new firm startups technology and macroeconomic fluctuations new firm startup activity is examined within a framework pooling a cross section of 117 industries over six time periods between 1976 and 1986 a model is introduced relating startup activity both to elements of the business cycle in particular the macroeconomic growth rate the cost of capital and the unemployment rate and to industry specific characteristics especially the technological conditions underlying the industry the pooled cross section regression results suggest that macroeconomic fluctuations as well as industry specific elements contribute to startup activity while new firm startups respond positively to macroeconomic growth they are promoted by a low cost of capital and high unemployment rate a somewhat surprising result is that new firm startups are not apparently deterred in capital intensive industries and where r d expenditures play an important role the empirical results suggest that new firms may be able to overcome their inherent size and experience disadvantages in such markets through exploiting university research and pursuing innovative activity

a theory of sticky rents search and bargaining with incomplete information abstract this paper offers the first theoretical explanation of housing rent stickiness and differential stickiness by housing structure type key features of rental markets worldwide previous theoretical work on the subject is sparse and explains why some landlords charge below market rents not stickiness apart from its interest for understanding housing markets and overall inflation rent stickiness is intriguing because it shows that stickiness can emerge in markets where the typical menu cost logic does not apply and where market participants typically engage in repeated bargaining over contracts our model involves search and bargaining with incomplete information in a two period game and generates stickiness in a novel manner the key decision is the landlord s choice of whether to renegotiate or not crucially landlords do not know tenant perceptions of unit quality the key force generating stickiness is that offering the identical contract preempts tenant search thus limiting tenants outside options and resolves uncertainty early risk aversion reinforces this mechanism and yields differential stickiness by landlord type renegotiation risk for large landlords disappears because the different outcomes rent increase rent decrease and vacancy average out landlords who manage only one unit loathe vacancy and are highly motivated to avoid renegotiation

state dependent pricing and the dynamics of money and output standard macroeconomic models of price stickiness assume that each firm leaves its price unchanged for a fixed amount of time we present an alternative model in which the pricing decision depends on the state of the economy we find a method of aggregating individual price changes that allows a simple characterization of macroeconomic variables the model produces a positive money output correlation and an empirical phillips curve in addition the impact of monetary shocks depends crucially on the current level of output which points to a natural connection between state dependent microeconomics and state dependent macroeconomics i introduction there is a long tradition in macroeconomics of attributing the real effects of nominal demand shocks to nominal price stickiness in this view if there is no change in prices when nominal demand rises then quantities must bear the burden of adjustment hence nominal price rigidity provides the friction needed for nominal demand shocks to be transmitted to the real economy standard models of this transmission mechanism such as fischer 1977 and taylor 1980 are based on the assumption that each firm leaves its price unchanged for a fixed amount of time the main reason for considering such time dependent pricing rules is their analytic tractability constraining firms to adjust their prices at prespecified times both simplifies the derivation of equilibrium strategies and allows the use of powerful time series techniques to analyze aggregate dynamics the main disadvantage of the timedependent approach is that between price adjustments firms are not allowed to respond even to extreme changes of circumstance this makes it difficult to know whether the qualitative effects of money in these models are the result of nominal rigidities per se or of the exogenously imposed pattern of price changes an alternative approach to modeling price stickiness is to allow the price setting decision to depend on the actual state of the

comparisons between small business data base useem and bureau of labor statistics bls employment data 1978 1986 the bls versus useem comparison generally points out some major classification differences in the data sets particularly in the classification and growth of larger establishments useem and bls data generally agree as to the direction of employment growth over the 1978 to 1986 period differences occur in 7 of the 63 comparisons of employment growth but bls attributes a greater proportion of growth to larger reporting units useem to smaller establishments bls and useem data have concurring positive or negative growth rates for all size classes in the construction wholesale trade services and finance insurance and real estate industries

buy now and price later supply contracts with time consistent mean variance financial hedging abstract we consider a two stage supply chain comprising one risk neutral manufacturer he and one risk averse retailer she where the manufacturer procures consumption commodities in spot market as major inputs for production and sells the final products to the retailer the retailer then sells the final products to the market at a stochastic clearance price we investigate a flexible price contract that allows the manufacturer to determine the product wholesale price and the retailer to determine the order quantity based on the future spot price of consumption commodities compared with the simple wholesale price contract a win win situation can be achieved under the flexible price contract when the manufacturer s postponed processing cost is lower than a threshold however under this flexible price contract the retailer may suffer from the commodity price volatility even if she does not procure the commodities directly we further investigate how the risk averse retailer conducts mean variance financial hedging by purchasing consumption commodity futures contracts we formulate the problem using a dynamic programming model and derive a closed form time consistent financial hedging policy through numerical experiments we show that the commodity price risk from the manufacturer to the retailer is effectively mitigated with the hedging and the benefits of the flexible price contract are maintained

oil price shocks policy uncertainty and stock returns of oil and gas corporations abstract this paper investigates the effects of oil price shocks and economic policy uncertainty on the stock returns of oil and gas companies we find that an oil demand side shock has a positive effect on the return of oil and gas companies on average whereas shocks to policy uncertainty have a negative effect on the return historical decomposition shows that the effects of oil shocks on the stock return are amplified by the endogenous policy uncertainty responses these results are consistent with those for major integrated oil and gas companies the return responses however show heterogeneous effects of structural shocks on upstream midstream and downstream oil and gas companies suggesting that a well diversified portfolio is obtainable

flexible and risk sharing supply contracts under price uncertainty we study supply contracts for deterministic demand but in an environment of uncertain prices we develop valuation methodologies for different types of supply contracts a time inflexible contract requires the firm to specify not only how many units it will purchase but also the timing of the purchase a time flexible contract allows the firm to specify the purchase amount over a given period of time without specifying the exact time of purchase other than time flexibility the suppliers may offer quantity flexibility to the firm as well i e purchase quantities could be within a prespecified quantity window finally risk sharing features can be incorporated in the contract in terms of the purchase price that the firm eventually pays to a supplier within a prespecified price window the firm pays the realized price but outside of it the firm shares in an agreed way added costs or benefits given the structure of a supply contract we study the firm s decision when to purchase and how many units in each purchase such that the expected net present value of the purchase cost plus inventory holding cost is minimized we discuss optimal purchasing strategies for both time flexible and time inflexible contracts with risk sharing features other interesting results include the analysis of two supplier sourcing environments and the exploitation of quantity flexibility in such contracts our discussion illustrates how time flexibility quantity flexibility supplier selection and risk sharing when carefully exercised can effectively reduce the sourcing cost in environments of price uncertainty

notes on the theory and evidence on aggregate purchases of durable goods the basic implications of the frictionless permanent income hypothesis for durable goods purchases are strongly rejected by the data at the aggregate level there is too much inertia at the macroeconomic level purchases are too infrequent and lumpy in principle these rejections can be simultaneously rationalized by the presence of fixed costs of adjustment at the microeconomic level this article provides a simplified overview of recent developments attempting to formalize and measure the implications of models of fixed cost of adjustment for microeconomic and especially aggregate behavior of expenditure on durable goods it contends that these efforts have paid off in terms of methodological and empirical improvements copyright 1994 by oxford university press

the within distribution business cycle dynamics of german firms in this article we analyse stylized facts for germany s business cycle at the firm level based on longitudinal firm level data from the bundesbank s balance sheet statistics covering on average 55 000 firms per year from 1971 to 1998 we estimate transition probabilities of a firm in a certain real sales growth regime switching to another regime in the next period e g whether a firm that has witnessed a high growth rate is likely to stay in a regime of high growth or is bound to switch to a regime of low growth in the subsequent period we find that these probabilities depend on the business cycle position

screening with convex menus and optimal flow taxation abstract this paper considers a family of screening problems in which the principal is constrained to offer only convex menus applications include i optimal flow taxation when individuals can substitute consumption and leisure inter temporally ii optimal product design for a linear pricing monopolist iii non exclusive cum linearly priced annuity markets a modified version of a myerson 1979 mirrlees 1971 direct mechanism in which standard incentive compatibility constraints are replaced by no convexification constraints can be used to compute optimal allocations in this family of problems in the flow taxation application the optimal tax schedule necessarily features progressive marginal tax rates typically features distortions at the top and can be analyzed by adapting standard ironing techniques

partial adjustment without apology econometric partial adjustment models perform relatively well at the aggregate level however many kinds of microeconomic behavior involve discrete and occasional choices analyzing the classic employment adjustment problem we show how a generalized partial adjustment model tractably accommodates both observations by aggregating the actions of heterogeneous producers facing fixed adjustment costs aggregate disturbances cause changes in establishment level target employment and in the measure of establishments actively adjusting to their target whereas aggregate responses exhibit partial adjustment our framework also can be applied in general equilibrium settings with persistent idiosyncratic shocks without forfeiting the convenient use of linear solution methods

riskiness endogenous productivity dispersion and business cycles abstract in the data cross sectional productivity dispersion is countercyclical at both the plant level and the firm level see e g bloom 2009 i incorporate a firm s choice of risk level into a model of firm dynamics with real business cycle features to explain this empirical finding both qualitatively and quantitatively in the model in every period each firm chooses the investment amount and the risk level associated with a production project every period all projects available to each firm have the same expected flow return determined by the aggregate and idiosyncratic shocks to the firm s productivity and differ from one another only in their risk the endogenous option of exiting the market and the limited funding for new investment jointly play an important role in motivating firms risk taking behavior the model predicts that in each period relatively small firms are more likely to take risk and hence exhibit a higher exit rate and that the cross sectional productivity dispersion measured as the standard deviation of the realized individual component of productivity is larger in recessions

profit margins and the business cycle evidence from uk manufacturing firms this paper presents some empirical models of profitability using panel data covering 709 large u k companies ove r the 1970s and 1980s focusing specifically on the role of aggregate demand shocks in shaping firm level profitability in basic regressi ons and in quite complex econometric models the results suggest that firm level profit margins fell heavily during the deep manufacturing recession of the early 1980s and as such are consistent with model s predicting the procyclical nature of profit margins this result hol ds across different product groups producer goods consumer durables a nd nondurables though the timing of the impact of aggregate shocks appears to differ copyright 1993 by blackwell publishing ltd

durable goods an explanation for their slow adjustment at the microeconomic level durable purchases are often discontinuous and relatively large this feature has the potential to explain why aggregate expenditure on durables responds only slowly relative to the frictionless permanent income model to wealth and other aggregate innovations in this paper i develop new results on the problem of dynamic aggregation of stochastically heterogeneous units which help to characterize the connection between microeconomic behavior and aggregate dynamics in the presence of nonconvex adjustment costs using these results and splitting postwar u s aggregate durable purchases into different subcategories and time periods i provide further support for the view that lumpy microeconomic purchases play an important role in explaining the time series behavior of aggregate expenditure on durable goods

electricity demand in kazakhstan properties of electricity demand in transition economies have not been sufficiently well researched mostly due to data limitations however information on the properties of electricity demand is necessary for policy makers to evaluate effects of price changes on different consumers and obtain demand forecasts for capacity planning this study estimates kazakhstan s aggregate demand for electricity as well as electricity demand in the industrial service and residential sectors using regional data firstly our results show that price elasticity of demand in all sectors is low this fact suggests that there is considerable room for price increases necessary to finance generation and distribution system upgrading secondly we find that income elasticity of demand in the aggregate and all sectoral models is less than unity of the three sectors electricity demand in the residential sector has the lowest income elasticity this result indicates that policy initiatives to secure affordability of electricity consumption to lower income residential consumers may be required finally our forecast shows that electricity demand may grow at either 3 or 5 per year depending on rates of economic growth and government policy regarding price increases and promotion of efficiency we find that planned supply increases would be sufficient to cover growing demand only if real electricity prices start to increase toward long run cost recovery levels and policy measures are implemented to maintain the current high growth of electricity efficiency

microeconomic rigidities and aggregate price dynamics abstract this paper is an attempt to enrich the characterization of the sluggish behavior of the aggregate price level our contribution to this vast literature is to explicitly consider microeconomic heterogeneity and its interaction with nonlinear microeconomic price adjustment policies the model we propose outperforms the constant probability of adjustment partial adjustment model in describing the path of postwar u s inflation using only aggregate data we infer that the probability that a firm adjusts its price depends on the sign and the magnitude of the deviation of the price from its target level at the aggregate level we find that the aggregate price level responds less to negative shocks than to positive shocks that the size of this asymmetry increases with the size of the shock and that the number of firms changing their prices and therefore the flexibility of the price level to aggregate shocks varies endogenously over time in response to changes in economic conditions

age size growth and survival uk companies in the 1980s this paper examines growth and survival amongst quoted and unquoted u k companies in the period 1975 85 and compares the results with earlier u k and u s studies an examination of death rates shows that smaller companies had higher death rates but the largest and smallest companies were least vulnerable to takeover careful attention is therefore paid to problems of sample selection bias it is shown that smaller companies grew faster than larger companies that gibrat s law does not hold amongst smaller firms that age is negatively related to growth and that these results are not an artifact of sample selection bias copyright 1994 by blackwell publishing ltd

the relationship between firm growth size and age estimates for 100 manufacturing industries this study uses a sample of all firms operating in 100 manufacturing industries to examine some aspects of firm dynamics it finds that firm growth the variability of firm growth and the probability that a firm will fail decrease with firm age it also finds that firm growth decreases at a diminishing rate with firm size even after controlling for the exit of slow growing firms from the sample gibrat s law therefore fails although the severity of the failure decreases with firm size copyright 1987 by blackwell publishing ltd

technology and the dynamics of industrial structures an empirical mapping of dutch manufacturing this paper explores the empirical link between on the one hand innovation and on the other hand industrial structure and dynamics in the netherlands we use the concept of technological regimes as the guiding framework to interpret this relationship the data are drawn from the production statistics and the business register of manufacturing firms in the netherlands and the second community innovation survey a classification of technological regimes that refines pavitt s taxonomy is applied to the data our analysis is aimed at identifying the variables that are best able to discriminate between technological regimes for our dutch case we find that a mix of innovation related and market structure related variables account for most variability and broad differences across regimes dynamic market structure variables account for an additional share of variability and finer differences across regimes overall we conclude that the concept of technological regimes provides a useful framework that helps to shed further light on the relationship between innovation and market structure

demand information and spot price information supply chains trading in spot markets abstract this paper investigates the effect of information updating on the members of a two stage supply chain in the presence of spot market the supplier decides the contract price new information becomes available as time progresses the manufacturer updates his belief on demand and or spot price and subsequently decides the contract quantity the demand and spot price are correlated thus the new demand information also updates the belief on the spot price and vice versa we model the problem with an information updating stackelberg game and derive unique equilibrium strategies previous studies have considered only the demand information and concluded that improved demand information always benefits the supplier by contrast we demonstrate that improved demand information benefits both the supplier and manufacturer if the correlation coefficient between the two uncertainties has a small positive value and benefits the manufacturer but hurts the supplier otherwise moreover superior spot price information benefits only the manufacturer and always hurts the supplier surprisingly superior information fails to improve the performance of the supply chain and only changes the allocation of the profits between the supplier and manufacturer our findings likewise provide insights into when the supplier intends to use the contract channel and which type of information updating facility or expertise to invest in if a choice must be made

corporate growth and profitability this paper argues that current period corporate growth rates reflect changes in current expectations about the long run profitability of a firm this means that growth rates are likely to vary randomly over time using data from 271 large quoted uk firms over the period 1976 1982 we report the existence of a positive statistically significant and robust correlation between current period growth rates and a natural measure of changes in current expectations about long run profitability namely changes in the stock market valuation of the firm nevertheless we find that variations in corporate growth rates are difficult to predict

the cross sectional dynamics of the us business cycle 1950 1999 abstract modern interest in business cycles has focussed on the co movements and correlations in the major macroeconomic aggregates in this paper we offer another dimension to business cycle analysis which looks at the time series of cross sectional distributions of the growth rates of sales by us quoted companies from 1950 to 1999 we detect correlations between aggregate business cycle fluctuations and the higher moments of the cross sectional distribution we find a significant negative correlation between the rate of growth of gdp and the cross sectional variance and skewness of growth rates of sales on the other hand there is positive correlation at business cycle frequencies with kurtosis in order to explore this further we turn to the dynamic evolution of firms and analyse the sensitivity of growth rates to aggregate shocks conditioning on firm size the results suggest that despite considerable heterogeneity macroeconomic shocks have pervasive effects that are however more pronounced for firms in the middle range of growth this has implications for both macro and industrial economics

measurement and testing of inequality from time series of deciles with an application to u s wages this article uses unobserved components time series models to capture the underlying trends in the quarterly deciles of u s hourly wages tests of stability and divergence are developed as a means

aggregation persistence and volatility in a macro model we introduce firm heterogeneity into the standard monopolistically competitive real business cycle rbc model the fundamental equilibrium path is derived and the time series properties of aggregate gdp are studied analytically although firms productivities are subject to temporary shocks the aggregate process displays a surprising novel form of nonlinearity and long memory which had not been built into the model at the outset this aggregate gdp turns out to have very different properties from log linear time series models such as auto regressive ar models and their extensions it displays very strong persistence which ends abruptly with a sudden change of tendency giving its autocorrelation function acf an s shape although persistent it is mean reverting unlike the everlasting memory of unit root processes its volatility is of a greater order of magnitude than that of any of its components so small micro shocks can generate large macro fluctuations it is also characterized by long asymmetric cycles of random lengths increased monopoly power tends to reduce the amplitude and increase the

gibrat s law and quantile regressions an application to firm growth abstract the nexus between firm growth size and age in u s manufacturing is examined through the lens of quantile regression models this methodology allows us to overcome serious shortcomings entailed by linear regression models employed by much of the existing literature unveiling a number of important properties size pushes both low and high performing firms towards the median rate of growth while age is never advantageous and more so as firms are relatively small and grow faster these findings support theoretical generalizations of gibrat s law that allow size to affect the variance of the growth process but not its mean cordoba 2008

can exchange rates forecast commodity prices we show that commodity currency exchange rates have surprisingly robust power in predicting global commodity prices both in sample and out of sample and against a variety of alternative benchmarks this result is of particular interest to policy makers given the lack of deep forward markets in many individual commodities and broad aggregate commodity indices in particular we also explore the reverse relationship commodity prices forecasting exchange rates but find it to be notably less robust we offer a theoretical resolution based on the fact that exchange rates are strongly forward looking whereas commodity price fluctuations are typically more sensitive to short term demand imbalances

explaining investment dynamics in u s manufacturing a generalized s s approach we are grateful to olivier blanchard whitney newey james stock an editor three anonymousreferees and seminar participants at brown cepr champoussin chicago columbia econometric society meetings caracas and tokyo efcc harvard impa lse nber princeton rochester site toronto u de chile and yale for their comments financial support to caballero from the national science and sloan foundations and to engel from fondecyt grant 195 510 and the mellon foundation grant 9608 is gratefully acknowledged 2since plants entry is excluded from their sample these statistics are likely to represent lowerbounds on the degree of lumpiness in plants investment patterns 3we use the word project to emphasize the fact that the actual implementation of a projectmay cover more than a year observation realistic time to build aspects of investment are not incontradiction with the view that investment episodes are lumpy in nature 4 see chirinko 1994 for a survey of the empirical investment literature

potential entrepreneurship in japan the aim of this paper is to investigate the potential for entrepreneurship in japan using the employment status survey which is the only government administered survey that includes questions about the desire to become an entrepreneur we find that there are still a number of potential entrepreneurs in japan despite a recent decline in the number of new firms being established we also find that there is a large regional variation in the distribution of entrepreneurial potential with clustering into a few regions and the level in tokyo being exceptional further using panel data on 47 prefectures from 1982 to 1997 we examine the determinants of entrepreneurial potential the estimation results show that the price cost margin market size market growth and the unemployment rate have positive effects on the potential for entrepreneurship

economic models as analogies people often wonder why economists analyse models whose assumptions are known to be false while economists feel that they learn a lot from such exercises we suggest that part of the knowledge generated by academic economists is case based rather than rule based that is instead of offering general rules or theories that should be contrasted with data economists often analyse models that are theoretical cases which help understand economic problems by drawing analogies between the model and the problem thus economic models empirical data experimental results and other sources of knowledge are all on equal footing that is they all provide cases to which a given problem can be compared we offer complexity arguments that explain why case based reasoning may sometimes be the method of choice and why economists prefer simple cases many economists think of their discipline as a successful social science economics relies on rigorous and non trivial mathematical and statistical analyses the paradigm of microeconomics is viewed as a unified approach that can deal with all problems of social interaction and it is indeed adopted by other disciplines economics is popular with students and economics professors are in high demand within the academic world and outside it 1 however the basic assumptions of economic theories have been harshly criticised by psychologists presumably showing in laboratory experiments that these assumptions frequently do not hold if the assumptions of economics are all wrong why do economists keep using them why do they develop sophisticated mathematical models based on such flimsy foundations this question is our starting point we elaborate on it and discuss two additional puzzles in section 1 we then offer a possible resolution to these puzzles in section 2 namely that some of the reasoning in economics is casebased rather than rule based and that economists view themselves as generating the cases to which real problems might be analogous true to the method of our discipline we construct a model in section 4 that illustrates the advantages of this mode of research in section 5 we discuss the virtues of a general paradigm or to be precise of the standard language that such a paradigm employs section 6 concludes

optimal procurement strategies for online spot markets abstract spot markets have emerged for a broad range of commodities and companies have started to use them in addition to their traditional long term procurement contracts forward contracts in comparison to forward contracts spot markets offer products at essentially negligible lead time but typically command a higher expected price for this added flexibility while also exhibiting substantial price uncertainty in our research we analyze the resulting procurement challenge and quantify the benefits of using spot markets from a supply chain perspective we develop and solve mathematical models that determine the optimal order quantity to purchase via forward contracts and the optimal quantity to purchase via spot markets we analyze the most general situation where commodities can be both bought and sold via a spot market and derive closed form results for this case we compare the obtained results to the reference scenario of pure contract sourcing and we include results for situations where the use of spot markets is restricted to either buying or selling only our approaches can be used by decision makers to determine optimal procurement strategies based on key parameters such as demand and spot price volatilities correlation between demand and spot prices and risk aversion the results of our analysis demonstrate that significant profit improvements can be achieved if a moderate fraction of the commodity demand is procured via spot markets the results also show that companies who use spot markets can offer a higher expected service level but that they might experience a higher variability in profits than companies who do not use spot markets we illustrate our analytical results with numerical examples throughout the paper

post entry behaviour and the cycle evidence from germany abstract based on a rich database on establishments in western germany the paper aims at characterising the relationship between on the one hand growth and exit of entering cohorts and on the other hand aggregate business fluctuations a main finding is that exit is not responsive to the cycle which is at odds with views of recessions as times of cleansing where creative destruction processes occur the growth of survivors also displays little cyclical sensitivity but tends to become more responsive to aggregate business fluctuations as the cohort ages two possible explanations for this role of age on the cyclical sensitivity of surviving units are offered in the final section of the paper the first draws on the product specialisation of young and more established plants the second on the role of irreversible investment and industry selection

economics between prediction and criticism we suggest that one way in which economic analysis is useful is by offering a critique of reasoning according to this view economic theory may be useful not only by providing predictions but also by pointing out weaknesses of arguments it is argued that when a theory requires a nontrivial act of interpretation its roles in producing predictions and offering critiques vary in a substantial way we offer a formal model in which these different roles can be captured

selling to the newsvendor with a forecast update analysis of a dual purchase contract we consider a supply chain in which a manufacturer sells to a procure to stock retailer facing a newsvendor problem with a forecast update under a wholesale price contract the retailer waits as long as she can and optimally places her order after observing the forecast update we show that the retailer s wait and decide strategy induced by the wholesale price contract hinders the manufacturer s ability to 1 set the wholesale price and maximize his profit 2 hedge against excess inventory risk and 3 reduce his profit uncertainty to mitigate the adverse effect of wholesale price contract we propose the dual purchase contract through which the manufacturer provides a discount for orders placed before the forecast update we characterize how and when a dual purchase contract creates strict pareto improvement over a wholesale price contract to do so we establish the retailer s optimal ordering policy and the manufacturer s optimal pricing and production policies we show how the dual purchase contract reduces profit variability and how it can be used as a risk hedging tool for a risk averse manufacturer through a numerical study we provide additional managerial insights and show for example that market uncertainty is a key factor that defines when the dual purchase contract provides strict pareto improvement over the wholesale price contract

a closer look at the effect of market growth on industries profits everybody talks about the relation of industries profit rates to their markets rates of growth but nobody does anything about it specifically researchers have confirmed the effect of the growth of nominal output on profits in many multivariate studies without specifying closely the hypothesis under test or the measure of demand growth appropriate to test it a profits growth relationship could stem from several mechanisms the lagged adaptation of capacity to unexpected changes in demand reactions of oligopolists to disturbances in their consensus etc these mechanisms how and where they work hold their own normative interest therefore knowing what behavior and what structure lying behind it accounts for the profits growth relationship should do more than improve the specifications of our studies of allocative efficiency it should also expand our knowledge of adaptive processes that are important and hard to observe directly in this paper we shall synthesize the available explanations of why changes in market demand should affect an industry s profits then present a statistical test of the relative significance of the competing explanations

entry and exit on the competitive fringe microeconomic theories of industry evolution reserve key roles for the entry and exit of firms competitive models of industry supply often assume that individual firms have ushaped long run average cost curves in consequence an industry s output adjustment in movement from one long run equilibrium to another is entirely accomplished through the entry and exit of firms rather than through changes in long run equilibrium output of individual firms in empirical applications the speed of movement to new equilibrium levels of output and price measured by the time it takes for profits to return to competitive levels following a demand shock clearly depends upon the ease of entry and exit however the simplest competitive models have a clear theoretical weakness abundant evidence against u shaped long run average cost curves precludes a simple identification of entry with industry expansion and exit with industry contraction expansion of industry supply can be met either by incumbents or entrants and we have little empirical evidence of the division entry conditions are also a staple of oligopoly and monopoly models potential entry constrains the pricing options open to industry leaders and actual entry of new firms and new products erodes at varying rates the market power of incumbent firms if actual entry responds rapidly to profit opportunities then the persistent exercise of monopoly power will be rare however analyses of monopoly and oligopoly models typically approach entry indirectly by inferring that persistent profit differentials reflect high barriers to entry there are few direct tests of the effects of such barriers on actual entry despite their importance very few empirical studies of entry and exit exist severe data limitations restrict both the number of studies and the scope of extant analyses the research reported in this paper provides measures of entry and exit in 46 food manufacturing industries during the 1976 82 period measures of incidence the number of firms as well as extent the size of firms are provided the analysis also distinguishes between diversified firms and specialist producers entry and exit rates vary considerably across industries and the paper reports the results of statistical analyses that account for industry differences in entry and exit rates by specialist firms

the limits of inference with theory a review of wolpin 2013 this essay reviews kenneth i wolpin s 2013 monograph the limits of inference without theory which arose from lectures he presented at the cowles foundation in 2010 in honor of tjalling koopmans while i readily agree with wolpin s basic premise that empirical work that eschews the role of economic theory faces unnecessary self imposed limits relative to empirical work that embraces and tries to test and improve economic theory it is important to be aware that the use of economic theory is not a panacea i point out that there are also serious limits to inference with theory 1 there may be no truly structural policy invariant parameters a key assumption underpinning the structural econometric approach that wolpin and the cowles foundation have championed 2 there is a curse of dimensionality that makes it very difficult for us to elucidate the detailed implications of economic theo ries which is necessary to empirically implement and test these theories 3 there is an identification problem that makes it impossible to decide between competing theories without imposing ad hoc auxiliary assumptions such as parametric functional form assumptions and 4 there is a problem of multiplicity and indeterminacy of equilibria that limits the predictive empirical content of many economic theories i conclude that though these are very challenging problems i agree with wolpin and the cowles foundation that economists have far more to gain by trying to incorporate economic theory into empirical work and test and improve our theories than by rejecting theory and presuming that all interesting economic issues can be answered by well designed controlled randomized experiments and assuming that difficult questions of causality and evaluation of alternative hypothetical policies can be resolved by simply allowing the data to speak for itself jel b41 c18

integrating long term and short term contracting in beef supply chains this paper analyzes the optimal procurement processing and production decisions of a meat processing company hereafter a packer in a beef supply chain the packer processes fed cattle to produce two beef products program premium boxed beef and commodity boxed beef in fixed proportions but with downward substitution of the premium product for the commodity product the packer can source input fed cattle from a contract market where long term contracts are signed in advance of the required delivery time and from a spot market on the spot day contract prices are taken to be of a general window form linear in the spot price but capped by upper and lower limits on realized contract price our analysis provides managerial insights on the interaction of window contract terms with processing options we show that the packer benefits from a low correlation between the spot price and product market uncertainties and this is independent of the form of the window contract although the expected revenues from processing increase in spot price variability the overall impact on profitability depends on the parameters of the window contract using a calibration based on the report by the gipsa grain inspection packers and stockyards administration 2007 gipsa livestock and meat marketing study vol 3 fed cattle and beef industries report u s department of agriculture washington dc this paper elucidates for the first time the value of long term contracting as a complement to spot sourcing in the beef supply chain our comparative statics results provide some rules of thumb for the packer for the strategic management of the procurement portfolio in particular we show that higher variability higher spot price variability product market variability and correlation increases the profits of the packer but decreases the reliance on the contract market relative to the spot market this paper was accepted by yossi aviv operations management

microeconomic adjustment hazards and aggregate dynamics the basic premise of this paper is that understanding aggregate dynamics requires considering that agents are heterogeneous and that they do not adjust continuously to the shocks they perceive we provide a general characterization of lumpy behavior at the microeconomic level in terms of an adjustment hazard function which relates the probability that a unit adjusts to the deviation of its state variable from its moving target we characterize rich cross sectionally dependent aggregate dynamics generated by nonconstant hazards we present an example based on u s manufacturing employment and job flows and find that increasinghazard models outperform constant hazard partial adjustment models in describing aggregate employment dynamics

typology of the french regional development revealing the refugee versus schumpeter effects in new firm start ups in this article we analyse the relationships between unemployment rates and new firm start up rates in france using a quarterly data basis covering the period 1993 to 2011 we identify thanks to data analysis methods different classes that show different types of development among the french regions for each of these classes the existence of refugee schumpeter effects both in the short run and in the long run is revealed at the national level it appears that the refugee effect explains the dynamics of entrepreneurship in france over the period 2000 to 2011 necessity is the key motivation for new french firms

forecasting gasoline prices using consumer surveys this paper analyzes the predictive power of a new data set of consumer gasoline price forecasts taken from the michigan survey of consumers msc msc data generally perform as well as a no change forecast in predicting future gasoline prices and they substantially out perform the no change forecast during the recent economic crisis during which time they track futures market prices finally the cross respondent dispersion of the msc forecasts increases substantially during the economic crisis paralleling the large increase in price volatility at this time

surprise surprise measuring firm level investment innovations abstract using the ifo investment survey for the german manufacturing sector we construct a forty year panel of firm level investment innovations surprises we document the cross sectional and time series properties of this panel and our main findings are the cross sectional dispersion of investment surprises is countercyclical as is their average within firm time series volatility and both are highly correlated this justifies in part strategies in the literature to use cross sectional moments for the calibration of heteroscedasticity at the same time the cross sectional dispersion of investment is procyclical suggesting a nonsmooth capital adjustment friction at the micro level there is substantial dispersion in within firm volatility a feature consistent with a recent literature on information frictions at the firm level finally the aforementioned second moments of investment innovations are granger caused by recessions but not vice versa rendering simple exogenous uncertainty shocks less plausible as drivers of business cycles

aggregate employment dynamics building from microeconomic evidence this paper studies quarterly employment flows of approximately 10 000 u s manufacturing establishments the authors use establishments hours week to construct measures of the deviation between desired and actual employment and use these as the establishments main state variables the main findings are 1 microeconomic adjustment functions are nonlinear with plants adjusting disproportionately to large shortages 2 adjustments are often either large or nil suggesting the presence of nonconvexities in the adjustment cost technologies 3 the bulk of average employment fluctuations is accounted for by aggregate rather than reallocation shocks and 4 microeconomic nonlinearities amplify the impact of large aggregate shocks copyright 1997 by american economic association

determinants of firm start up size an application of quantile regression for ireland in this paper we provide empirical evidence on the determinants of firm start up size using data for the manufacturing sector in ireland and compare our results with recent findings for portuguese manufacturing industries mata and machado 1996 to allow for firm heterogeneity between firm entrants we use quantile regression techniques for our empirical estimation we find that the determinants of start up size differ in their importance for small and large scale entrants in particular industry size and industry growth seem to affect large scale entrants only

firm size and firm growth rate distributions the case of denmark there has been a recent renewed interest in the study of firm size distributions and firm growth rate distributions gibrat s law assumes firm growth rates are independent and identically distributed and that size is determined by a firstorder integrated process leaving the size distribution log normal this article analyzes these distribution patterns in an empirical context questioning the foundation of this model in a cross section analysis of four industries using danish data we show that the foundation and the outcome of gibrat s law are empirically far fetched in particular significant deviations from normality are found

endogenous information acquisition in supply chain management in this paper we analyze an endogenous determination of efforts put into information acquisition and its impact on supply chain management more specifically we consider a supplier who sells a product to a buyer during a single selling season prior to placing an order with the supplier the buyer has an option to acquire additional information about the demand by hiring experts who are capable of providing forecasts because a commission fee must be paid to each hired expert there exists a tradeoff between the cost and the value of the information and the buyer needs to determine how much information to acquire we derive the optimal information acquisition level in an integrated setting and compare it with that determined in a decentralized setting we also analyze several types of supply contracts to examine if they can coordinate the supply chain and allow an arbitrary division of system profit between the supplier and the buyer

small firm entry in us manufacturing a cross section empirical analysis examining the entry behavior of small firms is provided in this paper while the authors find that certain traditional market structure characteristics and entry barriers have a strong impact on small firm entry behavior the reliance upon innovative strategy by small firms also explains a significant amount of the variation in the pattern of entry by small firms they conclude that small firm entry is at least partially determined by entry barriers industry specific characteristics facilitating retaliatory conduct by incumbent firms and the reliance upon innovative strategy by small firms copyright 1989 by the london school of economics and political science

on the existence of persistently outperforming firms this study analyses persistence in growth rates for a data set of manufacturing firms of all sizes previous quantile autoregressions of firm growth rates show that extreme growth events are likely to be negatively correlated over time thus questioning the existence of persistent outperformers by supplementing the quantile regression analyses with transition probability matrices our study shows that bouncing firms coexist with persistent outperformers this result is shown to be robust for all size classes as well as for the exclusion of firms who experienced acquisitions or spin offs

animal spirits technology shocks and the business cycle the last few years have witnessed a revival of business cycle models in which beliefs of agents have played a leading role in explaining economic fluctuations 1 most of these models involve strong economy wide increasing returns to scale in order for sunspot equilibria to exist in a recent paper however basu and fernald 1996 present evidence that returns to scale are far from evenly distributed across the u s economy in particular they report that scale economies are present mainly in the domain of durable goods production in the nondurable goods sector of the u s economy evidence of increasing returns to scale cannot be found

inflation stabilisation and the consumption of durable goods exchange rate based stabilisations in chronic inflation countries have often been characterised by an initial consumption boom which is most evident in the behaviour of durable goods followed by a later contraction this paper provides an explanation for such a boom recession cycle based on the timing of purchases of durable goods the initial fall in inflation results in a wealth effect which induces many consumers to bring forward their purchases of durable goods thus generating an aggregate consumption boom since most consumers replenish their stock of durable goods at the beginning of the programme a later slowdown follows

optimal ordering and pricing strategies in the presence of a b2b spot market abstract in the current paper we examine the effect of a b2b spot market on the strategic behavior and the performance of a reseller who continues to use the traditional channel while participating in a b2b spot market we analyze the case in which a risk neutral reseller faces an additive or multiplicative demand function and identify sufficient conditions under which the optimal order quantity and retail price exist and are unique we then analytically examine the case in which a risk averse reseller participates in a fully liquid spot market we also study numerically how varying liquidity spot price volatility demand variability and correlation coefficient affect a firm s strategies and performance we find that demand variability significantly affects both pricing and ordering strategies whereas the spot price volatility has less influence on pricing decisions our results also show that for a risk averse reseller to charge a lower retail price when the spot market liquidity increases is desirable we further show that a b2b spot market cannot always improve a reseller s utility these findings shed light on how resellers can adjust their procurement and pricing strategies to align with the new business environment created by the emergence of b2b spot markets as well as have obvious implications for the development of a b2b spot market

experiments on percolation of information in dark markets in dark markets order submissions are bilateral and transaction prices are known only to the trading counterparties here we study to what extent the information aggregation theory proposed by duffie and collaborators predicts outcomes in a laboratory version of such markets we find that prices aggregate the available information but not in the strict sense of the theory where prices converge exponentially fast to average private signals prices instead fluctuate within bands around this average the band widths reflect in the best case the precision of the average signal and otherwise the precision of a single private signal

the business cycle macroeconomic shocks and the cross section the growth of uk quoted companies we bring to light a significant aspect of firm level heterogeneity over the business cycle analysing the responsiveness of firm growth quoted uk companies to aggregate shocks we find that the effects of aggregate shocks are more pronounced for firms in the middle range of growth rapidly growing and rapidly declining firms are less sensitive to aggregate shocks than firms in the interior of the growth range this is consistent with the fact that the higher moments of the distribution of firm growth rates have significant cyclical patterns these findings throw new light on growth of firms as well as on business cycle dynamics

technological regimes and sources of entrepreneurship this paper concerns the technological determinants of entrepreneurial behaviour by applying a typology of technological regimes which describes the nature of the technological environment in which firms operate this paper examines the sources and obstacles to entrepreneurial entry related to the process of technical change two major points are suggested first innovation in technologies of high or increasing opportunities is not always associated with entrepreneurial behaviour but can enhance the competitive advantage of existing firms second opportunities for entrepreneurship are shaped by the nature of knowledge underlying different technologies these points are illustrated using u s patent statistics classified by technical field and sector of firm s principal product activity different combinations of sources of technological entry barriers and technological opportunity are identified in science based technologies chemical technologies core technologies in complex systems product engineering technologies and process engineering technologies this paper argues that such a characterisation of the dynamics of knowledge accumulation is important for interpreting the variety of dynamics of industrial competition

does a manufacturer benefit from selling to a better forecasting retailer this paper considers a manufacturer selling to a newsvendor retailer that possesses superior demand forecast information we show that the manufacturer s expected profit is convex in the retailer s forecasting accuracy the manufacturer benefits from selling to a better forecasting retailer if and only if the retailer is already a good forecaster if the retailer has poor forecasting capabilities then the manufacturer is hurt as the retailer s forecasting capability improves more generally the manufacturer tends to be hurt benefit by improved retailer forecasting capabilities if the product economics are lucrative poor finally the optimal procurement contract is a quantity discount contract