language and the earnings of immigrants several studies most of them employing straightforward regression analysis have concluded that immigrants proficiency in the language of their adopted country is correlated with their productivity as measured by earnings two weaknesses of these studies are potential unobserved heterogeneity which could result in over estimated effects if overall ability is linked with language acquisition and potential measurement error in the language proficiency measures which would probably result in under estimation of language effects the present study which uses panel data for a 10 year period in germany yields evidence that the latter bias tends to be much larger than the former implying that language proficiency is far more important than suggested by the existing literature

nonparametric bounds on the returns to language skills this paper applies the theoretical literature on nonparametric bounds on treatment effects to the estimation of how limited english proficiency lep affects wages and employment opportunities for hispanic workers in the united states i analyse the identifying power of several weak assumptions on treatment response and selection and stress the interactions between lep and education occupation and immigration status i show that the combination of two weak but credible assumptions provides informative upper bounds on the returns to language skills for certain subgroups of the population adding age at arrival as a monotone instrumental variable also provides informative lower bounds copyright 2005 john wiley sons ltd

estimation of an occupational choice model when occupations are misclassified this paper examines occupational choices using a discrete choice model that accounts for the fact that self reported occupation data is measured with error despite evidence from validation studies which suggests that there is a substantial amount of measurement error in self reported occupations existing research has not corrected for classi cation error when estimating models of occupational choice this paper develops a panel data model of occupational choices that corrects for misclassi cation in occupational choices and measurement error in occupation speci c work experience variables the model is used to estimate the extent of measurement error in self reported occupation data and quantify the bias that results from ignoring measurement error in occupation codes when

switching regression models with imperfect sample separation information with an application on cartel stability an exogenous switching regression model with imperfect reginme classificationi information is specified and applied to a study of cartel stability an efficient estimation method is proposed which takes this imperfect information into account the consequences of misclassification are analyzed the direction of the least squares bias is derived an optimal regime classification rule is obtained and compared theoretically and empirically with other classification rules we then examine the joint executive committee a railroad cartel in the 1880 s the econometric evidence indicates that reversions to noncooperative behavior did occur for the firms in our sample and these reversions involve a significant decrease in market price this article is concerned with the possibility of estimating a switching regression model and its application to a study on cartel stability the switching regression model is the exogenous switching model proposed by quandt 24 which generalized a problem of mixture distributions day 4 the sample in this model is generated from distinct regression equations or regimes for each time period if the investigator has a priori information on how the sample is partitioned into the underlying regimes it is a switching regression model with known sample separation otherwise it is a model with unknown sample separation estimation of these latter models has been considered by quandt 24 goldfeld and quandt 8 and kiefer 14 16 among others a switching regression model is appropriate for the study of cartel behavior when there are price wars as firms will revert from cooperative to noncooperative behavior and so the industry supply function shifts occasionally this model will allow us to exploit the fact that there will be periodic stochastic switches or reversions between cooperative and noncooperative conduct in order to identify collusive episodes

labour market assimilation of foreign workers in italy this is the first paper to analyse the labour market assimilation of foreign i e non citizen workers in italy it considers the daily wages and the days of employment of male workers in whip a matched employer employee panel dataset from 1990 to 2003 the traditional human capital approach is augmented by a control for the probability of staying abroad modelled by aggregate variables of the origin country the human capital variables considered are age and experience both in and out of employment what emerges from the empirical analysis is discouraging foreigners who are able to get higher wages are the least likely to stay but assimilation profiles do not change when return migration is taken into account foreigners employed in the private sector earn the same wages as natives upon entry into employment but the two wage profiles diverge with on the job experience neither do foreigners assimilate from an employment perspective a differential in employment between foreign and native workers is found even upon entry which increases over time in the construction sector the wage and employment differential is even larger while manufacturing and services follow the aggregate trend africans immigrants have the fewest career prospects while eastern european and asian workers are less far behind the general pattern for foreign workers appears to be a fragmented career either restricted to seasonal or temporary jobs or alternating between legal and illegal employment

financial intermediation capital composition and income stagnation the case of europe abstract we look into the role of financial intermediation in inducing the european financial crisis of 2008 by exploring the effects of overall lending and the allocation of credit to specific categories of borrowers namely households vs firms we find that for the eu26 during the period 1995 2008 excessive household leverage through mortgage lending exerted a crowding out effect on availability of credit to support innovation and productive investment the crowding out effect ultimately translated into a gdp growth that was decoupled from real household income in this article we explain that shifting credit towards mortgages and away from corporate projects is consistent with rational behaviour based on historical trends aimed at minimizing short term risk for each individual bank nevertheless as a whole the sum of individual risk reducing attitudes generated a long term systemic risk

returns to foreign languages of native workers in the european union most of the literature on returns to languages is concerned with immigrants the authors study which uses the european community household panel survey for the period 1994 2001 infers returns to non native languages by native workers in nine countries of the european union the study differs from other studies that deal with the same issue in three respects first instead of using a dummy for each language they use the ratio of the population not proficient in a given country s national language and compare the results with the more traditional approach using dummies second they correct for time independent measurement errors in self reporting and find that the resulting iv estimates are much larger than those obtained by ols they also suggest that there is little room for time persistent errors and heterogeneity and that therefore their estimates should suffer ostensibly little from unobserved ability biases finally they estimate iv quantile regressions to illustrate how returns to languages vary at different points of the distribution of earnings

small firms borrowing constraints and reputation abstract this paper presents a simple model relating firm age with firm size and access to credit markets lending to new firms is risky because lenders have had no time to accumulate observations about them as a result interest rates are high and loans are small for entering firms as firms need credit to operate credit markets impose a limit on the scale of operation of new firms reputation building by the firms allows markets to overcome these difficulties over time large firms face lower interest rates than small firms and credit market fluctuations are shown to have different effects on firms of different size

dialect speech and wages abstract our paper studies the causal effect of dialect speech on wages of native dutch workers using an instrumental variable approach we find evidence of a wage penalty of dialect speech for males but not for females

default settlement and signalling lending resumption in a reputational model of sovereign debt this paper develops a simple model of sovereign debt in which defaulting nations are excluded from capital markets and regain access by making partial repayments this implication of the model is consistent with the historical evidence that defaulting countries return to international loan markets soon after a settlement but after varying periods of exclusion copyright 1995 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

a nonparametric decomposition of the mexican american average wage gap this paper shows that average wage gap decompositions between any two groups of workers can be carried out using nonparametric wage structures it also proposes an algorithm to correct for sample selection in nonparametric models known as tree structures this paper studies the wage gap between third generation mexican american and non hispanic white workers in the southwest it is shown that the decomposition heavily depends on functional assumptions and that different aproaches to flexibility may render sufficiently good and similar results copyright 2008 john wiley sons ltd

declining share of small firms in u s output causes and consequences jang ting guo i introduction according to the small business administration s sba calculations as shown in table 1 the contribution of small firms to u s national income was 58 in 1958 which then declined steadily to 51 in 1982 and stabilized around this value until 1992 the latest year for which the figures are available 1 this decline is quite puzzling in light of recent changes in technological factors market competition and government policies that were supposed to benefit small businesses 2 in this article we construct a dynamic general equilibrium model with two production sectors representing large and small firms to examine possible causes and welfare implications of this declining trend of small firms output contribution in the u s economy moreover this study brings into focus the role of government policies such as the justice department s anti trust efforts and the tiering programs whereby many regulations impose lighter requirements on smaller firms in order to maintain their viability 3 recently there have been several developments that can be considered beneficial towards the emergence of small firms shephard 1982 has estimated that since 1958 government deregulatory efforts have raised the level of competition in the u s economy by eliminating entry barriers and lowering transaction costs these factors in turn have contributed to the viability of small firms in the marketplace furthermore the emergence of new computer based technologies in the last two decades has improved the quality and flexibility of small scale production relative to standardized mass production techniques since they reduce the fixed capital or fixed cost requirements see shephard 1982 piore and sable 1984 carlsson 1989b and carlsson audretsch and acs 1994 4 another factor that improves the viability of small firms is their higher innovation rate as documented by acs and audretsch 1990 the shift of consumers taste from standardized mass produced goods towards stylized and personalized prod ucts also promotes small firm growth given their flexible production structure small firms have become important suppliers for these new goods and services see carlsson 1989a in light of these favorable developments one would expect to observe the number of small firms as well as their share in national income to rise in the u s economy however this has not been borne out by the data regarding small firms output share this article examines this issue in a dynamic general equilibrium framework extending romer s 1987 model of specialization we develop an infinite horizon representative agent model with two production sectors that are made up of large and small firms respectively the two sectors differ from each other with respect to the level of fixed set up costs and returns to scale parameters of their production functions each sector has an intermediate good segment in which monopolistically competitive firms operate using fully mobile capital and labor inputs the number of these intermediate firms is determined endogenously from the condition of free entry and exit a final good is produced in each sector from the set of available intermediate goods in a perfec tly competitive environment these two final goods are then aggregated into a single output gdp that can be consumed or invested by the representative household in a symmetric perfect foresight equilibrium these features result in an unequal number of large and small firms which can then be used to analyze the effects of technological changes and government policies the sectoral structure of our model in which gdp is produced by combining outputs of large and small firms is different from a typical two sector model with distinct consumption and investment goods in fact our two sector economy with identical factor intensities behaves exactly like a standard one sector model in which the representative household allocates resources across the two sectors to equate marginal products to factor prices

teardowns and land values in the chicago metropolitan area an empirical model of residential housing demolitions and the redevelopment process in the chicago metropolitan area supports the theoretical prediction that the sales price of teardown property is approximately equal to its land value we control for sample selection bias associated with non random demolition permit applications using a probit model that accounts for misclassification of the dependent variable the probit models provide statistically significant evidence of misclassification and suggest that prime teardown candidates are small older homes near public transportation and traditional village centers

the endogeneity between language and earnings international analyses this study is concerned with the determinants of dominant language fluency its effects on earnings and its endogeneity with earnings among immigrants dominant language fluency is hypothesized to

ruling out divergent speculative bubbles abstract the growth in the empirical literature on testing for divergent in mean speculative bubbles indicates that existing theoretical arguments for ruling out such price paths are not sufficiently compelling here we strengthen the case for ruling out explosive or implosive bubbles a priori by filling in two gaps first we demonstrate why divergent stochastic bubbles arising from purely extrinsic uncertainty as in blanchard 1979 cannot be equilibria in a monetary optimizing model second we show why existing arguments for ruling out implosive price bubbles are insufficient in some cases and we provide stronger arguments

industrialization and bilingualism in india bilingualism is a distinct and important form of human capital in linguistically diverse countries when communication among workers increases productivity there can be economic incentives to learn a second language i study how the growth of industrial employment increased bilingualism in india between 1931 and 1961 during that period indian factories were linguistically mixed i exploit industrial clustering and sectoral demand growth for identification the effect on bilingualism was strongest in import competing districts and among local linguistic minorities bilingualism was mainly the result of learning rather than than migration or assimilation and was not a byproduct of becoming literate my results shed new light on human capital investment in developing economies and on the long run evolution of languages and cultures

the labour market performance of recent migrants migrant workers constitute a vital component of many western labour markets although migrants can benefit greatly by moving to higher wage economies it is important to compare their labour market outcomes with those of native born workers in this paper we discuss factors that have been found to influence labour market success in the receiving country and examine the actual performance of recent migrants to the uk the uk provides a good case study for conducting such an exercise because of the very large increases in immigration that have been seen over the past decade we find that labour market performance varies greatly between migrant groups and that outcomes have changed noticeably following the uk government s decision to allow migrants from poland and other central and eastern european countries more or less free access to the labour market after eu enlargement in 2004

language fluency and earnings estimation with misclassified language indicators we use panel data to analyze the determinants of speaking fluency and wages of immigrants our model takes account of two problems that may bias ols estimates of the impact of speaking fluency on earnings first subjective variables on an ordinal discrete scale such as self reported language ability can suffer from misclassification errors the model decomposes misclassification errors into a time persistent and a time varying component second the model accounts for correlated unobserved heterogeneity in language and earnings equation the main finding is that these two generalizations of the standard model both lead to substantial changes in the estimated effect of speaking fluency on earnings

english proficiency and labor market performance evidence from the economics profession this article investigates whether the global spread of the english language provides an inherent advantage to native english speakers this question is studied within the context of the economics profession where the impact of being a native english speaker on future publishing success is examined english speakers may have an advantage because they are writing in their native language the quality of writing is a crucial determinant of publishing success and all the top economics journals are published in english using a ranking of the world s top 2 5 of economists this article confirms that native english speakers are ranked 100 spots higher better than similar non native english speakers a variety of extensions examine and dispel many other potential explanations jel a11 j44 f66

listening to what the world says bilingualism and earnings in the united states is there a shortage of critical foreign language skills in the united states recent concerns about national security and economic globalization suggest increased demand and wage premia for foreign language speakers the use of english as the international language however suggests a decrease in demand for foreign language skills in the united states to address this question we study a representative sample of u s college graduates ordinary least squares regressions with controls for cognitive ability nonparametric methods based on the propensity score and panel data methods suggest a 2 3 wage premium for college graduates who can speak a second language

a switching frontier model for imperfect sample separation information with an application to constrained labor supply this paper combines frontier functions and switching regressions this allows economic agents to operate under different efficiency regimes thus relaxing the assumption that all observations are drawn from the same distribution of inefficiency the switch is based on sample separation information that is treated first as perfect then as imperfect or noisy available sample separation information suggests an observation s regime however the information may not be accurate by comparing results across alternative specifications of sample separation information as perfect and noisy this approach provides evidence on the quality of the sample separation information the technique s usefulness is demonstrated via an application to constrained labor supply copyright 1995 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

reputation and competition this paper shows how competition generates reputation building behavior in repeated interactions when the product quality observed by consumers is a noisy signal of firms effort level there are two types of firms and good firms try to distinguish themselves from bad firms although consumers get convinced that firms which are repeatedly successful in providing high quality are good firms competition endogenously generates the outside option inducing disappointed consumers to leave firms this threat of exit induces good firms to choose high effort allowing good reputations to be valuable but its uncompromising execution forces good firms out of the market jel c7 d8

self selection and the earnings of immigrants this paper analyzes the way in which the earnings of the immigrant population may be expected to differ from the earnings of the native population because of the endogeneity of the decision to migrate the empirical study shows that differences in the u s earnings of immigrants with the same measured skills but from different home countries are attributable to variations in political and economic conditions in the countries of origin at the time of migration excerpt

returns to foreign languages of native workers in the eu most papers on returns to languages are concerned with immigrants we use the european community household panel survey echp to infer returns on non native languages by non immigrants in nine countries of the european union we differ from the few other studies that deal with the same problem in three respects first we correct for time dependent measurement errors in self reporting as suggested by dustmann and van soest and find that the resulting iv estimates are much larger than those obtained by ols we also suggest that there is little room for time persistent errors and heterogeneity and that therefore our estimates should not suffer from the other usual biases secondly instead of using a dummy for each language we use the ratio of the population that is not proficient in a language in each country considered finally we estimate instrumental variable quantile regressions to illustrate how returns to languages vary at different points of the distribution of earnings

a life cycle model of outmigration and economic assimilation of immigrants in germany this paper estimates a structural dynamic life cycle model of outmigration where in each period immigrants choose whether to work in the host country not to work but remain in the host country or outmigrate the model incorporates several features of existing life cycle theories of outmigration but distinguishes itself by introducing uncertainty in about future earnings and preferences which allows immigrants to revise their duration decisions throughout their migration experience because immigrants simultaneously face a migration and a work decision in each period the economic assimilation rates commonly used to assess the performance of immigrants in the host economy are endogenously determined and estimated a feature previously ignored in the literature we overcome the problem of not directly observing outmigration movements by using panel attrition as a proxy variable and use a simple method to correct for the fact that part of the attrition is not a consequence of outmigration estimates are used to predict changes in life cycle patterns of outmigration behavior estimation results indicate that outmigration does not depend exclusively on earnings differentials estimated assimilation rates are found to be robust to selection effects immigrants are found to be forward looking decision makers and simulations show that predicted migration durations are very sensitive to changes in their economic environment and differ considerably from those of a myopic model

cost of delay and endogenous price leadership abstract we study the effects of discounting in a standard endogenous price leadership model we show that there will be occasional changes in the identity of the leader with any cost of delay or discounting however small by analyzing the incentives that induce a firm to take up the leader position we derive positive predictions about which firm will lead most price changes firms with shorter reaction times will be more likely to become the price leader as will firms with lower cost of delay if the firms reaction times are similar

the effect of language training on immigrants economic integration empirical evidence from france abstract we examine the impact of language training on the economic integration of immigrants in france the assignment to this training offered by the french ministry of the interior depends mainly on a precise rule the training is provided if the test score of an initial language exam is below a certain threshold this eligibility rule creates a discontinuity in the relation between the test result and the variables of interest which is used to estimate the causal effect of language training through the method of regression discontinuity design we find that the number of assigned hours of training significantly increases labor force participation of the treated individuals the language classes appear to have a larger effect for individuals with higher levels of education while there is no robust differential effect by type of migration gender or age our estimated coefficients are remarkably similar when we rely on local linear regressions using the optimal bandwidth with few observations around the threshold and when we control parametrically for a polynomial of the forcing variable and use the whole estimation sample we conclude with a discussion of the candidate mechanisms for the improved labor market participation of immigrants

ethnic concentration and language fluency of immigrants evidence from the guest worker placement in germany this paper analyses the impact of regional ethnic concentration on the language proficiency and language use of immigrants it solves the endogeneity of immigrants location choices by exploiting a peculiar episode of the german immigration history the exogenous placement of guest workers after wwii one of the largest guest worker programs on record the econometric approach accounts for several sources of measurement error and provides a falsification exercise that hypothetically relocates the most language proficient immigrants into ethnic enclaves to test the extent of cross regional sorting necessary to render the results purely spurious the results show a robust negative effect of ethnic concentration on immigrants language ability which is driven by differences in contact rates with natives and not by differences in the willingness to integrate the paper discusses these findings against the background of a language production function and in the light of feasible policy options to foster the language acquisition of immigrants

the role of contractual governance flexibility in realizing the outcomes of key customer relationships abstract an entrepreneurial firm s relationships with customers suppliers investors universities and other organizations have a significant and long lasting impact on the survival and success of the firm yet little research has focused on how the management of these relationships influences outcomes for entrepreneurial firms this paper focuses on the customer relationships of new technology based firms ntbfs we aim to contribute to the literature on the governance of exchange relationships between ntbfs and their customers further in so doing we seek to explore the implications of such governance for the performance of new firms because of their small size their liabilities of newness and their highly specialized knowledge intensive resources ntbfs are able to maintain only a limited number of close customer relationships consequently ntbfs often become highly dependent on one or a few of their customers in this study we focus on the relationships between ntbfs and their single largest customers we refer to the customer that accounts for the highest proportion of an ntbf s total revenue as the key customer strategic management literature resource dependence theory and transaction cost economics emphasize the risks associated with being dependent on an exchange relationship focusing on the opportunistic use of power by the exchange partner these perspectives suggest that firms can minimize their external dependencies and protect themselves against opportunism through the use of contracts the present paper expands this view by also examining how flexibility in exchange governance may unlock potential benefits or dampen potential dangers that an ntbf faces in its commitment to its single largest customer e g sharing the costs and risks of r d with the customer improving the reputation of the ntbf and realizing savings in sales and marketing costs we examine the extent to which the realization of the potential positive and negative outcomes of a high level of dependence are moderated by the flexibility of the exchange partners attitudes toward contractual agreements the research question that we seek to answer is does the manner in which a contractual agreement is implemented affect the outcomes of a customer relationship for an ntbf at high levels of exchange dependence on the key customer we develop a set of hypotheses that examines how the governance of the key customer relationship affects the ntbf s new product development reputation and sales costs when exchange dependence on the key customer is high we use the term contractual governance flexibility to refer to the extent to which the exchange partners are willing to adjust to changes in the relationship instead of relying on the contract we test the hypotheses with survey data from 195 ntbfs in the uk the results of regression analyses reveal that contractual governance flexibility moderates the relationship between exchange dependence and outcomes in relationships with a high level of exchange dependence greater contractual governance flexibility was associated with greater new product development and sales cost advantages no such benefits were realized for relationships in which exchange partners relied heavily on the contract these findings are important because they suggest that by relaxing formal contractual mechanisms governing a relationship ntbfs can derive benefits from key customer relationships that are characterized by a high level of dependence our findings suggest that at high levels of exchange dependence on key customers ntbfs can benefit when greater contractual governance flexibility is present our data indicated that interestingly ntbfs tend to do just the opposite at higher levels of exchange dependence ntbfs are inclined to rely increasingly on the contract by so doing they may fail to realize the potential benefits of the relationships such as gaining access to complementary resources and reducing costs these outcomes which may be derived from dependent exchange relationships by means of contractual governance flexibility can have a significant influence on the long term development and competitive advantage of an entrepreneurial firm

labor mobility of immigrants training experience language and opportunities summary statistics observations percent mean sdschooling 419 14 58 2 74age on arrival 419 38 05 9 15white collar in fsu 284 67 78 blue collar in fsu 127 30 31 did not work in fsu 8 1 91 married 363 86 63 english 419 1 76 0 94hebrew before migration 50 11 93 ulpan attendance 386 92 12 ulpan completion 332 79 24 ulpan length months 387 5 61 1 34hebrew1 rst survey 419 2 71 0 82hebrew2 second survey 316 2 98 0 83t able a2 transitions between the labor market states quarters 8 9quarters 3 4 wc bc wt bt ue obs wc 79 57 10 75 3 23 2 15 4 30 93bc 2 58 80 80 1 72 2 87 12 03 349wt 51 28 28 21 0 00 0 00 20 51 39bt 23 81 52 38 0 00 0 00 23 81 21ue 18 93 47 93 6 51 1 78 24 85 169quarters 14 15quarters 8 9 wc bc wt bt ue obs wc 90 52 6 90 0 00 0 86 1 72 116bc 4 56 90 88 0 35 0 70 3 51 285wt 41 18 41 18 0 00 0 00 17 65 17bt 25 00 66 67 0 00 0 00 8 33 12ue 23 86 44 32 0 00 0 00 31 82 88quarters 18 19quarters 14 15 wc bc wt bt ue obs wc 96 72 3 28 0 00 0 00 61bc 2 47 90 12 2 47 4 94 81wt bt 0 00 100 00 0 00 0 00 1ue 30 00 20 00 0 00 50 00 10

integrating immigrants the impact of restructuring active labor market programs we examine the impact of restructuring active labor market programs for unemployed immigrants in finland exploiting a discontinuity in the phase in rules of the reform we find that it increased c

reputation with noisy precommitment abstract a long run player with private information about how long the game will last must precommit to an action and faces a sequence of short run players who get a noisy signal of that action since noise vanishes with time we might expect a long lived long run player to behave as a stackelberg leader if so short run players may end up ignoring the signal then however the long run player would have no reason to actually choose the stackelberg action we show that this paradox can be resolved if there is a chance that the long run player chooses other action by mistake and the signal is sufficiently informative journal of economic literatureclassification numbers c72 c73

price adjustment policies and firm size i introduction by the fall of 2009 several state departments of transportation in the united states adopted price adjustment policies to mitigate significant fluctuations in the cost of oil based inputs in government procurement price escalation in oil based materials such as asphalt binder or fuel was the main cause behind the trend firms increased bids to offset higher input prices adversely affecting procurement costs damnjanovic et al 2008 because inputs like asphalt experienced significant cost increases e g the price of alphalt increased by 31 in 2005 alone it is not surprising that contractors in general and small firms in particular struggled with construction budgets in response to the growing uncertainty many states introduced price adjustment policies for related inputs effectively dampening losses and profits at times of unanticipated cost fluctuations 1 while the latter part of last decade saw notable oil price price deviates beyond a certain range of the baseline index increases in the recent months firms enjoyed cost savings a percentage of which can be passed on to departments of transportation with the establishment of this policy going beyond industries directly impacted by uncertainty in oil prices the provisions investigated in this paper are common in defense contracting and were added to the health care law in what came to be known as risk corridors 2 as an example the department of defense has embedded such provisions in fixed price contracts with economic price adjustment fpepa these measures are designed to limit contractors exposure to economic uncertainty and market volatility prevalent in long term fixed price arrangements 3 in the same spirit the regional greenhouse gas initiative an emission permit trading program involving nine northeastern states in the united states held down price escalations by placing a price collar on allowances that limits variability we investigate the effect of the price adjustment policy on firm bidding behavior and competition intensity in road construction in oklahoma which can offer insights on the effectiveness of implementing such policies across industries we use data on public construction auctions to study the effect of this policy on firms of different sizes where size heterogeneity is a defining characteristic of the market cho 1986 the construction industry displays market concentration featuring a small number of strong contenders from the pool of over 150 participants in our sample the 11 firms that won most frequently were awarded over a quarter of auctioned projects and more than 38 of contracted value compared with the manufacturing sector surveyed in audretsch and mahmood 1995 a notably higher percentage of new construction companies end up failing many undersized and startup builders compete on the margin and have a low chance of making it to the list of long term players the literature has identified a strong correlation between firm size and financial solvency in association with firm survival and growth see brito and mello 1995 and hubbard 1998 in what follows we frame our empirical analysis with a theoretical model highlighting this connection as noted by gertler and gilchrist 1994 and martinelli 1997 there are asymmetric changes in firms borrowing costs when financial constraints are tightening in the face of uncertainty and they depend on the level of capital accumulation as a result high volatility in input prices is likely to reinforce the imbalance among competitors of different sizes 4 price adjustment policies help to level the playing field between small and large firms without invoking differential treatment toward a group finally there has been considerable interest in the literature in various policies that departments of transportation around the country use to help small businesses such as bid preference policies and setasides see for instance the work of denes 1997 marion 2009 krasnokutskaya and seim 2011 and athey coey and levin 2013