FINANCIAL DEVELOPMENT AND VERTICAL INTEGRATION: THEORY AND EVIDENCE

Existing evidence is mostly inconclusive on the relevance of financial development as a determinant of vertical integration. This paper presents evidence that, once industry heterogeneity in firm size distribution is taken into account, financial development is an important determinant of cross‐country differences in vertical integration. Financial development fosters entry of firms and increases competition in the industry. This reduces vertical integration of larger firms, but also leads smaller, non‐integrated, firms to exit the industry. As a result, higher financial development reduces vertical integration in industries where a high share of output is produced by small firms. The positive effect of financial development on entry also reduces vertical integration by fostering the development of input markets.     

ELECTED VERSUS APPOINTED REGULATORS: THEORY AND EVIDENCE

This paper contrasts direct election with political appointment of regulators. When regulators are appointed, regulatory policy becomes bundled with other policy issues the appointing politicians are responsible for. Because voters have only one vote to cast and regulatory issues are not salient for most voters, there are electoral incentives to respond to stakeholder interests. If regulators are elected, their stance on regulation is the only salient issue so that the electoral incentive is to run a pro‐consumer candidate. Using panel data on regulatory outcomes from U.S. states, we find new evidence in favor of the idea that elected states are more pro‐consumer in their regulatory policies. (JEL: H1, K2)     

PARTY CUES IN ELECTIONS UNDER MULTILEVEL GOVERNANCE: THEORY AND EVIDENCE FROM US STATES

In federal countries, voters’ ability to evaluate the performance of their leaders might be reduced when different levels of government shape policy outcomes. This can blur political accountability. In this article, we analyze how party cues (i.e., politicians’ party membership acting as a cue towards their characteristics) affect voters’ incomplete information in a federal setting. We theoretically show that party cues allow indirect inference regarding politicians using observed policy outcomes, and can alleviate the accountability problem. Empirical evidence from US presidential election results across all 50 US states over the period 1972–2008 supports this proposition. However, party cues also have a downside in that they may reduce politicians’ effort, particularly when politicians at different levels of government are from different parties.     

THE IMPACT OF IMMIGRATION ON THE STRUCTURE OF WAGES: THEORY AND EVIDENCE FROM BRITAIN

Immigration to the UK, particularly among more educated workers, has risen appreciably over the past 30 years and as such has raised labor supply. However studies of the impact of immigration have failed to find any significant effect on the wages of native‐born workers in the UK. This is potentially puzzling since there is evidence that changes in the supply of educated natives have had significant effects on their wages. Using a pooled time series of British cross‐sectional micro data on male wages and employment from the mid‐1970s to the mid‐2000s, this paper offers one possible resolution to this puzzle, namely that in the UK natives and foreign born workers are imperfect substitutes. We show that immigration has primarily reduced the wages of immigrants—and in particular of university educated immigrants—with little discernable effect on the wages of the native‐born.     

DEEP FINANCIAL INTEGRATION AND VOLATILITY

We investigate the relationship between foreign direct ownership of firms and firm‐ and region‐level output volatility using a novel panel data set for European countries. We document a positive, highly robust, relationship between firm‐level foreign ownership and volatility of value added. This relationship holds cross‐sectionally and in panels with firm fixed effects where the relationship captures within‐firm variation over time. Considering domestic firms with assets in foreign countries, we document that it is international diversification, rather than the nationality of the owner, that explains this positive correlation. Our results can also be found at the aggregate level, where we show that region‐level volatility is correlated positively with foreign investment in the region. We show that this positive relation between aggregate volatility and foreign investment can be explained by the granularity of the firm size distribution and the fact that foreign ownership is concentrated among the largest firms.     

FINANCIAL INTEGRATION: A NEW METHODOLOGY AND AN ILLUSTRATION

This paper develops a simple methodology to test for asset integration, and applies it within and between American stock markets. Our technique relies on estimating and comparing expected risk‐free rates across assets. Expected risk‐free rates are allowed to vary freely over time, constrained only by the fact that they must be equal across (risk‐adjusted) assets in well‐integrated markets. Assets are allowed to have standard risk characteristics, and are constrained by the Fama and French factor model of covariances over short time periods. We find that internal integration in the S&P 500 market is never rejected and is not generally rejected in the NASDAQ. Integration between the NASDAQ and the S&P, however, is always rejected dramatically. (JEL: G14)     

MANUFACTURING PROCESS TECHNOLOGY and SUPPORT STAFF COMPOSITION: AN EMPIRICAL VIEW OF INDUSTRY EVIDENCE

Despite the attention given to restructuring and trimming down manufacturing firms during the 198Os, little attention has been paid to the mix of skills they needed under different circumstances. We examined the patterns of employment by occupation in manufacturing industries utilizing different production technologies and the effect of establishment size on nonproduction employment. We found that a relationship exists between production technology and nonproduction employment per 100 production workers. Establishment size is found to be a moderator between nonproduction employment and production technology. Our findings imply two clear messages for managers. First, when considering major changes in production technology, managers should be aware that the supporting skills they will need from their nonproduction work force are likely to change greatly. Further, these changes involve technical and managerial workers as well as clerical and production support people. Second, they should restructure the functional or occupational mix of an organization in the context of the process technologies in place. Different process technologies require different structures.     

COMPUTER-INTEGRATED MANUFACTURING: A TAXONOMY OF INTEGRATION AND RESEARCH ISSUES

The past decade has seen an upsurgence in the number of manufacturing companies that are attempting to transform into computer-integrated enterprises. However, much of the computer-based integration efforts in these manufacturing organizations have been limited in scope and localized within certain areas of the organization (particularly, technology-intensive areas such as the shop floor). Such compartmentalized and myopic approaches to the development of computer-integrated manufacturing (CIM) systems undermine the ability of these systems to reach their fullest potential. CIM is much larger in scope and can impact an organization along various dimensions and at various levels. The fact that no completely integrated manufacturing enterprise has been developed to date can be attributed, in part, to a lack of understanding of the scope and implications of CIM. The purpose of this paper is, therefore, twofold. First, the paper presents a meta-schema (called TRIAD) for multidimensional and multilevel integration of a manufacturing system. Second, on the basis of the proposed meta-schema, the paper develops a taxonomical framework for defining key integration issues in CIM system design and discusses critical research needs that exist in this area. It is hoped that this paper will serve as a road map for research efforts that will enable the emergence of comprehensive CIM systems.     

ON-LINE QUALITY MANAGEMENT: INTEGRATION OF PRODUCT INSPECTION AND PROCESS CONTROL

A growing recognition that quality management is an important factor in defining a firm's competitive position has led to renewed attention to this function and has resulted in implementation of elaborate systems for on-line quality control comprising product inspection and process control. Traditionally, these functions have been treated independently, with very little interaction. In this paper we examine, in detail, a scheme that integrates the two functions, and we demonstrate that such an approach can result in significant cost savings. The motivation for this work comes from our experience in a wafer fabrication facility that suggested that exchange of quality information between different stages of production could result in significant performance improvements. To illustrate this approach, we consider a specific environment characterized by a single-stage continuous production process whose status is monitored by an X̄ control chart. We assume that quality-related costs may be described as a function of the process output. This is analogous to Taguchi's quality loss function and may be interpreted as a generalization of conventional classification of process output as either acceptable or defective units. The integrative scheme essentially relies on utilization of the process status information (based on process control) in making product inspection decisions. For this system we derive a cost model and develop a solution procedure to determine optimal decision parameters. Limited computational results indicate that the scheme has significant potential for reducing quality-related costs.     

SOCIAL COMPARISON AND EFFORT PROVISION: EVIDENCE FROM A FIELD EXPERIMENT

Social comparison has potentially far reaching consequences in many economic domains. We conducted a field experiment to examine how social comparison affects workers' effort provision if their own wage or that of a co‐worker is cut. Workers were assigned to groups of two, performed identical individual tasks, and received the same performance‐independent hourly wage. Cutting both group members' wages caused a decrease in performance. But when only one group member's wage was cut, the affected workers decreased their performance more than twice as much as when both workers' wages were cut. This finding indicates that social comparison among workers affects effort provision because the only difference between the two wage‐cut treatments is the other group member's wage level. In contrast, workers whose wage was not cut but who witnessed their group member's pay being cut displayed no change in performance relative to the baseline treatment in which both workers' wages remained unchanged. This indicates that social comparison exerts asymmetric effects on effort.     

UNEMPLOYMENT INSURANCE AND CULTURAL TRANSMISSION: THEORY AND APPLICATION TO EUROPEAN UNEMPLOYMENT

This paper emphasizes the two‐way causality between the provision of unemployment insurance and the cultural transmission of civicness. The returns to being uncivic are increasing in the generosity of unemployment insurance; but this generosity is decreasing in the number of uncivic individuals. In this context, I determine the evolution of preferences across generations and show that cultural heterogeneity is sustained over the long‐run. The dynamics of cultural transmission can generate a long lag between the introduction of unemployment insurance and an increase in people's willingness to live off government‐provided benefits. Hence, it offers an explanation to the ‘European unemployment puzzle’ due to the coexistence of generous unemployment insurance and low unemployment in the 1950s and 1960s.     

CONTRACT DURATION AND INVESTMENT INCENTIVES: EVIDENCE FROM LAND TENANCY AGREEMENTS

This paper analyzes the empirical determinants of contract length, a key and yet neglected dimension of contractual structure. I estimate contract length and contract type jointly using original data on tenancy agreements signed between 1870 and 1880 in the district of Siracusa, Italy. The findings indicate that the choice of contract length is driven by the need to provide incentives for nonobservable investment, taking into account transaction costs and imperfections in the credit markets that make incentive provision costly. The results also illustrate that because both length and the compensation scheme are used to provide incentives within the same contract, joint analysis is important for a correct interpretation of the evidence. (JEL: D82, O12, Q15)     

THE RISE OF THE EAST AND THE FAR EAST: GERMAN LABOR MARKETS AND TRADE INTEGRATION

We analyze the effects of the unprecedented rise in trade between Germany and “the East” (China and Eastern Europe) in the period 1988–2008 on German local labor markets. Using detailed administrative data, we exploit the cross‐regional variation in initial industry structures and use trade flows of other high‐income countries as instruments for regional import and export exposure. We find that the rise of the East in the world economy caused substantial job losses in German regions specialized in import‐competing industries, both in manufacturing and beyond. Regions specialized in export‐oriented industries, however, experienced even stronger employment gains and lower unemployment. In the aggregate, we estimate that this trade integration has caused some 442,000 additional jobs in the economy and contributed to retaining the manufacturing sector in Germany. This is almost exclusively driven by the rise of Eastern Europe, not by China. We also conduct an analysis at the individual worker level, and find that trade had a stabilizing overall effect on employment relationships.     

COMPUTER INTEGRATION AND CATASTROPHIC PROCESS FAILURE IN FLEXIBLE PRODUCTION: AN EMPIRICAL INVESTIGATION

This paper empirically investigates the effect of advanced manufacturing technology on process stability during flexible production in a process industry. A sample of 61 North American fine paper plants is used to examine the relationship between the level of automation installed for controlling changes between paper grades and the incidence of paper web breaks. These web breaks are catastrophic failures; they require the entire plant to be stopped, reinitialized, and restarted. Because a large fraction of breaks occurs shortly after changeovers, they are an important determinant of the aspect of plant flexibility, called mobility, or the ability to move between products with only small penalties. In an attempt to ensure stable and mobile production, many plants have implemented changeover automation. We find, however, that higher levels of this automation are significantly associated with higher rates of catastrophic failure among the plants studied. We suggest that this finding becomes less paradoxical when considered in light of a recent stream of research on advanced manufacturing technologies, loosely called the usability perspective. According to this perspective, automation designed and implemented with the narrow, technical goal of replacing human operators or removing their discretion over a production process is misguided, especially in environments in which requirements are changing rapidly.     

INTERNATIONAL TECHNOLOGY AND OPERATIONS MANAGEMENT: RESOURCE TOOLKIT FOR RESEARCH AND TEACHING

Increasing globalization has affected the way that firms are managed today. While its impact on competitive strategy, marketing, and finance has been well accepted and well studied, its effect on the firm's technology and operations has not. This paper provides resources for research and teaching in international technology and operations management (itom). Included are an extensive bibliography of papers and an overview of large-scale survey research initiatives in the area. By bringing together and categorizing this body of work, we hope to facilitate further work in the area and to help define ITOM'S scope.     

CONCEPTS,THEORY, AND TECHNIQUES

The beta distribution is becoming more widely used in business applications and in economic model-building. A simple way to estimate the parameters of the univariate distribution and the general multivariate distribution would be useful but there appears to be no simple way of accomplishing this task. For example, the method of maximum likelihood does not yield tractable results. The method of moments presented in this paper is a practical way to obtain parameter estimates for the beta distribution. Explicit estimators are derived for the univariate and bivariate case and estimators are then inferred for the n-variate case. Empirical tests suggest that the method of moments may be used to establish useful estimates for these parameters. Also, estimates obtained by the method of moments may be used to develop bounds on the parameters so that computational techniques can be utilized with other estimation methods possessing more desirable properties.     

CREDIT CONSTRAINTS AND THE CYCLICALITY OF R&D INVESTMENT: EVIDENCE FROM FRANCE

We use a French firm‐level data set containing 13,000 firms over the period 1994–2004 to analyze the relationship between credit constraints and firms’ R&D behavior over the business cycle. Our main results can be summarized as follows: (i) R&D investment is countercyclical without credit constraints, but it becomes procyclical as firms face tighter credit constraints; (ii) this result is only observed for firms in sectors that depend more heavily upon external finance, or that are characterized by a low degree of asset tangibility; (iii) in more credit‐constrained firms, R&D investment plummets during recessions but does not increase proportionally during upturns.