruments of endogenous migrant settlement. We find that firms in which foreigners account for a relatively large share of employment are somewhat less innovative. However, there is strong evidence that firms that employ a more diverse foreign workforce are more innovative, particularly in terms of product innovations.
    Keywords: immigration, innovation, cultural diversity, knowledge spillovers, linked employer-employee data, Netherlands
    JEL: F22 O31
    Date: 2011–09
  17. By: Christopher Reicher
    Abstract: I evaluate the degree to which different wage-setting mechanisms in labor market search models can fit the aggregate facts on labor’s share. I find that staggered bargaining in nominal wages best allows the model to plausibly match the negative relationship between labor’s share and lagged productivity growth and inflation. I also evaluate the role of labor’s bargaining weight—a low bargaining weight seems plausible but by itself, it cannot generate the patterns observed in the data. Adding a standard sticky-price mechanism to the model actually degrades the match between the model and the data—in the data, labor’s share is countercyclical, while it is procyclical in the sticky-price model. Theory and data both agree that wage stickiness is relevant at the micro and macro levels
    Keywords: Sticky wages, sticky prices, staggered Nash bargaining, inflation, productivity, search and matching, labor’s share
    JEL: E24 E25 J23 J31
    Date: 2011–09
  18. By: Lev Ratnovski; Enrico Perotti; Razvan Vlahu
    Abstract: The paper studies risk mitigation associated with capital regulation, in a context where banks may choose tail risk asserts. We show that this undermines the traditional result that high capital reduces excess risk-taking driven by limited liability. Moreover, higher capital may have an unintended effect of enabling banks to take more tail risk without the fear of breaching the minimal capital ratio in non-tail risky project realizations. The results are consistent with stylized facts about pre-crisis bank behavior, and suggest implications for the optimal design of capital regulation.
    Keywords: Bank regulations , Banks , Capital , Economic models , Risk management ,
    Date: 2011–08–08
  19. By: Ronald Jean Degen (International School of Management Paris)
    Abstract: This paper identifies the ways in which the ideas of Fordism and Taylorism have been responsible for the success of the U.S. motor vehicle companies until 1955, and for their subsequent decline. On three occasions, the motor vehicle industry has changed the fundamental ideas on the process of manufacturing, and, perhaps more significantly, on how humans work together to create value. Under Fordism and Taylorism, the conditions of employment at the assembly lines became less and less bearable for the workers, and this resulted in an ongoing confrontation between management and the workforce, led by United Auto Workers (UAW). This confrontation resulted in escalating labor costs for the U.S. motor vehicle companies, and undermined their capacity to compete with the Japanese motor vehicle companies, who had developed a lean production system and a more humanistic management style.
    Keywords: Fordism, Taylorism, decline of the U.S. motor vehicle companies, mass production system, lean production system, reflective production system, confrontational management-labor-relations
    JEL: M0 M1
    Date: 2011–09–12
  20. By: Bernard Caillaud (EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics - Ecole d'Économie de Paris, PSE - Paris-Jourdan Sciences Economiques - CNRS : UMR8545 - Ecole des Hautes Etudes en Sciences Sociales (EHESS) - Ecole des Ponts ParisTech - Ecole Normale Supérieure de Paris - ENS Paris - INRA); Romain De Nijs (EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics - Ecole d'Économie de Paris, CREST - Centre de Recherche en Économie et Statistique - INSEE - École Nationale de la Statistique et de l'Administration Économique)
    Abstract: This paper proposes a dynamic model of duopolistic competition under behaviorbased price discrimination with the following property: in equilibrium, a firm may reward its previous customers although long term contracts are not enforceable. A firm can offer a lower price to its previous customers than to its new customers as a strategic means to hamper its rival to gather precise information on the young generation of customers for subsequent profitable behavior-based pricing. The result holds both with myopic and forward-looking, impatient enough consumers.
    Keywords: Price discrimination ; Dynamic pricing ; Loyalty reward
    Date: 2011–09
  21. By: Timothy Perri
    Abstract: Following Rosen [1981], superstar effects (earnings convex in quality and a few firms reaping a large share of market earnings) occur with imperfect substitution between sellers, low (and possibly declining) marginal cost of output, and marginal cost falling as quality increases. However, markets without such characteristics have superstar effects, and the main result from the superstar model---small quality differences result in large earnings differences---may not hold. A competitive model can yield superstar effects when a few firms have quality significantly higher than others and cost increases in output, provided cost does not increase too rapidly in quality. Key Words: superstars & competition
    JEL: D21 D41
    Date: 2011
  22. By: Bastié Françoise, University of Caen Basse-Normandie, CREM (UMR CNRS); Cieply Sylvie, University of Caen Basse-Normandie, CREM (UMR CNRS); Cussy Pascal, University of Caen Basse-Normandie, CREM (UMR CNRS)
    Abstract: In this article, we explore the issue of whether the financial conditions into which a firm is born have an effect on its survival chances. After both correction of the omitted variables bias and introduction of time varying covariates, we show two distinctive effects of banking debt on the survival of new firms in function of the time horizon: an insignificant or negative impact of banking debt in the short term (less than 2 years) and a persistently positive effect in the medium term (more than 2 years). Founding financial conditions have long-lasting effects upon survival.
    Keywords: Survival, New firms, Banking debt, Screening, Duration.
    JEL: M13 D82 G21
    Date: 2011–09
  23. By: McCahery, J.A.; Sautner, Z. (Tilburg University, Center for Economic Research)
    Abstract: In this paper, we investigate the attitudes of institutional investors, such as hedge funds, insurance companies, mutual funds and pension funds, towards a key corporate governance mechanism, namely executive compensation. The purpose of this study is to document the preferences they have about both the level and structure of executive compensation. Our analysis takes a comparative approach as we ask investors to reveal their preferences both for firms in the US and in The Netherlands. Our analysis further sheds light on who should decide on executive pay, thereby contributing to the recent debate on shareholder involvement in executive pay. Finally, we examine their views on the most important and largest component of executive pay, executive stock options, and investigate what preferences they have when it comes to the design of such options.
    Keywords: Executive Compensation;Institutional Investors;Corporate Governance.
    JEL: G34
    Date: 2011
  24. By: Conrads, Julian (University of Cologne); Irlenbusch, Bernd (University of Cologne); Rilke, Rainer Michael (University of Cologne); Walkowitz, Gari (University of Cologne)
    Abstract: We investigate the influence of two widespread compensation schemes, individual piece-rates and team incentives, on participants' inclination to lie, by adapting the experimental setup of Fischbacher and Heusi (2008). Lying turns out to be more pronounced under team incentives than under individual piece-rates, which highlights a so far fairly neglected feature of these compensation schemes.
    Keywords: compensation schemes, lying, team, experiment
    JEL: C91 C92 M52
    Date: 2011–09
  25. By: Johannes Paha (University of Giessen); Dirk Rompf (University of Giessen); Christiane Warnecke (University of Giessen)
    Abstract: The current level of competition in European commercial passenger rail markets is low and empirical data on customer preferences in intramodal competition has hardly been available, yet. Our study raises the knowledge of competition in commercial passenger rail by exploring the determinants of customers’ choice behaviour on two cross-border routes, Cologne-Brussels and Cologne-Amsterdam. We analyse stated preference information from about 700 on-train interviews by means of multinomial Logit regressions. Our analysis indicates that customers experiencing competition (Cologne-Brussels) show a higher preference for competitive services than customers for whom competition is a purely hypothetical situation (Cologne-Amsterdam). Moreover, travellers show a status quo bias, i.e. a preference for the service provider on whose trains they were interviewed which partly stems from switching costs. These findings regarding status quo bias and switching costs complement previous studies on the outcome of intramodal competition, implying that entry is even more difficult than they predicted.
    Keywords: Competition, Passenger, Rail, Transport, Discrete Choice, Multinomial Logit
    JEL: C25 D12 D40 L92
    Date: 2011
  26. By: Cheung, Stephen L.; Palan, Stefan
    Abstract: In the world of mutual funds management, responsibility for investment decisions is increasingly entrusted to small teams instead of individuals. Yet the effect of team decision-making in a market environment has never been studied in a controlled experiment. In this paper, we investigate the effect of team decision-making in an asset market experiment that has long been known to reliably generate price bubbles and crashes in markets populated by individuals. We find that this tendency is substantially reduced when each decision-making unit is instead a team of two. This holds across a broad spectrum of measures of the severity of mispricing, both under a continuous double-auction institution and in a call market. The result is not driven by reduced turnover due to time required for deliberation by teams, and continues to hold even when subjects are experienced. Our result also holds not only when our teams treatments are compared to the ‘narrow' baseline provided by the corresponding individuals treatments, but also when compared more broadly to the results of the large body of previous research on markets of this kind.
    Keywords: asset market experiments; price bubbles; group decision-making
    Date: 2011–09
  27. By: Frijters, Paul (University of Queensland); Kong, Tao (Australian National University); Meng, Xin (Australian National University)
    Abstract: We use a unique data of representative migrants and urban local workers in 15 Chinese cities to investigate entrepreneurship and credit constraints under labour market discrimination. We divide self employed into prefer to be self-employed and prefer to have a salaried job but cannot find one; and divide salaried workers into want-to-be entrepreneurs and happy-to-be salaried workers. Over 40 percent of migrant workers are either currently or want-to-be entrepreneurs. Both groups are very similar in terms of risk taking preferences and network size. Want-to-be entrepreneurs however suffer from credit constraints identified by negative financial shocks in the year before. Our back-of-envelope calculation reveals that overcoming the current level of credit constraints may be worth 2% of GDP per year direct earnings increases.
    Keywords: entrepreneurs, credit constraints, migration, China
    JEL: L26 J14 J70
    Date: 2011–09
  28. By: Kaldasch, Joachim
    Abstract: An evolutionary model of the product life cycle is applied to derive the experience curve and the market size of (expensive) durable goods. The experience (learning) curve suggests that the real costs per unit decrease with an increasing cumulative output (Henderson's law). Based on the idea that in a competitive market firms are forced to pass cost advantages on to the price, the evolutionary model suggests that the mean price and also the mean costs are governed by an exponential decline with time. Simultaneously the mean price evolution satisfies Henderson's law. The market size is defined here by the number of active firms. The market size is shown to follow the total market revenue if the latter exhibits fast variations, else the size is nearly constant. A comparison with an empirical investigation confirms the model predictions.
    Keywords: experience curve; learning curve; market evolution; evolutionary economics; economic growth; product diffusion; Gompertz diffusion; product life cycle; durable goods
    JEL: D11 D41 D91 A10 E27 C50 B52 D83 O4 E3
    Date: 2011–09–14
  29. By: Matthew Gentzkow; Emir Kamenica
    Abstract: Does competition among persuaders increase the extent of information revealed? We study ex ante symmetric information games where a number of senders choose what information to gather and communicate to a receiver, who takes a non-contractible action that affects the welfare of all players. We characterize the information revealed in pure-strategy equilibria. We consider three ways of increasing competition among senders: (i) moving from collusive to non-cooperative play, (ii) introducing additional senders, and (iii) decreasing the alignment of senders' preferences. For each of these notions, we establish that increasing competition cannot decrease the amount of information revealed, and will in a certain sense tend to increase it.
    JEL: D83 L15 M37
    Date: 2011–09
  30. By: Smith, Nina (University of Aarhus); Smith, Valdemar (Aarhus School of Business); Verner, Mette (Danish School of Media and Journalism)
    Abstract: In most OECD countries, only very few women succeed in reaching top executive positions. In this paper, the probability of promotion into VP and CEO positions is estimated based on employer-employee data on all Danish companies observed during the period 1997-2007. After controlling for a large number of family-related variables, including take-up history of maternity and paternity leave and proxies for 'female-friendly' companies, there is still a considerable gap in the promotion probabilities for CEO positions, but not for VP positions. Thus, the results cannot confirm recent theories on 'belief flipping' or disappearance of statistical discrimination against women who succeed getting into career track positions. The results reflect that the hiring decision and the decision to enter a top position as 'number one', i.e. CEO, in the organization is very different from the decision to hire or become VP, i.e. 'number two' or lower.
    Keywords: promotion, top executive positions, statistical discrimination
    JEL: G34 J16 J24 M51
    Date: 2011–09

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