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on Business Economics |
| By: | Igor Livshits; James MacGee; Michèle Tertilt |
| Abstract: | Financial innovations are a common explanation of the rise in consumer credit and bankruptcies. To evaluate this story, we develop a simple model that incorporates two key frictions: asymmetric information about borrowers’ risk of default and a fixed cost to create each contract offered by lenders. Innovations which reduce the fixed cost or ameliorate asymmetric information have large extensive margin effects via the entry of new lending contracts targeted at riskier borrowers. This results in more defaults and borrowing, as well as increased dispersion of interest rates. Using the Survey of Consumer Finance and interest rate data collected by the Board of Governors, we find evidence supporting these predictions, as the dispersion of credit card interest rates nearly tripled, and the share of credit card debt of lower income households nearly doubled. |
| JEL: | E21 E49 G18 K35 |
| Date: | 2011–09 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:17448&r=bec |
| By: | Bassanini, Andrea; Caroli, Eve; Rebérioux, Antoine; Breda, Thomas |
| Abstract: | We study compensation packages in family and non-family firms. Using French matched employer-employee data, we first show that family firms pay on average lower wages. We find that part of this wage gap is due to low wage workers sorting into family firms and high wage workers sorting into non-family firms. However, we also find evidence that company wage policies differ according to ownership status, so that the same worker is paid differently under family and non-family firm ownership. We also find evidence that family firms are characterised by lower job insecurity, as measured by dismissal rates and by the subjective risk of dismissal perceived by workers. In addition, family firms appear to rely less on dismissals – and more on hiring reductions – than non-family firms when they downsize. We show that compensating wage differentials account for a substantial part of the inverse relationship between the family/non-family gaps in wages and job security. |
| Keywords: | family firms; wages; job security; compensating wage differentials; linked employer-employee data |
| JEL: | G34 J31 J33 J63 L26 |
| Date: | 2011–09 |
| URL: | http://d.repec.org/n?u=RePEc:cpm:docweb:1110&r=bec |
| By: | Fanti, Luciano; Gori, Luca |
| Abstract: | We analyse the stability issue in a Cournot duopoly with heterogeneous players. We show that labour market institutions matter for the stability of the unique interior Cournot-Nash equilibrium. Interestingly, the role played by the existence of firm-specific unions on stability, when the degree of unionism is asymmetric between the two firms, is at all different depending on whether the unionised firm has bounded rational or naive expectations. Indeed, a shift in the union’s preference from employment towards wages acts as an economic (de)stabiliser when workers are paid with the (competitive) unionised wage by the bounded rational firm and with the (unionised) competitive wage by the naïve firm. |
| Keywords: | Bifurcation; Cournot; Heterogeneous expectations; Monopoly union |
| JEL: | J51 L13 D43 C62 |
| Date: | 2011–09–24 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:33694&r=bec |
| By: | Luciano Fanti; Luca Gori |
| Abstract: | We revisit the study of the dynamics of a duopoly game à la Bertrand with horizontal product differentiation and bounded rational firms analysed by Zhang et al. (2009), (Zhang, J., Da, Q., Wang, Y., 2009. The dynamics of Bertrand model with bounded rationality. Chaos, Solitons and Fractals 39, 2048–2055), by introducing sound microeconomic foundations. We study how an increase in the relative degree of product differentiation affects the stability of the unique positive Bertrand-Nash equilibrium, in the case of both linear and non-linear costs. We show that an increase in either the degree of substitutability or complementarity between goods of different variety may destabilise the equilibrium of the two-dimensional system through a period-doubling bifurcation. Moreover, by using numerical simulations (i.e., phase portraits, sensitive dependence on initial conditions and Lyapunov exponents), we find that a “quasi-periodic” route to chaos and a large gamma of strange attractors for the cases of both substitutability and complementarity can occur. |
| Keywords: | Bifurcation; Chaos; Differentiated products; Duopoly; Price competition. |
| JEL: | C62 D43 L13 |
| Date: | 2011–01–09 |
| URL: | http://d.repec.org/n?u=RePEc:pie:dsedps:2011/120&r=bec |
| By: | Joaquín Gómez Miñambres |
| Abstract: | We study the implications for pricing strategies and product offerings of consumers’ temptation when the differentiation of the product is horizontal. With horizontal differentiation, the temptation state is represented by a change in the consumers’ ideal product on the Hotelling line, so that consumers have two (possibly distinct) ideal products: one when committed and another when tempted. The firm faces the following trade-off: for the consumer who diverge the most between the ideal product with temptation and commitment, if the firm positions a product close to the consumer’s temptation ideal product, it increases the consumer’s surplus when tempted but decreases surplus with commitment, which lowers the consumer’s incentive to participate. This paper shows that, because of this trade-off, the firm may exclude products that are too close to the temptation preferences in the optimal menu. Moreover, it is shown that product diversity and firm’s profits decrease with the probability of temptation and with the consumers’ awareness of their dynamic inconsistency |
| Keywords: | Temptation; Commitment; Price discrimination |
| JEL: | D11 D42 D82 L11 L12 L15 |
| Date: | 2011–07 |
| URL: | http://d.repec.org/n?u=RePEc:cte:werepe:we1124&r=bec |
| By: | Levenson, Alec (University of Southern California); Zoghi, Cindy (U.S. Bureau of Labor Statistics); Gibbs, Michael (University of Chicago); Benson, George (University of Texas at Arlington) |
| Abstract: | We study effects of a firm's attempt to optimize an existing incentive scheme to increase sales growth for direct store delivery workers. Before optimization workers reported Ratchet Effects that lowered productivity. The altered incentive plan offered higher compensation for increased sales relative to a sales growth target, and lower compensation for failing to meet the target. We gathered data on performance and attitudes at pilot and control sites before and after the change. Relative to control sites, sales growth increased in the pilot sites by two percent, a meaningful contribution to firm profits. We find no change in distortion of effort or manipulation of the performance measure. Workers did not substantially change number of hours worked, though allocation of time across tasks changed slightly. Despite increased productivity, workers continued to report Ratchet Effects after the change. We also find that an unplanned price increase midway through a fiscal year affected the extent of Ratchet Effects that year. |
| Keywords: | incentives, ratchet effect |
| JEL: | M52 J33 M12 L81 |
| Date: | 2011–09 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp5985&r=bec |
| By: | Addison, John T. (University of South Carolina); Teixeira, Paulino (University of Coimbra); Bryson, Alex (National Institute of Economic and Social Research (NIESR)); Pahnke, André (IfM Bonn) |
| Abstract: | This paper depicts and examines the decline in collective bargaining coverage in Germany. Using repeat cross-section and longitudinal data from the IAB Establishment Panel, we show the overwhelming importance of behavioral as opposed to compositional change and, for the first time, document workplace transitions into and out of collective agreements via survival analysis. We provide estimates of the median duration of coverage, and report that the factors generating entry and exit are distinct and symmetric. |
| Keywords: | sectoral and firm agreements, changes in collective bargaining/works council coverage, shift-share analysis, bargaining transitions, survivability |
| JEL: | J50 J53 |
| Date: | 2011–09 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp5987&r=bec |
| By: | Philippe Cyrenne |
| Abstract: | This paper develops an approach to analyzing the equilibrium in markets where firms selling differentiated products can choose dual distribution to sell their products. Dual distribution involves a firm selling its product both through company owned stores and through independently operated franchises. In choosing the proportion of company owned versus franchise stores, in equilibrium, the firms have no incentive to alter this ratio given the proportions chosen by rival firms. The approach taken here in analyzing dual distribution is quite general and can be applied in a variety of settings. |
| Date: | 2011–09 |
| URL: | http://d.repec.org/n?u=RePEc:win:winwop:2011-04&r=bec |
| By: | Hossam Zeitoun; Margit Osterloh |
| Abstract: | The relationships between an organization and its stakeholders -- such as shareholders, employees, customers, and suppliers -- are characterized by an abundance of incomplete contracts. In this paper, we distinguish different types of stakeholder relations depending on how the organization supports its incomplete contracts with stakeholders. We explore how formal institutions (corporate law and organizational arrangements) as well as informal institutions (social norms) influence the type of stakeholder relations in order to assess in a systematic way the diversity of corporate governance arrangements that deal with incomplete contracts. |
| Date: | 2011–09 |
| URL: | http://d.repec.org/n?u=RePEc:cra:wpaper:2011-19&r=bec |
| By: | Bergman, Karin (Department of Economics, Lund University) |
| Abstract: | This paper uses a panel of Swedish manufacturing firms to examine the effects of internal and external R&D on total factor productivity over the period 1991-2004. The findings give some support to the notion of complementarity between internal and external R&D, especially in industries with high R&D intensities, and suggest that the employees’ level of education is important for the firm’s capabilities to absorb external R&D. However, external R&D is generally found to have a negative effect on productivity and internal R&D is only significant when not including interaction terms between internal R&D and external R&D or human capital. |
| Keywords: | Internal R&D; external R&D; productivity; Sweden |
| JEL: | D24 L24 O32 |
| Date: | 2011–09–20 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:lunewp:2011_027&r=bec |
| By: | Igor Prünster; Matteo Ruggiero |
| Abstract: | We propose a flexible stochastic framework for modeling the market share dynamics over time in a multiple markets setting, where firms interact within and between markets. Firms undergo stochastic idiosyncratic shocks, which contract their shares, and compete to consolidate their position by acquiring new ones in both the market where they operate and in new markets. The model parameters can meaningfully account for phenomena such as barriers to entry and exit, fixed and sunk costs, costs of expanding to new sectors with different technologies, competitive advantage among firms. The construction is obtained in a Bayesian framework by means of a collection of nonparametric hierarchical mixtures, which induce the dependence between markets and provide a generalization of the Blackwell-MacQueen Polya urn scheme, which in turn is used to generate a partially exchangeable dynamical particle system. A Markov Chain Monte Carlo algorithm is provided for simulating trajectories of the system, by means of which we perform a simulation study for transitions to different economic regimes. Moreover, it is shown that the infinite-dimensional properties of the system, when appropriately transformed and rescaled, are those of a collection of interacting Fleming-Viot diffusions. |
| Keywords: | Bayesian Nonparametrics; Gibbs sampler; interacting Polya urns; particle system; species sampling models; market dynamics; interacting Fleming-Viot processes |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:cca:wpaper:217&r=bec |
| By: | Sabri Boubaker (Champagne School of Management groupe ESC Troyes - Champagne School of Management groupe ESC Troyes); Hind Sami (COACTIS - Université Lumière - Lyon II : EA4161 - Université Jean Monnet - Saint-Etienne) |
| Abstract: | Purpose - The purpose of this paper is to add to our understanding of the monitoring role of multiple large shareholders by examining their impact on the informativeness of firms' earnings. Design/methodology/approach - We use regression models that relate earnings to stock returns for a sample of 402 French publicly traded firms covered during 2003-2007. Findings - We show that earnings informativeness is significantly positively related to the owner's ultimate cash flow rights. Consistent with the alignment effect, stock ownership aligns management and shareholders interests which reduces managers' incentives to manipulate accounting information. We also find that earnings informativeness is significantly negatively related to the excess control of the ultimate controlling shareholder. This result supports the entrenchment effect and suggests that controlling shareholders have greater incentives to obscure accounting figures when expropriation is likely. Finally, control contestability of the largest controlling shareholder mitigates information asymmetry problems thereby enhancing earnings informativeness. Limitations/implications - Our findings stress the importance of MLS in enhancing internal monitoring and mitigating agency costs. Because France is characterized by a weak legal system, highly concentrated ownership structures and excess control, our results provide valuable insights to mitigate extreme agency problems. Originality/value - The paper adds to the literature on corporate governance and the quality of accounting information by investigating strategic interactions between various blockholders and their impact on earnings informativeness. The study complements prior studies on the monitoring role of MLS by demonstrating that both their presence and control size translate into significantly greater earnings informativeness. |
| Keywords: | Earnings, Earnings informativeness, Excess control, France, Multiple large shareholders, Stock returns |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:hal:journl:halshs-00623867&r=bec |
| By: | Nakajima, Kentaro; Saito, Yukiko Umeno; Uesugi, Iichiro |
| Abstract: | This paper examines location patterns of Japan’s manufacturing industries using a unique firm-level dataset on the geographic location of firms. Following the point-pattern approach proposed by Duranton and Overman (2005), we find the following. First, about half of Japan’s manufacturing industries can be classified as localized and the number of localized industries is largest for a distance level of 40 km or less. Second, several industries in the textile mill products sector are among the most localized, which is similar to findings for the UK, suggesting that there exist common factors across countries determining the concentration of industrial activities. Third, the distribution of distances between entrant (exiting) firms and remaining firms is, in most industries, not significantly different from a random distribution. These results suggest that most industries in Japan neither become more localized nor more dispersed over time and are in line with similar findings by Duranton and Overman (2008) for the UK. Fourth, a comparison with the service sector indicates that the share of localized industries is higher in manufacturing than in services, although the extent of localization among the most localized manufacturing industries is smaller than that among the most localized service industries, including financial service industries |
| Keywords: | Micro-geographic data, Economic geography |
| JEL: | R11 |
| Date: | 2011–09 |
| URL: | http://d.repec.org/n?u=RePEc:hit:cinwps:10&r=bec |
| By: | Jan Boone; Wieland Müller; Sigrid Suetens |
| Abstract: | In the context of the naked exclusion model of Rasmusen, Ramseyer and Wiley (1991) and Segal and Whinston (2000b), we examine whether sequential contracting is more conducive to exclusion in the lab, and whether it leads to lower exclusion costs for the incumbent, than simultaneous contracting. We find that an incumbent who proposes exclusive contracts to buyers sequentially, is better able to deter entry than an incumbent who proposes contracts simultaneously. In contrast to theory, this comes at a substantial cost for the incumbent. |
| JEL: | C91 L12 L42 |
| Date: | 2011–08 |
| URL: | http://d.repec.org/n?u=RePEc:vie:viennp:1109&r=bec |
| By: | J. David Brown; John Earle |
| Abstract: | This paper investigates the origins of productivity leaders, those that operate close to and help push out the production frontier. Do such businesses emerge as top performers from the very beginning of their lives, for example as the consequence of an outstanding founding idea, technology, or location? Or, at the other extreme, do they appear initially as completely average (or even underperformers) that exhibit gradual improvement as they learn and develop with age? To answer this question we draw upon five decades of U.S. Census of Manufacturing (CM) establishment-level data, tracing the productivity leaders of the most recent CM (2007) back over their observed life spans. We also examine possible industry-level correlates of variation in the extent of nature versus nurture that are suggested by theories of industry dynamics and economic growth. |
| Date: | 2011–09 |
| URL: | http://d.repec.org/n?u=RePEc:cen:wpaper:11-26&r=bec |
| By: | Tobal, Martin |
| Abstract: | On the one hand, empiricists debate on which and how many labor dimensions are relevant for understanding the employment effects of the 1990's service offshoring boom. On the other hand, theorists pursue trade theory's traditional goal: to explain wage-responses to the shock. This paper rationalizes recent evidence on employment and reconciles theory with a current empirical debate. To this purpose, the article derives employment responses that are continous in occupations' off shoring costs and depend on two labor dimensions: skill-intensities and tradeability characteristics. Furthermore, the paper yields intutitive wage-respsonses and addresses theorists' traditional concern. In particular, under the assumption that knowledge is occupation-specific, the article derives wage- responses that are not fully explained by skill-levels. More precisely, service offshoring deteriorates the wage of "many" skilled workers whose tasks have relatively low offshoring costs. |
| Keywords: | labor; wages, Labor Economics |
| Date: | 2011–09–01 |
| URL: | http://d.repec.org/n?u=RePEc:cdl:ucsdec:2252344&r=bec |
| By: | Kiss, Hubert Janos; Rosa-García, Alfonso |
| Abstract: | A distinctive feature of recent revolutions was the key role of social media (e.g. Facebook, Twitter and YouTube). In a simple model we assume that while social media allow to observe all previous decisions, mass media only give aggregate information about the state of a revolt. We show, first, that when individuals' willingness to revolt is publicly known, then both sorts of media foster a successful revolution. However, when willingness to revolt is private information, only social media ensure that a revolt succeeds, with mass media multiple outcomes are possible. This suggests that social media enhance the likelihood that a revolution triumphs more than traditional mass media. |
| Keywords: | social media; mass media; revolution; coordination game; sequential games |
| JEL: | D74 D02 C72 |
| Date: | 2011–09–19 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:33496&r=bec |
| By: | Oksana Loginova (Department of Economics, University of Missouri-Columbia); X. Hnery Wang (Department of Economics, University of Missouri-Columbia); Chenhang Zeng |
| Abstract: | The advance selling strategy is implemented when a firm offers consumers the opportunity to order its product in advance of the regular selling season. Advance selling reduces uncertainty for both the firm and the buyer and enables the firm to update its forecast of future demand. The distinctive feature of the present theoretical study of advance selling is that we divide consumers into two groups, experienced and inexperienced. Experienced consumers know their valuations of the product in advance. The presence of experienced consumers yields new insights. Specifically, pre-orders from experienced consumers lead to a more precise forecast of future demand by the firm. We show that the firm will always adopt advance selling and that the optimal pre-order price may or may not be at a discount to the regular selling price. |
| Keywords: | advance selling, the Newsvendor Problem, demand uncertainty, experienced consumers, inexperienced consumers. |
| JEL: | C72 D42 L12 M31 |
| Date: | 2011–06–30 |
| URL: | http://d.repec.org/n?u=RePEc:umc:wpaper:1108&r=bec |
| By: | Albert N. Link; Christopher J. Ruhm |
| Abstract: | In this paper we show that the patenting behavior of creative entrepreneurs is correlated with the patenting behavior of their fathers, which we refer to as a source of the entrepreneurs’ human capital endowments. Our argument for this relationship follows from established theories of developmental creativity, and our empirical analysis is based on survey data collected from MIT’s Technology Review winners. |
| JEL: | J24 L26 O31 |
| Date: | 2011–09 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:17441&r=bec |