Firm-level comparative advantage

We study the consequences of heterogeneity in factor intensity on firm performance. We present a standard Heckscher–Ohlin model augmented with factor intensity differences across firms within a country–industry pair. We show that for any two firms, each of whose capital intensity is, for instance, one percent above (below) its respective country–industry average, the relative marginal cost of the firm in the capital-intensive industry of the capital-abundant country is lower (higher) than that of the other firm. Our empirical analysis, conducted using data for a large panel of European firms, supports this prediction. These results provide a novel approach to the verification of the Heckscher–Ohlin theory and new evidence on its validity.     

Book reviews

Ohne Zusammenfassung     

Exploring the contribution of innovation intermediaries to the new product development (NPD) process: a typology and an empirical study

In the ‘knowledge economy’ upheld by the European Lisbon strategy, knowledge‐intensive services are considered a key driver for innovation and competitiveness. A category of knowledge‐intensive services that has become of utmost importance in the last few decades is new product development (NPD) services, which interconnect distant knowledge domains with the client firms. In addition to NPD service providers, web‐based innovation intermediaries have started to help innovative firms access dispersed bodies of knowledge. Despite the heterogeneity of their characteristics, however, a clear typology of the strategies used by traditional NPD service providers and web‐based intermediaries to interact with their knowledge sources and with their clients is missing. This typology would be very useful for those firms that are willing to collaborate with innovation intermediaries because it could highlight the typologies of NPD problems different intermediaries are apt to address and the managerial challenges that working with them entails. Developing such a classification framework is the main goal of this paper. The typology proposed in this paper suggests that innovation intermediaries should be distinguished based on the following: (1) the way they access their distributed knowledge sources and (2) the way they deliver value to their clients. By combining these two dimensions, four categories of innovation intermediaries are identified, which are named brokers, mediators, collectors and connectors. A multiple case study analysis involving four innovation intermediaries and 12 of their clients is presented in the paper. The analysis provides exploratory insights into (1) the typologies of NPD problems that each class of intermediaries addresses and (2) the managerial challenges that working with each of them entails. These preliminary findings call for further theoretical and empirical research into the complex interaction among innovation intermediaries, their dispersed sources of knowledge and their clients.     

Testing for time-invariant unobserved heterogeneity in generalized linear models for panel data

Recent literature on panel data emphasizes the importance of accounting for time-varying unobservable individual effects, which may stem from either omitted individual characteristics or macro-level shocks that affect each individual unit differently. In this paper, we propose a simple specification test of the null hypothesis that the individual effects are time-invariant against the alternative that they are time-varying. Our test is an application of Hausman (1978) testing procedure and can be used for any generalized linear model for panel data that admits a sufficient statistic for the individual effect. This is a wide class of models which includes the Gaussian linear model and a variety of nonlinear models typically employed for discrete or categorical outcomes. The basic idea of the test is to compare two alternative estimators of the model parameters based on two different formulations of the conditional maximum likelihood method. Our approach does not require assumptions on the distribution of unobserved heterogeneity, nor it requires the latter to be independent of the regressors in the model. We investigate the finite sample properties of the test through a set of Monte Carlo experiments. Our results show that the test performs well, with small size distortions and good power properties. We use a health economics example based on data from the Health and Retirement Study to illustrate the proposed test.     

Robust tests for time-invariant individual heterogeneity versus dynamic state dependence

We derive tests for persistent effects in a general linear dynamic panel data context. Two sources of persistent behavior are considered: time-invariant unobserved factors (captured by an individual random effect) and dynamic persistence or “state dependence” (captured by autoregressive behavior). We will use a maximum likelihood framework to derive a family of tests that help researchers learn whether persistence is due to individual heterogeneity, dynamic effect, or both. The proposed tests have power only in the direction they are designed to perform, that is, they are locally robust to the presence of alternative sources of persistence, and consequently, are able to identify which source of persistence is active. A Monte Carlo experiment is implemented to explore the finite sample performance of the proposed procedures. The tests are applied to a panel data series of real GDP growth for the period 1960–2005.     

Is there a slowdown in agricultural productivity growth in South America?

This article estimates agricultural productivity growth in 10 South American countries in 1969–2009 with the objective of investigating if the slowdown being measured in other countries is present in the region. Results show that productivity growth accounts for half of the three‐fold increase in agricultural output during this period and that performance is sensitive to R&D investments in the sector. The slowdown found for the 1990s to 2000s in the U.S. and some European economies does not seem to be present yet in South America. The region's total factor productivity (TFP) growth rate increased steadily from 1.07% during the 1970s to 2.29% during the 2000s. Given lags in adoption and the adaptive nature of innovations in these economies, we have yet to see the potential effects in South American agriculture of decreases in R&D in advanced economies.     

Does multimarket contact facilitate tacit collusion? Inference on conduct parameters in the airline industry

We provide empirical evidence that multimarket contact facilitates tacit collusion among airlines using a flexible model of oligopolistic behavior, where conduct parameters are modelled as functions of multimarket contact. We find (i) carriers with little multimarket contact do not cooperate in setting fares, whereas carriers serving many markets simultaneously sustain almost perfect coordination; (ii) cross‐price elasticities play a crucial role in determining the impact of multimarket contact on equilibrium fares; (iii) marginal changes in multimarket contact matter only at low or moderate levels of contact; (iv) assuming firms behave as Bertrand‐Nash competitors leads to biased estimates of marginal costs.     

Outsourcing and Vertical Integration in a Competitive Industry

We develop a partial equilibrium, perfectly competitive framework of a (potentially) vertically integrated industry. There are three types of firms: upstream firms that use primary factors to produce an intermediate good; downstream firms that use primary factors and intermediate goods to produce a final good; and vertically integrated firms that do both. We establish conditions under which vertically integrated firms exist and outsource (part of) the production of the intermediate input. We study the changes in industry configurations resulting from changes in costs and demand.     

Green Polities: Urban Environmental Performance and Government Popularity

Ascertaining whether local election results are driven by incumbents' performance while in office or mechanically reflect constituencies' ideological affiliation and macroeconomic conditions is crucial for evaluating the alleged accountability‐enhancing property of decentralization. On the basis of a unique score of urban environmental performance and the results of all elections held in the major Italian cities over a decade, we investigate the role of local (fiscal and environmental) vs. national issues in municipal elections. Although the empirical evidence points to a strong ideological attachment and a somewhat weaker “fiscal conservatism,” it reveals that media reported environmental rankings have an impact on the popularity of city governments.     

Advertising and search engines. A model of leadership in search advertising

We analyze the role of leadership in a multi-sided market as search advertising, assuming quantity competition and different entry conditions (with barriers to entry or endogenous entry). The model can be microfounded taking into account network effects, multi-homing on the advertising side and scale in search. If there are barriers to entry and the network effects are strong, there is an incentive for the leader to exploit them and attract more consumers to monopolize advertising. Under barriers to entry, the leading platform has also a strategic incentive to exploit scale in search, to manipulate search results to divert search traffic from other platforms, and to introduce limits to multi-homing, with the aim of expanding its market share and deny scale to competitors.