Why do similar firms export differently?

Eaton et al. (2011) underline that firms with similar production costs, entry costs and demand export to different countries. In this theoretical article, I provide a rationale for this feature of the data. I demonstrate that similar firms exporting differently can be explained by a baseline trade-off between attractiveness and competition that is present in any model with monopolistic competition. I then show that this trade-off also generates valuable theoretical features including distance-related mark-ups, third country effect and equivalence with random utility models.     

Why do firms choose zero-leverage policy? Evidence from China

In recent years, firms choosing zero-leverage policy have largely increased around the world. However, few studies have focused on why Chinese firms choose zero-leverage policy. In this article, we investigate the motivations for firms choosing zero-leverage policy from the perspective of financing needs. Using a sample of public firms listed in Shanghai and Shenzhen Stock market in China from 2007 to 2014, we find that firms without external financing needs are more likely to become zero-leverage firms, and that financial constraints and financial flexibility also may be the motivations for firms choosing zero-leverage policy.     

Why do some firms contract out production? Evidence from firm-level panel data

This paper examines the determinants of self-employment and transitions from salaried employment to self-employment using two sets of Finnish data from the 1990s. The results show that capital constraints have only a minor effect on new business starts. Human capital, in the form of intergenerational links in self-employment and psychological factors play a much larger role. The paper also provides empirical evidence that less risk-averse workers are more likely to become entrepreneurs.     

When do firms support environmental agreements?

Several firms have recently supported their countries’ participation in international environmental agreements where countries commit to stricter environmental regulation. This paper analyzes the rationale of this conduct by examining equilibrium emission standards with and without environmental treaties. We identify that more stringent environmental regulation produces two effects on firm profits: a negative effect due to larger abatement costs, and a positive effect that arises from the amelioration of duopoly overproduction. We describe under which conditions the positive effect dominates the negative effect, increasing firm profits, and inducing them to support their countries’ participation in environmental treaties.     

Why are firms sometimes unwilling to reduce costs?

This paper identifies the environments in which it does not pay for a multiproduct firm to engage in small cost reductions. Specifically, it shows that a multiproduct Bertrand firm’s profits will decrease in response to a small reduction in one product’s marginal cost if and only if the output share of the cost-reducing unit is below a threshold. Because cost reductions by a single-product firm or by a multiproduct Cournot firm always increase the firm’s profits, this result is unique to multiproduct Bertrand firms.     

Why do promises affect trustworthiness,or do they?

We set out to test whether the effect of promises on trustworthiness derives from the fact that they are made (internal consistency) or that they are received (social obligation). The results of an experimental trust game appeared at first to support the former mechanism. Even when trustee messages are not delivered to trustors, trustees who make a promise are more likely to act trustworthy than those who do not make a promise. However, we subsequently ran a control treatment with restricted (non-promise) communication to examine whether the correlation between promises and trustworthiness is causal. The results show that the absence of promises does not decrease average cooperation rates. This indicates that promises do not induce trustworthiness, they are just more likely to be sent by cooperators than by non-cooperators.     

Why firms set different export prices? Evidence from Spain

Using firm-level export data for the 2010–2014 period, we investigate the variation of export prices across and within Spanish manufacturing firms. We find that more productive firms set higher export prices. However, this result is not robust to controlling for other firm-level characteristics and alternative productivity measures. We show that firms set higher export prices in more distant markets and in destinations with high GDP per capita, and lower export prices in large and low-competition markets. These latter results suggest that firms adjust the quality of their products to destination characteristics.     

How do firms adjust their prices in Turkey? Micro-level evidence

This article investigates the pricing behaviour of Turkish firms over the period 1988–2006 on the basis of firm-level micro data. The duration of prices is found to be 3.9 months on average. There is no clear heterogeneity across main groupings in the frequency of price changes, but more dependence on imported goods reduces price stickiness. Price decreases are less frequent than price increases, indicating downward rigidity in prices. There is evidence in favour of both time and state-dependent price setting behaviours. Further, there is a low degree of synchronization of price changes across firms, whereas price increases tend to be more synchronized than price decreases. Ordered probit models show that price adjustments depend on the type of the shock: the pass-through of a change in the cost is faster than changing demand. Besides, estimated probabilities of price adjustments with 5-years rolling windows reveal that inflation targeting has succeeded in bringing down the probability of price increases, whereas downward price rigidity has not weakened yet.     

Why do scientists cheat? Insights from behavioral economics

Abstract

Based on a review of the books by Wible (2014), Stephan (2012), and Lanteri and Vromen (2014), I discuss three different ways in which behavioral economics can enrich the understanding of scientific misbehavior. First, behavioral economics suggests that economic theories of scientific misbehavior, such as the one by Wible (2014), should consider moral costs of cheating, i.e. costs that arise from an individual’s desire to do the “right thing.” Second, behavioral economics demonstrates several ways in which the features of the reward scheme in science,as described by Stephan (2012), can favor cheating. Her conclusion that shirking is rarely an issue in science seems optimistic. Third, behavioral economics indicates that individual characteristics matter for cheating. According to Lanteri and Vromen (2014), economists possess different characteristics than other researchers. Hence, the reaction to incentives may differ across disciplines. Considering these insights is important to assess how a goal such as the pursuit of truth can be achieved efficiently.     

Why do low-educated workers invest less in further training?

Several studies document that low-educated workers participate less often in further training than high-educated workers. This article investigates two possible explanations: low-educated workers invest less in training because of (1) the lower economic returns to these investments or (2) their lower willingness to participate in training. Controlling for unobserved heterogeneity, we find that the economic returns to training for low-educated workers are positive and not significantly different from those for high-educated workers. However, low-educated workers are significantly less willing to participate in training. We show that this lesser willingness to train is driven by economic preferences, and personality traits.     

Why do education vouchers fail at the ballot box?

We compare a uniform voucher regime against the status quo mix of public and private education, focusing on the distribution of welfare gains and losses across households by income. We argue that the topping-up option available under uniform vouchers is not sufficiently valuable for the poorer households, so the voucher regime is defeated at the polls. Our result is robust to partial voter turnout and efficiency differences between public and private schools, but depends critically on the opting-out feature in the current system.     

Do firms plan?

The late F. A. Hayek is remembered for the argument that the decentralized price system has enormous advantages over planned systems in the critical areas of information transmission and the use of knowledge. In many minds, the recent fall of the Soviet-style economies in Eastern Europe has decisively made that case. But not all are persuaded. The model of central planning that originally impressed Lenin—the modern business corporation—remains in many minds a formidable piece of empirical evidence in favor of the possibility and desirability of centralized administrative control. This paper argues that Hayek's theory of spontaneous order can in fact include the case of such apparently purposive and extramarket forms as the business firm. It picks up a number of suggestions in Hayek's evolutionary theory of social institutions and uses them to draw a picture of the firm that is somewhat different from what one finds on the easel of neoclassical transaction-cost analysis. In the Hayekian picture, firms and markets are both systems of rules of conduct. And both are systems for economizing on knowledge in the face of economic change, albeit quite different kinds of knowledge and change. In the end, the firm is not a model for political planning for one very simple reason: the firm does not plan.When uncertainty is present and the task of deciding what to do and how to do it takes the ascendancy over that of execution, the internal organization of the productive group is no longer a matter of indifference or a mechanical detail. Centralization of this deciding and controlling function is imperative, a process of cephalization, such as has taken place in the evolution of organic life, is inevitable, and for the same reasons as in the case of biological evolution.There is no reason why a polycentric order in which each element is guided only by rules and receives no orders from a centre should not be capable of bringing about as complex and apparently as purposive an adaptation to circumstances as could be produced in a system where a part is set aside to preform such an order on an analogue or model before it is put into execution by the larger structure. In so far as the self-organizing forces of a structure as a whole lead at once to the right kind of action (or to tentative actions which can be retracted before too much harm is done) such a single-state order need not be inferior to a hierarchic one in which the whole merely carries out what has first been tried out in a part. Such a non-hierarchic order dispenses with the necessity of first communicating all the information on which its several elements act to a common centre and conceivably may make the use of more information possible than could be transmitted to, and digested by, a centre.     

Why do people drink? Tests of the rational addiction model

The rational addiction (RA) model applied to alcoho consumption is tested using 1983 US Health Interview Survey data. The RA model yields refutable hypotheses concerning effects of current, past, and future prices, past and future consumption, time preference and marginal utility of wealth on addictive good consumption. The estimations provide relatively strong support for the RA model. Past and present consumption had strong positive relationship with current consumption. Coefficients on past, present, and future money prices and fines for first oflence drunk driving (as a form of price for alcohol consumption) were significant and of the predical sign.     

Why do people rate? Theory and evidence on online ratings

The rapid growth of online retail in the last decade has led to widespread use of consumer-generated ratings. This paper theoretically and experimentally identifies influences that drive consumers to rate products and examines how those factors can create distortions in product ratings. By manipulating payoffs and effectively “deactivating” either the buyer or seller side of an artificial laboratory market, raters' behavior is decomposed into buyer-centric and seller-centric components. The cost of providing a rating also plays a major role in influencing rating behavior, with high and low quality sellers being rated more often than those of moderate quality.     

Why do diners tip: rule-of-thumb or valuation of service?

When diners decide how much to tip, is the decision based on social convention or on conscientious appraisal of server productivity? Previous researchers in economics and social psychology are generally inconclusive on this question. A common finding in the literature is that tip size and service quality are unrelated, a result usually obtained from OLS regressions. OLS is only appropriate if service quality is exogenous. It is argued that service quality is very likely endogenous in any regression of tip size; good quality encourages good tips, but server expectations of good tips encourage good quality. This simultaneity is accounted for by jointly estimating percentage tips and customer rankings of service quality on a sample of 247 diners in a Central Minnesota restaurant. Included are explanatory variables consistent with both the social psychology and economic views of tipping. In contrast to previous studies, it is found that service quality significantly affects tip size and when servers expect higher tips, customers rank service quality higher. Also it is found that patronage frequency and coupon redemption have no effect on percentage tips, but server gender influences quality significantly. It is concluded that the results are generally supportive of an economic hypothesis of tipping.     

Why do diplomas pay? An expanded Mincerian framework applied to Mexico

We compare four explanations for the value of diplomas, each of which has implications for unemployment and wage variation amongst graduates, most of which have not previously been tested for when seeking to explain the effects of diplomas. We test for these implications using a refined econometric framework, exploiting idiosyncrasies in Mexican labour market and educational institutions. Premiums in Mexico appear to result from diplomas tied to jobs with downwards rigid wages?–?an uncommon but simple explanation. The standard explanations, including screening, are not suggested by Mexican data. Our results illuminate how labour markets segmented by diplomas clear. This depends upon the nature of the labour market rigidities exactly as predicted by neoclassical theory.     

What did China’s labor contract law do to its private manufacturing firms?

Well-intended employment protection legislation may have adverse consequences. This paper uses Chinese firm-level data to assess the impacts of China’s Labor Contract Law, effective on January 1, 2008. My results show that, relative to public firms, private firms as a whole were negatively affected in terms of firm-level year-to-year employment changes. The law had negligible effects on employment and wages in firms with high wages. At the same time, employment fell and wages rose in firms with low wages. Moreover, firms who did not train workers intensively to acquire firm-specific skills had more job turnover than firms who did. Finally, I study how labor demand responded to the law along the extensive margin. For regions that experienced abrupt declines in labor mobility, possibly due to stricter labor regulation enforcement following the enactment of the Labor Contract Law, firm exit rose significantly, suggesting large incidence of mass layoff.