Decision making in networks: an experiment on structure effects in a group dictator game

In this study we examine the impact of communication networks on decision making in five-person committees. Within the framework of a group dictator game the committees must reach a majority choice for one collective transfer. We focus on the effect of the group structure on the collective decisions, and explore the effect of incomplete and asymmetric information on voting outcomes by defining three different networks structures: the unconnected network, a circle and a star. As expected the connections improved coordination within the committees, however, we find no significant difference between the network forms concerning the transfers chosen.     

DOES OFFSHORING PAY? FIRM‐LEVEL EVIDENCE FROM JAPAN

This article explores the impact of offshoring on productivity using firm‐level data for the Japanese manufacturing industries during the period 1994–2000. We find that intrafirm offshoring, that is, sourcing of intermediate inputs to foreign affiliates within a particular multinational firm, has generally a positive effect on productivity of the offshoring firm, while arm’s‐length offshoring, that is, sourcing to unaffiliated foreign firms, does not have such an effect. In addition, the impact of arm’s‐length offshoring is negative for nonmultinationals and nonexporters but nonnegative for multinationals and exporters. These results suggest that the costs of searching foreign firms suitable for offshoring are nonnegligible. (JEL F14, L23)     

Worum geht es, wenn es um nichts geht?

Rational choice theories appear to have difficulties when it comes to explain behaviour in so called ‘low cost, low benefit’ situations. As a consequence, low cost situations are sometimes regarded as a serious problem of the rational choice paradigm as a whole. We demonstrate that, quite to the contrary, theories of rational action are perfectly well suited to understand the logic of low cost situations. The costs of information and decision making on the part of the actor and the clarity of incentive or cost structures on the part of the situation prove to be the central variables. Since there is a close link between low cost situations and certain collective good problems, the role of these variables is discussed with regard to the production of collective goods. In adapting an established model of routine based decision making, we show how the threshold of a low cost situation can be determined analytically.     

Mixups in the Warehouse: Centralized and Decentralized Multi-Plant Firms

Single-plant firms choose quantity/quality levels to maximize profits. Multi-plant firms face this decision and must also choose how many decision makers to have. This article presents two case studies and a model of a multi-plant firm in which overhead costs are lower with one decision maker (centralization), but the mass of information and the need for timely decisions make occasional mixups unavoidable. Multiple decision makers (decentralization) solves the mixup problem. Standardization—treating different outlets similarly in response to costly mixups—appears in the case studies, and is demonstrated as a result in the model.     

DOES CORRUPTION ATTENUATE THE EFFECT OF RED TAPE ON EXPORTS?

I use firm ‐level data to examine whether corruption attenuates the adverse effects of red tape on exports. I find that, conditional on there being customs‐related red tape, a firm is better off if it can use bribes to lower the delay that it faces. However, I also find that corruption has a negative overall effect on a firm's decision to export. That is, corruption prevents some firms from entering the export market. These results suggest that to gauge the overall effect of corruption, we must compare its red‐tape attenuating effect with its adverse effect on a firm's decision to export. (JEL F10, F14, K42)     

Stock-price response to profit sharing in unionized settings

Prior research shows that stock price responds favorably to managerial incentive schemes which lower costs and stimulate growth. This article analyzes the consequence for shareholders of introducing profit sharing in unionized firms. Positive abnormal returns were associated with the announcement of collective agreements incorporating risk-sharing components, especially when the firm was experiencing preexisting financial distress. The realized gains generally exceeded that which could be attributed to strike activity or negotiated wage reductions. However, there was no indication that profit sharing decreased the perceived risk of investing in the firm.     

Hierarchy of players in swap robust voting games

Ordinarily, the process of decision making by a committee through voting is modeled by a monotonic game the range of whose characteristic function is restricted to {0, 1}. The decision rule that governs the collective action of a voting body induces a hierarchy in the set of players in terms of the a-priori influence that the players have over the decision making process. In order to determine this hierarchy in a swap robust game, one has to either evaluate a power index (e.g., the Shapley–Shubik index, the Banzhaf–Coleman index) for each player or conduct a pairwise comparison between players, whereby a player i is ranked higher than another player j if there exists a coalition in which i is more desirable as a coalition partner than j. In this paper, we outline an alternative mechanism to determine the ranking of players in terms of their a-priori power. This simple and elegant method uses only minimal winning coalitions, rather than the entire set of winning coalitions.     

The traveling group problem

This paper combines social choice theory with mathematical optimization by applying various group decision concepts to a classical problem of combinatorial optimization, namely the famous traveling salesperson (salesman) problem. The aim of the latter is to find a tour through all vertices of a given graph along edges of minimal total cost. In this contribution we replace the measure of additive edge costs by the social acceptance of different edges and the resulting tours. In particular, for four different voting rules, the Borda rule, Approval voting, Plurality rule and Simple Majority rule, we will investigate the social acceptance of tours derived from global and local decisions. It will be shown that these two decision approaches can lead to widely varying results.     

Investing in Turbulent Times: The Investment Behavior of Polish Firms in the Early Transition

We examine the investment behavior of a sample of Polish industrial firms over the period 1991–1993 by means of a model that views investment flows as part of the firm’s effort to adjust its assets and liabilities so as to maximize the returns to the firm. We argue that the application of neoclassical models of investment is more appropriate in cases where net investment is positive and where the returns to other assets and costs of liabilities are stable. If firms are seeking to reduce their capital stock, then the major constraints are not financial but rather set by the speed of physical depreciation. If the returns to other assets or the costs of liabilities change, then the firm will be forced to reconfigure its balance sheet in a way that may be inconsistent with the neoclassical model of investment. This paper examines the adjustments undertaken by Polish firms and shows that firms that did make positive net investments in this period were influenced by their capital intensity, profitability and by their costs of and returns to financial assets. The explanatory power of the model is relatively high when compared to previous studies of the investment behavior of firms in the early years of transition.     

The impact of union direct voice on voluntary and involuntary absenteeism

Using a Spanish panel of large establishments, we test the reliability of the exit-voice theory to understand absenteeism (making the distinction between voluntary and involuntary absences). In the Spanish institutional framework, union direct voice (as opposed to union representative voice) is proxied by the existence of a collective agreement at the firm level. We find a positive influence of union direct voice on involuntary absenteeism, which is consistent with a greater protection of workers’ rights through that institution. We do not find a robust effect of direct voice on voluntary absenteeism. The first result lends support to the exit-voice theory but not the second one. Our interpretation underlines the need for re-construction of the exit-voice theory as a more general and precise one.     

Pro-social behavior in the TV show “Come Dine With Me”: An empirical investigation

We investigate the influence of social approval, reputation, and individual characteristics on voting behavior in the German version of the TV show “Come Dine With Me”. Five contestants prepare a dinner for each other during the course of a week and evaluate each other’s performance. The winner receives a monetary prize. Evaluations remain concealed until the show is broadcast. Because actual voting behavior remains concealed during the show, a contestant could evaluate his/her opponents as zero in an effort to increase his/her own chances of winning, without risking later punishment in the form of low scores. However, this behavior is not observed in our dataset, which runs from 2006 to 2011. We find that all of the following have a significant influence on the evaluating behavior: the objective sophistication of a meal; the order of cooking; whether a person has already cooked; and the social similarity between contestant and evaluator. These findings help to improve understanding of the impact that reputation and social approval have on economic decision making.     

Unions as value-adding networks: Possibilities for the future of U.S. unionism

VII. Conclusions The decline in private sector union density in the U.S. coincided with increased innovation at the local level. One trend in particular, value-adding unionism, may offer some hope for those who believe that workers, the economy, and the nation benefit from strong, independent trade union movement. Unions that can add value to firm performance while at the same time fulfilling their responsibilities to represent the collective and individual interests of their membership have greater appeal to potential union members seeking opportunities for both representation and participation. Since they add economic value to firms, they may also reduce the level of managerial resistance that we have seen in recent history. Farber and Western (2001) argue that the overall U.S. decline in union density is almost entirely due to falling employment in unionized firms and increases in nonunion firms. This value-adding approach offers one strategy to preserve and expand union employment in firms where it is already established, thus slowing or reversing the decline. Moreover, as structural changes in the economy have led to shifts away from sectors with high levels of union density, they have at the same time put a premium on the ability of firms to respond quickly to changes in the marketplace and the competitive environment. Value-adding unions can provide the infrastructure for organizational networks that facilitate the communication and coordination necessary to adjust to such changes. Thus, new forms of representation that provide unions and their members with greater opportunities in decision making, management, and governance can add value to both management and labor. I thank Charles Heckscher and Bruce Kaufman for comments on earlier drafts of the paper and the National Science Foundation, Rutgers University, and MIT for financial support.     

Effective tax rates and firm size in Ethiopia

The literature on Effective Tax Rates (ETRs) focuses on high‐ and middle‐income countries, but there is very little evidence on low‐income countries. This article addresses this gap with new evidence from Ethiopia. We investigate corporate ETRs in Ethiopia and whether the distributional effects they have in practice are in line with the corporate tax policy design. We calculate ETRs in line with the literature in this field, using profit tax at the numerator and gross profit at the denominator. We then analyse ETRs not only using panel data, focusing particularly on their relation to firm size, but also including other explanatory variables. Our main result is that, despite a proportional tax rate, small firms face a higher effective tax burden than larger firms, while middle‐sized firms face the lowest burden of all. We highlight that tax systems can have practical implications that differ largely from their policy design, due to compliance costs and imperfect enforcement. Measures to reduce compliance costs for small firms are particularly recommended.     

PRICE COMPETITION UNDER COST UNCERTAINTY: A LABORATORY ANALYSIS

We study the relation between the number of firms and price-cost margins under price competition with uncertainty about competitors' costs. We report an experiment in which two, three, and four identical firms repeatedly interact in this environment. In line with the theoretical prediction, market prices decrease with the number of firms, but on average stay above marginal costs. Pricing is more aggressive than in equilibrium. Absolute and relative surplus increases with the number of firms. Total surplus is close to the equilibrium level, because enhanced consumer surplus through lower prices is counteracted by occasional displacements of the most cost-efficient firm. (JEL C90 , C72 , D43 , D83 , L13 )     

"NO WEAPON SAVE ARGUMENT":

US. woman suffragists routinely utilized two types of arguments in their demands for voting rights: justice and reform. The former argument held that women should vote because they were men's equals and therefore should have political rights equal to those of men. Reform arguments stated that women should have the ballot because women, given their unique womanly experiences and perspectives, would bring a unique contribution to politics, making society a more humane place. Although social movement scholars have increasingly studied the framing work of movement activists, few systematic studies of framing activity exist. In this work we examine the circumstances that led the suffragists to amplify one or the other of these motivational frames. We find that the suffragists were quite strategic in their choice of frames, targeting particular audiences and taking advantage of cultural opportunities for frame resonance. We find only limited evidence that their frames were driven by the collective identity of particular groups in the movement.     

Enlargement and the balance of power: an experimental study

Theoretical analysis suggests that enlargement of a voting body may affect the balance of power between the original members even if their number of votes and the decision rule remain constant. Some of the existing voters may actually gain, a phenomenon known as the paradox of new members. We test for this effect using laboratory experiments. Participants propose and vote on how to divide a budget according to weighted majority voting rules, and we measure the voting power of a player by his average payoff in the experiment. By comparing voting power across voting bodies of varying size, we find empirical support for the paradox of new members.     

Exploring the contributions of human and social capital to productivity

In this article we investigate how human and social capital contribute to individual productivity. We study three firms that complete all their tasks as projects. The employees in all firms initiate and organise their projects. We collected archival data from the firms on performance, human capital, tenure, gender and their project activities. Social network data are generated from interviews and a survey. We find that social capital is the most important factor to determine productivity. We found mixed effects from human capital; only in one firm did human capital have a noticeable effect on productivity; tenure has no effects on productivity.     

Labor union effects on innovative activity

Union rent-seeking is considered a tax on firm returns from investments in innovative activity. We examine this proposition by considering the responses of firms in a 1985 survey on R&D and product innovation. Consistent with our model, we find that innovative activity is significantly less important for union than for similar nonunion firms. We conclude that innovative activity may be an important route through which union rent-seeking affects the long-run performance of firms. We appreciate the helpful assistance and suggestions received from our colleague Terry Seaks, Barry Bozeman at Syracuse University, and participants in the Vanderbilt Microeconomics Workshop.     

EMPLOYMENT AND DEADWEIGHT LOSS EFFECTS OF OBSERVED NONWAGE LABOR COSTS

To assess the employment effects of labor costs, it is crucial to have reliable estimates of the labor cost elasticity of labor demand. Using a matched firm‐worker data set, we estimate a long‐run unconditional labor demand function, exploiting information on workers to correct for endogeneity in the determination of wages. We evaluate the employment and deadweight loss effects of observed employers' contributions imposed by labor laws (health insurance, training, and taxes) as well as of observed workers' deductions (social security and income tax). We find that nonwage labor costs reduce employment by 17% for white collars and by 53% for blue collars, with associated deadweight losses of 10% and 35% of total contributions, respectively. Since most firms undercomply with mandated employers' and workers' contributions, we find that full compliance would imply employment losses of 4% for white collars and 12% for blue collars, with respective associated deadweight losses of 2% and 6%. (JEL J23, J32)     

Institutions matter: The case of Vietnam

The paper investigates institutional reforms in Vietnam and their impact on the economic performance of firms. Using the provincial competitiveness index 2006 (PCI06) and firm-level data in Vietnam in 2005, the results show that provincial competitiveness is economically and statistically significant in explaining cross-province differences in firm performance. We find that a 1% point improvement in government practice could increase the daily value-added of an average firm by an amount equivalent to nearly three times per capita GDP per day. The results show that an improvement in providing market information, more secure land tenure and labor training assistance has a positive effect on firm performance. By contrast, weaknesses in the judiciary system and administrative reforms impede growth of non-state firms. The findings indicate that governance is an important obstacle to the development of the non-state sector in Vietnam.