nep-bec New Economics Papers
on Business Economics
Issue of 2014‒06‒07
twelve papers chosen by
Vasileios Bougioukos
Bangor University

  1. Evolutionary efficacy of a Pay for Performance scheme with motivated agents By Fabio Lamantia; Mario Pezzino
  2. Non-Price Competition in a Modular Economy By Bin-Tzong Chie; Shu-Heng Chen
  3. Surviving Against the Tide: Are New Businesses in Innovative Industries Less Affected by General Economic Trends? By Michael Fritsch; Florian Noseleit; Yvonne Schindele
  4. Determinants and Impact of Subcontracting: Evidence from India’s Informal Manufacturing Sector By Amit Basole
  5. Internal Audit in the Pharmaceutical Sector: International and National Good Practices By Tsvetanova, Yulia
  6. Exploring the interplay, differences, and commonalities between global production networks and global innovation networks of two multinational companies By Liu, Ju; Chaminade, Cristina
  7. Measuring Ratchet Effects within a Firm: Evidence from a Field Experiment Varying Contractual Commitment By Bellemare, Charles; Shearer, Bruce S.
  8. Having it Both Ways: A Theory of the Banking Firm with Time-Consistent and Time-Inconsistent Depositors By Carolina Laureti; Ariane Szafarz
  9. Just Add Milk: A Productivity Analysis of the Revolutionary Changes in Nineteenth Century Danish Dairying By Markus Lampe; Paul Sharp
  10. Comparing Preference Orders:Asymptotic Independence By Kikuchi, Kazuya
  11. Grading on a Curve, and other Effects of Group Size on All-Pay Auctions By James Andreoni; Andy Brownback
  12. Norm Enforcement in Social Dilemmas. An Experiment with Police Commissioners By David Dickinson; David Masclet; Marie Claire Villeval

  1. By: Fabio Lamantia; Mario Pezzino
    Date: 2014
  2. By: Bin-Tzong Chie; Shu-Heng Chen
    Abstract: While it has been well acknowledged by economists for a long time that competition is not just about price, the conventional quantity-based economic models have difficulties integrating price competition and quality competition into a coherent framework. In this paper, motivated by Herbert Simon’s view of near decomposability or modularity, we propose a quality-based economic model called the modular economy. In this modular economy, quality is manifested by the evolutionary design of more sophisticated and customized products that can satisfy consumers’ satisfaction to a higher degree. Two essential features of the modular economy are founded through the agent-based simulation of a duopolistic competition. First, market competition tends to be self-annihilating; the competition will eventually end up with a dominant or a monopoly firm (conglomerate). Second, the high-markup firm has a better chance to be the only survivor than its low-markup competitor. We analyze these features through the complex cyclical dynamics of prices, profits, dividends, investment, working capital, and quality.
    Keywords: Modularity, Near Decomposability, Modular Economy, Nonprice Competition, Co-Evolving, Agent-Based Modeling
    Date: 2014
  3. By: Michael Fritsch (School of Economics and Business Administration, Friedrich-Schiller-University Jena); Florian Noseleit; Yvonne Schindele
    Abstract: We investigate the role of industry and region-specific conditions for the survival of new businesses in innovative and in other manufacturing industries. The data comprises all German manufacturing start-ups of the 1992 to 2005 period. In contrast to studies for some other countries, we find that businesses in innovative industries have higher survival rates than businesses in other manufacturing industries. Moreover, the chances of survival for innovative industries are rather immune to changes, regarding regional and industry-specific conditions, whereas businesses in the other manufacturing industries are strongly affected. These findings highlight that resistance to adverse conditions is dependent on industry specific opportunities and technological conditions.
    Keywords: New business survival, hazard rates, duration analysis, entrepreneurship, location
    JEL: C41 L25 L26 L60
    Date: 2014–06–02
  4. By: Amit Basole
    Abstract: There are two divergent perspectives on the impact of subcontracting on firms in the informal sector. According to the benign view, formal sector firms prefer linkages with relatively modern firms in the informal sector, and subcontracting enables capital accumulation and technological improvement in the latter. According to the exploitation view, formal sector firms extract surplus from stagnant, asset-poor informal sector firms that use cheap family labour in home-based production. However, direct, firm-level evidence on the determinants and impact of subcontracting is thus far lacking in the literature. We apply a modified Heckman selection model to Indian National Sample Survey data on informal manufacturing enterprises (2005{06). We find that home-based, relatively asset-poor, and female-owned firms are more likely to be in a subcontracting relationship. Further, we perform selectivity-corrected Oaxaca-Blinder Decomposition and calculate treatment effects to show that subcontracting benefits smaller firms, firms in industrially backward states and rural firms; it is harmful for larger firms, firms in industrially advanced states, and urban firms. Our results suggest that the effects of subcontracting are more complex than those predicted by the divergent perspectives. Policy-makers need to engage with this complexity.
    Keywords: sub-contracting, informal sector, Heckman sample selection, Blinder-Oaxaca decomposition
    JEL: C31 O17 O53
    Date: 2014–06
  5. By: Tsvetanova, Yulia
    Abstract: Internal audit plays an increasingly important role in the field of management. In today's economic environment, means and methods to achieve high financial performance in the medium and long-term perspective are purposefully sought. In the new reality, practice puts an emphasis on the need for additional control on the activities which, in turn, justifies concrete changes in the policy of the organizations as well. In terms of the individual organization, the implementation of internal audit is a set of applications of international practices and compliance with the national legislation that are undertaken to improve the competitiveness.
    Keywords: internal audit, good practices, pharmaceutical sector
    JEL: F53 I18 M42
    Date: 2014–04
  6. By: Liu, Ju (CIRCLE, Lund University); Chaminade, Cristina (CIRCLE, Lund University)
    Abstract: The recent wave of globalisation has been characterised not only by an increased number of cross-border production networks but also by an increasing number of cross-border innovation networks. However, most literature treats global innovation networks (GINs) as an extension of global production networks (GPNs). Taking a network perspective and based on primary data, this paper explores the composition of and relations between the GPNs and GINs of two multinational companies (MNCs). It finds that the case firms’ GINs and GPNs interplay and the interplay is to a greater extent in the ICT case firm than in the automobile case firm. The case firms’ GINs have more diverse actors and are more centralised than their GPNs but the reason is different in two cases. Meanwhile, the GINs and GPNs share the same relational pattern in both case firms. The paper suggests that theoretically considering GPN and GIN as two different but interwoven layers of a MNCs’ global value creation network may provide better conceptual clarity and may generate more precise implications for practitioners and policymakers.
    Keywords: Global production network; Global innovation network; Multinational companies; Social network analysis; Sweden
    JEL: M16 O32
    Date: 2014–05–23
  7. By: Bellemare, Charles (Université Laval); Shearer, Bruce S. (Université Laval)
    Abstract: We present results from a field experiment designed to measure the importance of managerial commitment to a contract within a firm that pays its workers piece rates. In the tree planting industry the piece rate paid to workers is determined as a function of the difficulty of the terrain to be planted. During the experiment, workers began planting a terrain at a trial piece rate, but were told this rate would be revised upwards if, after a few work days, average productivity was below that observed on a similar (control) terrain on which the firm had committed to the contract. Our results suggest that worker productivity was 20% to 40% lower in the absence of commitment. The reduction was less pronounced when workers had less time to benefit from any subsequent increase in the piece rate. This provides support for models of worker turnover as a means of overcoming ratchet effects.
    Keywords: ratchet effect, piece rates, incentive contracts, field experiments
    JEL: J33 M52 C93
    Date: 2014–05
  8. By: Carolina Laureti; Ariane Szafarz
    Abstract: Our equilibrium model determines the liquidity premium offered by a monopolistic bank to a pool of depositors made up of time-consistent and time-inconsistent agents. Time-consistent depositors demand compensation for illiquidity, whereas time-inconsistent ones are willing to forgo interest on illiquid savings accounts to discipline their future selves. We show that formal financial markets can reward time-inconsistent clients for illiquidity, even though these agents would agree to pay for it. The explanation combines two factors: the existence of reserve requirements making the bank keen to reward illiquid accounts more than liquid ones, and the presence of time-consistent agents who view illiquidity as a burden and therefore demand compensation for holding illiquid accounts.
    Keywords: Deposit; commitment; flexibility; liquidity premium; hyperbolic discounting; Bangladesh
    JEL: G21 D53 D82 D91 O12 O16
    Date: 2014–05–26
  9. By: Markus Lampe (Universidad Carlos III); Paul Sharp (University of Southern Denmark)
    Abstract: The late nineteenth century Danish agricultural revolution saw the modernization and growth of the dairy industry. Denmark rapidly caught up with the leading economies, and Danish dairying led the world in terms of productivity. Uniquely in a world perspective, high quality micro-level data exist documenting this episode. These allow the use of the tool of modern agricultural economists, stochastic frontier analysis, to estimate production functions for milk and thus find the determinants of these productivity and efficiency advances. We identify the contribution of modernization through specific new technologies and practices.
    Keywords: Dairies, Denmark, development, Stochastic Frontier Analysis
    JEL: L2 N5 O3 Q1
    Date: 2014–05
  10. By: Kikuchi, Kazuya
    Abstract: A decision maker is presented with two preference orders over n objects and chooses the one which is “closer” to his own preference order. We consider several plausible comparison rules that the decision maker might employ. We show that when n is large and the pair of orders to be compared randomly realizes, different comparison rules lead to statistically almost independent choices. Thus, two people with a common preference relation may nonetheless exhibit almost uncorrelated choice patterns.
    Keywords: preference relation, rank correlation
    JEL: D01
    Date: 2014–05
  11. By: James Andreoni; Andy Brownback
    Abstract: We model contests with a fixed proportion of prizes, such as a grading curve, as all-pay auctions where higher effort weakly increases the likelihood of a prize. We find theoretical predictions for the effect of contest size on effort and test our predictions in a laboratory experiment that compares two-bidder auctions with one prize and 20-bidder auctions with ten prizes. Our results demonstrate that larger contests elicit lower effort by low-skilled students, but higher effort by high-skilled. Large contests also generate more accurate rankings of students and more accurate assignment of high grades to the high-skilled.
    JEL: C91 C92 H52
    Date: 2014–05
  12. By: David Dickinson (Department of Economics - Appalachian State University); David Masclet (CREM - Centre de Recherche en Economie et Management - CNRS : UMR6211 - Université de Rennes 1 - Université de Caen Basse-Normandie); Marie Claire Villeval (GATE Lyon Saint-Étienne - Groupe d'analyse et de théorie économique - CNRS : UMR5824 - Université Lumière - Lyon II - École Normale Supérieure (ENS) - Lyon - PRES Université de Lyon - Université Jean Monnet - Saint-Etienne - Université Claude Bernard - Lyon I (UCBL))
    Abstract: Do individuals trained in law enforcement punish or reward differently from typical student subjects ? We analyze norm enforcement behavior of newly appointed police commissioners in both a Voluntary Contribution Mechanism game and a Common Pool Resource game. Our experimental design includes treatments where a reward or sanction institution is exogenously imposed, as well as treatments with endogenous selection of the norm enforcement institution. Compared to a standard student-subject pool, police commissioners cooperate significantly more in both games. With exogenous institutions, police commissioners bear a higher burden of punishment costs than non-police subjects. When the norm enforcement institution is endogenous, all subjects vote more in favor of rewards over sanctions, but police subjects with some work experience are more likely to vote for sanctions. Police subjects also reward and sanction more than the others when the institution results from a majority vote.
    Keywords: Norm enforcement; Common Pool Resources; Voluntary Contribution Mechanism; Police officers; Experiment
    Date: 2014

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