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on Business Economics |
| By: | Léautier, Thomas-Olivier (TSE,IAE); Rochet, Jean-Charles (TSE, University of Zurich) |
| Abstract: | This article examines how firms facing volatile input prices and holding some degree of market power in their product market link their risk management and production or pricing strategies. This issue is relevant in many industries ranging from manufacturing to energy retailing, where risk averse firms decide on their hedging strategies before their product market strategies. We find that hedging modifies the pricing and production strategies of firms. This strategic effect is channelled through the expected risk-adjusted cost, i.e., the expected marginal cost under the measure induced by investors'risk aversion, and has diametrically opposed impacts depending on the nature of product market competition: hedging toughens quantity competition while it softens price competition. Finally, committing to a hedging strategy is always a best response to non committing, and is a dominant strategy if firms compete à la Hotelling. |
| JEL: | G32 L13 |
| Date: | 2012–09–03 |
| URL: | http://d.repec.org/n?u=RePEc:ide:wpaper:26124&r=bec |
| By: | Brendan Epstein |
| Abstract: | In the United States, the aggregate vacancy-unemployment (V/U) ratio is strongly procyclical, and a large fraction of its adjustment associated with changes in productivity is sluggish. The latter is entirely unexplained by the benchmark homogeneous-agent model of equilibrium unemployment theory. I show that endogenous search and worker-side horizontal heterogeneity in production capacity can be important in accounting for this propagation puzzle. Driven by differences in unemployed and on-the-job seekers' search incentives, the probability that any given firm with a job opening matches with a worker endowed with a comparative advantage in that job exhibits a stage of procyclical slow-moving adjustment. Consequently, so do the expected gains from posting vacancies and, hence, the V/U ratio. The model has channels through which the majority of both the V/U ratio's sluggish-adjustment properties and its elasticity with respect to output per worker can be accounted for. |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgif:1053&r=bec |
| By: | Costas Azariadis (Washington University, Department of Economics, USA); Leo Kaas (University of Konstanz, Department Economics, Germany) |
| Abstract: | This paper argues that self-fulfilling beliefs in credit conditions can generate endogenously persistent business cycle dynamics. We develop a tractable dynamic general equilibrium model with idiosyncratic firm productivity shocks. Capital from less productive firms is lent to more productive ones in the form of credit secured by collateral and also as unsecured credit based on reputation. A dynamic complementarity between current and future credit constraints permits uncorrelated sunspot shocks to trigger persistent aggregate fluctuations in debt, factor productivity and output. In a calibrated version we compare the features of sunspot cycles with those generated by shocks to economic fundamentals. |
| Keywords: | Limited enforcement; Credit cycles; Sunspots |
| JEL: | D92 E32 |
| Date: | 2012–09–20 |
| URL: | http://d.repec.org/n?u=RePEc:knz:dpteco:1216&r=bec |
| By: | Jess Benhabib; Pengfei Wang; Yi Wen |
| Abstract: | We formalize the Keynesian insight that aggregate demand driven by sentiments can generate output fluctuations under rational expectations. When production decisions must be made under imperfect information about aggregate demand, optimal decisions based on sentiments can generate stochastic self-fulfillng rational expectations equilibria in standard economies without aggregate shocks, externalities, persistent informational frictions, or even any strategic complementarity. Our general equilibrium model is deliberately simple, but could serve as a benchmark for more complicated equilibrium models with additional features. |
| JEL: | D8 D84 E3 E32 |
| Date: | 2012–09 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:18413&r=bec |
| By: | Luca Gambetti (Universitat Autonoma de Barcelona, B3.1130 Departament d’Economia i Historia Economica, Edifici B, Bellaterra 08193, Barcelona, Spain.); Alberto Musso (European Central Bank, Kaiserstraße 29, D-60311 Frankfurt am Main, Germany.) |
| Abstract: | This paper provides empirical evidence on the role played by loan supply shocks over the business cycle in the Euro Area, the United Kingdom and the United States from 1980 to 2010 by applying a time-varying parameters VAR model with stochastic volatility and identifying these shocks with sign restrictions. The evidence suggests that loan supply shocks appear to have a significant effect on economic activity and credit market variables, but to some extent also inflation, in all three economic areas. Moreover, we report evidence that the short-term impact of these shocks on real GDP and loan volumes appears to have increased in all three economic areas over the past few years. The results of the analysis also suggest that the impact of loan supply shocks seems to be particularly important during slowdowns in economic activity. As regards to the most recent recession, we find that the contribution of these shocks can explain about one half of the decline in annual real GDP growth during 2008 and 2009 in the Euro Area and the United States and possibly about three fourths of that observed in the United Kingdom. Finally, the contribution of loan supply shocks to the decline in the annual growth rate of loans observed from the peaks of 2007 to the troughs of 2009/2010 was slightly less than half of the total decline in the Euro Area and the United States and somewhat more than half of that in the United Kingdom. JEL Classification: C32, E32, E51 |
| Keywords: | Loan supply, business cycle, Euro area, UK, US, time-varying VAR, sign restrictions |
| Date: | 2012–09 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20121469&r=bec |
| By: | Chaudourne, Jeremy (UQAM); Fève, Patrick (TSE (GREMAQ, IUF, IDEI et Banque de France)); Gay, Alain (UQAM) |
| Abstract: | This paper studies the statistical properties of impulse response functions in structural vector autoregressions (SVARs) with a highly persistent variable as hours worked and long-run identifying restrictions. The highly persistent variable is specified as a nearly stationary persistent process. Such process appears particularly well suited to characterized the dynamics of hours worked because it implies a unit root in finite sample but is asymptotically stationary and persistent. This is typically the case for per capita hours worked which are included in SVARs. Theoretical results derived from this specification allow to explain most of the empirical findings from SVARs which include U.S. hours worked. Simulation experiments from an estimated DSGE model confirm theoretical results. |
| Keywords: | , , , , , , , SVARs, long-run restrictions, locally nonstationary process, technology shocks, hours worked |
| JEL: | C32 E32 |
| Date: | 2012–08 |
| URL: | http://d.repec.org/n?u=RePEc:ide:wpaper:26113&r=bec |
| By: | Hoorn, André van (Groningen University) |
| Abstract: | We study the cultural foundations of management practices, which are increasingly recognized as important determinants of firm performance. This research closes the loop on two developing literatures, one seeking cultural explanations for economic development and the other seeking to account for differences in firm performance from differences in how firms are managed. Theoretically, we expect individualist culture to improve management practices because it formalizes the labor relation. Results show higher individualism is strongly associated with more sophisticated management practices. Several robustness checks confirm our findings and using historical presence of pathogens as an instrument affirms the causal effect of culture on management practices. In a direct test, culture is a much more important determinant of management practices than are key formal institutions. This evidence moves us forward in opening up the black box of culture-performance linkages, helping us to understand better the channels through which culture can affect economic prosperity. |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:dgr:rugsom:12008-gem&r=bec |
| By: | Amaya, Diego (UQAM); Gauthier, Geneviève (HEC Montréal); Léautier, Thomas-Olivier (TSE,IAE) |
| Abstract: | This paper develops a dynamic risk management model to determine a firm's optimal risk management strategy. The risk management strategy has two elements: first, until leverage is very high, the firm fully hedges its operating cash how exposure, due to the convexity in its cost of capital. When leverage exceeds a very high threshold, the firm gambles for resurrection and stops hedging. Second, the firm manages its capital structure through dividend distributions and investment. When leverage is very low, the firm fully replaces depreciated assets, fully invests in opportunities if they arise, and distribute dividends to reach its optimal capital structure. As leverage increases, the firm stops paying dividends, while fully investing. After a certain leverage, the firm also reduces investment, until it stop investing completely. The model predictions are consistent with empirical observations. |
| JEL: | C61 G32 |
| Date: | 2012–04 |
| URL: | http://d.repec.org/n?u=RePEc:ide:wpaper:26111&r=bec |
| By: | Drew Fudenberg; David K. Levine; Zacharias Maniadis |
| Abstract: | We derive a simplified version of the model of Fudenberg and Levine [2006, 2011] and show how this approximate model is useful in explaining choice under risk. We show that in the simple case of three outcomes, the model can generate indifference curves that “fan out” in the Marshack-Machina triangle, and thus can explain the well-known Allais and common ratio paradoxes that models such as prospect theory and regret theory are designed to capture. At the same time, our model is consistent with modern macroeconomic theory and evidence and generates predictions across a much wider set of domains than these models. |
| Keywords: | Macroeconomics - Econometric models |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedlwp:2012-034&r=bec |
| By: | Kleinert, Jörn; Martin, Julien; Toubal, Farid |
| Abstract: | This paper uses micro-data on balance sheets, trade, and the nationality of ownership of firms in France to investigate the effect of foreign multinationals on business cycle comovement. We first show that foreign affiliates, which represent a tiny fraction of all firms, are responsible for a high share of employment, value added, and trade both at the national and at the regional levels. We also show that the distribution of foreign affiliates across French regions differs with the nationality of the parent. We then show that foreign affiliates increase the comovement of activities between their region of location and their country of ownership. We also find that intra-firm trade in intermediate inputs is a significant channel of influence of business cycle comovement. These findings suggest that the international transmission of shocks is partly due to linkages between affiliates and their foreign parents, and that a few multinational companies drive a non-negligible part of business cycle comovement. |
| Keywords: | business cycles; granularity; intra-firm trade; multinational firms |
| JEL: | F12 F23 F4 F41 |
| Date: | 2012–09 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:9129&r=bec |
| By: | Ronald W. Anderson; M. Cecilia Bustamante; Stéphane Guibaud |
| Abstract: | We study managerial incentive provision under moral hazard in a firm subject to stochastic growth opportunities. In our model, managers are dismissed after poor performance, but also when an alternative manager is more capable of growing the firm. The optimal contract may involve managerial entrenchment, such that growth opportunities are foregone after good performance. Firms with better growth prospects have higher managerial turnover and more front-loaded compensation. Firms may pay severance to incentivize their managers to report truthfully the arrival of growth opportunities. By ignoring the externality of the dismissal policy onto future managers, the optimal contract implies excessive retention. |
| Date: | 2012–09 |
| URL: | http://d.repec.org/n?u=RePEc:fmg:fmgdps:dp711&r=bec |
| By: | Katrin Breuer (University of Cologne); Patrick Kampkoetter (University of Cologne) |
| Abstract: | This paper studies the behavioral effects of intra-firm trainings on absence behavior and turnover probability. We argue that participation in firm-sponsored trainings might lead to behavioral responses among employees. When firms pay for general trainings, employees may perceive this as a gift to which they can reciprocate by providing higher levels of effort or commitment. Based on the personnel records of a large multinational firm we find that, in contrast to human capital predictions, general trainings lead to a decrease in turnover rates. Furthermore, a short-term decrease in absenteeism indicates a temporary, reciprocal reaction by employees. |
| Keywords: | Training, Human Capital, Reciprocity, Turnover, Absenteeism |
| JEL: | D64 J24 J31 M50 M53 |
| Date: | 2012–09–13 |
| URL: | http://d.repec.org/n?u=RePEc:cgr:cgsser:03-09&r=bec |
| By: | Zhong Qin; Vinod Mishra; Russell Smyth |
| Abstract: | There is debate over the relationship between ownership structure and firm performance. Most existing studies look at established listed companies in developed countries, in which the market mechanism is well developed. Meanwhile, the relationship between ownership structure and firm performance in small and medium enterprises (SMEs) in transition countries has been largely ignored. Drawing on endogenous ownership theory, this paper explores the impact of ownership structure on firm performance in SMEs in the context of an embryonic market environment. Using survey data for private firms in Shantou City, China, we find that ownership variables do not have a statistically significant relationship with firm performance. We examine the determinants of changing ownership shares and find that firm size and business instability are related to changes in ownership shares. Our findings support the central tenets of endogenous ownership theory and reveal factors that may lead to the change of ownership structure among SMEs in an emerging market. |
| Keywords: | ownership structure, endogenous ownership, corporate governance, firm performance, SMEs, private enterprises in China |
| JEL: | G30 G32 L20 |
| Date: | 2012–09 |
| URL: | http://d.repec.org/n?u=RePEc:mos:moswps:2012-38&r=bec |
| By: | Meta Brown; Elizabeth Setren; Giorgio Topa |
| Abstract: | The limited nature of data on employment referrals in large business and household surveys has so far impeded our efforts to understand the relationships among employment referrals, match quality, wage trajectories, and turnover. Using a new firm-level data set that includes explicit information on whether a worker at the company was referred by a current employee, we are able to provide rich detail on these empirical relationships for a single U.S. corporation and to test various predictions of theoretical models of labor market referrals. Our results align with the following predictions: 1) referred candidates are more likely to be hired, 2) referred workers experience an initial wage advantage, 3) the wage advantage dissipates over time, 4) referred workers have longer tenure in the firm, and 5) the variances of the referred and nonreferred wage distributions converge over time. The richness of the data allows us to analyze the role of referrer-referee relationships, and the size and diversity of the corporation permit analysis of referrals at a wide variety of skill and experience levels. |
| Keywords: | Employment ; Job hunting ; Wages ; Job satisfaction |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fednsr:568&r=bec |
| By: | Stoyanov, A.; Zubanov, N.V. |
| Abstract: | Using data from the universe of Danish manufacturing firms and workers over the period 1995-2007, we estimate output gains linked to productivity spillovers through worker mobility, and calculate the shares in these gains accrued to firms, to the workers who bring spillovers, and to the rest of the workers. Applying our results to the manufacturing sector as a whole, the total output gains average at 0.16% per year, of which 80% is retained by the firms, 15% by the rest of the workers, and only 5% goes to the workers who bring spillovers. We therefore conclude that output gains through worker mobility are largely a positive externality for hiring firms. |
| Keywords: | wages;matched employer-employee data;productivity spillovers;worker mobility |
| Date: | 2012–04–30 |
| URL: | http://d.repec.org/n?u=RePEc:dgr:eureri:1765032994&r=bec |
| By: | Trax, Michaela (University of Duisburg-Essen); Brunow, Stephan (Institute for Employment Research (IAB), Nuremberg); Suedekum, Jens (University of Duisburg-Essen) |
| Abstract: | Using comprehensive data for German establishments (1999-2008), we estimate plant-level production functions to analyze if “cultural diversity” affects total factor productivity. We distinguish diversity in the establishment's workforce and in the aggregate regional labor force where the plant is located. We find that a larger share of foreign workers – either in the establishment or in the region – does not affect productivity. However, there are strong spillovers associated with the degree of cultural heterogeneity. The aggregate level is, quantitatively, at least as important as the workforce composition inside the establishment. Diversity thus seems to induce externalities beyond the boundaries of a single firm; it improves local business environments. |
| Keywords: | cultural diversity, plant-level productivity, knowledge spillovers |
| JEL: | R23 J21 J31 |
| Date: | 2012–09 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp6845&r=bec |
| By: | JONG-SEO CHOI; YOUNG-MIN KWAK; CHONGWOO CHOE |
| Abstract: | This article examines the empirical relation between CEO turnover and earnings management in Korea using a sample of 317 CEO turnovers and 634 non-turnover control firms during the period of 2001-2008. We classify CEO turnovers into four types depending on whether the departure of outgoing CEO is peaceful or forced and the incoming CEO is promoted from within or recruited from outside the firm. We measure earnings management by both discretionary accruals and real activities management. We also control for the potential endogeneity of CEO turnover using Heckman’s two-stage approach. After controlling for corporate financial performance and governance structure, we find upward earnings management by the departing CEO only when the departure is forced and the new CEO is an insider. In this case, the new CEO also engages in downward earnings management using both discretionary accruals and real activities management. We also find some evidence that the new CEO recruited from outside the firm manages discretionary accruals upward following the peaceful departure of predecessor. In all other types of CEO turnover, we do not find evidence of significant earnings management by either CEO. |
| Keywords: | CEO turnover, earnings management, financial performance, corporate governance, Korea Stock Exchange |
| Date: | 2012–09 |
| URL: | http://d.repec.org/n?u=RePEc:mos:moswps:2012-35&r=bec |
| By: | Kvaløy, Ola (UiS); Olsen, Trond (NHH) |
| Abstract: | We analyze optimal incentive contracts in a model where the probability of court enforcement is determined by the costs spent on contracting. The analysis shows that contract costs matter for incentive provision, both in static spot contracts and repeated game relational contracts. We show that there is not a monotonic relationship between contracting costs and incentive intensity, and that an increase in contracting costs may lead to higher-powered incentives. Moreover, we formulate hypotheses about the relationship between legal systems and incentive provision. Specifically, the model predicts higher-powered incentives in common law than in civil law systems. |
| Keywords: | . |
| JEL: | A10 |
| Date: | 2012–09–19 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:stavef:2012_016&r=bec |
| By: | Marcella Scrimitore |
| Abstract: | This paper reconsiders the literature on the irrelevance of privatization in mixed markets, addressing both quantity and price competition in a duopoly with differentiated products. By allowing for partially privatizing a state-controlled firm, we explore competition under different timings of firms’ moves and derive the conditions under which an optimal subsidy allows to achieve maximum efficiency. We show that, while the ownership of the controlled firm is irrelevant when firms play simultaneously, it matters when firms compete sequentially, requiring the leader to be publicly-owned for an optimal subsidy to restore the first-best allocation, irrespective of the mode of competition. The paper also focuses on the extent to which a subsidy is needed to attain the social optimum, highlighting the equivalence between a price (quantity) game with public leadership or simultaneous moves and a quantity (price) game with private leadership. |
| Keywords: | Cournot, Bertrand, privatization, optimal subsidy. |
| JEL: | H21 H44 L13 |
| Date: | 2012–09–15 |
| URL: | http://d.repec.org/n?u=RePEc:eei:rpaper:eeri_rp_2012_15&r=bec |
| By: | Dawson, Christopher (Swansea University); de Meza, David Emmanuel (London School of Economics); Henley, Andrew (Aberystwyth University); Arabsheibani, Reza (Swansea University) |
| Abstract: | Extant evidence that the self-employed overestimate their returns by more than employees do is consistent with two mutually inclusive possibilities. Self-employment may generate optimism or optimists may be drawn to self-employment. This paper finds that employees who will be self-employed in the future overestimate their short-run financial wellbeing by more than those who never become self-employed. When actually self-employed they are even more optimistic. Employees aspiring to start their own business are also of above average optimism. Cross-sectional findings are therefore an amalgam of psychological disposition and environmental factors, as theory requires if optimism is to be a causal influence on entrepreneurship. |
| Keywords: | financial optimism, expectations, self-employment |
| JEL: | D84 M13 |
| Date: | 2012–09 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp6844&r=bec |
| By: | Bos Iwan; Peeters Ronald; Pot Erik (METEOR) |
| Abstract: | We consider a model of dynamic price competition to analyze the impact of consumer inertia on theability of firms to sustain high prices. Three main consequences are identified: (i) maintaininghigh prices does not require punishment strategies when firms are sufficiently myopic, (ii) ifbuyers are sufficiently inert, then high prices can be sustained for all discount factors, and(iii) the ability to maintain high prices may depend non-monotonically on the level of thediscount factor. These results provide a number of valuable insights with regard to competitiveand collusive pricing behavior. For example, our findings suggest that measures aiming at loweringthe degree of consumer inertia may in fact facilitate collusion in network industries. |
| Keywords: | microeconomics ; |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:dgr:umamet:2012047&r=bec |
| By: | Wunnava, Phanindra V. (Middlebury College) |
| Abstract: | Based on data from the National Longitudinal Surveys of Youth covering years 2000 through 2008, it is evident that both male and female workers in medium/larger establishments receive not only higher wages but also have a higher probability of participating in benefit programs than those in smaller establishments. This reinforces the well-documented 'size' effect. Further, the firm size wage effects are much larger for men than women. The union wage effect decreases with establishment size for both genders. This supports the argument that large nonunion firms pay higher wages to discourage the entrance of unions (i.e., the 'threat' effect argument). In addition, the union wage premium is higher for males for small and medium firm sizes relative to females. This implies that unions in the large establishments may have a role to play in achieving a narrowing of the gender union wage gap. In other words, the threat of unionization could reduce union wage premiums for both genders as firm size increases. Given the presence of noticeable gender differences in estimated union effects on the different components of the compensation structure, unions should not treat both genders similarly with respect to wages and benefits. |
| Keywords: | size effect, threat effect, random effects, fringe benefits, compensation, gender, union-nonunion |
| JEL: | J16 J31 J32 J51 |
| Date: | 2012–08 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp6779&r=bec |
| By: | Kevin Levillain (CGS - Centre de Gestion Scientifique - Mines ParisTech); Blanche Segrestin (CGS - Centre de Gestion Scientifique - Mines ParisTech) |
| Abstract: | Social Entrepreneurship causes increasing debate in the literature and represents a growing enigma for theories of the firm. Beyond the divergences in its definitions, we show that its mission to create "social value" is an identifiable common feature that cannot be satisfactorily described within the main existing theories. Indeed, social entrepreneurship is, by definition, inconsistent with the shareholder primacy advocating for the too narrow only objective of shareholder profit maximization. But it departs also from stakeholder views that focus on the survival of the firm by aligning its interests with discrepant and "overbroad" crucial stakeholders. Outwardly oriented missions in fact necessitate forgetting the dominant "principal-agent"-like settings, even if principals might be carefully and rightfully chosen. We support our arguments with the study of two empirical cases that are successful long-lasting businesses related to social entrepreneurship: John Lewis Partnership and Equal Exchange. These companies have built pioneering custom-made governance systems - ensuring both performance and social fairness - that dispense with standard implicit hypotheses: their clearly explicit mission identifies "beneficiaries" that are distinct from crucial stakeholders, financial contributors, and principals. Instead, the mission becomes a pivotal attribute to explain and design these organisations' structure and mechanisms. Consequently, we delineate three main theoretical and managerial implications of revealing this mission: it lends a strong legitimacy to the directors and officers by clearly defining the boundaries of their discretion, it specifies and justifies the participants' engagement in the management authority, and it calls for new control mechanisms that are fundamentally different from the monitoring systems of principal-agent relationships. Thus our model clarifies the firms' boundaries and escapes the traditional stakeholders' conflicts of interest. We postulate that this model opens an interesting field for future research, both on social and conventional entrepreneurship, and may entail a deep change in managerial and governance techniques that may have reached a dead-end in the recent economic crisis. |
| Keywords: | Social Entrepreneurship; Social purpose; Corporate Governance; Management Discretion |
| Date: | 2012–05–23 |
| URL: | http://d.repec.org/n?u=RePEc:hal:journl:hal-00733413&r=bec |
| By: | Westergård-Nielsen, Niels C. (Aarhus University); Pertold, Filip (Aarhus University) |
| Abstract: | We investigate the effect of firms' participation in an insurance scheme on the long-term sickness absence of their employees, using administrative records. In Denmark and several other European countries, firms are obliged to cover the first two weeks of sickness. The insurance scheme is provided by government authority and is designed to help small firms with the financial burden related to sickness absence of their workers. We use an exogenously-set threshold for the eligibility as a policy experiment. Using regression discontinuity in the fuzzy form, we show that sickness absence in insured firms is much more prevalent than in uninsured firms. Sickness spells in insured firms are shorter and the conditional probability to return back to work from sickness is much higher in insured firms. These results suggest that employees in insured firms are less monitored during the first two weeks and that their sickness is less serious. We demonstrate in the paper that the minimum cost of the present insurance scheme is similar to about 1100 man-years. On top of that comes a substantial cost to more short time sickness. |
| Keywords: | sickness absence, moral hazard, insurance for employers |
| JEL: | I12 J28 |
| Date: | 2012–08 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp6782&r=bec |
| By: | Stephen P. King |
| Abstract: | A downstream firm with countervailing power can extract a reduced price from an input supplier. A waterbed effect occurs if this price reduction leads the input supplier to raise the price that it charges another downstream firm. Policy makers have been concerned that this waterbed effect could undermine downstream competition, and it was considered in detail in the 2008 UK grocery inquiry. This paper presents a simple but parsimonious model to investigate if and when a waterbed effect may arise. It shows that the effect may arise through optimal pricing behaviour, but that this critically depends on the nature of upstream technology, downstream competition and consumer demand. In particular, downstream competition tends to work against a waterbed effect, but convex upstream costs support the effect. The analysis is complementary to recent academic work on the waterbed effect that focuses on bargaining constraints. |
| Date: | 2012–09 |
| URL: | http://d.repec.org/n?u=RePEc:mos:moswps:2012-27&r=bec |
| By: | Masella, Paolo (University of Mannheim); Meier, Stephan (Columbia University); Zahn, Philipp (University of Mannheim) |
| Abstract: | This paper investigates in a principal-agent environment whether and how group membership influences the effectiveness of incentives and when incentives can have “hidden costs”, i.e., a detrimental effect. We show experimentally that in all interactions control mechanisms can have hidden costs for reasons specific to group membership. In within-group interactions control has detrimental effects because the agent does not expect to be controlled and reacts negatively when being controlled. In between-group interactions, agents perceive control more hostile once we condition on their beliefs about principal's behavior. Our finding contributes to the micro-foundation of psychological effects of incentives. |
| Keywords: | crowding out, motivation, incentives, social preferences, social identity, trust, experiment |
| JEL: | C91 D03 Z13 |
| Date: | 2012–08 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp6815&r=bec |
| By: | Ferguson, Shon (Research Institute of Industrial Economics (IFN)); Formai, Sara (Bank of Italy) |
| Abstract: | The theory of the firm suggests that firms can respond to poor contract enforcement by vertically integrating their production process. The purpose of this paper is to examine whether firms’ integration opportunities affect the way contract enforcement institutions determine international trade patterns. We find that the benefits of judicial quality for the exports of contract-intense goods are more muted in industries that have a greater propensity towards vertical integration arrangements with input suppliers. We show that our results are not driven by primitive industry characteristics. Our results confirm the role of judicial quality as source of comparative advantage and suggest that this depends not only on the technological characteristics of the goods produced but also on the way firms are able to organize the production process. |
| Keywords: | International Trade; Comparative Advantage; Contract Enforcement; Vertical Integration |
| JEL: | D23 F10 F14 L22 L23 |
| Date: | 2012–09–11 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:iuiwop:0925&r=bec |
| By: | Pierre Dubois;; Laura Lasio; |
| Abstract: | The objective of this paper is to study the effects of price regulation on competition in the pharmaceutical industry. We provide a method allowing to identify margins in an oligopoly price competition game even when prices may not be freely chosen by Â…firms. We use our identiÂ…cation strategy to study the effects of regulatory constraints on prices in the pharmaceutical industry which is heavily regulated in particular in France. We use data from the US, Germany and France to identify country speciÂ…c demand models and then recover price cost margins under the regulated price setting constraints on the French market. To do so, we estimate a structural model on the market for anti-ulcer drugs in France that allows us to explore the drivers of demand, to identify whether regulation really affects margins and prices and to relate regulatory reforms to industry pricing equilibrium. We provide the fiÂ…rst structural estimation of price-cost margins on a regulated market with price constraints and show how to identify unknown possibly binding constraints thanks to three different markets (US, German and France) with varying regulatory constraints. The identiÂ…ed margins show that margins have increased over time in France but that fiÂ…rms were specially constrained in price setting after 2004. |
| Keywords: | empirical IO, regulation, price constraints, pharmacy, antiulcer drugs. |
| JEL: | L10 I18 |
| Date: | 2012–07 |
| URL: | http://d.repec.org/n?u=RePEc:yor:hectdg:12/18&r=bec |
| By: | Charness, Gary; Masclet, David; Villeval, Marie Claire |
| Abstract: | Unethical behavior within companies is not rare. We investigate experimentally therole of status-seeking behavior in sabotage and cheating activities aiming at improving one’sperformance ranking in a flat-wage environment. We find that average effort is higher whenindividuals are informed about their relative performance. However, ranking feedback alsofavors disreputable behavior. Some individuals do not hesitate to incur a cost to improve theirrank by sabotaging others’ work or by increasing artificially their own performance. Introducingsabotage opportunities has a strong detrimental effect on performance. Therefore, rankingincentives should be used with care. Inducing group identity discourages sabotage among peersbut increases in-group rivalry. |
| Keywords: | Economics, Other, Economics, General, status, ranking, feedback, sabotage, doping, competitive preferences, experiment |
| Date: | 2012–07–18 |
| URL: | http://d.repec.org/n?u=RePEc:cdl:ucsbec:qt1vr4g446&r=bec |
| By: | Bruce A. Blonigen; Lionel Fontagné; Nicholas Sly; Farid Toubal |
| Abstract: | This paper develops a dynamic model of cross-border M&A activity. We show that foreign firms will be relatively more attracted to targets in the domestic country that had high productivity levels several years prior to acquisition, but then suffered a negative productivity shock (i.e., cherries for sale). With high ex ante productivity levels, target firms are able to invest in large export networks that are valuable to foreign multinationals because of locational differences and trade costs. Subsequently, domestic firms that experience reductions in productivity no longer find their established network as valuable to serve independently, increasing the surplus generated by a foreign acquisition. From the theory we derive a dynamic panel binary choice empirical model that uses predetermined export activity and the evolution of target firm productivity over time to predict cross-border M&A activity. Administrative data from French firms across 1999-2006 provide strong evidence that both the established export networks and productivity losses among target firms promote takeover by foreign multinationals. |
| JEL: | F12 F23 G34 |
| Date: | 2012–09 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:18414&r=bec |
| By: | Jean-Pierre Boutinet (CERIPSA - Centre de recherche de l'Institut de Psychologie et Sociologie Appliquées) - Université Catholique de l'Ouest); Jean-Pierre Bréchet (LEMNA - Laboratoire d'économie et de management de Nantes Atlantique - Université de Nantes : EA4272) |
| Abstract: | Le projet et le profit dans leurs usages entretiennent sémantiquement des liens troubles. Aussi bien l'un que l'autre sont en permanence mobilisés pour légitimer l'action individuelle ou collective déployée dans des espaces marqués par la prééminence du capitalisme financier et de la culture néolibérale qu'il génère, alors même que nombre de leurs attributs fondamentaux logiquement les opposent. Une première explication tient aux acceptions plurielles ou floues des deux concepts qui autorisent des emplois approximatifs. Une seconde explication relève de la dimension culturelle ou paradigmatique qui les promeut dans notre modernité tardive. Logique de projet et logique de profit semblent ainsi accompagner les difficultés de l'époque à travers discours et pratiques. Une analyse de leurs rapports au temps, à l'espace, aux acteurs et à l'action, suggère pourtant des différences constitutives à prendre en compte pour éviter les ambiguïtés actuelles, ce qui devrait conduire à instaurer une préséance du projet sur le profit. |
| Keywords: | projet ; profit ; action ; paradigme ; temps ; espace ; capitalisme |
| Date: | 2012–09–17 |
| URL: | http://d.repec.org/n?u=RePEc:hal:wpaper:hal-00732929&r=bec |
| By: | Florence Allard-Poesi (IRG - Institut de Recherche en Gestion - Université Paris XII - Paris Est Créteil Val-de-Marne : EA2354 - Université Paris Est Marne-la-Vallée); Isabelle Huault (DRM - Dauphine Recherches en Management - CNRS : UMR7088 - Université Paris IX - Paris Dauphine) |
| Abstract: | Quel est le pouvoir des normes et des discours ? Dans quelle mesure des mots, des techniques, des pratiques sociales influencent-ils et délimitent-ils nos possibilités d'action, nos conceptions du monde, des autres et de nous-mêmes ? S'inspirant des travaux de Gramsci (Levy et Evan, 2003), d'Habermas (Shrivastava, 1986 ; Willmott, 2003 ; Samra-Fredericks, 2005), de Foucault (Hopwood, 1987 ; Townley, 1993, 1995 ; Knights et Morgan, 1991 ; 1995), de Bourdieu (Oakes, Townley et Cooper, 1998) ou encore de Derrida (Cooper et Burrel, 1988 ; Kilduff et Mehra, 1997), un nombre croissant de recherches en management s'attache à problématiser le regard que nous portons sur les objets, matériels ou discursifs, de la gestion. Bien que s'appuyant sur des courants théoriques variés (voir Alvesson et Deetz, 2000), ces travaux considèrent tous à leur manière que les outils, techniques, pratiques, vocabulaires et connaissances que la gestion élabore et mobilise, sont des phénomènes socialement et historiquement construits. En interrogeant la constitution des normes de sexe et de genre (in Gender Trouble, Feminism and the Subversion of Identity, 1990 ; Bodies that Matter : on the Discursive Limits of " Sex ", 1993), le pouvoir des discours de haine et les efforts de l'État pour les réglementer (in Excitable Speech, A Politics of the Performative, 1996), ou encore leurs effets psychiques (in Psychic Life of Power, Theories in Subjection, 1997), le travail de Judith Butler relève pleinement de cet engagement critique. Elle envisage ainsi le genre comme une performance, c'est-à-dire un ensemble d'actes corporels et discursifs qui, répétés, font advenir ce dont le discours sur le genre parle en créant l'illusion d'un 'noyau interne' organisateur, d'un 'soi genré' naturel. Si l'œuvre de Judith Butler est souvent rabattue aux seules questions du genre et des minorités sexuelles, ses contributions relèvent d'un projet théorique et politique plus large : interroger les normes et discours qui se donnent à nous, en révéler et en subvertir les limites. En ce sens, son projet peut être considéré comme exemplaire du mouvement (ou de la théorie) 'Queer', entendu non comme la seule étude des pratiques et identités sexuelles marginales (gay, lesbienne, drag ou trans), mais comme une " guerre de mouvement au sein du présent, une volonté de s'engager avec le présent, dont, bien sûr, le management " (Parker, 2002, p. 159). Quels sont précisément les effets corporels et psychiques des discours et des normes que nous agissons ? En quoi ces normes et discours nous forment-ils ? Quelles possibilités avons-nous de les subvertir ? Sur ces questions, les travaux critiques en management se sont développés en déployant une lecture bipolaire de Foucault. D'aucuns (voir Townley, 1993 ; 1995) considèrent ainsi que les techniques et discours de gestion marquent les comportements et la subjectivité des acteurs ; d'autres envisagent ces marques, par leur multiplicité, comme autant de ressources (notamment discursives et subjectives) mobilisables par le 'sujet-acteur' pour leur résister (voir Knights, 2002 ; Laine et Vaara, 2007 ; Samra-Frederick, 2005 ; Thomas et Davies, 2005). À cette lecture bipolaire, Butler substitue une vision subtile et complexe du caractère formatif du pouvoir. Elle souligne ainsi (Partie 1) que si la conscience que nous avons de nous-mêmes est bien un effet du pouvoir, notre vie psychique ne saurait être réduite à ces seules inscriptions. Notre conscience est un espace spécifique : il se creuse et acquiert par là une topographie particulière à mesure des renoncements et limites que le pouvoir nous impose. Ces mécanismes spécifiques 'd'incorporation' psychique s'accompagnent également d'effets plus directement corporels (Partie 2). C'est précisément dans cette dimension corporelle du pouvoir que Butler situe ses possibilités de subversion. L'exercice du pouvoir suppose que les normes et discours soient répétés, répétition qui peut venir excéder les limites que ces discours et normes nous donnent. |
| Keywords: | pouvoir, normes, performativité, dénaturalisation, critical management studies, gender studies, post-structuralisme |
| Date: | 2012–08–14 |
| URL: | http://d.repec.org/n?u=RePEc:hal:journl:halshs-00733006&r=bec |
| By: | Dean Karlan (Economics Department, Yale University); Ryan Knight (School of Management, Yale University); Christopher Udry (Economics Department, Yale University) |
| Abstract: | Many basic economic theories with perfectly functioning markets do not predict the existence of the vast number of microenterprises readily observed across the world. We put forward a model that illuminates why financial and managerial capital constraints may impede experimentation, and thus limit learning about the profitability of alternative firm sizes. The model shows how lack of information about one’s own type, but willingness to experiment to learn one’s type, may lead to short-run negative expected returns to investments on average, with some outliers succeeding. To test the model we put forward first a motivating experiment from Ghana, and second a small meta-analysis of other experiments. In the Ghana experiment, we provide inputs to microenterprises, specifically financial capital (a cash grant) and managerial capital (consulting services), to catalyze adoption of investments and practices aimed towards enterprise growth. We find that entrepreneurs invest the cash, and take the advice, but both lead to lower profits on average. In the long run, they revert back to their prior scale of operations. The small meta analysis includes results from 18 other experiments in which either capital or managerial capital were relaxed, and find mixed support for this theory. |
| Keywords: | entrepreneurship; credit constraints; business training; consulting; managerial capital |
| JEL: | D21 D24 D83 D92 L20 M13 O12 |
| Date: | 2012–08 |
| URL: | http://d.repec.org/n?u=RePEc:egc:wpaper:1014&r=bec |
| By: | Tibor Besedes (Georgia Institute of Technology); Cary Deck (University of Arkansas); Sudipta Sarangi (Louisiana State University and DIW Berlin); Mikhael Shor (University of Connecticut) |
| Abstract: | Previous studies have demonstrated that a multitude of options can lead to choice overload, reducing decision quality. Through controlled experiments, we examine sequential choice architectures that enable the choice set to remain large while potentially reducing the effect of choice overload. A specific tournament-style architecture achieves this goal. An alternate architecture in which subjects compare each subset of options to the most preferred option encountered thus far fails to improve performance due to the status quo bias. Subject preferences over different choice architectures are negatively correlated with performance, suggesting that providing choice over architectures might reduce the quality of decisions. JEL Classification: C91, D03 Key words: choice architecture, choice overload, status quo bias, self-sorting, decision making, experiments |
| Date: | 2012–04 |
| URL: | http://d.repec.org/n?u=RePEc:uct:uconnp:2012-24&r=bec |
| By: | Javier Rivas; Carmelo Rodriguez-Alvarez |
| Abstract: | We analyze committees of voters who take a decision between two options as a two stage process. In a discussion stage, voters share non verifiable information about a private signal concerning what is the best option. In a voting stage, votes are cast and one of the options is implemented. We introduce the possibility of leadership whereby a certain voter, the leader, is more influential than the rest at the discussion stage even though she is not better informed. We study information transmission and find, amongst others, a non-monotonic relation between how influential the leader is and how truthful voters are at discussion stage. |
| Date: | 2012–09 |
| URL: | http://d.repec.org/n?u=RePEc:lec:leecon:12/16&r=bec |
| By: | Camargo, Braz; Pastorino, Elena |
| Abstract: | We introduce human capital accumulation, in the form of learning by doing, in a life cycle model of career concerns and analyze how human capital acquisition a ects implicit incentives for performance. We show that standard results from the career concerns literature can be reversed in the presence of human capital accumulation.Namely, implicit incentives need not decrease over time and may decrease with thedegree of uncertainty about an individual's talent. Furthermore, increasing the pre-cision of output measurement can weaken rather than strengthen implicit incentives.Overall, our results contribute to shed new light on the ability of markets to disciplinemoral hazard in the absence of explicit contracts linking pay to performance. |
| Date: | 2012–09–12 |
| URL: | http://d.repec.org/n?u=RePEc:fgv:eesptd:288&r=bec |