The Impact of Frictions in Routine Execution on Economies of Scope

Research summary: Based on a detailed database of a beverages producer‐distributor that expanded its product variety by leveraging its logistic network, we show that product diversification generates economies of scope and also higher operational costs. The result is an inverted‐U relationship between variety and productivity: When the firm offers few additional categories, productivity grows, but as the number of categories rises, the costs of executing the operational routines increase rapidly and productivity falls. The negative effect on productivity increases if the added product category is more dissimilar to previous ones, and decreases with learning from operational experience. Our results highlight how frictions at the operational level can limit the benefits of diversification, even in the absence of other sources of diseconomies, such as increased coordination needs. Managerial summary: One of the prevalent reasons for companies to expand to adjacent product lines is attaining economies of scope. However, such growth strategy also generates operational frictions, even if the day‐to‐day routines do not appear to change at all. Product diversity is disruptive for routine execution, as it requires coordination and exception handling, and may ultimately overcome any efficiency obtained from growth. We estimate the relevance of such operational friction using data from a beverages distribution network. When product variety is low, additional categories do generate efficiency, but after reaching a given threshold, friction prevails. We find that operational friction increases when products are more dissimilar, but is attenuated when workers learn from their own and other's experience. Copyright © 2017 John Wiley & Sons, Ltd.     

Organizing women for combat: The experience of the FARC in the Colombian war

The FARC, which used to be Colombia's main guerrilla force and is now in the midst of a peace process, was to a great extent a feminized group. This paper discusses why it recruited so many women, and why it recruited them as combatants. We suggest that only when the FARC adopted a highly hierarchical, self‐contained, and militaristic organizational blueprint did it get involved in the massive recruitment of women as combatants. We discuss the way in which organizational mechanisms and ideology interacted to produce such an outcome, and how this interaction marked both the organization and the trajectories of the women who joined it.     

Risk premia in forward exchange rates: systematic or unsystematic?

International traders frequently use forward exchange transactions to hedge their cash flows in foreign currencies. A key issue is whether the forward rates are efficiently priced. There is evidence of time-varying risk premia in forward exchange rates. Are these risk premia systematic or unsystematic? This article uses a market model to explain risk, implying that the risk premium in the forward rate varies pari passu with the beta of the return to speculative forward positions. Assuming the unobserved risk premium is proportional to the forward premium allows testing the predicted relations; the data reject the joint hypotheses of the model and systematic risk. In terms of a simple factor model explaining the covariation of the forward premium, the risk premium, and the expected percentage rate of change of the spot exchange rate, the assumption that the forward premium and the risk premium are proportional can be relaxed without changing the empirical results.     

The nonobserved economy in the European Union

To better understand the share of the nonobserved economy (NOE) in the European Union, especially on the PIIGS, we estimate, through the multiple indicators multiple causes model, the path between 1980 and 2013. The model includes (i) the tax burden (disaggregated into direct and indirect taxes), a proxy of regulation burden, the unemployment rate and self-employment as causes of the NOE economy; (ii) the GDP and the labour force participation ratio as indicators of the NOE economy. In particular, the estimated weight of NOE as a percentage of official GDP was always higher in the PIIGS group.     

Estimating cellphone providers' customer equity

This paper provides insights about how customer equity estimates can help businesses monitor the competition as well as aid managers in making their marketing investment decisions, and how companies can employ their marketing investments to maximize current and future yield/returns. The article concerns itself with the current offer of cellphone providers and their main products. The research includes survey data through interviews with 302 cellphone users of Sao Paulo, Brazil. The study uses this data combined with a number of economic assumptions and a financial marketing model to create an insight in customer equity values of cellphone providers in the region. The scenario dated October 2005 is that the estimated customer equity of the service provider Vivo is, respectively, 93 and 91% larger than those of competing providers Claro and TIM. The research underlines that on average the customer equity flowing from the post-paid segment is 3.5 times larger than that of the pre-paid. In addition to these results the study provides the customer lifetime value (CLV) estimates for Claro's, TIM's and Vivo's pre- and post-paid customers and analyzes the retention and loss figures of CLV. Also a discussion follows of the implications that these values will likely have for the companies' marketing strategy.     

Calm After the Storms: Income Distribution and Welfare in Chile, 1987-94

After rising during most—but not all—of the 1960–85period, inequality in Chile seems to have stabilized since around1987. Following the stormy period of economic and politicalreforms of the 1970s and 1980s, no statistically significantLorenz dominance results could be detected since 1987. Scalarmeasures of inequality confirm this picture of stability, butsuggest a slight change in the shape of the density function,with some compression at the bottom being "compensated for"by a stretching at the top. As inequality remained broadly stable,sustained economic growth led to substantial welfare improvementsand poverty reduction, according to a range of measures andwith respect to three different poverty lines. Poverty mixedstochastic dominance tests confirm this result. All of thesefindings are robust to different choices of equivalence scales.     

Median‐voter Equilibria in the Neoclassical Growth Model under Aggregation*

We study a dynamic version of Meltzer and Richard's median‐voter model where agents differ in wealth. Taxes are proportional to income and are redistributed as equal lump‐sum transfers. Voting occurs every period and each consumer votes for the tax that maximizes his welfare. We characterize time‐consistent Markov‐perfect equilibria twofold. First, restricting utility classes, we show that the economy's aggregate state is mean and median wealth. Second, we derive the median‐voter's first‐order condition interpreting it as a tradeoff between distortions and net wealth transfers. Our method for solving the steady state relies on a polynomial expansion around the steady state.     

Conditional Cash Transfers, Schooling, and Child Labor: Micro-Simulating Brazil's Bolsa Escola Program

A growing number of developing economies are providing cashtransfers to poor people that require certain behaviors on theirpart, such as attending school or regularly visiting healthcare facilities. A simple ex ante methodology is proposed forevaluating such programs and used to assess the Bolsa Escolaprogram in Brazil. The results suggest that about 60 percentof poor 10- to 15-year-olds not in school enroll in responseto the program. The program reduces the incidence of povertyby only a little more than one percentage point, however, andthe Gini coefficient falls just half a point. Results are betterfor measures more sensitive to the bottom of the distribution,but the effect is never large.     

Exploiting short-run predictability

This paper measures the utility gains from exploiting short-run predictability in the volatility of stock returns in a dynamic model in the the presence of transaction costs, short-selling constraints and estimation risk. We find that utility gains are quite significant, both ex ante and out-of-sample.