nep-bec New Economics Papers
on Business Economics
Issue of 2016‒08‒28
fourteen papers chosen by
Vasileios Bougioukos
Bangor University

  1. Performance of mixed oligopoly model in the context of Indian telecom industry By Chatterjee, Susmita; Datta, Debabrata; Banerjee, Ranjan
  2. How Do Labor Representatives Affect Incentive Orientation of Executive Compensation? By Dyballa, Katharina; Kraft, Kornelius
  3. Globalization and the markups of European firms By Gabor Bekes; Cecilia Hornok; Balázs Muraközy
  4. Firms’ Heterogeneity, Incomplete Information, and Pass-Through By Stefania Garetto
  5. The Opportunity Costs of Entrepreneurs in International Trade By Timothy J. Kehoe; Pau S. Pujolas; Kim J. Ruhl
  6. Quality and Competition between Public and Private Firms By Liisa Laine; Ching-to Albert Ma
  7. The Impact of Taxes on the Extensive and Intensive Margins of FDI By Davies, Ronald B.; Siedschlag, Iulia; Studnicka, Zuzanna
  8. Disentangling the Effect of Private and Public Cash Flows on Firm Value By Cristina Mabel Scherrer; Marcelo Fernandes
  9. Impact of caregiver incentives on child health: evidence from an experiment with Anganwadi workers in India By Prakarsh Singh; William A. Masters
  10. Procurement with specialized firms By Boone, Jan; Schottmuller, C.
  11. The Impact of Price Discrimination on Major League Baseball Team’s Revenue By Brian P Soebbing; Nicholas M Watanabe; Chad S Seifried
  12. Technology and Production Fragmentation: Domestic versus Foreign Sourcing By Teresa C. Fort
  13. A storage strategy with dynamic bay reservations for container terminals By Voß, Andre; Guckenbiehl, Gabriel; Schütt, Holger; Buer, Tobias
  14. Sectoral Dynamics and Business Cycles By Tase, Manjola

  1. By: Chatterjee, Susmita; Datta, Debabrata; Banerjee, Ranjan
    Abstract: The logic for state monopoly of public utilities arises from increasing returns to scale and the concern that private business in these areas results in monopolistic exploitation of consumers. The state monopoly however is fraught with the danger of production inefficiency. In this backdrop, the market form of mixed oligopoly is contemplated in markets like health, education, electricity, gas, telecommunications, etc, where public and private sector coexists. The private firms maximize profit but the public firm maximizes social welfare. Despite this theoretical exposition, it is often observed that public firms fail to make contributions according to their potentiality. As a result the issue of social welfare gets a short shrift. While assessing the behaviour and performance of the firm in this setup we must know the objective functions and the constraints. The asymmetry of objectives between private and public firms and the asymmetry of constraints may explain the below par performance of public firms. This needs focus on the existing theoretical construct on mixed oligopoly and empirical consideration of the performance of some specific public firm. In this paper we study the state owned Indian telecom company Bharat Shanchar Nigam Limited (BSNL) to get an understanding of performance of mixed oligopoly.
    Keywords: Mixed oligopoly, public sector firm, welfare
    JEL: D63 H83
    Date: 2016–07–31
  2. By: Dyballa, Katharina (TU Dortmund); Kraft, Kornelius (TU Dortmund)
    Abstract: Contrary to previous literature we hypothesize that labor's interest may well – like that of shareholders – aim at securing the long-run survival of the firm. Consequently, employee representatives on the supervisory board could well have an interest in increasing incentive-based compensation to avoid management's excessive risk taking and short-run oriented decisions. We compile unique panel data on executive compensation over the periods 2006 to 2011 for 405 listed companies and use a Hausman-Taylor approach to estimate the effect of codetermination on the compensation design. Finally, codetermination has a significantly positive effect on performance-based components of compensation, which supports our hypothesis.
    Keywords: executive compensation, board representation, principal-agent theory, corporate finance, Hausman-Taylor
    JEL: J52 L20 G32 M12 C33
    Date: 2016–08
  3. By: Gabor Bekes (Institute of Economics - Centre for Economic and Regional Studies, Hungarian Academy of Sciences and CEPR); Cecilia Hornok (Kiel Institute for the World Economy); Balázs Muraközy (Institute of Economics - Centre for Economic and Regional Studies, Hungarian Academy of Sciences)
    Abstract: We use a unique cross-section survey of manufacturing firms from four European countries (France, Germany, Italy, Spain) linked with balance sheet data to study the relationship between key aspects of globalization and firm-level markups. The main results are: (i) Exporting is positively correlated with markups; (ii) Importing intermediate inputs and outsourcing are also positively correlated with markups; (iii) Firms with affiliates have higher markups than other firms, while simply membership in a group or being foreign-owned seem to be less important; (iv) Perceived competition from low-cost markets is negatively correlated with markups; (v) Higher quality production and innovation, especially if it results in IP, has a strong positive relationship with markups; (vi) While these variables are correlated, they are significant in a joint model including all four groups, and `fully globalized' firms tend to charge around 100% higher markups than non-globalized firms.
    Keywords: markups, exporting, importing, FDI, innovation
    JEL: D22 D24 F14 L11 L60
    Date: 2016–06
  4. By: Stefania Garetto (Boston University)
    Abstract: A large body of empirical work documents that prices of traded goods change by a smaller proportion than real exchange rates between the trading countries (incomplete pass-through). I present a Ricardian model of trade and international price-setting with heterogeneous firms, Bertrand competition and incomplete information. The model implies that: 1) firm-level pass- through is incomplete and a U-shaped function of firm-level productivity and market share; and 2) controlling for firm market share, producers operating under incomplete information, like for example new entrants in a market, exhibit lower pass-through rates than producers operating under complete information. Estimates from a panel data set of cars prices support the predictions of the model.
    Keywords: Heterogeneous firms, incomplete information, incomplete pass-through
    JEL: F12 F31 L13 D44
    Date: 2016–04–18
  5. By: Timothy J. Kehoe; Pau S. Pujolas; Kim J. Ruhl
    Abstract: We show that a trade model with an exogenous set of heterogeneous firms with fixed operating costs has the same aggregate outcomes as a span-of-control model. Fixed costs in the heterogeneous-firm model are entrepreneurs’ forgone wage in the span-of-control model.
    JEL: D31 D43 F12
    Date: 2016–08
  6. By: Liisa Laine (University of Jyvaskyla); Ching-to Albert Ma (Boston University)
    Abstract: We study a multi-stage, quality-price game between a public firm and a private firm. The market consists of a set of consumers who have di§erent quality valuations. A public firm aims to maximize social surplus, whereas the private firm maximizes profit. In the first stage, both firms simultaneously choose qualities. In the second stage, both firms simultaneously choose prices. Consumers' qualty valuations follow a general distribution. Firms' unit production cost is a an increasing and convex function of quality. There are multiple equilibria. In some, the public firm chooses a low quality, and the private firm chooses a high quality. In others, the opposite is true. We characterize subgame-perfect equilibria, and provide conditions on consumer valuation distribution for first-best equilibrium qualities. Various policy implications are drawn.
    Keywords: price-quality competition, quality, public firm, private firm
    JEL: D4 L1 L2 L3
    Date: 2016–03
  7. By: Davies, Ronald B.; Siedschlag, Iulia; Studnicka, Zuzanna
    Abstract: The design of optimal tax policy, especially with respect to attracting FDI, hinges on whether taxes affect multinational firms at the extensive or the intensive margins. Nevertheless, the literature has not yet explored the simultaneous impact of taxation on FDI on these two margins. Using firm-level cross-border investments into Europe during 2004-2013, we do so with a Heckman two-step estimator, an approach which also allows us to endogenize the number of investments and include home country and parent firm characteristics. We find that taxes affect both margins, particularly for firms that invest only once, with 92 percent of tax-induced changes in aggregate inbound FDI driven by movements at the extensive margin. In addition, we find significant effects of both home country and parent firm characteristics, pointing towards the granularity of investment decisions.
    Date: 2016–07
  8. By: Cristina Mabel Scherrer (Aarhus University and CREATES); Marcelo Fernandes (Queen Mary University of London and FGV)
    Abstract: This paper presents a simple model for dual-class stock shares, in which common shareholders receive both public and private cash flows (i.e. dividends and any private benefit of holding voting rights) and preferred shareholders only receive public cash flows (i.e. dividends). The dual-class premium is driven not only by the firm's ability to generate cash flows, but also by voting rights. We isolate these two effects in order to identify the role of voting rights on equity-holders' wealth. In particular, we employ a cointegrated VAR model to retrieve the impact of the voting rights value on cash flow rights. We find a negative relation between the value of the voting right and the preferred shareholders' wealth for Brazilian cross-listed firms. In addition, we examine the connection between the voting right value and market and firm specific risks.
    Keywords: Private benefits, Voting right, Dual-class shares
    JEL: G32 G34 G38 G15
    Date: 2016–08
  9. By: Prakarsh Singh; William A. Masters
    Abstract: This paper provides evidence for the effectiveness of performance pay among government caregivers to improve child health in India. In a controlled study of 160 daycare centers serving over 4000 children, we randomly assign workers to receive performance pay or fixed bonuses of roughly similar expected value, and test for differences in malnutrition among the children in their care. We find that performance pay reduces the prevalence of weight-for-age malnutrition by about 5 percentage points in 3 months. This effect is sustained in the medium term with a renewal of incentives but the differential growth rate fades away once the scheme is discontinued. Fixed bonuses lead to smaller-sized effects and only in the medium-term. Both treatments appear to improve worker effort and communication with mothers, who in turn feed a more calorific diet to their children at home.
    Keywords: Performance pay; public health information; child malnutrition
    JEL: O1 I1 M5
    Date: 2016–05
  10. By: Boone, Jan (Tilburg University, School of Economics and Management); Schottmuller, C. (Tilburg University, School of Economics and Management)
    Abstract: We analyze optimal procurement mechanisms when firms are specialized. The procurement agency has incomplete information concerning the firms' cost functions and values high quality as well as low price. Lower type firms are cheaper (more expensive) than higher type firms when providing low (high) quality. With specialized firms, distortion is limited and a mass of types earns zero profits. The optimal mechanism can be inefficient: types providing lower second-best welfare win against types providing higher second-best welfare. As standard scoring rule auctions cannot always implement the optimal mechanism, we introduce a new auction format implementing the optimal mechanism.
    Date: 2016
  11. By: Brian P Soebbing (Faculty of Physical Education and Recreation, University of Alberta); Nicholas M Watanabe (Department of Health, Exercise Science, and Recreation Management, University of Mississippi); Chad S Seifried (School of Kinesiology, Louisiana State University)
    Abstract: The empirical evidence supporting the impact that second degree price discrimination has on a firm’s revenue has received little attention. The present research examines ticket data from Major League Baseball from 1990 through 2010. Estimating a two-staged least squares model, we find neither price discrimination variable has an impact on team revenues. However, we find that both of these price discrimination variables impact revenues when examining different facility types. We discuss the impact on the role that price behavior and venues have on price dispersion.
    Keywords: Price Discrimination, Price Dispersion, Information, Revenue, Facilities, Tickets
    JEL: D42 L12 L83
    Date: 2016–08
  12. By: Teresa C. Fort
    Abstract: This paper provides direct empirical evidence on the relationship between technology and firms’ global sourcing strategies. Using new data on U.S. firms’ decisions to contract for manufacturing services from domestic or foreign suppliers, I show that changes in firm use of communication technology between 2002 to 2007 can explain almost one quarter of the increase in fragmentation over the period. The effect of firm technology also differs significantly across industries; in 2007, it is 20 percent higher, relative to the mean, in industries with production specifications that are easier to codify in an electronic format. These patterns suggest that technology lowers coordination costs, though its effect is disproportionately higher for domestic rather than foreign sourcing. The larger impact on domestic fragmentation highlights its importance as an alternative to offshoring, and can be explained by complementarities between technology and worker skill. High technology firms and industries are more likely to source from high human capital countries, and the differential impact of technology across industries is strongly increasing in country human capital.
    JEL: F14 F23 L23
    Date: 2016–08
  13. By: Voß, Andre; Guckenbiehl, Gabriel; Schütt, Holger; Buer, Tobias
    Date: 2016
  14. By: Tase, Manjola
    Abstract: I construct an index of sectoral dynamics to characterize changes in the sectoral composition of economic activity. There is evidence of asymmetry in different phases of business cycles with recessions being associated with larger changes in sectoral composition than expansions. I find that the correlation between dynamics in sectoral employment and aggregate output has weakened since the 1990s. Also, sectoral changes appear to be smaller and spread across more sectors, while their contribution to aggregate volatility has been increasing. I also perform a simulation exercise and replicate these documented facts. The results suggest that shifts in the sectoral composition of the economy likely contribute to the formation of business cycles. Also the duration of recessions implied by the impulse response functions from a VAR model of sectoral dynamics and aggregate output growth matches the duration of recessions observed in the data.
    Keywords: Structural changes ; Business cycles ; Labor share ; Employment
    JEL: E32 E24
    Date: 2016–07–20

This nep-bec issue is ©2016 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.