nep-hme New Economics Papers
on Heterodox Microeconomics
Issue of 2011‒10‒22
fourteen papers chosen by
Frederic S. Lee
University of Missouri-Kansas City

  1. Lifetime Earnings Inequality in Germany By Timm Bönke; Giacomo Corneo; Holger Lüthen
  2. Do consumers prefer offers that are easy to compare? An experimental investigation By Paolo Crosetto; Alexia Gaudeul
  3. Agglomeration, related variety and vertical integration By Giulio Cainelli; Donato Iacobucci
  4. Structural features of distributive trades and their impact on prices in the euro area By Robert Anderton; Aidan Meyler; Luca Gattini; Mario Izquierdo; Valerie Jarvis; Ri Kaarup; Magdalena Komzakova; Bettina Landau; Matthias Mohr; Adrian Page; David Sondermann; Philip Vermeulen; David Cornille; Tsvetan Tsalinski; Zornitsa Vladova; Christin Hartmann; Harald Stahl; Suzanne Linehan; Hiona Balfoussia; Stelios Panagiotou; María de los Llanos Matea; Luis J. Alvarez; Pierre-Michel Bardet-Fremann; Nicoletta Berardi; Patrick Sevestre; Emanuela Ciapanna; Concetta Rondinelli; Demetris Kapatais; Eric Walch; Patrick Lünnemann; Sandra Zerafa; Christopher Pace; Jasper Kieft; Friedrich Fritzer; Fatima Cardoso; Mateja Gabrijelcic; Branislav Karma; Jarkko Kivistö
  5. Exchange Rate Pass-Through and Credit Constraints: Firms Price to Market as Long as They Can By Georg H. Strasser
  6. Reciprocity and Workers' Tastes for Representation By Uwe Jirjahn; Vanessa Lange
  7. In quest of the stages of renewal of French entrepreneurship in the years 1950s-2000s (In French) By Hubert BONIN (GREThA, CNRS, UMR5113 - IEP BORDEAUX)
  8. Regulation, competition and fraud: evidence from retail gas stations in Mexico By Arteaga, Julio Cesar; Flores, Daniel
  9. A critical perspective on heterodox production modeling By Murray, Michael/ M J
  10. Monetary policy restriction and dividend behavior of Pakistani firms: an empirical analysis By Mohsin, Hasan M; Ashraf, Muhammad Shahzad
  11. Evolution of competition in Vietnam industries over the recent economic transition By Doan, Tinh
  12. What do Boards Really Do? Evidence from Minutes of Board Meetings By Miriam Schwartz-Ziv; Michael Weisbach
  13. The Wage Effects of Offshoring: Evidence from Danish Matched Worker-Firm Data By David Hummels; Rasmus Jørgensen; Jakob R. Munch; Chong Xiang
  14. The Real Effects of Hedge Fund Activism: Productivity, Risk, and Product Market Competition By Alon Brav; Wei Jiang; Hyunseob Kim

  1. By: Timm Bönke; Giacomo Corneo; Holger Lüthen
    Abstract: This paper documents the magnitude, pattern, and evolution of lifetime earnings inequality in Germany. Based on a large sample of earning biographies from social security records, we show that the intra-generational distribution of lifetime earnings of male workers has a Gini coefficient around .2 for cohorts born in the late 1930s and early 1940s; this amounts to about 2/3 of the value of the Gini coefficient of annual earnings. Within cohorts, mobility in the distribution of yearly earnings is substantial at the beginning of the lifecycle, decreases after-wards and virtually vanishes after age forty. Earnings data for thirty-one cohorts reveals striking evidence of a secular rise of intra-generational inequality in lifetime earnings: West-German men born in the early 1960s are likely to experience about 80 % more lifetime inequality than their fathers. In contrast, both short-term and long-term intra-generational mobility have been rather stable. Longer unemployment spells of workers at the bottom of the distribution of younger cohorts contribute to explain 30 to 40 % of the overall increase in life-time earnings inequality.
    Keywords: Lifetime Earnings, Earnings Distribution, Inequality, Mobility, Germany
    JEL: D31 D33 H24
    Date: 2011
  2. By: Paolo Crosetto (Max Planck Institute for Economics, Jena); Alexia Gaudeul (Graduate School "Human Behavior in Social and Economic Change" (GSBC), Friedrich Schiller University, Jena)
    Abstract: Consumers make mistakes when facing complex purchasing decision problems but if at least some consumers choose only among offers that are easy to compare with others then firms will adopt common ways to present their offers and thus make choice easier (Gaudeul and Sugden, 2011). We design an original experiment to identify consumers' choice heuristics in the lab. Subjects are presented with menus of offers and do appear to favour offers that are easy to compare with others in the menu. While not all subjects do so, this is enough to deter firms from introducing spurious complexity in the way they present products.
    Keywords: Bounded Rationality, Cognitive Limitations, Common Standards, Consumer Choice, Experimental Economics, Heuristics, Libertarian Paternalism, Pricing Formats, Spurious Complexity
    JEL: D83 L13 D18
    Date: 2011–10–12
  3. By: Giulio Cainelli; Donato Iacobucci
    Abstract: Several recent studies investigate the relation between geographic concentration of production and vertical integration, based on the hypothesis that spatial agglomeration of firms in the same industry facilitates input procurement thereby reducing the degree of vertical integration. The present paper contributes to this debate by also considering the effects of industry variety at the local level. Specifically, we consider two forms of variety: unrelated variety and vertically related variety. The latter index is constructed using information drawn from input-output tables and captures the opportunities for outsourcing within the local system. We consider inter-industry vertical integration by taking account of the ownership of activities with input-output linkages. Using a dataset of 24,663 Italian business groups in 2001, we estimate Tobit models to investigate the influence of vertically related variety and other agglomeration forces on the degree of vertical integration of groups. Our evidence confirms that vertical integration is influenced by industry specialization at the local level. We also find that the higher the vertically related variety, the lower the need for firms to integrate activities since they have more opportunities to acquire intermediate goods and services within the local system.
    Keywords: vertical integration, agglomeration, related-variety, business group
    JEL: L2 M2
    Date: 2011
  4. By: Robert Anderton (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main); Aidan Meyler (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main); Luca Gattini (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main); Mario Izquierdo (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main); Valerie Jarvis (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main); Ri Kaarup (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main); Magdalena Komzakova (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main); Bettina Landau (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main); Matthias Mohr (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main); Adrian Page (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main); David Sondermann (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main); Philip Vermeulen (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main); David Cornille (National Bank of Belgium, boulevard de Berlaimont 14, 1000 Brussels, Belgium.); Tsvetan Tsalinski (Bulgarian National Bank, 1, Knyaz Alexander ? Sq., 1000 Sofia, Bulgaria.); Zornitsa Vladova (Bulgarian National Bank, 1, Knyaz Alexander ? Sq., 1000 Sofia, Bulgaria.); Christin Hartmann (Deutsche Bundesbank, Wilhelm-Epstein-Straße 14, 60431 Frankfurt am Main, Germany.); Harald Stahl (Deutsche Bundesbank, Wilhelm-Epstein-Straße 14, 60431 Frankfurt am Main, Germany.); Suzanne Linehan (Central Bank and Financial Services Authority of Ireland,Dame Street, Dublin 2, Ireland.); Hiona Balfoussia (Bank of Greece, 21, E. Venizelos Avenue, P. O. Box 3105, GR-10250 Athens, Greece.); Stelios Panagiotou (Bank of Greece, 21, E. Venizelos Avenue, P. O. Box 3105, GR-10250 Athens, Greece.); María de los Llanos Matea (Banco de España, Alcalá 50, E-28014 Madrid, España.); Luis J. Alvarez (Banco de España, Alcalá 50, E-28014 Madrid, España.); Pierre-Michel Bardet-Fremann (Banque de France, 39, rue Croix-des-Petits-Champs, F-75049 Paris Cedex 01, France.); Nicoletta Berardi (Banque de France, 39, rue Croix-des-Petits-Champs, F-75049 Paris Cedex 01, France.); Patrick Sevestre (Banque de France, 39, rue Croix-des-Petits-Champs, F-75049 Paris Cedex 01, France.); Emanuela Ciapanna (Banca d’Italia, Via Nazionale 91, I-00184 Rome, Italy.); Concetta Rondinelli (Banca d’Italia, Via Nazionale 91, I-00184 Rome, Italy.); Demetris Kapatais (Central Bank of Cyprus, 80, KENNEDY AVENUE, CY-1076 NICOSIA, Cyrpus); Eric Walch (Banque centrale du Luxembourg; 2, boulevard Royal; L-2983 Luxembourg, Luxembourg.); Patrick Lünnemann (Banque centrale du Luxembourg; 2, boulevard Royal; L-2983 Luxembourg, Luxembourg.); Sandra Zerafa (Central Bank of Malta, Pjazza Kastilja, Valletta, VLT 1060, MALTA.); Christopher Pace (Central Bank of Malta, Pjazza Kastilja, Valletta, VLT 1060, MALTA.); Jasper Kieft (De Nederlandsche Bank, Westeinde 1, 1017 ZN Amsterdam, the Netherlands.); Friedrich Fritzer (Oesterreichische Nationalbank, Otto-Wagner-Platz 3, POB-61, A-1011 Vienna, Austria.); Fatima Cardoso (Banco de Portugal, Av. Almirante Reis, 71 – 8°, 1150-012 Lisboa, Portugal.); Mateja Gabrijelcic (BANK OF SLOVENIA, Slovenska 35, 1505 Ljubljana, Slovenija); Branislav Karma (Narodna banka Slovenska, Imricha Karvasa 1, 813 25 Bratislava); Jarkko Kivistö (Bank of Finland, P.O. Box 160, FI-00101 Helsinki, Finland.)
    Abstract: The distributive trades, consisting of wholesaling and retailing, are a key sector of the economy. As the main interface between producers and consumers, the sector is particularly important from a monetary policy point of view: this is where most consumer goods prices are ultimately set. Despite almost 20 years of the Single Market, mark-ups in the distributive trades sector can still be substantial and differ considerably across countries, while cross-border trade remains limited. This report examines the structural features of the distributive trades sector which are likely to play an important role in determining price level and infl ation differences across countries. JEL Classification:
    Keywords: Prices, trades, euro area
    Date: 2011–09
  5. By: Georg H. Strasser (Department of Economics, Boston College)
    Abstract: The macroeconomic evidence on the short-term impact of exchange rates on exports and prices is notoriously weak. In this paper I examine the micro-foundations of this disconnect by looking at firm export and price setting decisions in response to exchange rate fluctuations and changing credit conditions. A unique German firm survey dataset allows me to study the impact of the EUR/USD exchange rate during the years 2003-2010. Its information on pricing and export expectations at the firm-level enables me to measure the instantaneous response of a firm to changing financial constraints and exchange rates, which avoids endogeneity issues. I find that primarily large firms cause the exchange rate "puzzles" in aggregate data. The exchange rate disconnect disappears for financially constrained firms. For these firms, the pass-through rate of exchange rate changes to the prices is more than twice the rate of unconstrained firms. Similarly, their exports are about twice as sensitive to exchange rate fluctuations. Credit therefore affects not only exports via trade finance, but also international relative prices by constraining the scope of feasible pricing policies. The effect of borrowing constraints is particularly strong during the recent financial crisis.
    Keywords: exchange rate pass-through, exchange rate disconnect, financing constraints, pricing to market, exports, credit crunch, trade collapse, law of one price, trade finance
    JEL: F31 E44 F40 E32 G21
    Date: 2010–10–21
  6. By: Uwe Jirjahn; Vanessa Lange
    Abstract: Using unique survey data from the German Socio-Economic Panel, this study examines the influence of reciprocal inclinations on workers¿ sorting into codetermined firms. Employees with strong negative reciprocal inclinations are more likely to work in firms with a works council while employees with strong positive reciprocal inclinations are less likely to work in such firms. We argue that these findings conform to hypotheses derived from the experimental literature. Moreover, the results show striking gender differences in the relationship between reciprocity and taste for representation. These differences can be partially explained by gender-specific differences in the average degree of labor force attachment.
    Keywords: Works council, negative reciprocity, positive reciprocity, sorting, gender
    JEL: J52 J53 M50
    Date: 2011
  7. By: Hubert BONIN (GREThA, CNRS, UMR5113 - IEP BORDEAUX)
    Abstract: Having already fixed the arguments about French entrepreneurship in a previous on a long term scope, we focus our paper on the French syndrome about low entrepreneurship throughout the challenges of the rebuilding of economic power and growth after WWII within the framework of planification, at times when the very substance of economic elites was at stake among the business associations, the regional communities of business and the state economic apparel. The 1960s-1970s seemed to foster a balance between from a “from the top approach” and a “from the basis” renewal of entrepreneurship, thanks to new layers of entrepreneurial bourgeoisies, either family business or transfers from the state system – France being supposed to become the “South Korea of Europe”. But the crisis of the 1970s-1990s shook this regarnished confidence: doubtful elites reconsidered the “French model” along issues of differenciation and competitiveness, within the mindsets of “eurosclerosis” and a specific type of “declinism”. We’ll thus ponder the evolution of entrepreneurial reactivity throughout the dismantle of traditional family business and industries and the upsurge of new productive models; and once more tackle the argument about the role of the state in fuelling entrepreneurship and about the ever-dreamed rebirth of “productive districts” and creative communities of entrepreneurship.
    Keywords: Enterprise, businessmen, economic regions, corporate strategy, productive system, industrial and services specialisation
    JEL: L26 L20 N84
    Date: 2011
  8. By: Arteaga, Julio Cesar; Flores, Daniel
    Abstract: Mexican gas stations across the country buy and sell gasoline at regulated common prices. Therefore, authorities that set these prices do not take into account competition conditions of each market. In this paper we establish the effect of a regulated mark-up price as well as competition on the incentives that gas stations in Mexico have to dispense less amount of gasoline than what consumers pay for. The results of theoretical and empirical work indicate that a higher regulated mark-up price reduces the incentives of gas stations to cheat. Similarly, more intense competition among the retailers of a given market decreases the average shortage.
    Keywords: gasoline pricing; regulation; competition; fraud
    JEL: L11 K42
    Date: 2010–10–18
  9. By: Murray, Michael/ M J
    Abstract: Production and distribution needs a proper place in heterodox economics. It has recently been suggested that the construction of production models needs to be empirically grounded. Also it has been stated that empirically grounded production models must be circular production models. This argument then marginalizes the contributions of important economists in heterodox thought. The paper will argue that heterodox production models need not be perfectly circular to make important contributions for heterodox production theory. Furthermore, it will be argued that models which consist of elements of hierarchial structures of production put emphasis on out of equilibrium traverse processes and historical time.
    Keywords: Heterodox Economic Theory; Heterodox Price and Production Modeling
    JEL: B21 B50 B16 B53
    Date: 2011–10–21
  10. By: Mohsin, Hasan M; Ashraf, Muhammad Shahzad
    Abstract: Studies upon impact of macro variables on firm’s dividend policy are very limited and specifically rare in Pakistan perspective. Main purpose of this research paper is to observe impact of restricted monetary policy on dividend behavior of Pakistani firms. During restricted monetary policy, cost of external funds increases and firms prefer to utilize internal funds leading to reduction in dividend payout. Behaviour of 100 listed firms, selected purposefully, has been observed for the period from 2001 to 2009 by using Lintner’ modified model.. During the research period of nine years, monetary policy has been gone through both loose and tight phases. Proposed model is dynamic one as lagged dependent variable has been used as explanatory variable. Due to certain limitations with selection of monetary policy instrument, overall stance of State Bank of Pakistan (SBP) in its annual reports has been used as a dummy variable in the model. Results of all the three estimations reveal almost same results. First lagged dividend has been proved to be most deterministic factor of dividend policy followed by current earnings. Monetary policy and lagged dividends interactive variables provide mixed results. First interactive variable has negative coefficients in all three, fixed effect, random effects and GMM, models but with insignificant p values. Second monetary policy interactive variable has positive coefficients with significant values in random effects and GMM model. Firms seem to follow relatively stable dividend policies with lower adjustment factor. As model is dynamic, GMM estimation is preferred. Monetary policy has not been observed as significant determinant of dividend policy of Pakistani firms.
    Keywords: Dividend payment; Monetary Policy
    JEL: E5 N2
    Date: 2011–08
  11. By: Doan, Tinh
    Abstract: Understanding the degree and evolution of competition across industries is an important step towards understanding the impact of economic reform and competition on economic growth in Vietnam during the economic transition. In this paper, we investigate evolution of competition in Vietnam during the economic transition using the Price-Cost Margin (PCM) or Mark-up that has been widely applied in the economic literature and the Profit Elasticity (PE) recently developed by Boone (2000). This paper provides the first empirical study of intensity and evolution of competition across selected industries in Vietnam in the last decade using firm-level data from the Vietnam Enterprise Census (VEC) conducted annually since 2000 by the Vietnam General Statistical Office (GSO).
    Keywords: Competition; industry; economic transition; Vietnam
    JEL: L5 P30 L11 P20 D40
    Date: 2011–10–10
  12. By: Miriam Schwartz-Ziv; Michael Weisbach
    Abstract: We analyze a unique database from a sample of real-world boardrooms – minutes of board meetings and board-committee meetings of eleven business companies for which the Israeli government holds a substantial equity interest. We use these data to evaluate the underlying assumptions and predictions of models of boards of directors. These models generally fall into two categories: “managerial models” assume boards play a direct role in managing the firm, and “supervisory models” assume that boards’ monitor top management but do not make business decisions themselves. Consistent with the supervisory models, our minutes-based data suggest that boards spend most of their time monitoring management: 67% of the issues they discussed were of a supervisory nature, they were presented with only a single option in 99% of the issues discussed, and they disagreed with the CEO only 3.3% of the time. In addition, managerial models describe boards at times as well: Boards requested to receive further information or an update for 8% of the issues discussed, and they took an initiative with respect to 8.1% of them. In 63% of the meetings, boards took at least one of these actions or did not vote in line with the CEO.
    JEL: G3 L2
    Date: 2011–10
  13. By: David Hummels; Rasmus Jørgensen; Jakob R. Munch; Chong Xiang
    Abstract: We estimate how offshoring and exporting affect wages by skill type. Our data match the population of Danish workers to the universe of private-sector Danish firms, whose trade flows are broken down by product and origin and destination countries. Our data reveal new stylized facts about offshoring activities at the firm level, and allow us to both condition our identification on within-job-spell changes and construct instruments for offshoring and exporting that are time varying and uncorrelated with the wage setting of the firm. We find that within job spells, (1) offshoring tends to increase the high-skilled wage and decrease the low-skilled wage; (2) exporting tends to increase the wages of all skill types; (3) the net wage effect of trade varies substantially across workers of the same skill type; and (4) conditional on skill, the wage effect of offshoring exhibits additional variation depending on task characteristics. We then track the outcomes for workers after a job spell and find that those displaced from offshoring firms suffer greater earnings losses than other displaced workers, and that low-skilled workers suffer greater and more persistent earnings losses than high-skilled workers.
    JEL: F16
    Date: 2011–10
  14. By: Alon Brav; Wei Jiang; Hyunseob Kim
    Abstract: This paper studies the long-term effect of hedge fund activism on the productivity of target firms using plant-level information from the U.S. Census Bureau. A typical target firm improves its production efficiency within two years after activism, and this improvement is concentrated in industries with a high degree of product market competition. By following plants that were sold post-intervention we also find that efficient capital redeployment is an important channel via which activists create value. Furthermore, our analyses demonstrate that measuring performance using the Compustat data is likely to lead to a downward bias because target firms experiencing greater improvement post-intervention are also more likely to disappear from the Compustat database. Finally, consistent with recent work in asset-pricing linking firm investment decisions and expected returns, we show how changes to target firms’ productivity are associated with a decline in systemic risk, particularly in competitive industries.
    JEL: G23 G3 G34
    Date: 2011–10

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