Holdups and Efficiency with Search Frictions

A natural holdup problem arises in a market with search frictions: Firms have to make a range of investments before finding their employees, and larger investments translate into higher wages. In particular, when wages are determined by ex post bargaining, the equilibrium is always inefficient: Recognizing that capital-intensive production relations have to pay higher wages, firms reduce their investments. This can only be prevented by removing all the bargaining power from the workers, but this, in turn, depresses wages below their social product and creates excessive entry of firms. In contrast to this benchmark, we show that efficiency is achieved when firms post wages and workers can direct their search toward more attractive offers. This efficiency result generalizes to an environment with imperfect information where workers only observe a few of the equilibrium wage offers. We show that the underlying reason for efficiency is not wage posting per se, but the ability of workers to direct their search toward more capital-intensive jobs.     

Franchise fee,contract bargaining,and economic growth

This paper combines the industrial organization (IO) theory and the R&D-based endogenous growth theory in a model of a successive imperfect competitive economy. The current study assumes that firms between upstream and downstream industries bargain over both the price of intermediate goods and the franchise fee. Findings show that the intermediate goods firm with a R&D sector charges the price equal to the marginal cost. Economic rent may also be partly transferred into the franchise fee determined by the relative bargaining power. In particular, the traditional double marginalization result, such as in Spengler (1950), does not take place here due to the above-mentioned bargaining scheme. Finally, this work shows that final goods firms in vertically linked industries play an important role in an economic growth model. The more bargaining power the final goods firms have (or the more returns to specialization upstream firms have, or the less substitution elasticity the final goods have), the more the economy grows. However, the consumer preference for diversity seemingly does not affect economic growth rate.     

The appeal of voluntary environmental programs: which firms participate and why?

Why do firms participate in the EPA's voluntary environmental programs? Possible reasons include: (1) to appeal to consumers who demand ‘green’ products; (2) to preempt government regulation; (3) to seek regulatory relief from the agency; and (4) to gain a competitive advantage over competitors. This article examines the determinants of participation in voluntary environmental programs, focusing on testing hypotheses 1 and 3. To test 2, a different approach is used than in previous literature. The focus is on a specified universe of firms (manufacturing firms in the Standard & Poor 500), and their participation in each of three EPA voluntary programs (33/50, Green Lights, and WasteWi$) referring to differently regulated pollutants is analyzed. Our empirical analyses reveal that (1) publicity is an important component of participation; (2) the worse the environmental track record of the firm, the more likely the firm is to participate, but only in programs directly related to highly regulated pollutants; and (3) firms that scrutinize their environmental performance more carefully are wary of newer programs with uncertain reach of the public and uncertain benefits. Firms appear to value the information/technology transfer aspect of joining a program.     

UNION–FIRM BARGAINING AGENDA REVISITED: WHEN UNIONS HAVE DISTINCT PREFERENCES

In this paper we revisit the issue of the scope of bargaining between firms and unions by considering a more general union's utility function with distinct preferences and sequential negotiations. First, we compare exogenously given labour market institutions; i.e., right‐to‐manage (RTM) and sequential efficient bargaining (SEB). We show that the conventional wisdom, which states that firms always prefer RTM, no longer holds. In fact, when unions are adequately wage aggressive and have strong enough bargaining power, firms may prefer SEB negotiations; however, firms switch their preference to RTM when unions are very strong. Moreover, we show that a conflict of interest between the parties may emerge when unions are sufficiently employment oriented as well as sufficiently wage aggressive and not too strong or too weak in bargaining. Second, we analyse the endogenous choice of the bargaining agenda. We show that a rich plethora of equilibria may occur and new situations of conflict/agreement of interests between the bargaining parties arise in particular when unions are sufficiently wage‐aggressive.     

Upstream mergers,downstream mergers,and secret vertical contracts

In an industry characterized by secret vertical contracts, we consider a benchmark case where two vertical chains exist, with two upstream manufacturers selling to two downstream retailers, and show that the equilibrium prices are independent of whether upstream or downstream firms have all the bargaining power. We then analyse two alternative mergers, and show that a downstream merger (which gives the downstream monopolist all the bargaining power) is more welfare detrimental than an upstream merger (which gives the bargaining power to the upstream monopolist). We also show that downstream and upstream mergers have the same effects when contracts are observable.     

The labor market effects of trade union heterogeneity

Empirical evidence suggests that the bargaining power of trade unions differs across firms and sectors. Standard models of unionization ignore this pattern by assuming a uniform bargaining strength. In this paper, we incorporate union heterogeneity into a Melitz (2003) type model. Union bargaining power is assumed to be firm-specific and varies with firm productivity. This framework allows us to re-analyze the labor market effects of (i) a symmetric increase in the bargaining power of all unions and (ii) trade liberalization. We show that union heterogeneity unambiguously reduces the negative employment effects of stronger unions. Firm-specific bargaining power creates a link between unionization and the entry and exit of firms, implying a reduction of the unions' expected bargaining power. Moreover, union heterogeneity constitutes an (un)employment effect of trade liberalization. If unions are most powerful in the high-productivity (low-productivity) firms, trade liberalization will increase (decrease) unemployment.     

Corporate Expenditure on Environmental Protection

We examine the determinants of firm’s current environmental expenditure and firm’s capital investment in equipment for pollution control in Irish manufacturing industries using a Heckman selection model. The main determinants for the two types of expenditure are similar: larger, exporting and energy-intensive firms are more likely to spend. Being subject to environmental regulation also has an effect. Once the decision to commit resources has been taken, larger, older, foreign-owned, exporting and energy-intensive firms incur higher environmental expenditure. For the amount of capital investment only firm size and age play a role. This suggests that the economic and regulatory incentives in place are such that it is the largest and most polluting firms that do most to reduce pollution.     

环境规制对现存企业迁移行为的影响研究

在城市化发展过程企业渐渐由中心区迁往外围区域,鲜有研究从这一视角观察企业迁移行为。本文从环境规制的角度对现存企业的迁移行为进行了探讨。实证分析发现在省级层面,废水污染费征收率提升显著减少企业在城市之间迁移的数量,废气污染费征收率提高增加企业城市之间迁移的数量。在企业层面环境规制增强显著提升企业在县区之间迁移的概率。利用国家贫困县名录,进一步发现废气污染费率增加显著提升企业往县和贫困县迁移的概率。进一步分析发现加入WTO、2003年污染费征收改革后污染费上升时企业显著提高向贫困县迁移的概率。最后本文发现环境规制提高了企业的创新水平以规避环境规制成本从而降低了迁移的概率。     

Search,Concave Production,and Optimal Firm Size

This paper demonstrates that in a free entry search and bargaining economy with concave production firms over-employ. Bargaining allows the worker's wage to depend upon marginal productivity. As such, with strictly concave production, the wage declines as firms employ more labor. Firms react to this declining wage function by choosing an inefficiently large number of workers. However, in equilibrium, fewer firms are likely to enter causing aggregate employment and vacancies to fall.Journal of Economic LiteratureClassification Numbers: J30, J41, J50.     

Determinants of wage stickiness in a developing economy

We explore wage flexibility in a developing country and compare our results to what has been found in similar studies using European data. In particular, we conduct a survey of 1189 firms in Pakistan to analyze the determinants of wage rigidity. We find that the existence of competitive wages and an interaction with the informal economy are statistically significant determinants of wage stickiness. While the role of competitive wages is similar to what has been found in studies of European firms, the latter find a much larger role for turnover, collective bargaining and employment protection. In contrast, in Pakistan we find that firms hiring from the informal sector are significantly more flexible in changing their wages. This suggests that the informal sector adds to the wage flexibility of the formal sector.     

Nonpoint Source Pollution Taxes and Excessive Tax Burden

If a regulator is unable to measure firms’ individual emissions, an ambient tax can be used to achieve the socially desired level of pollution. With this tax, each firm pays a unit tax on aggregate emissions. In order for the tax to be effective, firms must recognize that their decisions affect aggregate emissions. When firms behave strategically with respect to the tax-setting regulator, under plausible circumstances their tax burden is lower under an ambient tax, relative to the tax which charges firms on the basis of individual emissions. Firms may prefer the case where the regulator is unable to observe individual firm emissions, even if this asymmetric information causes the regulator to tax each firm on the basis of aggregate emissions.     

The propensity to hedge using futures contracts: the case of potato futures contracts

This paper studies why UK non-financial firms hedge with potato futures contracts. It is found that the financial characteristics of firms in the sample play an important role in influencing the propensity to hedge. For example, it is found that firms that hedge are on average larger than firms that do not hedge. Firms that hedge also have more volatile earnings. Furthermore, firms that do hedge appear to want to smooth earnings to reduce the costs of financial distress and avoid entering the highest tax threshold.     

Eco‐labelling by a for‐profit certifier: Countervailing power and its consequences

For‐profit certifier's eco‐labelling is common in industries where firms have some “countervailing power” on sharing gains from labelling. We show that the certification standard for an environmental quality is lowered when firms have strong “power.” A certifier with too low bargaining power will prefer to sell to the best offer rather than bargain. This switch in the selling mechanism also thwarts his incentives in setting the standard. This is consequential for evaluating policies. The dimensions and even signs of welfare changes induced by taxes and subsidies depend upon the mechanism used, and ultimately upon firms’ countervailing power.     

Relative wages, labor specialization and bargaining patterns

The goal of this paper is to study the effects of centralized and decentralized bargaining patterns on wage inequality when there are two different types of labor, skilled and unskilled. We present two models where labor is specialized between firms, that is, there are two types of firms, each one employing one type of labor. We show that the revenue shares of the production factors in each type of firm and the union power are crucial determinants of the relative wage. In contrast, the relative expected wage is the same across models and bargaining patterns.     

Bilateral Oligopoly,Private Information,and Pollution Permit Markets

We analyze the effects of strategic behavior and private information in pollution permit markets in which all firms have market power. The market is characterized by supply-function equilibria. Firms submit net supplies for permits and a market maker determines the market-clearing price. Net supplies depend on abatement cost functions, which in turn depend on private information parameters. We calculate the increase in aggregate abatement costs due to strategic behavior and private information and show that private information attenuates the effects of strategic behavior.      

How to Increase R&D in Transition Economies? Evidence from Slovenia

The recent initiative of the European Union Lisbon Agenda to increase levels of R&D investment is addressed by studying the determinants of R&D investment in one of the recent EU entrants, Slovenia. Previous empirical literature—mainly cross‐sectional in nature—has tested the demand–pull hypothesis and found that overall R&D expenses may be driven by output demand. We use a panel of more than 150 of the largest Slovene firms over the period 1996–2000, modeling firms' R&D behavior within an error‐correction framework and estimating it in a system GMM specification. While we find that sales have a significant role in inducing R&D expenditures, we also show that the availability of internal funds and wage bargaining represent important factors determining R&D expenses. Moreover, firms owned by insiders (workers and/or managers) and/or firms with dispersed ownership (small shareholders) display higher R&D investments than firms owned by privatization investment funds or by other firms.     

A competing risks analysis of firms’ exit

Firms may exit the market in several ways and each form of exit is likely to be caused by different factors (Schary in RAND J Econ 22:339–353, 1991). This paper explores the determinants of different exit routes. Using a sample of Spanish manufacturing firms for 1990–2000, we estimate a competing risks proportional hazards model to identify the factors leading firms to exit the market through (the mutually precluding events of) liquidation/bankruptcy and acquisition/merger. Our results show the existence of a sharp difference between the determinants of these two exit routes in terms of firm and industry characteristics.     

Wage Bargaining,Privatisation, Ability to Pay and Outside Options: Evidence from Hungary

This article examines the determinants of short-term wage dynamics, using a sample of large Hungarian companies for 1996–99. We test the basic implications of an efficient contract model of bargaining between incumbent employees and managers, which the data do not reject. In particular, there are structural differences between the ownership sectors consistent with our prior knowledge on relative bargaining strength and unionisation measures. Stronger bargaining position of workers leads to higher ability to pay elasticity of wages, and lower outside option elasticity. Our results indicate that while bargaining position of workers in domestic privatised firms may be weaker than in the state sector, the more robust difference relates to state sector workers versus privatised firms with majority foreign ownership.     

The Timing of Environmental Policy: A Note on the Role of Product Differentiation

We examine the role that product differentiation can play in the design of environmental policy under full commitment and no commitment on the part of the environmental regulator. We consider a setting with two firms selling a differentiated product which generates pollution through emissions. Firms can reduce their emissions by undertaking abatement activities while an environmental regulator taxes emissions. The main results are: (1) When products are highly differentiated, the optimal time-consistent (no commitment) tax is always lower than the optimal pre-commitment tax. As the degree of product differentiation decreases, for relatively efficient abatement technology and high damages, the time-consistent emission tax exceeds the optimal pre-commitment one. (2) Abatement when product differentiation is extensive is higher under the time-consistent regime unless the abatement technology is extremely efficient. The same ranking applies to social welfare. However, as products become more and more similar, these results are (partially) reversed and pre-commitment could lead to both higher levels of abatement and welfare.     

Trade and unions: Does size matter?

Our empirical analysis builds upon the hypothesis that unions are detrimental to a firm's efficiency. Using a rich survey of German manufacturers, we investigate firm-level determinants on the probability of collective wage bargaining with particular focus on the impact of a firm's engagement in foreign markets. An interesting and very robust finding is that exporters are less likely to engage in union wage bargaining. This finding is in line with a pessimistic perception of unions. The negative effect of collective bargaining can be offset by efficiency gains for larger exporters, who can benefit from operation cost saving effects. Size does matter as larger firms export and may find bargaining with a single entity representing the workforce more convenient than bargaining with each worker individually. We are using firm level information on IT investment as instrument for the export dummy and successfully test for the validity of this instrument.