nep-bec New Economics Papers
on Business Economics
Issue of 2013‒07‒20
ten papers chosen by
Vasileios Bougioukos
Bangor University

  1. Price vs. Quantity in duopoly with strategic delegation: Role of network externalities By Trishita Bhattacharjee; Rupayan Pal
  2. Zipf Law and the Firm Size Distribution: a critical discussion of popular estimators By Giulio Bottazzi; Davide Pirino; Federico Tamagni
  3. Wisdom, Uncertainty, and Ambiguity: A Study of Management Decisions as Based on Theories and Validated by Research Methods By Ronald J. Degen
  4. Can Contracts Signal Social Norms? Experimental Evidence By Danilov, Anastasia; Sliwka, Dirk
  5. Reputation and Entry By Butler, Jeffrey V.; Carbone, Enrica; Conzo, Pierluigi; Spagnolo, Giancarlo
  6. Political Connections and Firm Value: Evidence from the Regression Discontinuity Design of Close Gubernatorial Elections By Quoc-Anh Do; Yen-Teik Lee; Bang Dang Nguyen
  7. A Theory of Just-in-Time and the Growth in Manufacturing Trade By Dalton, John
  8. The Response of Firms' Leverage to Risk: Evidence from UK Public versus Non-Public ManufacturingFirms By Mustafa Caglayan; Abdul Rashid
  9. Where do entrepreneurial skills come from? By Stuetzer, Michael; Obschonka, Martin; Davidsson, Per; Schmitt-Rodermund, Eva
  10. Precautionary Saving over the Business Cycle By Edouard Challe; Xavier Ragot

  1. By: Trishita Bhattacharjee (Indira Gandhi Institute of Development Research); Rupayan Pal (Indira Gandhi Institute of Development Research)
    Abstract: This paper examines the implications of network externalities on equilibrium outcomes in a differentiated products duopoly under strategic managerial delegation through relative performance based incentive contracts. It shows that Miller and Pazgal (2001)'s equivalence result does not go through in the presence of network externalities. Instead, Singh and Vives (1984)'s rankings of equilibrium outcomes under Cournot and Bertrand hold true under relative performance based delegation contracts as well, if there are network externalities. However, when firms can choose whether to compete in price or in quantity, there are two pure strategy Nash equilibria and one mixed strategy Nash equilibrium. Interestingly, in pure strategy Nash equilibria asymmetric competition occurs, where a firm competes in price and its rival firm competes in quantity. Further, the mixed strategy Nash equilibrium probability of a firm to compete in terms of price increases with the strength of network effects and is always greater than the probability to compete in terms of price.
    Keywords: Symmetric competition, Price competition, Network externalities, Quantity competition, Relative performance contract, Strategic delegation
    JEL: D43 L22 L13 D21
    Date: 2013–05
  2. By: Giulio Bottazzi; Davide Pirino; Federico Tamagni
    Abstract: The upper tail of the firm size distribution is often assumed to follows a Power Law behavior. Recently, using different estimators and on different data sets, several papers conclude that this distribution follows the Zipf Law, that is that the fraction of firms whose size is above a given value is inversely proportional to the value itself. We compare the different methods through which this conclusion has been reached. We find that the family of estimators most widely adopted, based on an OLS regression, is in fact unreliable and basically useless for appropriate inference. This finding rises some doubts about previously identified Zipf Laws. In general, when individual observations are available, we recommend the adoption of the Hill estimator over any other method.
    Keywords: Firm size distribution; Zipf Law; Power-like distribution
    Date: 2013–07–12
  3. By: Ronald J. Degen (International School of Management Paris)
    Abstract: Wisdom, uncertainty, and ambiguity will always exist in management decisions. One danger for firms lies in managers making decisions that are based on faulty theories acquired through personal experience or learned from experience of others. Often, these decisions don’t generate the expected outcome and may even put the future of the firm at risk. To avoid this risk, managers are required to become wiser, more discerning, and more appropriately skeptical toward simplistic formulas and quick-fix remedies (as explained by Rosenzweig, 2007). In this paper, the author discusses types of business research and their philosophical assumptions, the strength and weaknesses of qualitative and quantitative research methods, the benefits of combining both methods, and the trustworthiness of research methods in general for validating the management theories used by managers in their decision-making.
    Keywords: management decisions, business research methods, risk of faulty theories, wisdom in management decisions
    JEL: M0 M1
    Date: 2013–07–17
  4. By: Danilov, Anastasia (University of Cologne); Sliwka, Dirk (University of Cologne)
    Abstract: We investigate whether incentive schemes signal social norms and thus affect behavior beyond their direct economic consequences. A principal-agent experiment is studied in which prior to contract choice principals are informed about past actions of other agents and thus have more information about "norms of behavior". Compared to a setting with uninformed principals agents exert nearly 50% higher efforts under a fixed wage contract when an informed principal had chosen this contract. Apparently the informed principal's choice signals a norm not to exploit the trust which leads to more trustworthy behavior. This mechanism's robustness is explored in further experiments.
    Keywords: social norms, contracts, incentives, signaling, experiments
    JEL: D03 C91 D86
    Date: 2013–06
  5. By: Butler, Jeffrey V. (EIEF); Carbone, Enrica (Second University of Naples "SUN"); Conzo, Pierluigi (University of Turin); Spagnolo, Giancarlo (Stockholm School of Economics - SITE, University of "Tor Vergata" & CEPR)
    Abstract: There is widespread concern among regulators that favoring suppliers with good past performance, a standard practice in private procurement, may hinder entry by new firms in public procurement markets. In this paper we report results from a laboratory experiment exploring the relationship between reputation and entry in procurement. We implement a repeated procurement model with reputation for quality and the possibility of entry in which the entrant may start off with positive reputation. Our results suggest that while some past-performance based reputational mechanisms can reduce the frequency of entry, appropriately designed mechanisms significantly stimulate it. We find that our reputational mechanism increases quality but not prices, so that the introduction of this kind of mechanism may generate large welfare gains for the buyer.
    Keywords: Cross-border procurement; Entry; Feedback mechanisms; Incomplete contracts; Limited enforcement; Incumbency; Multidimensional competition; Outsourcing; Past performance; Procurement; Quality assurance; Small business subsidies; Reputation; Vendor rating
    JEL: H57 L14 L15
    Date: 2013–05–15
  6. By: Quoc-Anh Do (Département d'économie); Yen-Teik Lee; Bang Dang Nguyen
    Abstract: Using the network of university classmates among corporate directors and politicians and the regression discontinuity design of close gubernatorial elections from 1999 to 2010, we identify the positive and significant impact of social-network based political connections on firm value. Firms connected to elected governors increase value by 1.36% on average surrounding the election date. Political connections are more valuable in a state with a higher level of regulation and corruption, in smaller firms, and in firms dependent on external finance. Firms connected to election winners invest more, earn better operating performance, hold more cash, and enjoy better long-term stock performance.
    Keywords: Political connection; firm value; social network; close election; gubernatorial election; regression discontinuity design.
    JEL: G3 G28 G30 G34 G38
    Date: 2013–03
  7. By: Dalton, John
    Abstract: This paper argues the widespread adoption of Just-in-Time (JIT) logistics provides a key to understanding the growth in the U.S. trade share. To do so, I develop a dynamic trade model based on the choice of the logistics technology used in a firm's supply chain. The model's predicted trade dynamics depend on how the set of firms using JIT with international suppliers changes over time. A numerical example shows the model is capable of generating growth in the trade share. I present evidence showing the theory is consistent with aggregate data as well as industry-level panel data.
    Keywords: trade growth, Just-in-Time, newsvendor problem, airplane transportation
    JEL: F10 F14 L60 M11
    Date: 2013–01
  8. By: Mustafa Caglayan; Abdul Rashid
    Abstract: This paper empirically investigates the effects of macroeconomic and firm-specific risk on firms' leverage. The analysis is carried out for a large panel of public and non-public UK manufacturing firms over the period 1999-2008. Our investigation provides evidence that UK manufacturing firms use less short-term debt during periods of high risk. However, the leverage of non-public manufacturing firms is more sensitive to firm-specific risk in comparison to their public counterparts while macroeconomic risk affects both types of firms similarly. Our investigation also shows that firms with high liquid assets reduce their leverage more (less) during periods of heightened firm-specific (macroeconomic) risk.
    Date: 2013
  9. By: Stuetzer, Michael; Obschonka, Martin; Davidsson, Per; Schmitt-Rodermund, Eva
    Abstract: Applying Lazear’s jack-of-all-trades theory we investigate the formation of entrepreneurial skills in two datasets on innovative new firms. Our results suggest that traditional human capital indicators individually have little or no influence on entrepreneurial skills. However, consistent with Lazaer’s theory those entrepreneurs who exhibit a varied set of work experience have higher entrepreneurial skills relevant for starting and growing a firm. This supports the notion that a varied set of work experiences rather than depth of any particular type of experience or education is important for the development of entrepreneurial skills.
    Keywords: Entrepreneurial skills; jack-of-all trades; new venture creation; human capital
    JEL: J24 L26 M13
    Date: 2013
  10. By: Edouard Challe (Department of Economics, Ecole Polytechnique - CNRS : UMR7176 - Polytechnique - X, CREST - Centre de Recherche en Économie et Statistique - INSEE - École Nationale de la Statistique et de l'Administration Économique); Xavier Ragot (Centre de recherche de la Banque de France - Banque de France, EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics - Ecole d'Économie de Paris, PSE - Paris-Jourdan Sciences Economiques - CNRS : UMR8545 - École des Hautes Études en Sciences Sociales [EHESS] - Ecole des Ponts ParisTech - Ecole normale supérieure de Paris - ENS Paris - Institut national de la recherche agronomique (INRA))
    Abstract: We study the macroeconomic implications of time-varying precautionary saving within a general equilibrium model with borrowing constraint and both aggregate shocks and uninsurable idiosyncratic unemployement risk. Our framework generates limited cross-sectional household heterogeneity as an equilibrium outcome, thereby making it possible to analyse the role of precautionary saving over the business cycle in an analytically tractable way. The time-series behaviour of aggregate consumption generated by our model is much closer to the data than that implied by the comparable hand-to-mouth and representative-agent models, and comparable to that produced by the(intractable) Krusell-Smith (1998) model.
    Date: 2013–07–10

This nep-bec issue is ©2013 by Vasileios Bougioukos. 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.