Firm heterogeneity in TFP,sectoral innovation and location. Evidence from Italy

Sectoral and territorial specificities affect a firm’s capabilities of being productive. While there is a wide consensus on this, a quantitative measure of these effects has been lacking. To this end, we combine a data-set of Italian firms with some meso regional and sectoral variables and apply a cross-classified model that allows for a clear distinction between firm, region-specific and sector-specific effects. After observing a marked TFP heterogeneity across firms, the paper addresses the issue of understanding how much differences in firms’ productivity depend on regional localisation and sector specificities. Results refer to 2004–2006 and have three aspects. First, they confirm that the main source of firm variety is mostly due to differences revealed at individual level. Secondly, we find that the sector is more important than location in explaining firms’ TFP. Lastly, the results show that firm TFP increases when it belongs to more innovative sectors. Similarly, companies get benefits from belonging to sectors where there is a high proportion of firms using R&D public support and a high propensity to collaborate in innovative projects.     

Revealing Entrepreneurial Talent

A society’s allocation of working time to entrepreneurial, organizational and learning activities is the main factor behind technical change and economic growth. Building on Lucas (1978) and Kihlstrom and Laffont (1979), in this paper I offer evidence that the amount of working time spent by small business owners in entrepreneurial activities affects the performance of the business and reveals their entrepreneurial talent. The intuition is that it is reasonable to allocate more of our time to those activities where we realize we are more productive. As actual consumption choices reveal consumer preferences, the varying entrepreneurial content of the activities performed is a signal of an individual’s ability as entrepreneur. The results obtained suggest that the allocation of working time by small business owners: (a) throws light on their behavioral patterns; (b) is related to the owner’s human capital and to firm size; and (c) has a significant correlation with business performance. The main finding of my analysis, confirming previous studies on this topic, is that education is an important part of entrepreneurial human capital. Moreover, the latter is the main factor that can sustain small firms’ competitiveness in a globalizing economy. The entrepreneur is at the same time one of the most intriguing and one of the most elusive characters in the cast that constitutes the subject of economic analysis (Baumol, 1965, p. 64). I would like to acknowledge valuable comments from T. Cameron, G. Gagliani and two anonymous referees. The usual disclaimer applies.     

Compliance with goodwill-related mandatory disclosure requirements and the cost of equity capital

Theory suggests that increased levels of corporate disclosure lead to a decrease in cost of equity via the reduction of estimation risk. We examine compliance levels with International Financial Reporting Standard 3 Business Combinations and International Accounting Standard 36 Impairments of Assets mandated goodwill-related disclosure and their association with firms’ implied cost of equity capital (ICC). Using a sample of European firms for the period 2008–2011, we find a median compliance level of about 83% and significant differences in compliance levels across firms and time. Non-compliance relates mostly to proprietary information and information that reveals managers’ judgement and expectations. Overall, we find a statistically significant negative relationship between the ICC and compliance with mandated goodwill-related disclosure. Further, we split the sample between firms meeting (or not) market expectations about the recognition of a goodwill impairment loss in a given year to study whether variation in compliance levels mainly plays a confirmatory or a mediatory role. We find the latter: higher compliance levels matter only for the sub-sample of firms that do not meet market expectations regarding goodwill impairment. Finally, our results hold only in countries where enforcement is strong.     

Pricing multiasset equity options: How relevant is the dependence function?

In this paper we test how different choices for the dependence function can affect the prices of a set of multiasset equity options. We conduct the analysis for various 5-dimensional baskets of UK shares, and a wide range of payoffs for the multiasset options, consistent with the instruments traded on the market. We also test the relevance of the dependence specification over both volatile and quiet market scenarios. Interestingly, we find that, in most circumstances, the choice of a dependence structure richer than the standard linear correlation does not seem to affect option prices substantially. However, the dependence function becomes more relevant in particularly volatile market conditions.     

The Missing Link Between Corporate Social Responsibility and Consumer Trust: The Case of Fair Trade Products

This paper investigates the link between the consumer perception that a company is socially oriented and the consumer intention to buy products marketed by that company. We suggest that this link exists when at least two conditions prevail: (1) the products sold by that company comply with ethical and social requirements; (2) the company has an acknowledged commitment to protect consumer rights and interests. To test these hypotheses, we conducted a survey among the clients of retail chains offering Fair Trade products. The results show that socially oriented companies can successfully leverage their reputation to market products with high symbolic values.     

ON THE LONG-TERM EFFECTS OF FISCAL POLICY IN THE UNITED KINGDOM: THE CASE FOR A GOLDEN RULE

This paper uses the SVAR methodology to investigate the effects of public investment on GDP and, more specifically, the effects of the introduction of a golden rule of public finance. We extend the existing literature by estimating a model for the British economy that takes into account long-run factors such as public debt accumulation and policy interactions. We find that in such a long-run framework, public investment has a significant and permanently positive effect on GDP; this result runs counter to the most recent literature on the topic using SVAR, which was limited to a short-run specification. We further find, by comparing different subsamples, that the introduction of the golden rule in 1997 strengthened the positive effect of public investment.     

Mediation, arbitration and negotiation

We compare three common dispute resolution processes - negotiation, mediation, and arbitration - in the framework of Crawford and Sobel [V. Crawford, J. Sobel, Strategic information transmission, Econometrica 50 (6) (1982) 1431-1451]. Under negotiation, the two parties engage in (possibly arbitrarily long) face-to-face cheap talk. Under mediation, the parties communicate with a neutral third party who makes a non-binding recommendation. Under arbitration, the two parties commit to conform to the third party recommendation. We characterize and compare the optimal mediation and arbitration procedures. Both mediators and arbitrators should optimally filter information, but mediators should also add noise to it. We find that unmediated negotiation performs as well as mediation if and only if the degree of conflict between the parties is low.     

ON THE SOURCES OF HETEROGENEITY IN BANKING EFFICIENCY LITERATURE

This study reviews the empirical literature on banking efficiency by conducting a meta‐regression analysis. The meta‐dataset consists of 1661 observations retrieved from 120 papers published over the period 2000–2014. While the role of study design and method‐specific characteristics of primary studies is evaluated, the focus concerns regulation in banking. The results are fourfold. First, parametric methods always yield lower levels of banking efficiency than non‐parametric studies. Second, banking efficiency is higher in studies using the value‐added approach rather than the intermediation method. Third, efficiency scores also depend on the journal's ranking and on the number of observations and variables used in the primary papers. Finally, regulation matters: primary papers focusing on countries with a liberalized banking industry provide higher values for efficiency scores.     

Shifts in autonomy, responsibility and control from centre to periphery in public administration: the case of the ministry of finance in Italy

In tackling administrative reform and in the hope of improving the effective allocation of resources, most European governments have shown a growing interest in adopting private sector management models in the public administration. The assumption underlying this paper is that the decisive variables in the different national contexts have to do with the relationships between the central and the peripheral administrative levels, and the way in which administrative actors at the two levels interpret their roles and participate in the reform process. The paper examines the case of the reform of the Italian Ministry of Finance. In seeking to improve its performance and the services it provides, the ministry reform is intended to introduce a management system in which the key concepts are the planning, programming and control of administrative action and results. According to reform rhetoric, shaping a new class of administrative managers at the local level is the crux of the question. However, research results hint that the “creation” of this new local executive staff is yet to be completed. The working hypothesis advanced is that this is due to local executives’ lack of confidence in the “system”, inasmuch as the reform process has so far been characterised by a tendency to give them responsibility without autonomy and autonomy without control. The greater their lack of trust, the lesser their willingness to risk the consequences of failure and the greater their tendency to stick to defensive positions and to return to previous “bureaucratic” conceptions and ways of operating.     

Using Flexible Taste Distributions to Value Collective Reputation for Environmentally Friendly Production Methods

In this paper, we investigate consumer preferences for various environmentally friendly production systems for carrots. We use discrete choice multi‐attribute stated preference data to explore the effect of the collective reputation of growers from an Alpine valley with an established reputation for its environmentally friendly production: Val di Gresta ‘the valley of organic orchards.’ Data analysis of the panel of discrete responses identifies unobserved taste heterogeneity for organic, biodynamic, and place of origin along with extra variance associated with experimentally designed alternatives. The assumed parametric taste distributions are each tested using the semi‐nonparametric specification proposed by Fosgerau and Bierlaire, while the null of normality cannot be rejected for organic and biodynamic production methods, though it is for the place of origin. The latter is found to be bi‐modal, with modes at each side of zero. The use of a flexible taste distribution increases the plausibility of this form of heterogeneity and it appears promising for future applied studies. Dans le présent article, nous avons examiné les préférences des consommateurs quant à divers systèmes de production écologiques de carottes. Nous avons utilisé des données sur les préférences déclarées, la valeur attendue et les choix discrets pour examiner l'effet de la réputation collective de producteurs dans une vallée alpine réputée pour sa production écologique: Val di Gresta, dite la ?vallée des vergers biologiques?. L'analyse des données de panel discrètes a fait ressortir une hétérogénéité inobservable des goûts quant à la culture biologique, la culture biodynamique et le lieu d'origine ainsi qu’une variance supplémentaire liée à des options expérimentalement conçues. Les distributions paramétriques hypothétiques des goûts sont testées à l'aide de la spécification semi‐non‐paramétique proposée par Fosgerau and Bierlaire (2007), tandis que l'hypothèse nulle de normalité(null of normality) ne peut être rejetée pour les méthodes de production biologique et biodynamique, bien qu’elle le soit pour le lieu d'origine. Cette dernière serait bimodale, avec des modes de chaque côté de zéro. L'utilisation d'une distribution des goûts souple augmente la plausibilité de cette forme d'hétérogénéité et semble prometteuse pour les études appliquées futures.