the transactions cost approach to vertical integration an empirical examination the transactions cost approach developed by coase and williamson provides a coherent framework for investigating the determinants of vertical integration in different industries empirical implications are developed and then tested using a cross section of firm level data pooled over different time periods the results tend to confirm hypotheses regarding the internal costs of management small numbers bargaining problems and the notion of the firm as suited to adaptive sequential decision making under conditions of uncertainty it rhile there exists an extensive literature on vy theoretical rationales for vertical integration surprisingly little is known about the importance of the different theories the empirical literature includes two types of studies case studies test the applicability of a particular theory to a single firm or industry e g armour and teece 1980 perry 1980 or monteverde and teece 1982a they are susceptible to bias in their choice of industry and the generality of their results cannot be established another category of studies examines a broad base of industries to determine the relationship between vertical integration and such variables as industry concentration average firm size and sales growth e g adelman 1955 gort 1962 and tucker and wilder 1977 the link between these studies and theories of vertical integration is generally left unclear 2 this study will adopt the strategy of investigating a broad base of industries but unlike earlier studies of this type will test empirical implications following from the transactions cost approach 3 this approach as developed by coase 1937 and williamson 1975 1979 provides a coherent framework for investigating determinants of vertical integration over different industries furthermore williamson has persuasively argued that transactions cost considerations underlie such prominent reasons for vertical integration as the elimination of monopoly distortions technical complementarities supply reliability and economies in the acquisition of information the transactions cost approach is summarized and implications are developed in the first section of this paper the implications are tested using firm level data pooled over time the empirical model is presented in the second section and the results are presented in the third section the model incorporates variables not included in previous studies of vertical integration such as measures of market risk and organizational structure the results tend to confirm hypotheses regarding internal costs of management small numbers bargaining problems and the notion of the firm as an institution suited to adaptive sequential decision making a summary of the results and conclusions are contained in the final section i the transactions cost approach arrow 1969 has defined transactions costs as the cost of organizing the economic system in attempting to translate this idea into a framework for explaining the organization of economic activity williamson and others have focused on the role of opportunism and the limited capability of individuals in processing information the choice of institutional alternative depends on minimizing the costs which arise in the presence of transaction specific investments and uncertainty while a wide variety of institutional alternatives exist a simple dichotomy is adopted here for the sake of tractability following coase transactions are classified according to whether they take place in the firm or across markets market alternatives become hazardous in recurring exchanges involving transaction specific capital and efficient information processing the firm then provides a received for publication november 21 1983 revision accepted for publication december 3 1984 rutgers university this paper is based on my dissertation i would like to thank my committee armen alchian harold demsetz david mayers fred weston and my chairman benjamin klein for their helpful comments recent versions of the paper also benefited from comments made by k chung d carlton d kaserman and anonymous referees i would also like to thank participants of the transactions cost workshop at the university of pennsylvania the usual disclaimer applies 1 recent summaries of the theoretical literature on vertical integration are in warren boulton 1978 and kaserman 1978 see levy 1981 1984 for discussion of this problem 3earlier studies by armour and teece 1980 and monteverde and teece 1982 a b have successfully employed the transactions cost approach to examine vertical integration in particular industries this study differs in that it adopts the transactions cost approach to test implications across industries

animal breeding and productivity growth of dairy farms we introduce genetic based technical change into a malmquist productivity index and measure the growth in productivity caused by bovine breeding because breeding is likely to affect milk quality we adjust milk quantities for quality differences we use panel data on icelandic dairy farms from 1997 to 2006 to estimate an input distance function the malmquist productivity index shows that the average productivity growth rate is 1 6 scale effects are the most important source of this growth but 19 of the productivity growth rate is due to breeding if quality differences are ignored the average productivity growth rate is reduced by 83

direct versus implicit superlative index number formulae economists and statisticians who construct estimates of total factor productivity or who estimate production functions or systems of consumer demand functions are often forced to aggregate subsets of their data in order to perform this aggregation an index number formula is generally used a price index p po pl x xi is defined to be a function p of the prices of the n commodities to be aggregated in periods 0 and 1 p pll pno and pl pl pn respectively and of the corresponding quantities utilized during periods 0 and 1 x xi xno andx1 xi xn1 respectively a quantity index q p0 pl x xl is defined to be another function q of the price and quantity vectors for the two periods generally we assume that p and q satisfy fisher s 1922 weak factor reversal test

a new index of vertical integration some estimates for uk manufacturing abstract this paper proposes a new method for measuring the degree of vertical integration within a firm or industry it is based on the magnitude of intra firm flows of output across industries relative to the magnitude of market transactions while data on intra firm flows are often sketchy or non existent we show how they may be imputed indirectly from standard input output tables and information on market shares of firms across industries estimates are reported and analysed for uk manufacturing in 1986 for 79 industries and their leading firms thereby providing the first known comprehensive picture of vertical integration in the united kingdom

enterprise diversification in us dairy impact of risk preferences on scale and scope economies enterprise diversification has recently become a prominent feature of us dairy farms scope economies and risk aversion are two forces that simultaneously determine diversification we jointly estimate scope economies and determine risk preferences under price uncertainty we reject risk neutrality in favour of increasing absolute risk aversion iara and increasing relative risk aversion irra scope economies are significant but diminish with farm size increasing returns to scale exist in the production of multiple enterprises and diminish with size large farms operate under decreasing returns to scale ignoring risk preferences a common practice in empirical work results in an underestimate of the effect of scope economies for large farms

the economic costs of environmental regulation in u s dairy farming a directional distance function approach analyses of the costs of regulating greenhouse gas emissions from dairy production which could be used to assess the effectiveness of alternative policy measures is a missing link in the literature this article addresses this gap by establishing the economic impact associated with a hypothetical greenhouse gas environmental regulatory regime across major dairy producing counties in the united states in doing so the article makes three important contributions to the literature first it develops a comprehensive pollution index based on environmental protection agency methodologies which contrasts with previous studies that rely on partial measures based only on surplus nitrogen stemming from the over application of fertilizer second the article uses a directional output distance function an approach that has not been employed previously to evaluate polluting technologies in the u s dairy sector third the article incorporates a four way error approach that accounts for unobserved county heterogeneity time invariant persistent technical efficiency time varying transient technical efficiency and a random error the results indicate that regulating greenhouse gas emissions from dairy farming would induce a 5 percentage point increase in average technical efficiency in addition the economic costs of implementing this hypothetical regulatory framework exhibit significant spatial variation across counties in the united states

parametric efficiency tests economies of scale and input demand in u s electric power generation duality theory has been applied increasingly in recent years to study the structure of production a major advantage of using duality theory is that systems of input demand equations can be derived by simple differentiation facilitating the use of flexible functional forms also use of duality theory makes it possible to choose a representation of the technology which has desirable properties for estimation such as exogeneity of the regressors however the use of a dual representation of production structure is appropriate only if the corresponding maintained hypothesis concerning economic behavior e g cost minimization or profit maximization is valid the perceived advantages of the dual approach to studying production structure have led to some applications in which the maintained hypothesis concerning economic behavior is unlikely to be appropriate for example neoclassical cost functions have been used to study the characteristics of production in regulated industries despite an extensive theoretical literature indicating that a profit maximizing regulated firm would not minimize costs subject to market prices 2 in this paper we propose a generalized cost function that retains the principal advantages of the neoclassical cost function but does not require that cost minimization subject to market prices be imposed as a maintained hypothesis in our model firms are assumed to base their production decisions on unobservable shadow prices which reflect the effects of regulation on the effective prices of inputs parametric tests for cost minimization are obtained by expressing shadow prices as functions of market prices the generalized cost function is estimated with data for regulated electric utilities the parametric restrictions corresponding to cost minimizing behavior subject to market prices are rejected implying that the use of a neoclassical cost function is not appropriate in this application 3

bus transit technical efficiency using latent class stochastic indirect production frontier using an indirect production frontier ipf this article examines technical inefficiency within a latent class framework while simultaneously accounting for allocative distortions from operating and capital subsidies it identifies two latent classes of us public transit systems one characterized by economies of scale with 16 61 technical inefficiency and the other by diseconomies of scale with 14 16 technical inefficiency it decomposes technical inefficiency among some of its sources and finds that the incentive tier of federal operating subsidies regulations regarding years of vehicle use subsidy induced allocative distortion from labour overuse relative to capital negatively influence technical inefficiency in all transit systems for the latent class 1 transit systems the sources of lower technical inefficiency are operating speed purchased transportation and years of vehicle use regulation for the latent class 2 transit systems these sources are subsidy induced capital labour allocative di

measurement of vertical integration an index of vertical integration is constructed as a tool to examine how the average level of vertical integration has changed over time the hypothesis that if vertical integration can lower costs or reduce risks more firms will integrate vertically is subjected to an empirical test using the vertical industry connection index a randem sample of firms is selected from the compusat data base the results support the contention that vertical integration has increased in contrast with laffer s findings 17 references 10 figures 3 tables

education experience and allocative efficiency a dual approach a generalization of the dual non frontier profit function approach to evaluating allocative efficiency is developed that allows for training human capital variables to influence the efficiency level directly an application to pennsylvania dairy indicates that education and experience are substitutes and play a significant role in the level of efficiency while these operators are not allocating their variable inputs in an absolutely efficient manner relative efficiency can be achieved for four of six possible input combinations for prescribed levels of education and experience furthermore the estimates of the efficiency measures suggest that these operators are maximizing production rather than short run profits

diseconomies of size with fixed managerial ability managerial ability has important implications for farm growth in this article we first show in a production model that increasing output with a fixed level of managerial ability can lead to a decrease in profits next we discuss the effect that managerial ability has on economies of size in the empirical part economies of size are estimated for a sample of dairy farms using a proxy for managerial ability which is calculated as a technical efficiency index the results show that increasing farm size while holding managerial ability constant can be an important source of diseconomies of size copyright 2003 oxford university press

google search keywords that best predict energy price volatility abstract internet search activity data has been widely used as an instrument to approximate trader attention in different markets this method has proven effective in predicting market indices in the short term however little attention has been paid to demonstrating search activity for keywords that best grab investor attention in different markets this study attempts to build the best practically possible proxy for attention in the market for energy commodities using google search data specifically we confirm the utility of google search activity for energy related keywords are significant predictors of volatility by showing they have incremental predictive power beyond the conventional garch models in predicting volatility for energy commodities prices starting with a set of ninety terms used in the energy sector the study uses a multistage filtering process to create combinations of keywords that best predict the volatility of crude oil brent and west texas intermediate conventional gasoline new york harbor and us gulf coast heating oil new york harbor and natural gas prices for each commodity combinations that enhance garch most effectively are established as proxies of attention the results indicate investor attention is widely reflected in internet search activities and demonstrate search data for what keywords best reveal the direction of concern and attention in energy markets

innovation and performance evidence at micro level this empirical study aims to shed light on the link between innovation and economic performance at micro level based on a comprehensive survey among dairy and crop farms in the netherlands we estimate a structural multi stage model to deliver evidence on the effect of engagement and investment in innovation on the production of product process and organizational or marketing innovations as well as on the effect of such innovations on farm level productivity the results suggest various market and farm behaviour related factors to stimulate an increase in innovation engagement and production furthermore the study reveals that indeed a greater innovation investment per unit innovation input leads to a higher probability of producing at least one successful product process and or organizational or marketing innovation innovation output the production of process and organizational or marketing related innovation leads to significant productivity gains various recommendations towards a more effective and efficient innovation policy are finally given

earnings news and small traders an intraday analysis abstract this study separates trading volume into buyer and seller initiated activities and examines the directional volume reaction in small and large trades to different types of earnings news good bad news triggers brief but intense buying selling in the large trades however a persistent period of unusually high buying activity is observed in the small trades irrespective of the news this anomalous proclivity of small traders to buy is robust across firm size trading volume and different earnings expectation models several explanations are discussed although the behavior does not seem fully explained by existing theories

systematic departures from the frontier a framework for the analysis of firm inefficiency departures from a production or cost frontier may reflect the systematic effect of conditions that contribute to inefficiency to test whether some portion of frontier function departures can be systematically explained the frontier inefficiency error component is modeled as a function of various causal factors and a random component the functional form of the inefficiency error term model is chosen to assure strict one sidedness preliminary empirical results generated from electric utility data suggest the superiority of including both systematic and random components in the inefficiency error term

vertical integration and efficiency an application to the italian machine tool industry this paper analyzes the relationship between firm efficiency and vertical integration in the italian machine tool mt industry the link may really be the result of a two way causality the effect may run from productive efficiency to the type of vertical organization i e vertical integration or outsourcing as a self selection mechanism or an effect from the organizational mode to the firm s performance may also be at work this relationship is empirically investigated in a novel panel dataset comprising about 500 italian mt builders implementing two equations and instrumental variables for the two directions of causality the evidence clearly indicates the self selection mechanism of the most efficient firms in vertically integrated structures while an effect from the organizational mode to the firm s efficiency is not supported

the dynamic dependence of fossil energy investor sentiment and renewable energy stock markets abstract this study investigates the dynamic directional information spillover of return and volatility between the fossil energy market investor sentiment towards renewable energy and the renewable energy stock market using the connectedness network approach empirical results show that the spillover effects of the volatility system are generally stronger than that of the return system which suggest that risk transmission among the markets is more obvious in both systems the impact of the fossil energy market especially crude oil on the renewable energy stock market is greater than the impact of investor sentiment on the renewable energy stock market this finding shows that the renewable energy stock market is closely related to the fossil energy market furthermore the rolling window approach is adopted to examine the time varying information spillover among them the dynamic findings suggest that investor sentiment towards renewable energy can explain the return and volatility of renewable energy stock to a certain degree

on the nature and magnitude of cost economies in hog production in this article we assess the impact of farm size on production cost and evaluate the marginal costs and margins by considering that input prices may change with the scale of production by using french hog farm data we estimate a system of equations including a feed price function input demand functions and an output supply function based on a technology approximated by a combined generalized leontief quadratic form our results suggest that the marginal costs are over estimated when the adjustment of the feed unit prices to a change in farm size is not controlled for more specifically the cost economies for large farms enjoying the highest profits arise primarily from lower feed prices with technological scale economies having little impact in contrast farms with no hired labor exhibit technological scale economies and reach higher price cost margins compared to larger farms

a cost approach to economic analysis under state contingent production uncertainty this article explores the economics of input decision under production uncertainty the article develops a methodology to specify and estimate cost minimizing input decisions under a state contingent technology the analysis is applied to time series data on u s agriculture it finds strong empirical evidence that expected output alone does not provide an appropriate representation of production uncertainty the results provide empirical support for an output cubical technology this indicates that an ex post analysis of stochastic technology appears appropriate the analysis also provides evidence that the cost of facing production risk has declined in u s agriculture over the last few decades copyright 2008 oxford university press

productivity and efficiency impacts of human resources practices in food retailing data from an annual survey of us supermarkets including detailed information on store characteristics operations and performance are used to develop an index of human resource hr practices for food retailers a stochastic frontier analysis demonstrates that hr policies have a positive impact on value added in food retailing establishments while efficiency is not adversely influenced by hr practices managerial implications of the model link technical inefficiency estimates for retailers to slight declines in store level gross margins evaluated on the basis of technical efficiency retailers choosing a portfolio of hr practices that score high on the hr index are able to match the performance of competitors pursuing an alternative low hr strategy

scale economies and inefficiency of u s dairy farms this study employs data drawn from the 2000 agricultural resource management survey a u s department of agriculture sponsored farmers survey the article estimates returns to scale relationships across dairy farms of different sizes and across different regions incorporating variables hypothesized to influence farm performance results point to significant scale economies in u s dairy farms and underscore the importance of taking account of inefficiency when estimating scale economies contrary to previous research the preferred cost function specification does not show a region of decreasing returns to scale this finding helps explain why the average size of dairy farms has been increasing

off farm work and technical efficiency on u s dairies in this study we investigate the impact of an increase in farm households off farm work on technical efficiency te of u s dairies we present a theoretical framework that implies that an increase in farm household off farm work decreases te we use two nationally representative samples of u s dairies 2010 and 2005 agricultural resource management surveys and a parametric approach stochastic frontier analysis to empirically test the hypothesis results are generally consistent with the hypothesis and show that an increase in off farm work by the farm household is associated with a significant decrease in te in addition results show that there is a statistically significant difference in te between small medium and large farms small farms are associated with significantly higher off farm work and have lower te than large farms which implies that less off farm work by households with larger farms is at least partially responsible for the evidence of economies of scale in the u s dairy industry

conjectures firm characteristics and market structure abstract this paper makes use of a unique data set to investigate how firms in the vancouver british columbia retail gasoline market view their rivals and how consumers in turn view these firms own and rival price elasticities of demand conjectural variations and lerner indices are estimated for thirteen service stations in a submarket of vancouver these variables are then related to firm characteristics such as type of ownership degree of horizontal and vertical integration and type of service in this way systematic patterns in seller behavior and in buyer attitudes are revealed

a fourier analysis of the us dairy industry measurement of economies of scale and scope is particularly important for predicting growth and product diversification however estimates are useful only to the extent the underlying production technology is modelled accurately this study measures economies of scale and scope in the rapidly changing us dairy industry with a fourier flexible cost function which provides a global approximation of the unknown function we use the high quality national agricultural and resource management survey arms survey data we find economies of scale at most firm sizes and persistent economies of scope across firm sizes in this industry which is counter to estimates from two diewert flexible functional forms

can the small dairy farm remain competitive in us agriculture smaller dairy farms in the us are observed to have higher costs than larger farms and whether those higher costs are due to technology or inefficiency has implications for policy to address the small farm if high cost of production on smaller farms is due to a higher cost frontier then to make small farms competitive would require research to devise and design technology that is suitable for small farms if instead high cost is due to inefficiency then educational approaches are needed to ensure small dairy farms use technology efficiently to determine the cause of higher costs on small farms the cost of milk production by farm size was decomposed into frontier and efficiency components with a stochastic cost curve using data on usa dairy farms although the frontier cost of production decreases with farm size that cost reduction is not as pronounced as a cost curve that includes inefficiency the higher cost of production on many smaller farms is caused by inefficiency rather than technology

spillovers between the oil sector and the s p500 the impact of information flow about crude oil crude oil is one of the most important commodities in the real economy and as such the relationship between oil prices and broader equity markets has attracted a lot of research attention recent work has considered directional spillovers or links between oil and equity markets in recent times there has been a growing body of research into the impacts of news and media attention on asset returns both in the context of and in particular with both the oil and equity markets but also within each of these this paper considers how news or information flows about crude oil influence the spillover links between these assets using realized volatility estimates based on high frequency data the empirical analysis reveals a number of novel results in terms of the behavior of these linkages increased news flow about oil reduces the impact of the broader equity market on the oil sector implying that it is driven more by oil specific shocks and less by more general financial market conditions it also increases the impact of the oil sector on the broader equity market these results have potential implications for hedging and portfolio allocation

frontier estimation and firm specific inefficiency measures in the presence of heteroscedasticity the purpose of this article is to illustrate a straightforward and useful method for addressing the problem of heteroscedasticity in the estimation of frontiers a heteroscedastic cost frontier model is developed and estimated using bank cost data similar to that used by ferrier and lovell our results show dramatic changes in the estimated cost frontier and in the inefficiency measures when accounting for heteroscedasticity in the estimation process we find that the rankings of firms by their inefficiency measures is affected markedly by the correction for heteroscedasticity but not by alternative distributional assumptions about the one sided error term

infrastructure endowment and corporate income taxes as determinants of foreign direct investment in central and eastern european countries this paper analyses the importance of taxes on corporate income and production related tangible infrastructure as determinants of foreign direct investment fdi in central and eastern european countries ceecs we operationalise taxes using effective average tax rates on the bilateral level and employ indices derived from principal component analysis as a proxy for the infrastructure endowment in the empirical analysis we control for a possible interrelation between taxes and infrastructure as determinants of fdi an issue usually neglected in the literature specifically a favourable infrastructure endowment may compensate for relatively high taxes hence higher taxes may not deter fdi the results from our panel econometric analysis of bilateral outward fdi flows of seven home countries in eight ceecs for the 1995 2004 period in an augmented gravity model setting show that i both taxes and infrastructure play a role in the location decisions made by multinational enterprises ii telecommunication and transport infrastructure are of special significance to fdi and iii the tax rate sensitivity of fdi indeed decreases with the level of infrastructure endowment copyright 2009 the authors journal compilation 2009 blackwell publishing ltd

opec in the news abstract this paper introduces a newspaper article count index related to opec that rises in response to important opec meetings and events connected with opec production levels i use this index to measure how interest in opec varies over time and investigate how oil price volatility behaves when the index unexpectedly changes i find that unexpected increases in the newspaper index are strongly associated with higher levels of oil price volatility both realized and implied in some cases these unexpected movements appear to be driven by an unpredictable opec event such as the iraq invasion of kuwait in other cases such as the oil price collapses in late 2008 and late 2014 unforeseen developments in the oil market or broader economy seem to generate the unexpected movements in price volatility and interest in opec the newspaper index is highly correlated with google search volume data on opec an alternative measure of the amount of attention paid to opec events

investor attention and crude oil prices evidence from nonlinear granger causality tests abstract using the google search volume index gsvi to measure investor attention this paper investigates the relationships between investor attention and crude oil prices for the main crude oil markets worldwide to account for possible structural breaks and nonlinearity in the relation between investor attention and oil returns fourier unit root test and nonlinear granger causality tests are employed the empirical results suggest that the bidirectional nonlinear granger causality exists only between investor attention and wti future crude oil return however wti crude oil return granger causes investor attention weakly for dubai spot daqing spot wti spot and brent future oil markets unidirectional nonlinear granger causality runs from investor attention to oil returns which is relatively weak

fdi performance a stochastic frontier analysis of location and variance determinants the opening up process of the eastern european countries was marked by greater integration of fdi with their western neighbouring countries using the single step ml approach to stochastic frontier analysis the location and variance determinants of fdi are estimated using the knowledge capital kk model framework the findings based on a panel of bilateral fdi stocks from 10 western to 10 eastern european countries over the 1996 2007 period suggest fdi is determined by both horizontal and vertical motives while the process of liberalization and infrastructural developments significantly reduces the variance of fdi in using a stochastic frontier specification of the kk model the efficiency of fdi performance is identified relative to maximum levels the bilateral efficiency scores suggest a mixed performance indicating scope to improve the efficiency of fdi

an examination of the effect of ownership on the relative efficiency of public and private water utilities the behavior of privately and publicly owned water utilities is examined by estimating a generalized variable cost function containing the regular characteristics of the neoclassical cost function without requiring that cost minimization subject to market prices be imposed as a maintained hypothesis assuming that unobserved shadow prices reflect the regulatory environment of the water industry tests for cost minimization are obtained by deriving shadow prices as functions of market prices the empirical results provide evidence that public water utilities are more efficient than private utilities on average but are more widely dispersed between best and worst practice

efficiency and effectiveness in the urban public transport sector a critical review with directions for future research abstract this paper proposes a self contained reference for both policy makers and scholars who want to address the problem of efficiency and effectiveness of local public transport lpt with special emphasis on urban transit in a sound empirical way framing economic efficiency studies into a transport planning perspective it offers a critical discussion of the existing empirical studies relating them to the main methodological approaches used the connection between such perspectives and operations research studies dealing with scheduling and tactical design of public transport services is also developed the comprehensive classification of selected relevant dimensions of the empirical literature namely inputs outputs kind of data analysed methods adopted and policy relevant questions addressed and the systematic investigation of their interrelationships allows us to summarise the existing literature and to propose desirable developments and extensions for future studies in the field

on the determinants of corporate hedging finance theory indicates that hedging increases firm value by reducing expected taxes expected costs of financial distress or other agency costs this paper provides evidence on these hypotheses using survey data on firm s use of forwards futures swaps and options combined with computstat data on firm characteristics of 169 firms in the sample 104 firms use hedging instruments in 1986 the data suggest that firms which hedge face more convex tax functions have less coverage of fixed claims are larger have more growth options in their investment opportunity set and employ fewer hedging substitutes

short run returns to scale farm size and economic efficiency this paper analyzes the effects of returns to scale farm size technical allocative and scale inefficiencies on the profitability of utah dairy farms it derives the conditions necessary to compare the profitability of farms within and between different size classifications as small medium and large some comparative static results regarding increases in input prices and a decrease or withdrawal of price support on profitability of small medium and large farms are presented copyright 1993 by mit press