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on Business Economics |
| By: | Peter Arendorf Bache (Department of Economics and Business, Aarhus University); Anders Laugesen (Department of Economics and Business, Aarhus University) |
| Abstract: | We let heterogeneous firms face decisions on an arbitrary number of complementary activities in a monopolistically-competitive industry. The key insight is that firm-level complementarities may manifest themselves much more clearly at the industry level than at the firm level of analysis. The response of an individual firm to exogenous changes in the parameters of its profit maximisation problem is ambiguous due to indirect effects through changes in industry competition. Only in special cases are firm-level comparative statics monotone. Turning to the industry level, we provide sufficient conditions for firstorder stochastic dominance shifts in the equilibrium distributions of all activities regardless of the ambiguities prevailing at the firm level. Our results apply to many well-known models of international trade and provide strong, novel, and testable predictions. A technical contribution is to apply powerful supermodular optimisation techniques in a context of monopolistic competition. |
| Keywords: | Complementary Activities, Firm Heterogeneity, Supermodularity, Monotone Comparative Statics International Trade |
| JEL: | D21 F12 L22 |
| Date: | 2013–05–15 |
| URL: | http://d.repec.org/n?u=RePEc:aah:aarhec:2013-10&r=bec |
| By: | Julia Friesen (Georg-August-University Göttingen); Konstantin Wacker (Vienna University of Economics and Business) |
| Abstract: | This paper investigates which firms suffer from informal competition and highlights the role of access to finance in this context. We use cross-sectional data from the World Bank Enterprise Surveys covering 42,000 firms in 114 developing and transition countries for the period 2006 to 2011 and take discrete responses on the perceived severity of financial constraints and informal competition for our empirical analysis. We find that financially constrained firms face significantly more intense competition by the informal sector and that this effect is economically large. In fact, financial constraints are the most important reason why firms suffer from informal competition. Other influential variables are ill-designed labor market regulations, corruption, and firm size. A wide range of robustness checks substantiates this finding. |
| Keywords: | Firm finance; informal competition; enterprise survey data; ordered logit model |
| JEL: | C25 D21 O17 |
| Date: | 2013–05–21 |
| URL: | http://d.repec.org/n?u=RePEc:got:gotcrc:139&r=bec |
| By: | Radu Vranceanu (Economics Department - ESSEC Business School) |
| Abstract: | Economic profit is produced by entrepreneurs, those special individuals able to detect and seize as yet unexploited market opportunities. In general capitalist firms manage to deliver positive profits even in the most competitive environments. They can do so thanks to internal entrepreneurs, a subset of their employees able to drive change and develop innovation in the workplace. This paper argues that the goal of profit maximization is fully consistent with the corporation doing good for society. However, there is little justification for corporations to transfer the whole economic profit to shareholders. Economic agents entitled to receive the economic profit are precisely those who create this profit, namely the internal entrepreneurs. |
| Keywords: | Corporate Goal; Entrepreneurship Theory of the Firm; Internal Entrepreneurs; Profit; Social Role of Business; Virtue Ethics |
| Date: | 2013–05 |
| URL: | http://d.repec.org/n?u=RePEc:hal:journl:hal-00823521&r=bec |
| By: | Andrew D. Paciorek |
| Abstract: | One of the drivers of housing demand is the rate of new household formation, which has been well below trend in recent years, leading to persistent weakness in the housing market. This paper studies the determinants of household formation in the United States, including demographic and behavioral changes, and how they evolve over the long and short runs. There are three main findings: First, because older adults tend to live in smaller households, the aging of the U.S. population over the past 30 years has reduced the average household size, or equivalently, pushed up the headship rate and household formation. Second, after stripping out the effects of the aging population, the residual behavioral component of the headship rate has declined over time, thanks largely to rising housing costs. This shift has reduced household formation, all else equal. Finally, the short-run dynamics of headship and household formation reflect the effects of the business cycle. In particular, I find that poor labor market outcomes have played an important role in depressing the headship rate in recent years. Consequently, household formation could increase substantially as the labor market recovers and the headship rate returns to trend. |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgfe:2013-26&r=bec |
| By: | Charlotte Christiansen (Aarhus University and CREATES); Jonas Nygaard Eriksen (Aarhus University and CREATES); Stig V. Møller (Aarhus University and CREATES) |
| Abstract: | We examine sentiment variables as new predictors for US recessions. We combine sentiment variables with either classical recession predictors or with common factors based on a large panel of macroeconomic and ?nancial variables. Sentiment variables hold vast predictive power for US recessions in excess of both the classical recession predictors and the common factors. The strong importance of the sentiment variables is documented both in-sample and out-of-sample. |
| Keywords: | Business cycles; Forecasting; Factor analysis; Probit model; Sentiment variables |
| JEL: | C22 C25 E32 E37 G17 |
| Date: | 2013–04–25 |
| URL: | http://d.repec.org/n?u=RePEc:aah:create:2013-14&r=bec |
| By: | Peeters R.J.A.P.; Khan A. (GSBE) |
| Abstract: | We study the evolution of imitation behaviour in a differentiated market where firms are located equidistantly on a (Salop) circle. Firms choose price and quantity simultaneously, leaving open the possibility for non-market clearing outcomes. The strategy of the most successful firm is imitated. Behaviour in the stochastically stable outcome depends on the level of market differentiation and corresponds exactly with the Nash equilibrium of the underlying game. For high level of differentiation, firms end up at the monopoly outcome. For intermediate level of differentiation, they gravitate to a ``mutually non-aggressive'' outcome where price is higher than the monopoly price. For low level of differentiation, firms price at a mark-up above the marginal cost. Market clearing always results endogenously. |
| Keywords: | Noncooperative Games; |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:dgr:umagsb:2013022&r=bec |
| By: | Mark L. Egan; Casey B. Mulligan; Tomas J. Philipson |
| Abstract: | Many national accounts of economic output and prosperity, such as gross domestic product (GDP) or net domestic product (NDP), offer an incomplete picture by ignoring, for example, the value of leisure, home production, and the value of health. Discussed shortcomings have focused on how unobserved dimensions affect GDP levels but not their cyclicality, which affects the measurement of the business cycle. This paper proposes new measures of the business cycle that incorporate monetized changes in health of the population. In particular, we incorporate in GDP the dollar value of mortality, treating it as depreciation in human capital analogous to how NDP measures treat depreciation of physical capital. We examine the macroeconomic fluctuations in the United States and globally during the past 50 years, taking into account how depreciation in health affects the cycle. Because mortality tends to be pro-cyclical, fluctuations in standard GDP measures are offset by monetized changes in health; booms are not as valuable as traditionally measured because of increased mortality, and recessions are not as bad because of reduced mortality. Consequently, we find that U.S. business cycle fluctuations appear milder than commonly measured and may even be reversed for the majority of “recessions” after accounting for the cyclicality of health. We find that adjusting for mortality reduces the measured U.S. business cycle volatility during the past 50 years by about 37% in the United States and 46% internationally. We discuss future research directions for more fully incorporating the cyclicality of unobserved health capital into standard output measurement. |
| JEL: | E01 I1 |
| Date: | 2013–05 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:19058&r=bec |
| By: | Daron Acemoglu; Ufuk Akcigit; Nicholas Bloom; William R. Kerr |
| Abstract: | We build a model of firm-level innovation, productivity growth and reallocation featuring endogenous entry and exit. A key feature is the selection between high- and low-type firms, which differ in terms of their innovative capacity. We estimate the parameters of the model using detailed US Census micro data on firm-level output, R&D and patenting. The model provides a good fit to the dynamics of firm entry and exit, output and R&D, and its implied elasticities are in the ballpark of a range of micro estimates. We find industrial policy subsidizing either the R&D or the continued operation of incumbents reduces growth and welfare. For example, a subsidy to incumbent R&D equivalent to 5% of GDP reduces welfare by about 1.5% because it deters entry of new high-type firms. On the contrary, substantial improvements (of the order of 5% improvement in welfare) are possible if the continued operation of incumbents is taxed while at the same time R&D by incumbents and new entrants is subsidized. This is because of a strong selection effect: R&D resources (skilled labor) are inefficiently used by low-type incumbent firms. Subsidies to incumbents encourage the survival and expansion of these firms at the expense of potential high-type entrants. We show that optimal policy encourages the exit of low-type firms and supports R&D by high-type incumbents and entry. |
| Keywords: | industrial policy, productivity growth, innovation, R&D |
| JEL: | E02 L1 O31 O32 O33 |
| Date: | 2013–05 |
| URL: | http://d.repec.org/n?u=RePEc:cep:cepdps:dp1216&r=bec |
| By: | Svend Rasmussen (Department of Food and Resource Economics, University of Copenhagen) |
| Abstract: | Current methods of risk management focus on efficiency and do not provide operational answers to the basic question of how to optimise and balance the two objectives, maximisation of expected income and minimisation of risk. This paper uses the Capital Asset Pricing Model (CAPM) to derive an operational criterion for the optimal risk management of firms. The criterion assumes that the objective of the firm manager is to maximise the market value of the firm and is based on the condition that the application of risk management tools has a symmetric effect on the variability of income around the mean. The criterion is based on the expected consequences of risk management on relative changes in the variance of return on equity and expected income. The paper demonstrates how the criterion may be used to evaluate and compare the effect of different risk management tools, and it illustrates how the criterion should be applied to integrate risk management at the strategic, tactical and operational level. The paper concludes that the derived criterion for optimal risk management provides a valuable theoretical tool for the economic evaluation of the consequences of risk management. |
| Keywords: | firm value, CAPM, optimal risk management, return on equity, risk, expected income |
| Date: | 2013–05 |
| URL: | http://d.repec.org/n?u=RePEc:foi:wpaper:2013_10&r=bec |