Consumer default with complete markets: default-based pricing and finite punishment

This paper studies economies with complete markets where there is positive default on consumer debt. In a simple tractable two-period model, households can default partially, at a finite punishment cost, and competitive intermediaries price loans of different sizes separately. This environment yields only partial insurance. The default-based pricing of debt makes it too costly for the borrower to achieve full insurance, and there is too little trade in securities. This framework is in contrast to existing literature. Unlike the literature with default, there are no restrictions on the set of state contingent securities that are issued. Unlike the literature on lack of commitment, limited trade arises without need of debt constraints that rule default out. Compared with the latter, the present approach appears to imply more consumption inequality. An extended model with an infinite horizon, idiosyncratic risk and more realistic assumptions is used to demonstrate the general validity of this approach and its main implications.     

Spatial agglomeration and firm exit: a spatial dynamic analysis for Italian provinces

The paper investigates the effect of spatial agglomeration on firm exit in a dynamic framework. Using a large dataset at the industry-province level for Italy (1998–2007), we estimate a spatial dynamic panel model via a GMM estimator and analyze the short-run impact of specialization and variety on firm exit. Specialization negatively affects firm exit rates in the short-run. The effect is particularly significant for low-tech firms. The impact of variety on firm mortality rates at the industry level is instead less clear, although still negative and significant for low-tech firms.     

Financial constraints and firm dynamics

This study analyzes the effect of financial constraints (FCs) on firm dynamics. We measure FCs with an official credit rating, which captures availability and cost of external resources. We find that FCs undermine average firm growth, induce anti-correlation in growth patterns and reduce the dependence of growth volatility on size. FCs are also associated with higher volatility and asymmetries in growth shock distributions, preventing young fast-growing firms especially from seizing attractive growth opportunities and further deteriorating the growth prospects of already slow-growing firms, particularly if old. The sub-diffusive nature of the growth process of constrained firms is compatible with the distinctive properties of their size distribution.     

SOCIAL INVESTMENT AND YOUTH LABOR MARKET PARTICIPATION

In this paper, we first rely on small area techniques to derive from EU statistics on income and living conditions (EU‐SILC) survey new indicators of compensatory and social‐investment policies at regional level. While compensatory policies have mainly the goal of protecting individuals from “old” risks (e.g., old‐age), investment‐related social policies tend to focus more on “new social risks” (e.g., skill deficits). We rely on these new indicators to perform a data‐driven structural vector autoregressive (SVAR) analysis to investigate the causal relationships between youth labor market outcomes and these two types of spending. Our results support the view that social‐investment policies are effective for tackling new social challenges. (JEL C18, C54, E02)     

Minimum Quality Standards and Collusion

We model the introduction of a minimum quality standard in a vertically differentiated duopoly. We extend the literature by determining the standard endogenously, showing that the maximisation of social welfare entails an increase in the surplus accruing to consumers served by the low quality firm and a decrease in the surplus of the remaining consumers. Then, we consider the effects of the standard on the stability of price collusion, proving that the standard makes it more difficult for firms to collude if consumers are sufficiently rich.     

Vertical Integration,Organizational Governance,and Firm Performance: Evidence from Italian Business Groups

Assuming transaction cost economics as a normative tool, we investigate the relationship between firms' ‘observed’ vertical integration choices and their economic performance. We use a two‐stage methodology: in the first, a measure of governance misalignment is computed as a difference between the governance form (i.e., ownership or outsourcing) predicted by transaction cost economics and the form actually observed; the second stage consists of estimating a performance equation where the misalignment variable is introduced together with a set of independent variables. Compared with previous studies, we introduce two novelties: we use the business group as the unit of analysis to detect the ownership of vertically related productions; we assess the moderating role of geographic agglomeration in reducing the need of vertical integration. Our results confirm the importance of technology and price uncertainty in influencing vertical integration; moreover, the misalignment variable is significant in the case of profitability, but not in the case of growth. Copyright © 2014 John Wiley & Sons, Ltd.     

Production and financial linkages in inter-firm networks: structural variety, risk-sharing and resilience

The paper analyzes how (production and financial) inter-firm networks can affect firms’ default probabilities and observed default rates. A simple theoretical model of shock transfer is built to investigate some stylized facts on how firm-idiosyncratic shocks are allocated in the network, and how this allocation changes firm default probabilities. The model shows that the network works as a perfect “risk-pooling” mechanism, when it is both strongly connected and symmetric. But the “risk-sharing” does not necessarily reduce default rates, unless the shock firms face is lower on average than their financial capacity. Conceived as cases of symmetric inter-firm networks, industrial districts might have a comparative disadvantage in front of heavy crises.     

Modelling Intra-Group Relationships

Within a group of companies, a model is given for management of the relationships between the parent company and its subsidiaries. This is particularly relevant for groups originating from mergers and takeovers, because firms acquired often differ substantially in organizational structure from each other and from the parent company. The model provides a means of harmonizing the organizational structures of parent company and subsidiaries, so as to provide a complete coverage of necessary activities without duplication, and a means of identifying which activities should, in economic terms, be centralized by the parent company, and which should be delegated to the subsidiary. Finally, there is an empirical application of the model to one of the principal Italian banking groups.