nep-bec New Economics Papers
on Business Economics
Issue of 2013‒04‒20
eleven papers chosen by
Vasileios Bougioukos
Bangor University

  1. Bonus Culture: Competitive Pay, Screening, and Multitasking By Benabou, Roland; Tirole, Jean
  2. Narcissistic CEOs and Executive Compensation By O'Reilly, Charles A. III; Doerr, Bernadette; Caldwell, David F.; Chatman, Jennifer A.
  3. Management-Employee Relations, Firm Size and Job Satisfaction By Tansel, Aysit; Gazioglu, Saziye
  5. Impossibility of market division with two-sided private information about production costs By Joao Correia-da-Silva
  6. A Model for Scaling in Firms' Size and Growth Rate Distribution By Cornelia Metzig; Mirta B. Gordon
  7. Mergers, managerial incentives, and efficiencies By Jovanovic, Dragan
  8. On Price Taking Behaviour in a Non-renewable Resource Cartel-Fringe Game By Hassan Benchekroun; Cees Withagen
  9. Judo Economics in Markets with Asymmetric Firms By Daniel Cracau
  10. The Effect of EU-ETS on Swedish Industry's Investment in Carbon Mitigating Technologies By Löfgren, Åsa; Wråke, Markus; Hagberg, Tomas; Roth, Susanna
  11. International Investment and Firm Performance: Empirical Evidence from Small Open Economies By Kaitila, Ville; McQuinn, John; Siedschlag, Iulia; Zhang, Xiaoheng

  1. By: Benabou, Roland (Princeton University); Tirole, Jean (IDEI)
    Abstract: This paper analyzes the impact of labor market competition and skill-biased technical change on the structure of compensation. The model combines multitasking and screening, embedded into a Hotelling-like framework. Competition for the most talented workers leads to an escalating reliance on performance pay and other high-powered incentives, thereby shifting effort away from less easily contractible tasks such as long-term investments, risk management and within-firm cooperation. Under perfect competition, the resulting efficiency loss can be much larger than that imposed by a single firm or principal, who distorts incentives downward in order to extract rents. More generally, as declining market frictions lead employers to compete more aggressively, the monopsonistic underincentivization of low-skill agents first decreases, then gives way to a growing overincentivization of high-skill ones. Aggregate welfare is thus hill-shaped with respect to the competitiveness of the labor market, while inequality tends to rise monotonically. Bonus caps and income taxes can help restore balance in agents' incentives and behavior, but may generate their own set of distortions.
    Keywords: incentives, performance pay, bonuses, executive compensation, inequality, multitask, contracts, screening, adverse selection, moral hazard, work ethic, Hotelling, competition
    JEL: D31 D82 D86 J31 J33 L13 M12
    Date: 2013–03
  2. By: O'Reilly, Charles A. III; Doerr, Bernadette; Caldwell, David F.; Chatman, Jennifer A.
    Abstract: Narcissism is characterized by traits such as dominance, self-confidence, a sense ofentitlement, grandiosity, and low empathy. There is growing evidence that individuals with these characteristics often emerge as leaders, and that narcissistic CEOs may make more impulsive and risky decisions. We suggest that these tendencies may also affect how compensation is allocatedamong top management teams. Using employee ratings of personality for the CEOs of 32 prominent high-technology firms, we investigate whether more narcissistic CEO’s have compensation packages that are systematically different from their less narcissistic peers and specifically whether these differences increase the longer the CEO stays with the firm. As predicted, we find that more narcissistic CEOs who have been with their firm longer receive more total direct compensation (salary, bonus, stock options), have more money in their totalshareholdings, and have larger discrepancies between their own (higher) compensation and the other members of their team.
    Keywords: Business Administration, Management and Operations, Business/Managerial Economics, Human Resources Management and Services, Executive Compensation
    Date: 2013–03–14
  3. By: Tansel, Aysit; Gazioglu, Saziye
    Abstract: This paper investigates the job satisfaction in relation to managerial attitudes towards employees and firm size using the linked employer-employee survey results in Britain.We first investigate the management-employee relationships and the firm size using maximum likelihood probit estimation . Next various measues of job satisfaction are related to the management-employee relations via maximum likelihood ordered probit estimates. Four measures of job satisfaction that have not been used often are considered. They are satisfaction with influence over job; satisfaction with amount of pay; satisfaction with sense of achievement and satisfaction with respect from supervisors. Main findings indicate that management-employee relationships are less satisfactory in the large firms than in the small firms. Job satisfaction levels are lower in large firms. Less satisfactory management-employee relationships in the large firms may be a major source of the observed lower level of job satisfaction in them. These results have important policy implications from the point of view of the firm management while achieving the aims of their organizations in particular in the large firms in the area of management-employee relationships. Improving the management-employee relations in large firms will increase employee satisfaction in many respects as well as increase productivity and reduce turnover. The nature of the management-employee relations with firm size and job satisfaction has not been investigated before.
    Keywords: Job Satisfaction, Managerial Attitudes,Firm size, Linked Employer-Employee data, Britain
    JEL: D23 J21 J28
    Date: 2013–03–14
  4. By: Rajshree Agarwal; Benjamin A. Campbell; April M. Franco; Martin Ganco
    Abstract: Our study examines the mediating effect of spin-out team characteristics on the relationship between founder quality and parent and spin-out performance. Since the ability to transfer or recreate complementary assets is a critical determinant of performance, we theorize and show that founders with greater ability impact both parent firm and spin-out performance by assembling teams that represent strong complementary human capital. Using linked employee-employer US Census data from the legal services industry, we find founding team size and tenure mediate the founder quality effect. Our findings have practical implications for both managers of existing firms and aspiring founders as it relates to their human resource strategies: the factor most salient to performance is not the individual quality per se, but the manner in which it impacts the transfer and spillover of complementary human capital.
    Date: 2013–04
  5. By: Joao Correia-da-Silva (CEF.UP and Universidade do Porto)
    Abstract: In a market with several independent cities, two firms with private information about their production costs decide whether to open a store in each city or restrict their activity to some cities. In cities where a single rm opens a store, this firm is a monopolist. In cities where both firms open stores, there is price competition with full revelation of private information. In equilibrium, both firms open stores in all the cities. Tacit collusion to divide the market is impeded because, by restraining from opening additional stores, a firm reveals its inefficiency, which triggers an attack from its rival.
    Keywords: Collusion, Market division, Two-sided private information, Adverse selection, Compromise game.
    JEL: C72 D82 L41
    Date: 2013–04
  6. By: Cornelia Metzig; Mirta B. Gordon
    Abstract: We introduce a simple agent-based model which allows us to analyze three stylized facts: a fat-tailed size distribution of companies, a `tent-shaped' growth rate distribution, the scaling relation of the growth rate variance with firm size, and the causality between them. This is achieved under the simple hypothesis that firms compete for a scarce quantity (either aggregate demand or workforce) which is allocated probabilistically. The model allows us to relate size and growth rate distributions. We compare the results of our model to simulations with other scaling relationships, and to similar models and relate it to existing theory.
    Date: 2013–04
  7. By: Jovanovic, Dragan
    Abstract: We analyze the effects of synergies from horizontal mergers on managerial incentives. In contrast to synergies, efficiency gains resulting from managerial effort are not merger specific, i.e., they may be realized by all firms before and after a merger. We show that synergies suppress managerial incentives within the non-merging firms, whereas the effect on the merged firm critically depends on the number of agents employed by its principal. An important implication for merger policy is that consumer surplus may be monotonically decreasing in the synergy level, which opposes the use of an efficiency defense in merger control. --
    Keywords: Managerial Incentives,Horizontal Mergers,Antitrust,Productive Efficiency Gains,Synergies,Moral Hazard,Efficiency Defense
    JEL: D21 D86 L22 L41
    Date: 2013
  8. By: Hassan Benchekroun; Cees Withagen
    Abstract: We consider a nonrenewable resource game with one cartel and a set of fringe members. We show that (i) the outcomes of the closed-loop and the open-loop nonrenewable resource game with the fringe members as price takers (the cartel- fringe game à la Salant 1976) coincide and (ii) when the number of fringe firms be- comes arbitrarily large, the equilibrium outcome of the closed-loop Nash game does not coincide with the equilibrium outcome of the closed-loop cartel-fringe game. Thus, the outcome of the cartel-fringe open-loop equilibrium can be supported as an outcome of a subgame perfect equilibrium. However the interpretation of the cartel-fringe model, where from the outset the fringe is assumed to be price-taker, as a limit case of an asymmetric oligopoly with the agents playing Nash-Cournot, does not extend to the case where firms can use closed-loop strategies.
    Keywords: cartel-fringe, dominant firm versus fringe, price taking, nonrenewable resources, dynamic games, open-loop versus closed-loop strategies
    JEL: D43 Q30 L13
    Date: 2012
  9. By: Daniel Cracau (Faculty of Economics and Management, Otto-von-Guericke University Magdeburg)
    Abstract: I study a game with one market incumbent and a small entrant in a duopoly with perfectly substitutable products. Firms face a sequential Bertrand competition. Limiting the initial capacity (Judo economics) is a plausible entry strategy for the small firm. If we, however, introduce asymmetry in production cost or product quality, capacity limitation can become obsolete. I derive thresholds as regards the cost and quality differences for the entrant's choice to voluntarily limit the production capacity in equilibrium. I study a market entry game with price competition and perfectly substitutable products. Limiting the initial capacity (Judo economics) is a plausible entry strategy. I show that under asymmetry in production cost or product quality, capacity limitation can become obsolete.
    Keywords: Sequential Bertrand Competition, Judo Economics, Asymmetric Firms, Cost, Quality
    JEL: D43 L11
    Date: 2013–02
  10. By: Löfgren, Åsa (Department of Economics, School of Business, Economics and Law, Göteborg University); Wråke, Markus; Hagberg, Tomas; Roth, Susanna
    Abstract: The European Union’s Emissions Trading Scheme (EU-ETS) is so far the largest emissions trading system in the world. It covers about 12000 installations, representing approximately 45% of EU emissions of CO2, with the objective to establish a carbon price creating incentives for cost efficient reductions of emitted green house gases. In this article we perform an expost analysis where we use detailed firm level data to analyse the effect of the EU ETS on firms’ investment decisions in carbon reducing technologies. In addition we draw on the existing literature and control for firm specific characteristics that has previously been shown to be determinants of firms’ investment in clean technology.<p>
    Keywords: investment; technological adoption; clean technology; EU ETS; firm behavior; climate change; carbon
    JEL: D21 O33 Q53
    Date: 2013–04–02
  11. By: Kaitila, Ville; McQuinn, John; Siedschlag, Iulia; Zhang, Xiaoheng
    Abstract: Abstract: This paper examines the causal link between foreign investment and firm performance in six small open economies in the European Union. Specifically, using micro data for manufacturing and services over the period 2001-2009, we analyse the effects of foreign mergers and acquisitions on labour productivity and employment growth up to five years after acquisition. Our results indicate that foreign investors tend to acquire larger firms in both manufacturing and services. Other characteristics of acquired firms differ across countries and between manufacturing and services. Taken together, our estimates suggest that foreign investment had stronger effects on firm performance in services in comparison to manufacturing.
    Keywords: multinational firms, productivity, employment, propensity score matching
    JEL: F16 F23 J24
    Date: 2013–03–01

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