nep-bec New Economics Papers
on Business Economics
Issue of 2011‒11‒14
29 papers chosen by
Christian Calmes
Universite du Quebec en Outaouais

  1. Firm Performance and Wages: Evidence from Across the Corporate Hierarchy By Brian Bell; John Van Reenen
  2. Cross-ownership and stability in a Cournot duopoly By Fanti, Luciano; Gori, Luca
  3. Business relocations in the Netherlands: Why do firms move, and where do they go? By Kristin Kronenberg
  4. Managerial Compensations and Information Sharing under Moral Hazard: Is Transparency Good? By Salvatore Piccolo; Emanuele Tarantino
  5. Technology choice and endogenous productivity dispersion over the business cycles By Tian, Can
  6. Is there a limit to agglomeration? Evidence from productivity of Dutch firms By Marian Rizov
  7. Unemployment, Skills, and the Business Cycle Since 2000 By Sparber, Chad
  8. Price Discrimination in Input Markets: Quantity Discounts and Private Information By Herweg, Fabian; Müller, Daniel
  9. Geographic Concentration of Business Services Firms: A Poisson Sorting Model By Hans Koster; Jos van Ommeren; Piet Rietveld
  10. Performance effects of appointing other firms' executive directors By Charlie Weir; Oleksandr Talavera; Alexander Muravyev
  11. Incentives and innovation: evidence from CEO compensation contracts By Francis, Bill; Hasan, Iftekhar; Sharma, Zenu
  12. Leverage and growth: effect of stock options By Francis, Bill; Hasan , Iftekhar; Sharma, Zenu
  13. Differentiation and Performance: An Empirical Investigation on the Incentive Effects of Bonus Plans By Kampkötter, Patrick; Sliwka, Dirk
  14. The Effect of Liquidity on Governance By Alex Edmans; Vivian W. Fang; Emanuel Zur
  15. A Swarm of Innovators: Information, Leadership and Innovation By Bel, Roland; Smirnov, Vladimir; Wait, Andrew
  16. Optimal capital structure and Regulatory Control By Carlos Pérez Montes
  17. Job Design and Incentives By Felipe Balmaceda
  18. Factor Proportions and International Business Cycles By Keyu Jin; Nan Li
  19. A Transparency Standard for Derivatives By Viral V. Acharya
  20. The effect of private road supply on the volume/capacity ratio when firms compete Stackelberg in Road Capacity By Vincent Van Den Berg
  21. Testing the 'Residential Rootedness'-Hypothesis of Self-Employment for Germany and the UK By Reuschke, Darja; van Ham, Maarten
  22. Offshoring and export performance in the european automotive industry By Raphaël Chiappini
  23. Business Ownership by Workers: Are Worker Cooperatives a Viable Option? By Artz, Georgeanne M.; Kim, Younjun
  24. The Dark Side of Reciprocity By Natalia Montinari
  25. A Sorted Tale of Globalization: White Collar Jobs and the Rise of Service Offshoring By Runjuan Liu; Daniel Trefler
  26. Fluctuations in the international prices of oil, dairy products, beef and lamb between 2000 and 2008: A review of market-specific demand and supply factors By Phil Briggs; Carly Harker; Tim Ng; Aidan Yao
  27. The Dynamics of Firm Lobbying By William R. Kerr; William F. Lincoln; Prachi Mishra
  28. Ownership, access and sequential investment By Mai, Maxim; Smirnov, Vladimir; Wait, Andrew
  29. Empirical analysis of countervailing power in business-to-business bargaining By Walter Beckert

  1. By: Brian Bell; John Van Reenen
    Abstract: Does it matter whether you work for a successful company? And if so, does it matter who you are? To answer these questions we construct a unique panel dataset covering the pay of all CEOs, senior managers and a fully representative sample of workers for a large group of publicly-listed companies covering just under 90% of the market capitalization of the UK stock market. We show that senior management appear to have pay that is strongly associated with various measures of firm performance (such as shareholder return), while workers' pay is only weakly associated with such measures. A 10% increase in firm value is associated with an increase of 3% in CEO pay but only 0.2% in average workers' pay. Falls in firm performance are also followed by CEO pay cuts (but not as aggressively as upside rewards) and significantly more CEO firings. This is essentially a result of the responsiveness of flexible pay to performance and only senior executives have a large enough share of pay in bonuses to generate a sizeable overall effect on pay. Accounting for firm performance over the last decade can potentially explain between one-quarter and one-half of the rise in the gap between CEO pay and the pay of workers.
    Date: 2011–11
  2. By: Fanti, Luciano; Gori, Luca
    Abstract: This paper analyses the dynamics of a Cournot duopoly under cross-ownership participation when players have heterogeneous, i.e. bounded rational and naïve, expectations. We find that when the shareholder that owns firm also holds a percentage of firm , the parametric stability region of the unique Cournot-Nash equilibrium is larger than when every firm is owned by a unique shareholder, and an increase in the fraction of shares that the shareholder that owns firm has in firm tends to stabilise the market equilibrium. Moreover, when products are (horizontally) differentiated, a rise in the fraction of shares of firm held by the shareholder that owns firm acts as an economic (de)stabiliser when products of variety and are (complements) substitutes between each other. The policy implication is that, despite on the one hand, cross-ownership acts as an anti-competitive device that indeed tends to reduce social welfare with the corresponding anti-trust consequences, on the other hand, it acts as an economic stabiliser (except when products are complements).
    Keywords: Bifurcation; Cournot; Cross-ownership; Duopoly
    JEL: L13 D43 C62 L40
    Date: 2011–11–07
  3. By: Kristin Kronenberg
    Abstract: This study analyzes determinants of business relocation and identifies regional characteristics which attract relocating firms, using register data provided by Statistics Netherlands. Results indicate that the relocation decisions of firms are not only influenced by firm- and location-specific characteristics, but also by the qualities of a firm’s workforce, and by the attractiveness of a municipality for individuals regarding the amenities which are provided. Furthermore, the findings show that relocation decisions are sector-dependent. Generally, its age and being located in an appealing municipality with high sectoral specialization keep a firm from relocating, whereas firms employing large shares of highly educated workers, paying high average salaries and being located in a municipality with high sector-specific wages are pushed out of their present location. Relocating firms avoid specialized municipalities, while they are attracted by densely populated, appealing municipalities with high wage levels (both general and sector-specific) and large shares of highly educated workers, and which are specialized in the firm’s own sector.
    Date: 2011–09
  4. By: Salvatore Piccolo (Università Cattolica di Milano and CSEF); Emanuele Tarantino (Università di Bologna and TILEC)
    Abstract: We study the effects of information sharing on optimal contracting in a vertical hierarchies model with moral hazard and effort externalities. The paper has three main objectives. First, we determine and compare the equilibrium contracts with and without communication. We identify how each principal relates her agent’s wage to the opponent’s performance when they share information about agents’ performances. It turns out that the type of effort externalities across organizations is the main determinant of the responsiveness of each agent’s reward to the opponent’s performance. Second, in order to throw novel light on the emergence of information sharing agreements, we characterize the equilibria of a non- cooperative game where principals first decide whether to share information and then offer contracts to their exclusive agents. We explore the implications of introducing certification costs and show that three types of equilibria may emerge depending on the nature and (relative) strength of effort externalities: principals bilaterally share information if agents’ effort choices exhibit strong complementarity; only the principal with stronger monitoring power discloses information in equilibrium for intermediate levels of effort’s complementarity; principals do not share information if efforts are substitutes and for low values of effort’s complementarity. Moreover, differently from the common agency framework studied in Maier and Ottaviani (2009), in our model a prisoner’s dilemma may occur when efforts are substitutes and certification costs are negligible: if a higher effort by one agent reduces the opponent’s marginal productivity of effort the equilibrium involves no communication although principals would jointly be better off by sharing information. Finally, the model also offers novel testable predictions on the impact of competition on the basic trade-off between risk and incentives, the effects of organizations’ asymmetries on information disclosure policies as well as on the link between corporate control and the power of incentives.
    Keywords: Competing Hierarchies, Information Sharing, Moral Hazard
    Date: 2011–11–01
  5. By: Tian, Can
    Abstract: Various empirical works have shown that dispersion of firm-level profitability is significantly countercyclical. I incorporate firms' technology adoption decision into firm dynamics model with business cycle features to explain these empirical findings both qualitatively and quantitatively. The option of endogenous exiting and credit constraint jointly play an important role in motivating firms' risk taking behavior. The model predicts that relatively small sized firms are more likely to take risk, and that the dispersion measured as the variance/standard deviation of firm-level profitability is larger in recessions, which are consistent to the data.
    Keywords: Firm Dynamics; Business Cycles; Countercyclical Dispersion
    JEL: L25 L11 E32
    Date: 2011–05–31
  6. By: Marian Rizov
    Abstract: Abstract We compute aggregate productivity of three categories of regions, classified by level of urbanization in the Netherlands, from firm-specific total factor productivity (TFP) measures. TFP measures are estimated by a semi-parametric algorithm, within 2-digit industries, covering agriculture, manufacturing, construction, trade and services, using AMADEUS data over the period 1997-2006. We analyse the productivity differentials across urbanization categories by decomposing them into industry productivity effect and industry composition effect. Our analysis indicates that there is non-linear, inverted U-shape effect of agglomeration on productivity growth but in levels agglomeration is associated with higher productivity.
    Date: 2011–09
  7. By: Sparber, Chad (Department of Economics, Colgate University)
    Abstract: This paper employs reduced-form microeconometric analysis to examine how yearly changes in aggregate income and GDP growth affect the unemployment probability of individuals with varied skills in the United States. The paper goes beyond traditional education-based measures and assesses how manual, communication, and quantitative skills affect the relationship between macroeconomic shocks and unemployment. Workers specialized in communication skills exhibit lower unemployment rates, reduced unemployment volatility, and less sensitivity to macroeconomic fluctuations.
    Keywords: Unemployment, Skills, Business Cycle, Macroeconomic Shocks, GDP
    JEL: E24 E32 J21 J24 J64
    Date: 2011–11–03
  8. By: Herweg, Fabian; Müller, Daniel
    Abstract: We consider a monopolistic supplier’s optimal choice of wholesale tariffs when downstream firms are privately informed about their retail costs. Under discriminatory pricing, downstream firms that differ in their ex ante distribution of retail costs are offered different tariffs. Under uniform pricing, the same wholesale tariff is offered to all downstream firms. In contrast to the extant literature on thirddegree price discrimination with nonlinear wholesale tariffs, we find that banning discriminatory wholesale contracts—the usual legal practice in the EU and US— often is beneficial for social welfare. This result is shown to be robust even when the upstream supplier faces competition in the form of fringe supply.
    Keywords: Asymmetric Information; InputMarkets; Quantity Discounts; Price Discrimination; Screening; Vertical Contracting
    JEL: D43 L11 L42
    Date: 2011–11
  9. By: Hans Koster; Jos van Ommeren; Piet Rietveld
    Abstract: This paper estimates a heterogeneous sorting model for firms, employing a semiparametric Poisson approach. We show that there is an equivalence relation between a locally weighted Logit and Poisson model. We apply our model to estimate firm-specific preferences of business services firms for location attributes such as diversity of economic activities and specialisation of business services. We correct for endogeneity of our specialisation measure by means of a control function approach, using instruments external as well as internal to the model. We find that business services firms have a relatively strong preference for specialised clusters of business services firms, conditional on density of economic activity. A standard deviation increase in business services specialisation of a location leads to a 40 percent increase in the probability that a business services firm locates there, supporting theories of Marshall, Arrow and Romer. Business services firms also have a preference to locate near a group of firms that belong to the same sector, not necessarily business services firms, so diversity is negatively related to location decisions. Interestingly, firms rely either on within-sector interactions (specialisation) or between-sector interactions (diversity).
    Date: 2011–09
  10. By: Charlie Weir (Aberdeen Business School); Oleksandr Talavera (Durham Business School); Alexander Muravyev (IZA and St. Petersburg University GSOM)
    Abstract: This paper studies the relationship between directors’ human capital and the company’s performance. In particular, we focus on the effect on performance of non-executive directors who are also executive directors in other firms. We find a positive relationship between the presence of these non-executive directors and the accounting performance of the appointing company. The effect is stronger if these directors are also executive directors at companies that are performing well. Additionally, the similarity of industry plays a role. The results support the view that appointing firms benefit from the human capital of the appointee.
    Keywords: human capital, executive directors, non-executive directors, company performance
    JEL: G34 G39
    Date: 2011–10–01
  11. By: Francis, Bill (Lally School of Management, Rensselaer Polytechnic Institute); Hasan, Iftekhar (Lally School of Management, Rensselaer Polytechnic Institute, and Bank of Finland); Sharma, Zenu (Long Island University)
    Abstract: We investigate the relationship between chief executive officer (CEO) compensation and innovation. In an empirical examination of compensation contracts of S&P 400, 500, and 600 firms we find that long-term incentives in the form of options are positively related to patents and citations to patents. In addition, convexity of options has a positive effect on innovation. We also find no relationship between pay for performance sensitivity (PPS) with patents and citations to patents while we did discover a positive relationship between these and golden parachutes. Finally, we show that subsequent to project failure managers’ compensation contracts are reset favourably. We provide support for the theory that compensation contracts that offer long-term commitment and protection from failure are more suitable for innovation.
    Keywords: CEO compensation; innovation and incentives
    JEL: D82 O31
    Date: 2011–10–03
  12. By: Francis, Bill (Lally School of Management, Rensselaer Polytechnic Institute); Hasan , Iftekhar (Lally School of Management, Rensselaer Polytechnic Institute, and Bank of Finland); Sharma, Zenu (Long Island University)
    Abstract: This paper investigates the potential effects of stock options on managers’ investment decisions and therefore on a firm’s growth or, alternatively, on its leverage-growth relationship. To structure the analysis addressing this issue, the paper utilizes a framework establishing a negative relationship between leverage and the firm’s growth. However, in contrast to some of the existing results, the empirical analysis of manufacturing firms in this paper shows that the negative relationship between leverage and growth has changed significantly. Primarily this paper documents that, as options based compensation in manager’s portfolio increases, the negative effect of leverage on growth disappears. The paper argues that this is an important finding, because it implies that when managers are compensated with options debt ceases to pre-commit managers. On addressing the potential endogeneity problem between leverage, growth and compensation the paper finds that option delta instead of book leverage negatively affects growth, and that book leverage and option delta are inversely related. Finally, the paper also examines the effect of corporate governance on the relationship between leverage, incentives and the firm’s growth and finds that leverage is negatively related to growth only in poorly governed firms.
    Keywords: leverage; stock options; compensation schemes; corporate governance
    JEL: C21 G32 G34
    Date: 2011–10–05
  13. By: Kampkötter, Patrick (University of Cologne); Sliwka, Dirk (University of Cologne)
    Abstract: It is often claimed that supervisors do not differentiate enough between high and low performing employees when evaluating performance. The purpose of this paper is to study the incentive effects of this behavior empirically. We first show in a simple model that the perceived degree of past differentiation affects future incentives. We then study the impact of differentiation empirically with a large panel data set spanning many firms in one industry. On average, stronger differentiation has a substantial positive effect on performance. This effect is larger on higher hierarchical levels. But differentiation may become harmful at the lowest levels.
    Keywords: bonus payments, differentiation, subjective performance evaluation, incentives
    JEL: M52 D23
    Date: 2011–10
  14. By: Alex Edmans; Vivian W. Fang; Emanuel Zur
    Abstract: This paper studies the effect of stock liquidity on blockholders’ choice of governance mechanisms. We focus on hedge funds as they are unconstrained by legal restrictions and business ties, and thus have all governance channels at their disposal. Since the threat of governance, not just actual governance, can discipline managers, we use Section 13 filings to measure governance intent rather than only studying instances of actual governance. We find that liquidity increases the likelihood that a hedge fund acquires a block in a firm. Conditional upon acquiring a stake, liquidity reduces the likelihood that a blockholder governs through voice (intervention) – as evidenced by the greater propensity to file Schedule 13Gs (passive investment) rather than 13Ds (active investment). Liquidity is more likely to lead to a 13G filing if the manager’s wealth is sensitive to the stock price, consistent with governance through exit (trading). A 13G filing leads to positive announcement returns, especially in liquid firms. These two results suggest that liquidity does not dissuade blockholders from governing altogether, but instead encourages them to govern through exit rather than voice. We use decimalization as an exogenous shock to liquidity to identify causal effects.
    JEL: G12 G23 G34 G38
    Date: 2011–11
  15. By: Bel, Roland; Smirnov, Vladimir; Wait, Andrew
    Abstract: We study the interplay between innovation, communication in an organization and leadership. Although a firm requires both strong leadership and sufficient communication in order to innovate, we posit that frequent communication - particularly amongst strong leaders and in larger firms - can lead to disagreement and innovation breakdown. Using a survey of 3000 French firms we find that, on their own, firm size, regular communication and result-oriented leadership are all positively associated with innovation. However, there is a negative relationship between successful innovation and: (i) frequent communication in larger firms; and (ii) frequent communication with result-oriented leadership.
    Keywords: leadership; breakdown; communication; innovation
    Date: 2011–11
  16. By: Carlos Pérez Montes (Banco de España)
    Abstract: This article studies how the managers of a regulated firm can use debt and equity contracts to constrain the regulator’s policy through the contingent transfer of control to external investors with high relative liquidation value. External finance increases regulated income and facilitates investment, but managers generally choose socially excessive levels of outside funds. If bankruptcy law favors reorganization over liquidation, the managers’s value of debt for a given investment level decreases. In the presence of income risk, regulatory ex ante commitment can increase the firm’s value if the regulator’s preference for continuation is high relative to that of managers.
    Keywords: Industrial regulation, capital structure, control rights, hold-up, bankruptcy
    JEL: L51 L52 G32 G33
    Date: 2011–11
  17. By: Felipe Balmaceda
    Abstract: This paper studies the problem of how to allocate n =2 independent tasks among an ndogenously determined number of jobs in a setting with risk neutral workers subject to limited liability and ex-post asymmetric information. The main message is that firms narrow down the scope of their jobs to deal with workers’ incentives to game the performance system (workers’ incentives to work harder in tasks that are well rewarded ex-post and to underperform in tasks that are poorly rewarded). Firms’ incentives to narrow job scopes are diminished when workers are intrinsically motivated by moral standards and, in contrast to Holmström and Milgrom (1991), when the degree to which tasks are substitutes increases. JEL-Classification: J41, J24, D21.
    Date: 2011
  18. By: Keyu Jin; Nan Li
    Abstract: Positive investment comovements across OECD economies as observed in the data are difficult to replicate in open-economy real business cycle models, but also vary substantially in degree for individual country-pairs. This paper shows that a two-country stochastic growth model that distinguishes sectors by factor intensity (capital-intensive vs. labor-intensive) gives rise to an endogenous channel of the international transmission of shocks that first, can substantially ameliorate the "quantity anomalies" that mark large open-economy models, and second, generate a cross-sectional prediction that is strongly supported by the data: investment correlations tend to be stronger for country-pairs that exhibit greater disparity in the factor-intensity of trade. In addition, three new pieces of evidence support the central mechanism: (1) the production composition of capital versus labor-intensive sectors changes over the business cycle; (2) the prices of capital-intensive goods and labor-intensive goods are respectively, procyclical and countercyclical; (3) a positive productivity shock in the U.S. tilts the composition of production towards capital-intensive sectors in other countries.
    Keywords: International business cycles, international comovement, composition effects
    JEL: F41
    Date: 2011–11
  19. By: Viral V. Acharya
    Abstract: Derivatives exposures across large financial institutions often contribute to – if not necessarily create – systemic risk. Current reporting standards for derivatives exposures are nevertheless inadequate for assessing these systemic risk contributions. In this paper, I explain how a transparency standard, in contrast to the current standard, would facilitate such risk analysis. I also demonstrate that such a standard is implementable by providing examples of existing disclosures from large dealer firms in their quarterly filings. These disclosures often contain useful firm-level data on derivatives, but due to a lack of standardization, they cannot be aggregated to assess the risk to the system. I highlight the important contribution that reporting the “margin coverage ratio” (MCR), namely the ratio of a derivatives dealer’s cash (or liquidity, more broadly) to its contingent collateral or margin calls in case of a significant downgrade of its credit quality, could make toward assessing systemic risk contributions.
    JEL: G13 G18 G28
    Date: 2011–11
  20. By: Vincent Van Den Berg
    Abstract: We study road supply by competing firms between a single origin and destination. In previous studies, firms simultaneously set their tolls and capacities while taking the actions of the others as given in a Nash fashion. Then, under some widely used technical assumptions, firms set the same volume/capacity ratio as a public operator would and thus have the same amount of congestion and travel time. We find that this result does not hold if capacity and toll setting are separate stages—as then firms want to limit the competition in the toll stage by setting lower capacities—or when firms set capacities one after the other in a Stackelberg fashion—as then firms want to limit their competitors’ capacities by setting higher capacities. In our Stackelberg competition, the firms that act last have few if any capacity decisions to influence. Hence, they are more concerned with the toll competition substage, and set a higher volume/capacity ratio than the public operator. The firms that act first care more about their competitors’ capacities they can influence: they set a lower ratio and have the largest capacities. The average volume/capacity ratio is below the public ratio, and hence the average private travel time is too short. Still, in our numerical model, for three or more firms, welfare is higher under Stackelberg competition than under Nash competition, because of the larger Stackelberg capacity expansion and lower tolls.
    Date: 2011–09
  21. By: Reuschke, Darja (University of St. Andrews); van Ham, Maarten (Delft University of Technology)
    Abstract: Based on the notion that entrepreneurship is a 'local event', the literature argues that self-employed workers and entrepreneurs are 'rooted' in place. This paper tests the 'residential rootedness'-hypothesis of self-employment by examining for Germany and the UK whether the self-employed are less likely to move or migrate than employees. Using longitudinal data from the German Socio-economic Panel Study (SOEP) and the British Household Panel Survey (BHPS) and accounting for transitions in employment status we found little evidence that the self-employed in Germany and the UK are more rooted in place than employees. Firstly, the self-employed are not less likely to move or migrate over the period 2001–08. Secondly, those who are currently self-employed are also not more likely to have remained in the same place over a period of three years (2008–06 and 2005–03) as compared to those who are currently employed. Thirdly, those who are continuously self-employed are not less likely to have moved or migrated over a 3-period than those in continuous paid employment. Fourthly, in contrast to the prevalent 'residential rootedness'-hypothesis in economic geography and regional studies, we found that the entry into and the exit from self-employment are associated with internal migration.
    Keywords: self-employment, migration, residential mobility, rootedness hypothesis, UK, Germany
    JEL: J61 J62 L26
    Date: 2011–10
  22. By: Raphaël Chiappini (Larefi - Laboratoire d'analyse et de recherche en économie et finance internationales - Université Montesquieu - Bordeaux IV : EA2954)
    Abstract: This paper investigates the impact of offshoring on export performances of French, German and Italian automotive firms. We argue that the different offshoring strategies run by the main European automakers are responsible for the discrepancies in export performances of France, Germany and Italy on the world automotive market. We use an export equation and a panel data analysis and show that offshoring strongly affect exports of automotive firms. Focussing on the French and German export performances, we show that the relatively low export performance of France in the automotive industry since the end of the 1990s is mainly the result of an increase in offshoring lead by Renault and PSA.
    Keywords: Offshoring, export performance, automotive industry
    Date: 2011–06–24
  23. By: Artz, Georgeanne M.; Kim, Younjun
    Abstract: One possible strategy for both succession and new business development is employee ownership.  New business formation as an employee-owned firm or cooperative may have some advantages over formation as a sole proprietorship or partnership: pooling financial resources, spreading risk and combining the various knowledge and skills of the members involved. In the case of business succession, selling to employees provides a tax benefit to the owners and increases the probability that the business will continue to exist in its current location, benefitting both the employees themselves and the local community. While worker cooperatives (or employee-owned cooperatives) are currently rare in the United States, successful examples exist, suggesting potential for future development of this type of organization. This paper reviews the literature on worker cooperatives and presents data on the extent and nature of worker cooperatives in the United States. It concludes with a discussion of the implications for employee-owned cooperative development in Iowa and provides suggestions for future research and outreach programming on this topic.
    JEL: J54
    Date: 2011–11–09
  24. By: Natalia Montinari (Max Planck Institute of Economics)
    Abstract: Whether friendship or competitive relationships deserve to be encouraged in the workplace is not obvious a priori. In this paper we derive the conditions under which a profit-aximizing employer finds it convenient to induce a rat race among workers exhibiting horizontal reciprocity in order to obtain underpaid or unpaid extra eort. We characterize the optimal compensation scheme under both symmetric and asymmetric information about workers'actions, and we also derive conditions for our result to hold in the presence of vertical reciprocity.
    Keywords: Extra Effort, Horizontal Reciprocity, Negative Reciprocity
    JEL: D83 J33
    Date: 2011–11–04
  25. By: Runjuan Liu; Daniel Trefler
    Abstract: We study how the rise of trade in services with China and India has impacted U.S. labour markets. The topic has two understudied aspects: it deals with service trade (most studies deal with manufacturing trade) and it examines the historical first of U.S. workers competing with educated but low-wage foreign workers. Our empirical agenda is made complicated by the endogeneity of service imports and the endogenous sorting of workers across occupations. To develop an estimation framework that deals with these, we imbed a partial equilibrium model of ‘trade in tasks’ within a general equilibrium model of occupational choice. The model highlights the need to estimate labour market outcomes using changes in the outcomes of individual workers and, in particular, to distinguish workers who switch ‘up’ from those who switch ‘down’. (Switching ‘down’ means switching to an occupation that pays less on average than the current occupation). We apply these insights to matched CPS data for 1996-2007. The cumulative 10-year impact of rising service imports from China and India has been as follows. (1) Downward and upward occupational switching increased by 17% and 4%, respectively. (2) Transitions to unemployment increased by a large 0.9 percentage points. (3) The earnings of occupational ‘stayers’ fell by a tiny 2.3%. (4) The earnings impact for occupational switchers is not identified without an assumption about worker sorting. Under the assumption of no worker sorting, downward (upward) switching was associated with an earning change of -13.9% (+12.1%). Under the assumption of worker sorting, there is no statistically significant impact on earnings.
    JEL: F16
    Date: 2011–11
  26. By: Phil Briggs; Carly Harker; Tim Ng; Aidan Yao (Reserve Bank of New Zealand)
    Abstract: This paper looks at the boom period between 2000 and 2008 in the international prices of four internationally-traded commodities: oil, dairy products, beef and lamb. All are important drivers of macroeconomic dynamics in New Zealand. Our aim is to provide overviews of the demand and supply factors specific to each market and product, thus adding colour to more general analyses of the macroeconomic and financial drivers of the cycles in world commodity markets over the period. For each commodity market we examine here, we set out the structures of the markets and the major drivers of world demand and supply, and discuss the apparent relative strength of each of the drivers.
    JEL: F31 G14
    Date: 2011–05
  27. By: William R. Kerr; William F. Lincoln; Prachi Mishra
    Abstract: We study the determinants of the dynamics of firm lobbying behavior using a panel data set covering 1998-2006. Our data exhibit three striking facts: (i) few firms lobby, (ii) lobbying status is strongly associated with firm size, and (iii) lobbying status is highly persistent over time. Estimating a model of a firm's decision to engage in lobbying, we find significant evidence that up-front costs associated with entering the political process help explain all three facts. We then exploit a natural experiment in the expiration in legislation surrounding the H-1B visa cap for high-skilled immigrant workers to study how these costs affect firms' responses to policy changes. We find that companies primarily adjusted on the intensive margin: the firms that began to lobby for immigration were those who were sensitive to H-1B policy changes and who were already advocating for other issues, rather than firms that became involved in lobbying anew. For a firm already lobbying, the response is determined by the importance of the issue to the firm's business rather than the scale of the firm's prior lobbying efforts. These results support the existence of significant barriers to entry in the lobbying process.
    JEL: D72 D73 D78 F22 F23 J61 O31 O38
    Date: 2011–11
  28. By: Mai, Maxim; Smirnov, Vladimir; Wait, Andrew
    Abstract: We extend the property-rights framework to allow for: a separation of the ownership rights of access and veto; and sequential investment. Parties investing first (ex ante) do so before contracting is possible. Parties that invest second (ex post) can contract on (at least some) of their investment costs. Along with this cost-sharing effect, the incentive to invest is affected by a strategic effect generated by sequential investment. Together these effects can overturn some of the predictions of the property-rights literature. For example, the most inclusive ownership structure might not be optimal, even if all investments are complementary.
    Keywords: holdup; sequential investment; firm organization; veto; access; property rights
    Date: 2011–10
  29. By: Walter Beckert (Institute for Fiscal Studies and Birkbeck College London)
    Abstract: <p>This paper provides a comprehensive econometric framework for the empirical analysis of countervailing power. It encompasses the two main features of pricing schemes in business-to-business relationships: nonlinear price schedules and bargaining over rents. Disentangling them is critical to the empirical identification of countervailing power. Testable predictions from the theoretical analysis for a pragmatic reduced form empirical pricing model are delineated. This model is readily implementable on the basis of transaction data, routinely collected by antitrust authorities and illustrated using data from the UK brick industry. The paper emphasizes the importance of controlling for endogeneity of volumes and established supply chains and for heterogeneity across buyers and sellers due to intrinsically unobservable outside options.</p>
    Date: 2011–11

This nep-bec issue is ©2011 by Christian Calmes. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.