WHAT DETERMINES ENTREPRENEURIAL CLUSTERS?

We contrast two potential explanations of the substantial differences in entrepreneurial activity observed across geographical areas: entry costs and external effects. We extend the Lucas model of entrepreneurship to allow for heterogeneous entry costs and for externalities that shift the distribution of entrepreneurial talents. We show that these assumptions have opposite predictions on the relation between entrepreneurial activity and firm‐level TFP: with different entry costs, in areas with more entrepreneurs firms' average productivity should be lower; with heterogeneous external effects it should be higher. We test these implications on a sample of Italian firms and unambiguously reject the entry costs explanation in favor of the externalities explanation. We also investigate the sources of external effects, finding robust evidence that learning externalities are an important determinant of cross‐sectional differences in entrepreneurial activity.     

WHICH SECTORS MAKE POOR COUNTRIES SO UNPRODUCTIVE?

Which sectors are most responsible for the low total factor productivities of developing countries? To answer this question we develop a new framework for sectoral development accounting. Applying this framework to the Penn World Table, we find that in equipment, construction, and food the sectoral TFP differences between developing countries and the United States are much larger than in the aggregate. However, in manufactured consumption the sectoral TFP differences are about equal to the aggregate TFP differences, and in services they are much smaller. We show that our level of disaggregation allows us to reconcile the results of existing studies of sectoral productivity differences, which have focused on noncomparable two‐sector decompositions of the aggregate data. We also show that our results help shed light on existing theories of aggregate TFP differences.     

INVESTMENT AND TIME TO PLAN AND BUILD: A COMPARISON OF STRUCTURES VS. EQUIPMENT IN A PANEL OF ITALIAN FIRMS

“Time‐to‐build” models of investment expenditures play an important role in many traditional and modern theories of the business cycle, especially for explaining the dynamic propagation of shocks. We estimate the structural parameters of a time‐to‐build model using annual firm‐level investment data on equipment and structures. For expenditures on equipment, we find no evidence of time‐to‐build effects beyond one year. For expenditures on structures, by contrast, there is clear evidence of such effects in the range of two to three years. The contrast between equipment and structures is intuitively reasonable and consistent with previous results. The estimates for structures also indicate that initial‐period expenditures are low and increase as projects near completion. These results provide empirical support for including “time‐to‐plan” effects for investment in structures. More generally, these results suggest a potential source of specification error for Q models of investment and production‐based asset pricing models that ignore the time required to plan, build, and install new capital. (JEL: D24, G31, C33, C34)     

JEEA‐FBBVA LECTURE 2013: THE NEW EMPIRICAL ECONOMICS OF MANAGEMENT

Over the last decade the World Management Survey (WMS) has collected firm‐level management practices data across multiple sectors and countries. We developed the survey to try to explain the large and persistent total factor productivity (TFP) differences across firms and countries. This review paper discusses what has been learned empirically and theoretically from the WMS and other recent work on management practices. Our preliminary results suggest that about a quarter of cross‐country and within‐country TFP gaps can be accounted for by management practices. Management seems to matter both qualitatively and quantitatively for performance at the level of the firm and the nation. Competition, governance, human capital, and informational frictions help account for the variation in management. We make some suggestions for both policy and future research.     

区域市场整合与对外直接投资的逆向溢出效应——来自中国省级行政区的经验证据

本文在区域市场整合的制度背景下探讨对外直接投资(ODI)对母国经济增长的逆向溢出效应。首先,以新增长理论为基础,建立全要素生产率(TFP)内生于ODI和市场整合程度的理论模型;其次,利用中国2003-2012年的省际面板数据进行实证分析;最后,通过DEA-Malmquist指数将TFP分解为技术水平变化、资源配置效率变化和规模效率变化三部分,揭示溢出效应的传导途径。研究表明:区域市场整合与ODI在促进技术进步方面具有显著的替代效应、在优化资源配置方面具有显著的互补效应、在实现规模经济方面不存在显著作用,三方面合成之后二者对TFP的影响表现出显著的替代效应。为了保证结论的可靠性,本文考虑了ODI的内生性,对结果进行了稳健性检验,比较了不同类别样本中ODI的边际效应。     

Post-Divorce Transfers and the Welfare of Mothers and Children in the United States

ABSTRACT In this paper we analyze the relationship between post-divorce private transfers (child support and alimony), mothers' economic independence and children's welfare using US data. Our empirical results show that mothers who receive child support and alimony from absent fathers are more likely to work and to spend a higher proportion of the income on child-related goods. We argue that the pattern of empirical results is consistent with there being significant externalities between parents even after divorce.     

Inference on Counterfactual Distributions

Counterfactual distributions are important ingredients for policy analysis and decomposition analysis in empirical economics. In this article, we develop modeling and inference tools for counterfactual distributions based on regression methods. The counterfactual scenarios that we consider consist of ceteris paribus changes in either the distribution of covariates related to the outcome of interest or the conditional distribution of the outcome given covariates. For either of these scenarios, we derive joint functional central limit theorems and bootstrap validity results for regression‐based estimators of the status quo and counterfactual outcome distributions. These results allow us to construct simultaneous confidence sets for function‐valued effects of the counterfactual changes, including the effects on the entire distribution and quantile functions of the outcome as well as on related functionals. These confidence sets can be used to test functional hypotheses such as no‐effect, positive effect, or stochastic dominance. Our theory applies to general counterfactual changes and covers the main regression methods including classical, quantile, duration, and distribution regressions. We illustrate the results with an empirical application to wage decompositions using data for the United States. As a part of developing the main results, we introduce distribution regression as a comprehensive and flexible tool for modeling and estimating the entire conditional distribution. We show that distribution regression encompasses the Cox duration regression and represents a useful alternative to quantile regression. We establish functional central limit theorems and bootstrap validity results for the empirical distribution regression process and various related functionals.     

A Study of Industry Evolution in the Face of Major Environmental Disturbances: Group and Firm Strategic Behaviour of Spanish Banks, 1983–1997*

This paper examines the story of the evolution of a specific industry through the application of dynamic strategic group analysis. In particular, we analyse the relationship between major environmental disturbances and changes that have occurred over time in the competitive structure of the industry regarding two closely related central questions. First, the way in which these environmental transformations have influenced group patterns and stability, and second, the way in which such environmental disturbances has affected the strategic positioning of individual firms. We resort to alternative theoretical perspectives in an attempt to answer both questions. The empirical setting is the population of Spanish banks over the period 1983–1997. We make use of a new grouping algorithm – the Model‐based Clustering or MCLUST – which may be enormously fruitful in future empirical works on strategic groups. This method allows researchers to obtain the optimal number of groupings over time in a much more objective way than the cluster techniques used until now. Compared to previous dynamic studies that only consider the largest firms, our research illustrates how a richer analysis of an industry dynamics can be obtained by using a dynamic analysis of strategic groups. Our results show that while there have been no industry‐wide identical groupings year to year, there is an important strategic stability at group and firm‐level punctuated by a high degree of strategic instability at times of major environmental disturbances.     

THE DEMAND FOR LIQUID ASSETS,CORPORATE SAVING,AND INTERNATIONAL CAPITAL FLOWS

The recent period of capital outflows from emerging economies has coincided with an increase in their corporate saving. In this paper, we model corporate saving as a demand for liquid assets by credit‐constrained firms in a dynamic open‐economy macroeconomic model. We find that the implications of this model are very different from standard models, because the demand for foreign bonds is a complement to domestic investment rather than a substitute. We show that this complementarity is at work when an emerging economy is on its convergence path or when it has a higher TFP growth rate. This framework is consistent with a number of stylized facts found in high‐growth, high‐investment emerging economies.     

Marginal Contributions and Externalities in the Value

Our concern is the extension of the theory of the Shapley value to problems involving externalities. Using the standard axiom systems behind the Shapley value leads to the identification of bounds on players' payoffs around an “externality‐free” value. The approach determines the direction and maximum size of Pigouvian‐like transfers among players, transfers based on the specific nature of externalities that are compatible with basic normative principles. Examples are provided to illustrate the approach and to draw comparisons with previous literature.     

The moderating effect of foreign direct investment intensity on local firms' intangible resources investment and performance implications: A case from China

Foreign direct investment (FDI) has been known to generate positive externalities to increase the productivity and competitiveness of domestic industries through knowledge and technology spillover. This study focuses on the indirect effect of FDI by investigating whether FDI intensity benefits local firms by enhancing the local intellectual property rights (IPR) environment. We argue that due to the inadequate IPR environment in emerging economies, local firms' intangible resources investment can be negatively related to firm performance. Further, we suggest that FDI intensity can improve the local IPR environment, thereby enhancing the appropriability of local firms' intangible resources investment. We find empirical evidence to support our arguments by examining 70 semiconductor firms in China from 1999 to 2006, and we discuss the theoretical and practical implications of the impact of FDI intensity on the local IPR environment.     

Who Chooses Which Private Education? Theory and International Evidence

Private school students do not always perform better in standardized tests. We suggest that this may be explained by choice of private schooling by less capable students in countries where government schools are better suited to talented students. To assess the empirical relevance of this mechanism, we exploit cross‐country variation in the Program for International Student Assessment (PISA) 2009 survey of differences between private and state school regarding organizational features that are differently suitable for students with different learning ability. We seek and find evidence of this mechanism's empirical relevance in controlled regressions that treat within‐country variation of PISA scores as an indicator of unobserved ability to learn.     

Networks in Conflict: Theory and Evidence From the Great War of Africa

We study from both a theoretical and an empirical perspective how a network of military alliances and enmities affects the intensity of a conflict. The model combines elements from network theory and from the politico‐economic theory of conflict. We obtain a closed‐form characterization of the Nash equilibrium. Using the equilibrium conditions, we perform an empirical analysis using data on the Second Congo War, a conflict that involves many groups in a complex network of informal alliances and rivalries. The estimates of the fighting externalities are then used to infer the extent to which the conflict intensity can be reduced through (i) dismantling specific fighting groups involved in the conflict; (ii) weapon embargoes; (iii) interventions aimed at pacifying animosity among groups. Finally, with the aid of a random utility model, we study how policy shocks can induce a reshaping of the network structure.     

Intermediate Units in Multinational Corporations: Advancing Theory on their Co‐parenting Role,Dynamics and Outcomes

Due to the dispersion of headquarters’ activities across organizational and geographical boundaries, intermediate units (IUs) are emerging as a key actor in international business. These units are intermediate structural layers between headquarters (HQ) and local subsidiaries with specific HQ responsibilities. Through a systematic review of 68 studies published between 1996 and 2020, we develop a conceptual framework that integrates complementary streams of theoretical and empirical research with IUs as the focal unit of analysis. Our aims are to disentangle how the main theories in this field address the antecedents of IU creation, and explain the dynamism in the roles and functions of IUs and their outcomes. We also propose a conceptualization of IUs as co‐parents in a dynamic system in which parenting functions are shared by IUs and headquarters. Finally, we highlight avenues for future research, emphasizing opportunities to advance the understanding of IUs using different theoretical lenses that may help scholars position their work within the broader stream of literature.     

THE ROLE OF TRANSACTION COSTS FOR FINANCIAL VOLATILITY: EVIDENCE FROM THE PARIS BOURSE

This paper analyzes the causal linkage between transaction costs and financial volatility under two methodological improvements over the existing literature. First, we use panel data in which exogenous transaction cost differences in the French stock market are induced by price level dependent minimum price variation rules (tick size rules). Unlike in previous studies based on one‐time regulatory tick size changes (like the U.S. decimalization), we can separately identify and control for marketwide volatility changes. Second, we avoid the pitfalls of biased volatility measurement across regimes by using the range as a tick size robust volatility metric. Panel regressions controlling for marketwide volatility effects show at high levels of statistical significance that the hourly range volatility of individual stocks increases by more than 30% for a 20% exogenous increase in transaction costs due to tick size variations in the French trading system. In the light of this evidence, higher transaction costs in general, and security transaction taxes in particular, should be considered as volatility increasing. (JEL: F3, G1, G14)     

A MARKET UTILITY‐BASED MODEL FOR CAPACITY SCHEDULING IN MASS SERVICES

Only a small set of employee scheduling articles have considered an objective of profit or contribution maximization, as opposed to the traditional objective of cost (including opportunity costs) minimization. In this article, we present one such formulation that is a market utility‐based model for planning and scheduling in mass services (MUMS). MUMS is a holistic approach to market‐based service capacity scheduling. The MUMS framework provides the structure for modeling the consequences of aligning competitive priorities and service attributes with an element of the firm's service infrastructure. We developed a new linear programming formulation for the shift‐scheduling problem that uses market share information generated by customer preferences for service attributes. The shift‐scheduling formulation within the framework of MUMS provides a business‐level model that predicts the economic impact of the employee schedule. We illustrated the shift‐scheduling model with empirical data, and then compared its results with models using service standard and productivity standard approaches. The result of the empirical analysis provides further justification for the development of the market‐based approach. Last, we discuss implications of this methodology for future research.     

Human Capital,Trade Openness and Growth in Argentina in the 20th Century

We estimate a production function that accounts for the economic performance of the country in the 20th century. We elaborate long term time series whereas most of the recent empirical studies on growth are based on cross section analysis. This approach allows us to follow the various regime changes that can be identified in the rich economic history of Argentina. To evaluate Total Factor Productivity (TFP) we initially test the classical Solow Model. We estimate the speed of convergence of TFP and obtain a non convergence result. This speed of convergence has declined since the 1930s, and we find a phenomenon of divergence in the period 1970–90. We then analyse the impact on production of additional variables recently highlighted in the endogenous growth literature such as the process of catch up of foreign technical progress, human capital and trade openness. Chow tests for this extended production function give us a strong probability of changes in the growth regimes. The estimation, that takes into consideration the break points identified, shows that the impact of trade openness and foreign technology is not stable throughout the century. In what concerns the impact of education on economic growth, we find a strong effect of primary education on growth, and a weaker effect of secondary-university education.     

Sourcing Information Security Operations: The Role of Risk Interdependency and Competitive Externality in Outsourcing Decisions

Firms are increasingly outsourcing information security operations to managed security service providers (MSSPs). Cost reduction and quality (security) improvement are often mentioned as motives for outsourcing information security, and these are also the frequently cited reasons for outsourcing traditional information technology (IT) functions, such as software development and maintenance. In this study, we present a different explanation—one based on interdependent risks and competitive externalities associated with IT security—for firms' decisions to outsource security. We show that in the absence of competitive externalities and interdependent risks, a firm will outsource security if and only if the MSSP offers a quality advantage over in‐house operations, which is consistent with the conventional explanation for security outsourcing. However, when security risks are interdependent and breaches impose competitive externalities, although firms still have stronger incentive to outsource security if the MSSP offers a higher quality in terms of preventing breaches than in‐house management, a quality advantage of MSSP over in‐house management is neither a prerequisite for a firm to outsource security nor a guarantee that a firm will. In addition to MSSP quality, the type of externality (positive or negative), the degree of externality, whether outsourcing increases or decreases risk interdependency, and the breach characteristics determine firms' sourcing decisions. When security breaches impose a positive externality, the incentive to outsource is enhanced if the MSSP decreases the risk interdependency and diminished if the MSSP increases this interdependency. A negative externality has the opposite effect on firms' incentives to outsource. A high demand spillover to a competitor, together with a high loss in industry demand because of a security breach, enhances these incentives to outsource security operations when the externality is negative. Finally, we extend our base model in several dimensions and show that our main results regarding the impact of interdependent risks and competitive externalities on sourcing decisions are robust and generalizable to different specifications.     

Robust Nonparametric Confidence Intervals for Regression‐Discontinuity Designs

In the regression‐discontinuity (RD) design, units are assigned to treatment based on whether their value of an observed covariate exceeds a known cutoff. In this design, local polynomial estimators are now routinely employed to construct confidence intervals for treatment effects. The performance of these confidence intervals in applications, however, may be seriously hampered by their sensitivity to the specific bandwidth employed. Available bandwidth selectors typically yield a “large” bandwidth, leading to data‐driven confidence intervals that may be biased, with empirical coverage well below their nominal target. We propose new theory‐based, more robust confidence interval estimators for average treatment effects at the cutoff in sharp RD, sharp kink RD, fuzzy RD, and fuzzy kink RD designs. Our proposed confidence intervals are constructed using a bias‐corrected RD estimator together with a novel standard error estimator. For practical implementation, we discuss mean squared error optimal bandwidths, which are by construction not valid for conventional confidence intervals but are valid with our robust approach, and consistent standard error estimators based on our new variance formulas. In a special case of practical interest, our procedure amounts to running a quadratic instead of a linear local regression. More generally, our results give a formal justification to simple inference procedures based on increasing the order of the local polynomial estimator employed. We find in a simulation study that our confidence intervals exhibit close‐to‐correct empirical coverage and good empirical interval length on average, remarkably improving upon the alternatives available in the literature. All results are readily available in R and STATA using our companion software packages described in Calonico, Cattaneo, and Titiunik (2014d, 2014b).     

A Mechanism Design Approach to Ranking Asymmetric Auctions

I propose a new mechanism design approach to the problem of ranking standard auctions with two heterogeneous bidders. A key feature of the approach is that it may be possible to rank two auctions even if neither dominates the other for all combinations of types. The approach simplifies the analysis and unifies results in the existing literature. Roughly speaking, the first‐price auction is more profitable than the second‐price auction when the strong bidder's distribution is flatter and more disperse than the weak bidder's distribution. Applications include auctions with one‐sided externalities. Moreover, contrary to previous work, reserve prices are easily handled. Finally, the method can be extended to some environments with many bidders.