Assessing the effects of measurement errors on the estimation of production functions

This article explores to what extent the poor results that are often found when estimating parameters of production functions can be attributed to measurement errors, due to the use of common price deflators across firms. Because of the lack of detailed micro‐economic data, econometricians have to rely on industry‐wide deflators when computing outputs and intermediate inputs. A unique feature of the longitudinal data used in this paper is that it reports firm‐level prices. This allows for a comparative assessment of production function parameters where the outputs and intermediate inputs are computed using both firm‐specific prices and industry‐wide deflators. The empirical results presented in this paper show that the use of common deflators across firms leads to lower scale estimates, mainly because of a large downward bias in the estimated coefficients for labour. Copyright © 2006 John Wiley & Sons, Ltd.     

International equity markets interdependence: bigger shocks or contagion in the 21st century?

Review of World Economics - We investigate the nature of shocks across international equity markets and evaluate the shifts in their comovements at business-cycle frequency. By using a parsimonious...     

Accountability in government and regulatory policies: Theory and evidence

A key market institution is the degree of accountability to which the officials involved in regulation are exposed. While elected officials strive for re-election, appointed ones are career-concerned. Provided that the effort exerted to uncover the firm’s unknown cost is sufficiently effective in swaying votes, elected officials produce more information than appointed ones do. As a result, when the demand is inelastic, appointment induces wider allocative distortions and higher profits which, in turn, yield stronger incentives to invest. Hence, appointment will prevail on election when investment inducement is sufficiently relevant and shareholders are sufficiently more powerful than consumers. Data on electricity rates and costs, and the methods of selecting regulators and appellate judges for a panel of forty-seven US states confirm these predictions.     

Positive Assortive Merging

This paper addresses the following two questions: (i) Is there any evidence that firms, like human beings, prefer to partner with alike? (ii) Is there any relationship between the ex ante technological and product relatedness of merging parties and the postmerger performances? Using data of patent holdings and product portfolios of big pharmaceutical companies, I find that (i) merger deals are more likely to be signed between firms with related technologies and drug portfolios, and (ii) product relatedness and technology relatedness are positively and negatively correlated with postmerger performances, respectively. The analysis suggests that the negative effect of technology relatedness might be driven by a large human capital depreciation following consolidations. The results have important implications for competition policy, which are discussed in the concluding section.     

Macroeconomic shocks, structural change and real exchange rates: Evidence from historical data

We present empirical evidence on the forces driving real exchange rates in the long-run. Using data from the US, UK and Italy across different exchange rate regimes, we find support for the hypothesis that productivity and fiscal shocks matter. However, in some cases fiscal shocks cause depreciations, likely triggered by the monetary accommodation of fiscal shocks. We also find that the traditional Harrod–Balassa–Samuelson effect of productivity on real exchange rates is reversed in some cases, which confirms the importance of the distributive sector in driving productivity gains.     

Increasing Returns,Learning-By-Doing And Neural Networks ∗

In this paper we draw an analogy between the process of learning-bydoing and the learning process which develops in a neural network context. The bridging tool we refer to is a dynamic production function whose only variable input is labour. By concentrating on the ‘neural network production function’ we show that the learning process can lead to increasing returns. The simulations show that when learning is characterized by an upper limit. returns are increasing for some time, while in the long run they go back to the level where they are constant.     

Competition & Innovation: Evidence from U.S. Patent and Productivity Data

Is there any evidence that innovation and technological progress are constrained by competition and fostered by monopoly power? Our results, based on a constructed dataset of U.S. manufacturing industries observed over more than two decades, suggest that this is not the case. On the contrary, using both patent statistics and productivity growth as alternative measures of innovation and technological change, we observe faster technological advances in more competitive markets. These results are robust to changes in the econometric techniques used to model nonlinearity in the competition‐innovation relationship and to alternative methods of computing market power.     

How Do Alphas and Betas Move? Uncertainty,Learning and Time Variation in Risk Loadings*

I employ a parsimonious model with learning, but without conditioning information, to extract time‐varying measures of market‐risk sensitivities, pricing errors and pricing uncertainty. The evolution of these quantities has interesting implications for macroeconomic dynamics. Parameters estimated for US equity portfolios display significant low‐frequency fluctuations, along patterns that change across size and book‐to‐market stocks. Time‐varying betas display superior predictive accuracy for returns against constant and rolling‐window OLS estimates. As to the relationship of betas with business‐cycle variables, value stocks’ betas move pro‐cyclically, unlike those of growth stocks. Investment growth, rather than consumption, predicts the betas of value and small‐firm portfolios.     

Internationalization choices and Italian firm performance during the crisis

We focus on the relationship between internationalization choices and performance of Italian firms during the first period of the financial crisis (2007–2010). Making use of a new firm-level database, we build a six-class taxonomy of firms’ internationalization activities; then we estimate firms’ performance as a function of internationalization forms, also estimating propensity score and Heckman selection models in order to control for endogeneity and sample selection bias. Over the period 2007–2010, Italian firms moved (on average) towards more complex forms of internationalization. Empirical analysis finds that these upward changes are related with positive effects on firms’ (labour) productivity, also in a period characterized by the 2009 trade collapse. These findings put additional emphasis on the issue of the diversification of both products and markets as a goal to be pursued by firms, even in times of crisis, to remain competitive and make profits.     

Strategies for Adopting Consumer‐generated Media in Small‐sized to Medium‐sized Tourism Enterprises

Consumer‐generated media (CGM) are created when consumers submit, review or respond to online content. The bulk of research into CGM has focussed upon its use by consumers, with less research examining the use of CGM by small businesses. This article discusses small business sector use of online technologies such as CGM, concentrating on tourism small businesses as a key industry sector affected by CGM activities. A CGM ‘strategy’ framework, developed from an existing small business strategy framework, is proposed. This serves as a practical tool for developing CGM strategies and as a theoretical foundation for conducting research into the use of CGM. Copyright © 2014 John Wiley & Sons, Ltd.