| Abstract: |
From 1997 to 2001 we observe in the Usa a faster growth in the number of
Nonemployer firms (NF) vis à vis Employer firms (EF). The diverse speed of net
entry may be due to particular internal organisation of the two types of firms
and the effect that this has on the reactions to market uncertainty. However,
the set of internal organizations of firms is larger than that made up simply
by EFs and NFs, in particular among newborn firms, since we observe corporate
start-ups with employees, firms owned and managed by their founders who are
simultaneously the employees and, finally, non corporate enterprises. The
second class of firms mostly belongs to the category of NFs, according to US
nomenclature, while non corporate firms may belong to either category. Our
curiosity is attracted by different entry patterns of NFs and EFs and our aim
is to interpret them. According to recent literature, firms carry out an
irreversible investment, such as entry, only if market prices are strictly
larger than average total costs (Marshallian point). However, the trigger
price that makes firms become active is affected by institutional rules, the
existence of profit sharing, efficiency wages, exit options - i.e. partial
reversibility -, financial constraints. Then, the internal organization of a
newborn firm may make the difference. In a continuous time stochastic
environment, where firms bear a sunk cost, we model entry as a growth option.
On the trace of distinct objective functions we show that NFs and EFs have
specific entry patterns in terms of output price and/or size. Why? Simply
because they react in diverse fashions to market price volatility. In this
sense we are able to show that, in most cases, the NF is locally less risky.
This makes the NF better suited to enter under conditions of higher
volatility. This exactly corresponds to what happened during the years between
1997-2001. |