nep-bec New Economics Papers
on Business Economics
Issue of 2018‒03‒19
twelve papers chosen by
Vasileios Bougioukos
Bangor University

  1. Collusion and bargaining in asymmetric cournot duopoly: An experiment By Fischer, Christian; Normann, Hans-Theo
  2. Employment protection and firm relocation: Theory and evidence By Dewit, Gerda; Görg, Holger; Temouri, Yama
  3. Stock Market Cross-Sectional Skewness and Business Cycle Fluctuations By Thiago Revil T. Ferreira
  4. Let’s try next door: Technical Barriers to Trade and multi-destination firms By Lionel Fontagné; Gianluca Orefice
  5. Bank credit supply and firm innovation By Giebel, Marek; Kraft, Kornelius
  6. Intellectual Property Use in Middle Income Countries: The Case of Chile By Carsten Fink; Bronwyn H. Hall; Christian Helmers
  7. Demand Shocks and Labor Market Dynamics: Firm Level Responses to a Commodity Boom By Sergio Urzua; Felipe Saffie; Felipe Benguria
  8. Why the Current Tax Rate Tells You Little: Competing for Mobile and Immobile Firms By Dominika Langenmayr; Martin Simmler
  9. Promotions and the Peter Principle By Alan Benson; Danielle Li; Kelly Shue
  10. The extensive and intensive margins of exports of firms in developing and emerging countries By Regis, Paulo José
  11. Impact of European food safety border inspections on agri-food exports: Evidence from Chinese firms By Matthias Beestermöller; Anne-Célia Disdier; Lionel Fontagné
  12. Pay Cycles: Individual and Aggregate Effects of Paycheck Frequency By Inés Berniell

  1. By: Fischer, Christian; Normann, Hans-Theo
    Abstract: In asymmetric dilemma games without side payments, players face involved cooperation and bargaining problems. The maximization of joint profits is implausible, players disagree on the collusive action, and the outcome is often inefficient. For the example of a Cournot duopoly with asymmetric cost, we investigate experimentally how players cooperate (collude implicitly and explicitly), if at all, in such games. We find that, without communication, players fail to cooperate and essentially play the static Nash equilibrium, confirming previous results. With communication, inefficient firms gain at the expense of efficient ones. When the role of the efficient firm is earned in a contest, the efficient firm earns higher profits than when this role is randomly allocated. Bargaining solutions do not satisfactorily predict collusive outcomes. Finally, when given the choice to talk, the efficient firms often decline that option.
    Keywords: asymmetries,bargaining,cartels,communication,Cournot,earned role,experiments
    JEL: C7 C9 L4 L41
    Date: 2018
  2. By: Dewit, Gerda; Görg, Holger; Temouri, Yama
    Abstract: We examine the determinants of the decision to relocate activities abroad for firms located in OECD countries. We argue that particular firm-specific features play a crucial role for the link between employment protection and relocation. Stricter employment protection laws in the current production location discourage firms' relocation abroad. While larger, more productive firms and firms with higher labour intensities have, ceteris paribus, higher propensities to relocate, they also face higher exit barriers if the country from which they consider relocating has strict employment protection laws. Our predictions are supported empirically, using firm level data for 28 OECD countries.
    Keywords: Employment Protection,Relocation,Multinational Enterprises
    JEL: F23 L23 J88
    Date: 2018
  3. By: Thiago Revil T. Ferreira
    Abstract: Using U.S. data from 1926 to 2015, I show that financial skewness—a measure comparing cross-sectional upside and downside risks of the distribution of stock market returns of financial firms—is a powerful predictor of business cycle fluctuations. I then show that shocks to financial skewness are important drivers of business cycles, identifying these shocks using both vector autoregressions and a dynamic stochastic general equilibrium model. Financial skewness appears to reflect the exposure of financial firms to the economic performance of their borrowers.
    Keywords: Cross-Sectional Skewness ; Business Cycle Fluctuations ; Financial Channel
    JEL: C32 E32 E37 E44
    Date: 2018–03–06
  4. By: Lionel Fontagné (CEPII - Centre d'Etudes Prospectives et d'Informations Internationales - Centre d'analyse stratégique, CES - Centre d'économie de la Sorbonne - UP1 - Université Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique); Gianluca Orefice (CEPII - Centre d'Etudes Prospectives et d'Informations Internationales - Centre d'analyse stratégique)
    Abstract: Stringent Technical Barriers to Trade (TBT) are expected to drive exporters out of the markets imposing these hurdles. In addition, more able multi-destination exporters can refocus on TBT-free markets and reorient their exports. By matching a database of TBT measures raised as concerns at the WTO (Specific Trade Concerns -- STCs), with a firm-level panel of French exporters, we show the complex effects of restrictive TBT measures on the different margins of trade. We show that the negative effect of TBT on export participation is magnified for multi-destination firms, which can divert their exports towards TBT-free destinations. Moreover, we conduct aggregate level estimations to show that the effect of stringent TBTs in reducing export flows is magnified in more homogeneous sectors. Observing the shape of the firm distribution at sectoral level and the aggregate response of export to trade cost, we shed light on the fixed component of the additional cost imposed by TBTs on exporters.
    Keywords: Non-tariff measures, TBT, Multi-destination Firms, Trade Margins,TBT,Multi-destination Firms,Trade Margins JEL Codes: F13
    Date: 2018–01
  5. By: Giebel, Marek; Kraft, Kornelius
    Abstract: We analyze the causal effect of the credit supply shock to banks induced by interbank market disruptions in the recent financial crisis 2008/2009 on their business customers' innovation activity. Using a matched bank-firm data set for Germany, we find that having relations with a more severely affected bank seriously hampers firms' current innovation activities due to funding shortages. Furthermore, we find that firms with a relationship to a less severely affected bank are more likely to initiate new product and process innovations and to reallocate human resources to innovation during the financial crisis.
    Keywords: financing of innovations,credit supply,financial crisis,innovative activities
    JEL: G01 G21 G30 O16 O30 O31
    Date: 2018
  6. By: Carsten Fink; Bronwyn H. Hall; Christian Helmers
    Abstract: We analyze the use of intellectual property (IP) by firms in Chile over the decade 1995-2005 as the then middle-income country experienced rapid economic growth of 4.7 percent per year. We use a novel dataset that contains a combination of detailed firm-level information from the annual manufacturing census, information on firms’ innovative activities from Chile’s innovation surveys, and firms’ patent, industrial design, and trademark filings with the Chilean IP office. We use these data to look at how IP use by companies has changed over time and analyze the determinants of IP use, in particular first-time use. We find that sales growth prompts first-time use of patents and trademarks, though such use does not change the growth trajectory of firms nor does it improve their total factor productivity. We also find that trademark use is associated with new-to-the-world product innovation, which suggests that branding may be an important mechanism to appropriate returns to innovation in a middle-income country like Chile.
    JEL: O12 O34
    Date: 2018–02
  7. By: Sergio Urzua (University of Maryland, College Park); Felipe Saffie (University of Maryland); Felipe Benguria (University of Kentucky)
    Abstract: This paper studies the role of labor markets in the transmission of commodity price super cycles, including the causal association between dynamic labor distortions and recessions during cycle busts. Our theoretical contributions emerge from a three-sector model of a small open economy with firm heterogeneity, entry and exit decisions, and skilled and unskilled labor. We show that during the boom, the commodity and non-tradable sectors expand, the skill wage premium narrows, and the non-commodity export sector contracts. During the bust, on the other hand, downward wage rigidity generates dynamic misallocation between sectors, triggering a persistent recession characterized by unemployment and a sluggish recovery of non-commodity exporters. This opens a door for precautionary policy during the boom. We then present empirical evidence to asses these mechanisms. In particular, we study the case of Brazil between 1996-2013, a period in which large commodity price fluctuations provided a clean quasi-natural experiment. We examine linked employer-employee data and exploit variation across commodities and across regions to measure the direct impact of commodity prices on labor market outcomes of both commodity producing firms and firms in other sectors of the economy. Our empirical evidence support our theoretical implications.
    Date: 2017
  8. By: Dominika Langenmayr; Martin Simmler
    Abstract: Firms should use all available information to anticipate future tax rates. Firm mobility, as a key determinant of corporate tax rates, is one such source of information. We first show theoretically that a government sets a higher tax rates on firm profits if average firm mobility in its jurisdiction is low, and that the potential entry of immobile firms in the future deters firms from entering a jurisdiction today. We then test and confirm these predictions in a well-identified setting, using the rapid growth of wind power plants (a very immobile industry) and the large variation in local business taxes across Germany for identification.
    Keywords: corporate taxation, firm mobility, commitment, tax competition
    JEL: H25 H71 F21
    Date: 2017
  9. By: Alan Benson; Danielle Li; Kelly Shue
    Abstract: The best worker is not always the best candidate for manager. In these cases, do firms promote the best potential manager or the best worker in her current job? Using microdata on the performance of sales workers at 214 firms, we find evidence consistent with the “Peter Principle,” which predicts that firms prioritize current job performance in promotion decisions at the expense of other observable characteristics that better predict managerial performance. We estimate that the costs of promoting workers with lower managerial potential are high, suggesting either that firms are making inefficient promotion decisions or that the benefits of promotion-based incentives are great enough to justify the costs of managerial mismatch.
    JEL: J01 M5 M51
    Date: 2018–02
  10. By: Regis, Paulo José (Division of Economics, Xi'an Jiaotong-Liverpool University)
    Abstract: Using a dataset of over 86,000 firms from 179 surveys in developing and emerging countries, this paper presents evidence of the relationship between the margins of trade and productivity. Consistent with heterogeneous firm theoretical models, firms with high productivity have both greater likelihood of exporting (extensive margin) and higher export volume (intensive margin). Access to credit increases likelihood of entry to international markets; however, credit does not increase export volume. Size is a robust indicator of exporting status and the volume of exports. Firms with foreign ownership participation tend to be exporters, while those with state participation tend not to be.
    Keywords: margins of trade, productivity, access to finance, developing and emerging countries
    JEL: D24 F14 F10
    Date: 2018–02–08
  11. By: Matthias Beestermöller (LMU Munich - University of Munich); Anne-Célia Disdier (PSE - Paris School of Economics); Lionel Fontagné (PSE - Paris School of Economics, CES - Centre d'économie de la Sorbonne - UP1 - Université Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique)
    Abstract: The cost of complying with a sanitary standard is certain. However, such measure introduces uncertainty for exporters in relation to border rejections. Shipments may fail to pass inspections and may be refused entry into the importing country. This risk is shaped by variance in the quality of the exported product, and the stringency of the border controls. We examine how the risk of rejection at European borders on safety grounds is affecting Chinese agri-food exporters. We combine information from the European Rapid Alert System for Food and Feed with Chinese firm-level export data by product, destination and year for the period 2000-2011. Information externalities and reputation effects are important. Border rejections amplify the turnover among firms at the extensive margin of trade. This risk is curbing small exporters and resulting in a concentration of Chinese exports among big exporters.
    Keywords: Food Safety,Border inspections,Import refusals,Uncertainty,Firm heterogeneity
    Date: 2018
  12. By: Inés Berniell (CEDLAS-FCE-UNLP.)
    Abstract: This paper shows that the frequency at which workers are paid affects the within-month patterns of both household expenditure and aggregate economic activity. To identify causal effects, I exploit two novel sources of exogenous variation in pay frequency in the US. First, using an as-good-as-random variation in the pay frequency of retired couples, I show that those who are paid more frequently have smoother expenditure paths. Second, I take advantage of crossstate variation in labor laws to compare patterns of economic activity in states in which the frequency with which wages are paid differs. I document that low pay frequencies lead to within-month business cycles when many workers are paid on the same dates, which in turn generates costly congestion in sectors with capacity constraints. These findings have important policy implications for contexts where firms and workers do not internalize such congestion externalities as this situation leads to market equilibria with suboptimally low pay frequencies and few paydays.
    JEL: J33 E21 E32
    Date: 2018–02

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