Resampling and bootstrap algorithms to assess the relevance of variables: applications to cross section entrepreneurship data

Empirical Economics - In this paper, we propose an algorithmic approach based on resampling and bootstrap techniques to measure the importance of a variable, or a set of variables, in econometric...     

Customer Directed Advertising and Product Quality

This paper studies the relationship between three key elements of the marketing mix, namely, price, product, and promotion, in a model where a seller employs informative advertising to launch a new product. We propose a fairly general advertising technology for the study of three promotional strategies—mass, imperfectly targeted, and customer directed advertising (CDA). We find that both the private and the social incentives to use distinct advertising strategies are aligned, and that sales are likely to be promoted through CDA. Compared to mass advertising, with CDA the social planner reduces quantity and downgrades quality whereas the seller sometimes upgrades it. Our model of targeting with endogenous product quality provides some new insights into the way the transition from mass to specialized advertising can affect market outcomes. Quality distortions imply that (i) even if CDA increases the market price, the degree of market power need not increase and (ii) CDA may yield a welfare loss even if it leads to a lower market price.     

Nonparametric methods for estimating and testing for constant betas in asset pricing models

In this article, we study the performance of a smoothing spline method in estimating and testing for constant betas in two well-known asset pricing models, the usual market model and the three-factor model. The spline estimator is computed taking into account the conditional heteroscedasticity of the errors. Using the right model and estimation procedure for the variance term plays a crucial role in gaining efficiency in beta estimators. A simulation study shows the good performance of our method; in all the scenarios simulated, it outperforms the benchmark rolling estimator. The method enables users to obtain confidence intervals and to test for the significance and constancy of betas. Finally, the method is applied to US data, comprising 25 portfolios formed based on size and the ratio of book equity to market equity. The results show that the time-variability of the betas plays an important role, mainly when sensitivity to the HML factor is considered.     

Sectoral differentiation, allocation of talent, and financial development

I present a theory of development in which heterogeneously talented entrepreneurs require credit to start new projects and open new sectors. During development the variety of sectors expands, which allows better sorting of entrepreneurial talent. The paper shows that, in addition to increasing the average productivity of matches between agents and sectors, this process also mitigates informational frictions in the financial markets. Furthermore, the impact of sectoral variety on the operation of financial markets gives rise to an interesting feedback between financial development and R&D effort, which may lead to different types of dynamics. A successful economy exhibits a progressive increase in the variety of sectors, which in turn enhances the operation of financial markets. However, a poverty trap may also arise. This situation is characterised by a rudimentary productive structure with poor matching of skills to activities and severely inefficient credit to talented entrepreneurs.     

Migration and food consumption patterns in Ghana

This paper examines the link between migration and food consumption patterns in Ghana, which has a history of widespread migration and high levels of poverty. Data from 4130 households from the nationally representative 2005/2006 Ghana Living Standards Survey are used for the analysis. Since migrants self-select into migration, an instrumental variable approach is taken to analyze the relationship between migration and total food expenditures per capita, food expenditures across a range of food categories and shares of food expenditures across these categories. Overall, the results indicate that migration does not substantially affect total food expenditures per capita, and has minimal noticeable effect on food expenditure patterns. Looking at results in different settings, the analysis indicates that only in high migration regions does migration appear to increase overall food expenditures resulting in a shift towards the consumption of potentially less nutritious categories of food, such as sugar and beverages and eating out of the home. The results raise questions about the value of migration for improving the food consumption of migrant sending households.     

Pricing with Endogenous Direct Advertising in a Monopoly

This paper develops a model of informative advertising in which a firm builds a database using its historical sales records in order to directly target ads on those consumers who have a high probability of purchasing its products. We show that the firm can use this type of direct advertising as a screening mechanism to identify high demand consumers. As a result, direct advertising can work essentially as a device to increase a firm's monopoly power. From a social point of view, this implies that the transition from traditional mass-advertising to direct advertising can generate a trade-off between higher advertising efficiency and greater monopoly power. We compute the model to shed light on the relative strength of these two forces, and find that while direct advertising might have a substantial negative impact on consumers, this advertising technology can only occasionally reduce welfare.     

Latin American firms competing in the global economy

As part of a cooperative effort between the Journal of Business Research (JBR) and the Business Association of Latin American Studies (BALAS), this special issue brings updated research on the Latin American business environment. Out of 226 papers submitted to the BALAS 2012 conference, which was hosted by the Pontifical Catholic University of Rio de Janeiro (PUC-Rio), 22 were pre-selected to run for publication in this special issue — and only 14 actually were accepted after the demanding three rounds of a double blind review process that was run after the conference. This introduction to the special issue of the JBR on the BALAS 2012 conference brings an overview of the changes that have taken place in the business environment of Latin America, the evolution of the internationalization behavior of Latin American firms and the changes in their strengths to compete both domestically and abroad.     

Identifying the determinants of mortgage default in Colombia between 1997 and 2004

This paper examines the relationship between mortgage default decisions and relevant observable variables in Colombia between 1997 and 2004. We estimate a discrete choice model of default using a panel of individual mortgage characteristics and payment information. We show that home prices and debt balances are the main determinants of mortgage default. We account for the presence of unobserved heterogeneity using Survey data and simulation techniques. Including controls for the distribution of income shows that income was not important but helps clarifying the relevance of mortgage leverage in the determination of the observed default rates.     

Testing for forward-looking behaviour: evidence from the enactment of smoking restrictions

This paper develops a new test for forward-looking behaviour based on the establishment of public smoking restrictions. Given that the announcement of these restrictions effectively increases the future cost of smoking, we should expect forward-looking smokers to curb their consumption before the restriction is effective due to complementarity between present and future consumption. I perform the estimation using detailed, high-frequency household-level purchase data. The results provide evidence against the forward-looking behaviour of smokers. Households do not reduce their cigarette purchases before announced public smoking restrictions are established; they only do so once the restriction is in effect.     

Multiclass Corporate Failure Prediction by Adaboost.M1

Predicting corporate failure is an important management science problem. This is a typical classification question where the objective is to determine which indicators are involved in the failure or success of a corporation. Despite the complexity of the matter, a two-class problem has usually been considered to tackle this classification task. The objective of this paper is twofold. On the one hand, we apply the Adaboost.M1 algorithm to improve the accuracy of a classification tree in a multiclass corporate failure prediction problem using a set of European firms. On the other, we introduce novel discerning measures to rank independent variables in a generic classification task.