Corporate Restructuring in Japan Part I: Can M‐Form Organization Manage Diverse Businesses?

The purpose of this paper is to examine the recent organizational restructuring in Japan in the framework of organizational economics, assuming that the product/market portfolio of the firm is fixed. How does a firm set about organizing its internal divisions? I first summarize some stylized facts on corporate diversification strategy and multi‐divisional (M‐form) organization in large Japanese firms from different perspectives. I then analyse the problem of choosing an organizational form. In particular, I argue that, precisely because of its related diversification, the multi‐business Japanese firm adopting the M‐form finds it difficult to differentiate its diverse businesses internally.     

How does employment protection legislation influence hiring and firing decisions by the smallest firms?

This paper examines the impact of employment protection legislation (EPL) on hiring decisions by own-account workers and firing decisions by very small firms (one to four employees). Using data from the EU-15 countries, our results show that the strictness of employment protection legislation is negatively related to both these types of decisions, and hence, to labour mobility among the smallest firms. This new evidence may be useful for governments aiming to create a more enabling macro-environment for employment and productivity growth.     

Merger negotiations and ex-post regret

We consider a setting in which two potential merger partners each possess private information pertaining both to the profitability of the merged entity and to stand-alone profits, and we investigate the extent to which this private information makes ex-post regret an unavoidable phenomenon in merger negotiations. To this end, we consider ex-post incentive compatible mechanisms, which use both players' reports to determine whether or not a merger will take place and what each player will earn in each case. When the outside option of at least one player is known, the efficient merger decision can be implemented by such a mechanism under plausible budget-balance requirements. When neither outside option is known, we show that the potential for regret-free implementation is much more limited, unless the budget balance condition is relaxed to permit money-burning in the case of false reports.     

Socially responsible firms and endogenous choice of strategic incentives

In this paper we are analyzing a mixed quantity-setting duopoly consisting of a socially concerned firm and a profit-maximizing firm. The socially concerned firm considers one group of stakeholders in its objective function and maximizes its profit plus a share of consumer surplus. Both firms have the option to hire a manager who determines the production quantity on behalf of the firm's owner. We find that in the subgame-perfect equilibrium of this game both firms hire a manager and delegate the production choice. If the unit production costs of the firms are similar, then the socially concerned firm has a higher market share and even higher profit. Interestingly, we observe that the relationship between the share of consumer surplus taken into account by the socially concerned firm and its profit is non-monotonic. As the share increases, the socially concerned firm's profit first increases and then decreases. The conclusion is that it pays off to take stakeholder interests into account, but not too much.     

Ownership,Access, and Sequential Investment

We extend the property‐rights framework to allow for a separation of the ownership rights of access and veto and for sequential investment. Parties investing first do so before contracting is feasible. It is possible, however, that parties investing second can share (at least some of) their investment costs. Along with this cost‐sharing effect, the incentive to invest is affected by a strategic effect generated by sequential investment. Together these effects can overturn some of the predictions of the property‐rights literature. For example, the most inclusive ownership structure might not be optimal, even if all investments are complementary.     

Market thickness,sunk costs,productivity, and the outsourcing decision: an empirical analysis of manufacturing firms in France

Abstract This paper presents an empirical analysis of outsourcing behaviour by French manufacturing industries. It focuses on the effects of market thickness, sunk costs, and the productivity of firms on the outsourcing decision. I estimate a dynamic probit model where outsourcing decision is linked to past outsourcing behaviour. The results show that outsourcing is a persistent strategy adopted by large firms and suggest the presence of significant sunk costs associated with outsourcing. The results also show that market thickness reduces search costs and enhances the establishment of outsourcing relationships.     

The effect of working time and labor force participation on unemployment: A new argument in an old debate

This paper introduces a new argument into the theoretical literature on labor market effects of changes in working hours and labor force participation. We advance a general equilibrium model in which increased labor supply reduces unskilled unemployment via consumer demand: longer work hours and higher labor force participation imply higher incomes and less (leisure) time. In consequence, home production is reduced in favor of outsourcing domestic tasks to the market, shifting consumer demand toward unskill-intensive goods. Relative demand for unskilled labor rises and unemployment falls.     

Job design with sequential tasks and outcome externalities revisited

We revisit job design with sequential tasks and outcome externalities from a different perspective, extending Schmitz (2013a). When two sequential tasks need to be performed by wealth-constrained agents, the principal can hire only one agent or two different agents. When there exists an outcome externality in terms of the fixed cost and such an externality is not too large, if the two tasks are conflicting (resp. synergistic), then it is optimal for the principal to hire two different agents (resp. only one agent). When there exists an outcome externality regarding the marginal cost, the opposite result holds.     

Competition Tests with a Non-Structural Model: the Panzar–Rosse Method Applied to Germany's Savings Banks

Abstract. In this paper we adopt the Panzar–Rosse approach to assess the competitive conditions in the German banking market for the period from 1993 to 2002. We suggest several improvements to the empirical application of the approach and show that frequently used empirical models that apply price rather than revenue functions lead to biased results. Using disaggregated annual data from more than 400 savings banks (Sparkassen) the empirical findings indicate monopolistic competition, the cases of monopoly and perfect competition are strongly rejected. Furthermore, small banks seem to enjoy even more market power than larger institutions.     

Caste discrimination and transaction costs in the labor market: Evidence from rural North India

This paper is an empirical attempt to quantify caste-based discrimination in the labor market using household data taken from rural North India. In the regression analysis, transaction costs associated with entry into the labor market and reservation wages are estimated simultaneously along with market wages. The estimation results provide evidence of the existence of transaction costs in the labor market and discrimination against backward classes with regard to access to regular employment. In line with previous studies, the results suggest that the achievements of India's reservation policy so far have at best been limited. In addition, a comparison between the estimates from the model employed in this paper and conventional (reduced-form) approaches shows that discrimination in labor market entry is likely to be underestimated in the conventional reduced-form approaches.     

Global financial crisis,corporate governance,and firm survival:: The Russian experience

Using a unique dataset obtained from large-scale panel enterprise surveys conducted in 2005 and 2009, we clarify the survival status of Russian industrial firms before and after the global financial crisis and empirically examine the determinants of firm survival. The estimation of the Cox proportional hazard model provided evidence that the independence of company’s governance bodies, their human resource abundance, and influence over corporate management are statistically significant factors affecting the survival probability of the surveyed firms. In particular, the board of directors and the audit committee are likely to play a vital role in reducing the potential exit risk. We also found that there is a significant difference in the viewpoints of economic logic for firm survival held by independent firms and group companies.     

Family employees and absenteeism

Work effort varies greatly across employees, as evidenced by substantial differences in absence rates. Moreover, absenteeism causes sizeable output losses. Using data from the European Community Household Panel (ECHP), this paper investigates absence behaviour of family employees, i.e. workers who are employed in enterprises owned by a relative. Our estimates indicate that being a family employee instead of a regular employee in the private sector significantly reduces both the probability and duration of absence to a substantial degree.     

Managerial incentives and collusive behavior

I characterize the effects of empirically observed managerial incentives on long-run oligopolistic competition. When managers have a preference for smooth time-paths of profits - as revealed by the empirical literature on “income smoothing” - manager-led firms can sustain collusive agreements at lower discount factors. Capped bonus plans and incumbency rents with termination threats make collusion supportable at any discount factor, independent of contracts' duration. When managers have these preferences/incentives and demand fluctuates, “price wars during booms” need not occur: the most collusive price may then be pro-cyclical.     

Regulating Availability with Demand Uncertainty

Abstract. I evaluate a new German regulation that requires retail discounters to guarantee the availability of their products in bargain sales. The regulation is meant to prevent loss leaders. Retailers undermine the regulation's rationale by claiming that rationing is due to demand uncertainty. This paper shows that under demand uncertainty the regulation has ambiguous welfare effects. Effectively, it raises production, which, under imperfect competition, tends to be beneficial. However, the regulation overshoots and decreases welfare if it requires availability for a state of high demand that is relatively unlikely. In this case more sophisticated regulation is required.     

Testing for the Presence of Moral Hazard Using the Regulatory Reform in the Car Insurance Market: Case of Korea

The aim of this paper is to investigate the presence of the moral hazard phenomenon in the Korean car insurance market. In the context of natural experiment, I examine whether the regulatory reform introduced in 2000 generates significant difference in accident probability between before and after the reform. Further, I analyse the different effects of regulatory reform on different parts of the outcome distribution. In any case, I do not find the significant effects of regulatory reform on accident probability.