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on Microeconomics |
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Issue of 2009‒01‒24
thirteen papers chosen by Joao Carlos Correia Leitao Technical University of Lisbon |
| By: | Cellini, Roberto; Lambertini, Luca; Sterlacchini, Alessandro |
| Abstract: | We study the product and process innovation choice of firms in which a managerial incentive à la Vickers (1985) is present. Taking a two-stage dynamic game approach, we show that managerial firms are led to over-invest in process innovation, as compared to standard profit-maximising firms, while they under-invest in product innovation. The reason is that process innovation allows to decrease cost, and this is consistent with a convenient increase in the production level. On the opposite, product innovation allows increasing price, which is in contrast with the taste for output expansion embodied in the objective function of firms run by managers. Preliminary empirical evidence on Italian companies suggests that in fact the managerial nature of firm associates with significantly smaller efforts in product innovation while the effect on process innovation is positive but non-significant. |
| Keywords: | Process innovation; Product innovation; R&D; Managerial incentive |
| JEL: | O32 O31 D43 C72 |
| Date: | 2009–01 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:12935&r=mic |
| By: | Alejandro Saporiti (University of Manchester); German Coloma (Universidad del CEMA) |
| Abstract: | We analyze Bertrand's price competition in a homogenous good market with a fixed cost and an increasing marginal cost (i.e., with variable returns to scale). If the fixed cost is avoidable, we show that the non-subadditivity of the cost function at the output corresponding to the oligopoly break-even price, denoted by D(pL(n)), is su±cient to guarantee that the market supports an equilibrium in pure strategies with two or more active firms supplying at least D(pL(n)). Conversely, the existence of a pure strategy equilibrium ensures that the cost function is not subadditive at every output greater than or equal to D(pL(n)). As a by-product, the latter implies that the average cost cannot be decreasing over the range of outputs mentioned before. In addition, we also prove that the existence of a price-taking equilibrium is sufficient, but not necessary, for Bertrand's price competition to possess an equilibrium in pure strategies. This provides a simple existence result for the case where the fixed cost is fully unavoidable. |
| JEL: | D43 L13 |
| Date: | 2008–09 |
| URL: | http://d.repec.org/n?u=RePEc:roc:rocher:541&r=mic |
| By: | Kangsik, Choi |
| Abstract: | We investigate a differentiated mixed duopoly in which private and public firms can choose to strategically set prices or quantities by facing a union bargaining process. For the case of a unionized mixed duopoly, only public firm is able to choose a type of contract based on the degree of substitutability in the equilibrium. Focusing on the case of substitute goods, we show that Bertrand (respectively, Cournot) competition entails higher social welfare than Cournot (respectively, Bertrand) competition if the degree of substitutability is relatively small (respectively, large). Thus, there are multiple Nash equilibria in the contract stage of the game. As a result, Singh and Vives' ranking of social welfare is reversed in a range of substitution values for which it is a dominant strategy for public firm to choose either quantity or price contracts. |
| Keywords: | Wage Bargaining; Union; Cournot-Bertrand Competition; Mixed Duopoly. |
| JEL: | J51 L13 C7 D43 H44 |
| Date: | 2008–09–25 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:12787&r=mic |
| By: | Erik Stam (Tjalling Koopmans Institute, Utrecht School of Economics, Utrecht University, Utrecht, The Netherlands; Centre for Technology Management, University of Cambridge, Cambridge, United Kingdom; Scientific Council for Government Policy (WRR), The Hague, The Netherlands; Max Planck Institute of Economics - Entrepreneurship, Growth and Public Policy group, Jena, Germany); Karl Wennberg (Centre for Entrepreneurship and Business Creation, Stockholm School of Economics, Stockholm, Sweden.) |
| Abstract: | Innovative start-ups are an important driver of economic growth. This article presents empirical evidence on the effects of R&D on new product development, inter-firm alliances and employment growth during the early life course of firms. We use a dataset that contains a sample of new firms that is representative for the whole population of start-ups. This dataset covers the first six years of the life course of firms. R&D reveals to play several roles during the early life course of high tech as well as high growth firms. The effect of initial R&D on high tech firm growth runs via increasing levels of inter-firm alliances in the first post-entry years. R&D efforts enable the exploitation of external knowledge. Initial R&D also stimulates new product development later on in the life course of high tech firms, but this does not seem to affect firm growth. R&D does not affect the growth rate of new low tech firms, which seems to be driven mainly by the growth ambitions of the founding entrepreneur. The results show that R&D matters for a limited but important set of new high tech and high growth firms, which are key in innovation and entrepreneurship policies. |
| Keywords: | New Firms, Innovation, R&D, firm growth, alliances, product development |
| JEL: | D21 L23 L25 L26 M13 |
| Date: | 2009–01–12 |
| URL: | http://d.repec.org/n?u=RePEc:jrp:jrpwrp:2009-004&r=mic |
| By: | Brown, J. David (Heriot-Watt University, Edinburgh); Hotchkiss, Julie L. (Georgia State University); Quispe-Agnoli, Myriam (Federal Reserve Bank of Atlanta) |
| Abstract: | Do firms employing undocumented workers have a competitive advantage? Using administrative data from the state of Georgia, this paper investigates the incidence of undocumented worker employment across firms and how it affects firm survival. Firms are found to engage in herding behavior, being more likely to employ undocumented workers if competitors do. Rivals' undocumented employment harms firms' ability to survive, while firms' own undocumented employment strongly enhances their survival prospects. This suggests that firms enjoy cost savings from employing lower-paid undocumented workers at wages less than their marginal revenue product. The herding behavior and competitive effects are found to be much weaker in geographically broad product markets, where firms have the option to shift labor-intensive production out of state or abroad. |
| Keywords: | undocumented workers, firm dynamics, monopsony, immigration policy |
| JEL: | L1 J23 J61 |
| Date: | 2009–01 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp3936&r=mic |
| By: | Xin Long (University of Rome II, Italy); Robert Waldmann (University of Rome II, Italy); Alessandra Pelloni (University of Rome ‘Tor Vergata’ and The Rimini Centre of Economic Analisys, Italy) |
| Abstract: | Is it possible to increase growth and welfare by raising taxes and disposing of the tax revenues? We show this may indeed be the case in a simple model with endogenous technical change, represented by an increase in the variety of intermediate goods. |
| Date: | 2008–01 |
| URL: | http://d.repec.org/n?u=RePEc:rim:rimwps:35-08&r=mic |
| By: | Johansson, Börje (CESIS - Centre of Excellence for Science and Innovation Studies, Royal Institute of Technology); Lööf, Hans (CESIS - Centre of Excellence for Science and Innovation Studies, Royal Institute of Technology) |
| Abstract: | This paper applies a CDM-model framework to depict the successive links (correlations) between (i) innovation expenditure, (ii) innovation output, and (iii) firm productivity. The CDM model has become popular in many countries among scholars using data from the Community Innovation Survey (CIS). First, the study contrasts a general structural OECD version of the model against a model with country-specific design. Second, the study examines the gains from separating the labour force into ordinary and knowledge labour – as a means to avoid double counting of R&D investments. Third, the paper examines the difference between recognising a firm as a member of an unspecified company group versus a multinational group. Fourth, the paper explores how well sales per employee serves as a proxy for labour productivity proper. Fifth, the paper scrutinises the quality of CIS information by comparing key variables from the voluntary CIS survey with the same variables (for the same firms) recorded in the compulsory and audited register data in Sweden. |
| Keywords: | Productivity; Innovation; R&D; CDM-model |
| JEL: | O31 O32 |
| Date: | 2009–01–15 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:cesisp:0159&r=mic |
| By: | Ho, Dong-huyn (CESIS - Centre of Excellence for Science and Innovation Studies, Royal Institute of Technology); Lööf, Hans (CESIS - Centre of Excellence for Science and Innovation Studies, Royal Institute of Technology) |
| Abstract: | Iceland is one of the smallest European economies and the country was hit severely by the 2008-financial crisis. This paper considers the economy in the period preceding the collapse. Applying a Data Envelopment Analysis on 204 randomly selected firms, the results suggest that a substantial fraction of the Icelandic firms can be classified as non-efficient in their production process. The production scale of many manufacturing firms is too small to be technically efficient, while service firms typically use excessive resources in their production process. A remarkably weak performance in transforming R&D and labour efforts into successful innovations is observed. |
| Keywords: | Technical efficiency; R&D; Innovation; Productivity |
| JEL: | C14 D24 O14 O33 |
| Date: | 2009–01–15 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:cesisp:0162&r=mic |
| By: | Emanuela Ciapanna (Bank of Italy, Economic Research Department) |
| Abstract: | We analyze the problem of strategic poaching of consultants by clients with particular reference to the business consulting industry. This article presents a market equilibrium in a mixed economy where three categories of agents, consulting groups, client firms and consultants strategically interact with each other. At each date the consulting group faces a new client firm that requires a task to be implemented. We show that under very general conditions, when a matching pair of clients and consultants meets, a dominant strategy will be played, where the consultant is captured by the client and the consulting group matches (whenever possible) the client's request. The novelty of this model is that the quality of the consulting services does not only depend on the consulting group's assignment strategy , but also on the capturing behavior of the clients. In this sense, the clients impose a consumption externality on each other, which is a source of inefficiency in this otherwise competitive market. |
| Keywords: | strategic poaching, two-sided matching, Nash bargaining, consumption externality. |
| JEL: | D62 J41 L22 L84 M54 |
| Date: | 2008–04 |
| URL: | http://d.repec.org/n?u=RePEc:bdi:wptemi:td_665_08&r=mic |
| By: | Christian A. Ruzzier (Harvard Business School) |
| Abstract: | It is often argued that competition forces managers to make better choices, thus favoring managerial autonomy in decision making. I formalize and challenge this idea. Suppose that managers care about keeping their position or avoiding interference, and that they can make strategic choices that affect both the expected profits of the firm and their riskiness. Even if competition at first pushes the manager towards profit maximization as commonly argued, I show that further increases in competitive forces might as well lead him to take excessive risks if the threat on his position is strong enough. To curb this possibility, the principal-owner optimally reduces the degree of autonomy granted to the manager. Hence higher levels of managerial autonomy are more likely for intermediate levels of competition. |
| Keywords: | product-market competition, authority, decision making, delegation, autonomy |
| JEL: | D23 L22 M12 M21 |
| Date: | 2009–01 |
| URL: | http://d.repec.org/n?u=RePEc:hbs:wpaper:09-082&r=mic |
| By: | Vicente Cuñat; Maria Guadalupe |
| Abstract: | This paper studies the effect of changes in foreign competition on the structure of compensation and incentives of U.S. executives. We measure foreign competition as import penetration and use tariffs and exchange rates as instrumental variables to estimate its causal effect on pay. We find that higher foreign competition leads to more incentive provision in a variety of ways. First, it increases the sensitivity of pay to performance. Second, it increases whithin-firm pay differentials between executive levels, with CEOs typically experiencing the largest wage increases, partly because they receive the steepest incentive contracts. Finally, higher foreign competition is also associated with a higher demand for talent. These results indicate that increased foreign competition can explain some of the recent trends in compensation structures. |
| Keywords: | Incentives, Performance-related-pay, Wage Structure, Promotions, Demand for talent, Globalization, Product Market Competition |
| JEL: | M52 L1 J31 |
| Date: | 2009–01 |
| URL: | http://d.repec.org/n?u=RePEc:upf:upfgen:1134&r=mic |
| By: | Niels Bosma (Urban and Regional research Centre Utrecht (URU), Utrecht University, Utrecht, The Netherlands); Erik Stam (Tjalling Koopmans Institute, Utrecht School of Economics, Utrecht University, Utrecht, The Netherlands; Centre for Technology Management, University of Cambridge, Cambridge, United Kingdom; Scientific Council for Government Policy (WRR), The Hague, The Netherlands; Max Planck Institute of Economics - Entrepreneurship, Growth and Public Policy group, Jena, Germany); Veronique Schutjens (Urban and Regional research Centre Utrecht (URU), Utrecht University, Utrecht, The Netherlands) |
| Abstract: | Do firm entry and exit improve the competitiveness of regions? If so, is this a universal mechanism or is it contingent on the type of industry or region in which creative destruction takes place? This paper analyses the effect of firm entry and exit on the competitiveness of regions, measured by total factor productivity (TFP) growth. Based on a study across 40 regions in the Netherlands over the period 1988-2002, we find that firm entry is related to productivity growth in services, but not in manufacturing. The positive impact found in services does not necessarily imply that new firms are more efficient than incumbent firms; high degrees of creative destruction may also improve the efficiency of incumbent firms. We also find that the impact of firm dynamics on regional productivity in services is higher in regions exhibiting diverse but related economic activities. |
| Keywords: | firm entry, firm exit, turbulence, regional competitiveness, total factor productivity |
| JEL: | L10 M13 O18 R11 |
| Date: | 2009–01–12 |
| URL: | http://d.repec.org/n?u=RePEc:jrp:jrpwrp:2009-003&r=mic |
| By: | Andrew Sharpe; Jean-François Arsenault |
| Abstract: | A brief analysis of British Columbia’s productivity performance and the state of the drivers of this performance reveals that five areas merit additional focus and research. They are, in the proposed order of completion: Education and literacy, including professional qualifications and education for targeted groups such as aboriginals and recent immigrants, credentials recognition. Public and private investment, including public infrastructure, business investment and taxation structure. Research and innovation, including R&D investment, product and process innovation, knowledge diffusion and technology adoption. Resource reallocation, including competition policy, improving market mechanisms, product market regulation and foreign ownership rules. Trade and migration, including interprovincial and international movement of goods and services, skilled and unskilled immigration and emigration and interprovincial migration. |
| Keywords: | Productivity, Diagnosis, British Columbia,Human Capital, Physical Capital, Innovation, |
| JEL: | E20 E22 R50 R53 R11 O40 |
| Date: | 2008–12 |
| URL: | http://d.repec.org/n?u=RePEc:sls:resrep:0809&r=mic |