Resource allocation: A hayekian paradigm for maritime conglomerates

Conclusion This article provides a new synthesis between the strategic management literature and Austrian capital theory. The resource allocation process plays out in the context of differing subunit preferences, potentially resulting in tension and periodic conflict that may lead to dysfunctional relationships over time. Absent clearly understood and effective operational rules, the potential for heightened dysfunctional internal relationships will lead a conglomerate organization to have a diminished resource base for achieving its future strategic goals. This article presents a set of resource-allocation rules based on the Hayekian theory of production. By developing an effective resource-allocation paradigm based on economic theory, the organization can gain market share resulting in increased profitability and continued success in the marketplace. The Hayekian triangle offers firms an objective measure reflecting environmental shifts by tracking interest-rate changes that affect consumer and production demand. Organizations can gain “first-mover advantages” essential to provide the competitive advantage vis-à-vis their rivals while maintaining harmonious relationships among subunits. Entrepreneurial innovation can also be exercised by “second movers” who imitate the “first movers,” perhaps taking advantage of lessons learned. This kind of innovative imitation may well provide the greatest scope for entrepreneurial activity. The authors remain responsible for any errors or omissions.     

Why don’t foreign firms cooperate in US antidumping investigations? An empirical analysis

Foreign firms face punitive duties if they do not cooperate with the US Department of Commerce (DOC) in antidumping procedures. For example, 37% of all foreign firms involved in antidumping investigations in the US faced “facts available” margins for the 1995–2002 period, with average antidumping duties of 31% for cooperating foreign firms, compared to 87% for those who did not cooperate. The existing literature has focused on how DOC discretion has led to foreign firm non-cooperation. This paper instead examines individual foreign firm’s decisions about whether to cooperate during this same period. We find evidence that non-cooperation is consistent with a model of foreign firms rationally choosing not to cooperate, rather than solely as a result of investigating authority bias against imports.     

Increasing Diversity in Telecommunications Ownership and Increasing Efficiency in Spectrum Auctions by Breaking the Link Between Capital Market Discrimination and FCC Spectrum Auction Outcomes

In Section 309(j)4(D) of the Communications Act, the Federal Communications Commission (“FCC”) is required to increase opportunities for minority groups to participate in the provision of spectrum based services. In Adarand Construction, Inc. v. Pena, the Supreme Court held that race-based government programs were subject to strict scrutiny. That is race-based programs must serve a compelling governmental interest such as remedying past discrimination, and must be narrowly tailored to serve that interest. Against this backdrop, a simple theoretical model is developed that explains the relationship between capital market discrimination and outcomes in FCC spectrum auctions. Given capital market discrimination and all other factors being equal, it is shown that a minority firm has zero probability of winning in an auction for spectrum. In addition, it is proven that, if equal bidding credits are given to all firms, if there is capital market discrimination, and if all other things are equal, the minority firm has a zero probability of winning in a spectrum auction. It is shown that a policy of auctioning spectrum, when there is capital market discrimination, is an inferior policy among policies that can be used to allocate spectrum. Finally, a policy of auctioning spectrum, when there is capital market discrimination, results in an inefficient auction. These theoretical results and the empirical literature on capital market discrimination suggest that the FCC is implicitly discriminating against minorities through its auctioning of spectrum under conditions of discrimination in capital markets. The results imply that race-based programs are necessary/justified in order to increase diversity in telecommunications ownership and increase the efficiency of FCC Spectrum Auctions. Given possible legal remedies, the paper contains a critical “audit”/analysis of the FCC’s lending practices under the FCC’s installment payments. Legislative proposals for creating some new form of credit/installment payment in conjunction with some experienced financial institution(s) are summarized and reviewed.     

Foreign direct investment and productivity spillovers: Evidence from the Spanish experience

Foreign Direct Investment and Productivity Spillovers: Evidence from the Spanish Experience. — The aim of this paper is to analyse the impact of foreign direct investment (FDI) on firms’ productivity using a panel of Spanish manufacturing firms for the period 1990–1998. Firstly, we show that for countries, like Spain, that are undergoing significant structural changes over the period in question it is important to control for both time-invariant as well as time-variant sectoral characteristics. Secondly, we confirm previous findings that one needs to take into account the “absorptive capacity” of firms when considering whether they are able to avail of externalities associated with FDI presence. For the Spanish case we find that only firms with sufficient levels of such capacity experience positive spillovers.     

Foreign direct investment, agglomerations, and demonstration effects: An empirical investigation

Previous studies have shown that the localisation of firms can be an important factor in attracting new foreign direct investment into a host country. The authors distinguish between “efficiency agglomerations” which arise as firms increase their efficiency by locating close to each other, and “demonstration effects” whereby existing firms send signals to new investors as to the reliability and attractiveness of the host country. They try to disentangle these two effects by examining the location of US firms in Ireland. They find that both sources of agglomerations have been important determinants of US firm entry into Ireland. JEL no. F23     

Consumer discrimination,duopoly, and black firm entry: The welfare effect of subsidies

Consumer discrimination, to the extent that it lowers expected profit for black owned firms, discourages the entry of new black firms. From a social welfare perspective, consumer discrimination may be welfare reducing, since market output is lower than otherwise. If so, a policy intervention that subsidizes new black firms may improve social welfare. This article presents a simple model of duopoly where consumer discrimination exists with uncertainty, and the only cost of production is a “loss of sales” cost. Given the Nash equilibrium, in which a black and white firm must select a price to charge, conditions are derived for which a profit subsidy to a new black firm increases, decreases, or has no effect on social welfare.     

The Relation between Strategy,CEO Selection,and Firm Performance

We examine whether a firm's strategic priorities influence its selection of a new CEO and what conditions enable such an appointment to add value to the firm. More specifically, this study investigates the value‐adding effect when prospector firms (i.e., those pursuing a prospector‐type strategy) select a CEO with high social capital. We argue that uncertainty, driven by a firm's strategy, will determine the decision to select a CEO with high social capital; such CEOs can use their networks to mitigate the uncertainty and thus can be valuable to the firm. However, prior research indicates that CEOs with high social capital can engage in behavior detrimental to firm value. To mitigate the potential for this to occur, we assess whether corporate governance can play a role in prospector firms who appoint CEOs with high social capital. Drawing on archival data of CEO successions over a 14‐year period, we find that prospector firms have greater incentives to appoint CEOs with high social capital. We also find that prospector firms who appoint a CEO with high social capital improve their performance. Furthermore, the value‐adding effect of this selection choice is stronger in prospector firms with good corporate governance.     

U.S. Antidumping Enforcement and Macroeconomic Indicators Revisited: Do Petitioners Learn?

We contribute to the literature on the political economy of U.S. antidumping enforcement through an analysis of the pattern—and macroeconomic determinants—of country-specific antidumping petitions filed by U.S. firms against 15 countries between 1981 and 1998 (examining quarterly data). We reconcile some seemingly inconsistent results from the prior literature by suggesting that “learning” by petitioners about the administration—in practice—of the U.S. trade laws has led to changes in the roles of the macroeconomic determinants over time. JEL no. F13     

Offshoring and firm performance: self-selection,effects on performance,or both?

This paper uses unique new data for German manufacturing enterprises from matched regular surveys and a special purpose survey to investigate the causal effect of relocation of activities to a foreign country on firm performance. Compared to non-offshoring firms, firms that relocated activities were larger and more productive, and had a higher share of exports in total sales. These differences existed the year before some firms started to relocate, and this points to self-selection of “better” firms into offshoring. To investigate the causal effects of offshoring, six different variants of a matching approach are used. Contrary to what is often argued we find no evidence for a large negative causal effect of offshoring on employment in Germany.     

Unobserved firm heterogeneity and the size-exports nexus: Evidence from German panel data

This paper starts from the stylized fact that firm size and exporting tends to be positively related. Using large sets of establishment panel data for three different industries from official statistics, evidence is presented that the familiar picture of an export/sales ratio that increases (at a decreasing rate) with firm size vanishes if unobserved firm heterogeneity is controlled for in a fixed-effects fractional logit regression model. This finding is well in line with the fact that many small firms are “hidden export champions.” JEL no. F10, D21, L60     

The Link Between CEO Compensation and Firm Performance: Does Simultaneity Matter?

In order to combat the principle-agent problem, directors of public companies use incentive-based contracts to align the interests of CEOs and shareholders. Some studies suggest that these contracts are an inefficient use of resources, and that they do not motivate CEOs to do what is best for the firm. In this study, the author estimates a regression to find the relationship between CEO Compensation and market value of a firm. In order to address persistence, endogeneity and firm-specific effects the author uses the first-differenced and system GMM regression techniques first used by [Arellano, M.; Bover, O. “Another Look at the Instrumental-Variable Estimation of Error-Component Models,” Journal of Econometrics, 68, 1995, pp. 29–51] and [Blundell, R. W.; Bonds, S. R. “Initial Conditions and Moment Restrictions in Dynamic Panel Data Models,” Journal of Econometrics, 87, 1998, pp. 115–43; Blundell, R. W.; Bond, S. R., Windmeijer, F. “Estimation in Dynamic Panel Data Models: Improving on the Performance of the Standard GMM Estimators,” Institute for Fiscal Studies Working Paper W00/12, London, England, 2000]. These regressions report a positive relationship between CEO compensation and market value of a firm. This study concludes that incentive based contracts are effective, due to the positive pay-to-performance link, when controlling for simultaneity. First place winner of the Undergraduate Best Paper Award Competition at the 60th International Atlantic Economic Conference in New York, NY, October 6–9, 2005.     

Learning-by-Exporting: Continuous Productivity Improvements or Capacity Utilization Effects? Evidence from Slovenian Firms

Following along the lines of a growing literature on the causal link between exporting and productivity, this paper analyzes the existence of “learning-by-exporting” using firm-level data for Slovenian manufacturing enterprises between 1994 and 2002. We fail to find conclusive evidence of learning-by-exporting. By matching new exporting firms to “sufficiently” similar non-exporters and using the difference-in-differences method on the matched pairs it is revealed that productivity improvements, although present, are far from permanent and tend to dissipate shortly after initial entry. Confronting the data on factor accumulation with TFP measures indicates that the perceived learning effects may in fact only be a consequence of increased capacity utilization brought about by the opening of an additional market. JEL no. D24, F12, F14     

On the hump-shaped output effect of monetary policy in an open economy

Results of empirical research have revealed a characteristic hump-shaped effect of a monetary policy shock on output: The effect of the shock builds to a peak after several months and then gradually dies out. We analyze, in the context of a ‘new open economy macroeconomics’ model, factors that imply a hump-shaped response of output to a monetary policy shock. We find that a hump-shaped effect of a monetary policy shock on output is likely to result if the model features a “catching-up with the Joneses” effect, pricing-to-market behavior of firms, and imperfect international financial market integration. We thank two anonymous referees for very helpful comments. The usual disclaimer applies.     

Empirical models of criminal behavior: How significant a factor is race?

Empirical models of the supply of criminal offenses in the United States have shown a positive relationship between the proportion of the population that is non-white (RACE) and crime rates. Though non-whites in the United States possess more “criminal capital” than the average person, such studies do not take into consideration this excess criminal capital. Since RACE and the omitted excess criminal capital are correlated, it will pick up the influence of the excess criminal capital. Using cross-sectional data from Florida’s municipalities, we show that after adjusting for excess criminal capital, RACE has no significant relationship with crime.     

A critique of mises’s theory of monopoly prices

Conclusion Built on Rothbardian insights, our attempt to show the peculiarities of Misesian monopoly theory results in a few conclusions. First of all, in Mises’s theory of monopoly two of the three conditions for the emergence of monopoly prices belong to different realms of scientific inquiry. On the one hand, Mises points out the idea of a counterfactual comparison between competitive price and monopoly price; on the other hand, he stresses the importance of an empirical method to discover monopoly prices. The latter, even if it describes a true statement about market conditions, i.e., the entrepreneurs do not know (beforehand) the market demand curve, does not help us to identify the monopoly price on market. Second, Mises erroneously founds his welfare arguments on value theory. His utilitarian endeavor to show that “consumers’ sovereignty” is infringed by monopolistic restriction of production does not succeed. He based his arguments on nonscientific interpersonal and intertemporal comparisons of utility. Third, Mises is not consistent in the use of a standard of comparison for “monopoly prices”: on the one hand, the market prices are not distinguishable from “monopoly prices”; on the other hand, the transfer of the discussion to the equilibrium framework does not help us either, as we try to explain real market phenomena. Thus, Mises’s attempts to incorporate the neoclassical concept of monopoly price into the framework of the market process, as depicted by Austrians, do not succeed. Our inquiry supports the largely shared opinion among Austrian economists that monopoly price (at least in its present definition) does not exist on the free market; it appears only, and is logically identifiable, as a result of a privilege given by the State.     

Is There a Link Between Casual Employment and Export-Orientation of Firms? The Case of Kenya’s Manufacturing Sector

Empirical evidence on the link between trade and employment outcomes in Africa is severely limited. The paper analyses employment outcomes, that is, the rise in casual employment in Kenya’s manufacturing sector in relation to firms’ export orientation. While exporting firms generally account for a higher proportion of employment in the manufacturing sector, the proportion of workers in exporting firms declined by over 20% between the early 1990s and 2003. On the other hand, the proportion of casual workers employed in manufacturing firms increased over the same period. However, the empirical results show no strong evidence of “exporting” significantly influencing the proportion of casual workers employed by firms. The combination of an increasingly skilled labour force in Kenya and deepening casualisation among workers points to a conundrum that requires further analysis. That notwithstanding, the results suggest a need for policy focus not only on job creation, but also on the quality of jobs created.     

Aid and Public Finance: A Missing Link?

The present consensus in the literature is that foreign aid does not have the desired positive effects on economic development. This is due in great part to poorly performing public institutions in recipient countries. In order to understand better the causes of this undesirable phenomenon, we examine the relationship between multilateral foreign aid flows and recipient countries’ public finance systems. We construct a new indicator to assess the quality of public finance, the Public Finance Institutions Quality (PFIQ) Index. For our panel of 86 countries, we find that multilateral aid flows have a negative impact on recipient country PFIQ score, whereas exogenous improvements in public finance seem to attract more aid. These results provide insight into the “black box” of governance: failure to turn aid receipts into desired results seems partly attributable to multilateral aid, in its present form, not being suited to improving a country’s public finance institutions. However, international donor organisations do seem to reward exogenous improvements in quality and reliability of public finance systems.     

The heterogeneous effect of international outsourcing on firm productivity

This paper analyses how international outsourcing affects plant total factor productivity (TFP) using a census of Irish manufacturing firms. The results point to a striking pattern: the status of being or becoming an outsourcer matters strongly for firms that are indigenous and not exporting, while for exporters and foreign affiliates, TFP increases are lower, insignificant and sometimes negative. On the other hand, higher intensity of outsourcing matters for both exporters and foreign affiliates. The message is clear: international outsourcing’s initial learning effect on TFP is most pronounced when it serves as a first exposure to international markets, while the “scale effect” of outsourcing en masse only occurs to larger, already internationalised firms.     

Comments on S. Edwards: “Monetary unions, external shocks and economic performance: a Latin American perspective”

I discuss Sebastian Edwards’ most recent paper with great pleasure. As so much of the work of this distinguished economist, this paper provides new insights on a burning issue in international economics. Here Edwards provides empirical evidence on the resilience to external shocks of countries that lack a national currency (“monetary-union” or MU countries). The paper starts by reviewing the issues and literature relevant on exchange-rate regimes, dollarization, and MU in Latin America, with an emphasis on the question if countries in the region satisfy key optimal currency area criteria. Then the paper provides extensive new evidence on economic performance in MU countries, in comparison to countries with a national currency, using a large world panel sample. Performance tests are conducted for the comparative likelihood of MU countries of sudden stops in capital flows (SS) and large current (deficit) reversals (CAR), as well as their ability to absorb terms-of-trade shocks, SS, and CAR. The results are generally negative and significant for the comparative performance of MU countries. To set the stage, I start my comments by documenting first how country selection of exchange-rate and monetary regimes is quickly evolving in the world during the last decades, discussing subsequently how economists’ views follow suit (Section 1). Then I discuss some aspects of Edwards’ paper, focusing in particular on the data and model specification (Section 2). I end with brief implications for exchange-rate and monetary regime choice in Latin America.     

The role of foreign direct investment in the host-country firm selection process: firm-level evidence from Slovenian manufacturing

This paper examines the role of inward foreign direct investment (FDI) in firm selection processes in the Slovenian manufacturing sector in the 1994–2003 period. It adopts the firm dynamics framework that allows testing of selection effects directly by assessing the impact of foreign firms’ activity on the probability of exiting of local firms (crowding out). The results show that intra-industry productivity spillover effects offset only a minor part of the competition pressure which results from foreign firm entry, hence incumbent firms experience a drop in their survival probability upon a foreign firm’s entry within a particular industry. This result is driven by foreign firm entry of the greenfield type, as entry through the acquisition of existing firms has no significant effect. The strength of the crowding-out effect decreases with the incumbent firm’s export propensity. There is no significant evidence that inward FDI would stimulate the selection process through backward linkages in the upstream supplying industries, whereas foreign firms’ activity reduces the exit probability of downstream local customers (through forward linkages).