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on Business Economics |
| By: | Marc J. Melitz; Stephen J. Redding |
| Abstract: | We examine how firm heterogeneity influences aggregate welfare through endogenous firm selection. We consider a homogeneous firm model that is a special case of a heterogeneous firm model with a degenerate productivity distribution. Keeping all structural parameters besides the productivity distribution the same, we show that the two models have different aggregate welfare implications, with larger welfare gains from reductions in trade costs in the heterogenous firm model. Calibrating parameters to key U.S. aggregate and firm statistics, we find these differences in aggregate welfare to be quantitatively important (up to a few percentage points of GDP). Under the assumption of a Pareto productivity distribution, the two models can be calibrated to the same observed trade share, trade elasticity with respect to variable trade costs, and hence welfare gains from trade (as shown by Arkolakis, Costinot and Rodriguez-Clare, 2012); but this requires assuming different elasticities of substitution between varieties and different fixed and variable trade costs across the two models. |
| Keywords: | firm heterogeneity, welfare gains from trade |
| JEL: | F12 F15 |
| Date: | 2013–04 |
| URL: | http://d.repec.org/n?u=RePEc:cep:cepdps:dp1200&r=bec |
| By: | Rüdiger Bachmann; Steffen Elstner |
| Abstract: | Are firms’ expectations systematically too optimistic or too pessimistic? Does it matter? We use micro data from the West German manufacturing subset of the IFO Business Climate Survey to infer quarterly production changes at the firm level and combine them with production expectations over a quarterly horizon in the same survey to construct series of quantitative firm-specific expectation errors. We find that depending on the details of the empirical strategy at least 6 percent and at most 34 percent of firms systematically over- or underpredict their one-quarter-ahead upcoming production. In a simple neoclassical heterogeneous-firm model these expectational biases lead to factor misallocations that cause welfare losses which in the worst case are comparable to conventional estimates of the welfare costs of business cycles fluctuations. In more conservative calibrations the welfare losses are even smaller. |
| JEL: | D22 D84 E20 E22 |
| Date: | 2013–04 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:18989&r=bec |
| By: | Carlo Altomonte (Bocconi University and FEEM); Armando Rungi (Bocconi University and FEEM) |
| Abstract: | We explore the nature of Business Groups, that is network-like forms of hierarchical organization between legally autonomous firms spanning both within and across national borders. Exploiting a unique dataset of 270,474 headquarters controlling more than 1,500,000 (domestic and foreign) affiliates in all countries worldwide, we find that business groups account for a significant part of value-added generation in both developed and developing countries, with a prevalence in the latter. In order to characterize their boundaries, we distinguish between an affiliate vs. a group-level index of vertical integration, as well as an entropy-like metric able to summarize the hierarchical complexity of a group and its trade-off between exploitation of knowledge as an input across the hierarchy and the associated communication costs. We relate these metrics to host country institutional characteristics, as well as to the performance of affiliates across business groups. Conditional on institutional quality, a negative correlation exists between vertical integration and organizational complexity in defining the boundaries of business groups. We also find a robust (albeit non-linear) positive relationship between a group's organizational complexity and productivity which dominates the already known correlation between vertical integration and productivity. Results are in line with the theoretical framework of knowledge-based hierarchies developed by the literature, in which intangible assets are a complementary input in the production processes. |
| Keywords: | Production Chains, Hierarchies, Business Groups, Financial Development, Property Rights, Vertical Integration, Corporate Ownership, Organization of Production, Productivity |
| JEL: | F23 L22 L23 L25 D24 G34 |
| Date: | 2013–04 |
| URL: | http://d.repec.org/n?u=RePEc:fem:femwpa:2013.33&r=bec |
| By: | Bruce A. Blonigen; Christopher R. Knittel; Anson Soderbery |
| Abstract: | Product redesigns happen across virtually all types of products. While there is substantial evidence that new varieties of goods increase welfare, there is little evidence on the effect of product redesigns. We develop a model of redesign and exit decisions in a dynamic oligopoly model (a la Bajari et al (2007)) and use it to analyse redesign activity in the U.S. automobile market. We find that automobile model designs become obsolete quickly in this market, leading to fairly frequent redesigns of models despite an estimated average redesign cost around $1 billion. Our model and estimates show that firm redesign decisions depend crucially on competition for market share through introductions of new redesigns, as well as internal incentives for planned obsolescence of the existing model design. Based on our structural model estimates and the simulated counterfactuals, we find that redesigns lead to large increases in welfare, as well as substantial profit for firms, due to the strong preferences consumers display for new model designs. We also show that welfare would be improved if redesign competition were reduced, allowing redesign activity to be more responsive to the planned obsolescence channel. The net effect of these changes would reduce total redesigns by roughly 10%, increasing total welfare by roughly 3%. While our model and welfare simulations are focused on the new automobile market, we provide some evidence that the gains from redesigns in the new automobile market are an order of magnitude larger than the losses in the secondhand automobile market. |
| JEL: | L11 L13 L62 |
| Date: | 2013–04 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:18997&r=bec |
| By: | Leandro DÂ’Aurizio (Bank of Italy); Livio Romano (European University Institute) |
| Abstract: | This paper studies how family firms reacted to the 2008 economic crisis by adjusting employment. In particular, we look at how the geographical distribution of the workforce may have led to divergencies between family and non-family firms. Using a difference-in-difference approach, we provide empirical evidence that paths of adjustment did diverge, with family firms systematically preferring to safeguard workplaces close to headquarters. We offer a new theoretical framework, the social recognition motive, that is consistent with this finding; it is based on contributions in the literature on corporate governance that stress the importance of the non-pecuniary benefits of the owner's control of the family firm. The social recognition motive originates from the psychological relation linking the family-firm owner with his or her community. The theory also offers a clear set of predictions that are all confirmed by the data. Alternative explanations, although theoretically plausible, seem to be ruled out in our setting. |
| Keywords: | family firms, Great Recession, employment, social pressure |
| JEL: | C81 D22 J60 M14 |
| Date: | 2013–04 |
| URL: | http://d.repec.org/n?u=RePEc:bdi:wptemi:td_905_13&r=bec |
| By: | MATSUURA Toshiyuki |
| Abstract: | This paper examines whether there is any link between export openness and the temporary workers ratio at firms. First, we investigate the effect of export openness on sales volatility using Japanese firm-level data. Next, we examine whether firms will increase the number of temporary workers as their sales volatility changes. Finally, we calculate to what extent changes in the temporary workers ratio are attributable to the sales volatility that is caused by exporting. We find statistically significant evidence that a foreign demand shock through exports affects the sales volatility at the firm level and that increases in the sales volatility induce the extensive use of temporary workers. Indeed, we find that those firms that incur a higher fixed employment cost make extensive use of temporary workers when the sales growth volatility rises. However, quantitative evaluation of the effects of exporting on the temporary workers ratio shows that the magnitude of these effects is quite small. We conclude that the impacts of firms' exporting status and export share on the temporary workers ratio are statistically significant but economically negligible in size. Thus, it is not appropriate to attribute the cause of increases in the temporary workers ratio to increased foreign shocks that occur because of exporting. |
| Date: | 2013–04 |
| URL: | http://d.repec.org/n?u=RePEc:eti:dpaper:13036&r=bec |
| By: | Antonio Accetturo (Bank of Italy); Valter Di Giacinto (Bank of Italy); Giacinto Micucci (Bank of Italy); Marcello Pagnini (Bank of Italy) |
| Abstract: | Two main hypotheses are usually put forward to explain the productivity advantages of larger cities: agglomeration economies and firm selection. Combes et al. (2012) propose an empirical approach to disentangle these two effects and fail to find any impact of selection on local productivity differences. We theoretically show that selection effects do emerge when asymmetric trade and entry costs and different spatial scale at which agglomeration and selection may work are properly taken into account. The empirical findings confirm that agglomeration effects play a major role. However, they also show a substantial increase in the importance of the selection effect when asymmetric trade costs and a different spatial scale are taken into account. |
| Keywords: | agglomeration economies, firm selection, market size, entry costs, openness to trade |
| JEL: | C52 R12 D24 |
| Date: | 2013–04 |
| URL: | http://d.repec.org/n?u=RePEc:bdi:wptemi:td_910_13&r=bec |
| By: | Tonogi, Akiyuki |
| Abstract: | In this paper, we examine the role of inventory in the price-setting behavior of a distributive firm. Empirically, we show that probability of price change has a positive relation to the scale of the retailer’s storage and the frequency of its bargain sales. We also show a negative relation between the frequency of bargain sales and the price elasticity of demand. These results denote that price stickiness varies by the retailers’ characteristics. In this paper, we consider that the hidden mechanism of price stickiness comes from the retailer’s policy for inventory investment. We develop a partial equilibrium model of the retailer’s optimization behavior with inventory and financial restrictions. The results of the numerical experiments suggest that price change frequency depends on the retailer’s order cost, storage cost, and menu cost. |
| Keywords: | Inventory, Price Stickiness, Numerical Experiment, (S, s) Policy |
| JEL: | D22 E27 E31 |
| Date: | 2013–04 |
| URL: | http://d.repec.org/n?u=RePEc:hit:rcpdwp:8&r=bec |
| By: | Miguel Atienza (IDEAR - ORDHUM - Department of Economics, Universidad Católica del Norte - Chile); Patricio Aroca (IDEAR - Department of Economics, Universidad Católica del Norte - Chile); Robert Stimson (Australian Urban Research Infraestructure Network. Faculty of Architecture, Building and Planning, University of Melbourne VIC 3010, Australia); Roger Stough (George Mason University, School of Public Policy 4400 University Drive, MS6D5 Fairfax, Virginia 22030 USA) |
| Abstract: | In regions whose industrial structure is organized around one or more large firm corporations, the best practices of small and medium enterprises (SMEs) depend on where firms are located in the supply chain. This paper studies 351 SMEs in the Antofagasta Region in Chile between 2007 and 2008, where multinational and public mining companies are the drivers of the local economy and the government is promoting the formation of a mining cluster. Structural equation model (SEM) is used to show that first-tier SME mining suppliers, directly related to large corporations, follow business practices that promote international certification, quality control and investment in innovation, while in contrast second-tier SMEs are more focused on avoiding insolvency and client orientation. These results cast doubt on the formation of a mining cluster in the region and suggest the need for differentiated policies in these two groups of SMEs, especially those related to knowledge transfer. |
| Keywords: | Spatial concentration, growth, urbanization, development |
| JEL: | D22 L25 L72 R11 |
| Date: | 2013–03 |
| URL: | http://d.repec.org/n?u=RePEc:cat:dtecon:dt201311&r=bec |
| By: | John Tang |
| Abstract: | Railroads in Meiji Japan are credited with facilitating factor mobility as well as access to human and financial capital, but the impact on firms is unclear. Using a newly developed firm-level dataset and a difference-in-differences model that exploits the temporal and spatial variation of railroad expansion, I assess the relationship between railways and firm activity across Japan. Results indicate that railroad expansion corresponded with increased firm activity, particularly in manufacturing, although this effect is mitigated in less populous regions. These findings are consistent with industrial agglomeration in areas with larger markets and earlier development among both new and existing establishments. |
| Keywords: | agglomeration, entrepreneurship, firm genealogy, late development |
| JEL: | L26 N75 O53 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:csg:ajrcwp:1302&r=bec |