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Managerial and Decision Economics



Wiley Online Library : Managerial and Decision Economics



Published: 2017-10-01T00:00:00-05:00

 



Cost efficiency of insurance firms in Ghana

2017-09-22T02:16:50.023021-05:00

The huge infrastructural deficit in Africa requires the establishment of an efficient insurance industry in the pursuance of economic development. Unfortunately, global statistics reveal low patronage of insurance in developing countries, thus making its impact limited in the region. To position the industry for economic development, this study utilizes the stochastic frontier technique to undertake a thorough analysis on the cost efficiency of insurers from the perspective of developing economies using Ghana as a case study. The results on the 30 insurers studied from 2005 to 2014 indicate that insurers in Ghana operate with about 53.8% average cost inefficiency. This stands to confirm the long existed low performance perception of Ghanaians about the industry. Factors identified to explain the cost inefficiencies were firm size, market share, capitalization, reinsurance, regulation, and business type. Several policy recommendations that can help boost the cost efficiency of insurers were derived from the results.



Managerial time constraints and young worker productivity: Natural experiments with NFL rookies

2017-09-22T01:31:12.248293-05:00

The 2011 National Football League lockout and movement of the 2014 draft to a later date compressed the off-seasons preceding the 2011 and 2014 seasons, exogenously tightening time constraints within which managers—head coaches and their staffs—engage in short-run training of players. We exploit these natural experiments to investigate how this impacted the productivity of young workers (National Football League rookies). Results estimated for a sample of over 1,500 rookies support hypotheses emanating from an economic model of worker training time allocation and indicate reduced productivity along several dimensions. Survival analysis shows evidence of shorter player career durations along certain lines, suggesting longer term consequences.



Trust and trustworthiness in organizations: The role of monitoring and moral suasion

2017-08-22T23:46:07.453266-05:00

We ask whether the corporate law provisions establishing that the conduct of the manager is subject to review by the investors (monitoring) and that managers are held to an honorable behavior (moral suasion) can increase trust and trustworthiness in organizations. We answer this question through a laboratory experiment. We find that moral suasion increases the investors' trust. Monitoring also increases trust but only when the manager is not aware of the experimental identity of the monitor. The manager returns more to those investors who trust more but appropriates around 50% of the available resources. The trustworthiness of the manager is, however, unaffected by monitoring or moral suasion. We discuss possible causes of the difference between the investors' expectations regarding the behavior of the manager and the observed behavior of the manager.



The hidden costs of control revisited: Should a sanctioning policy be announced in advance?

2017-08-17T02:12:03.937518-05:00

Sanctions are widely used to enhance compliance in principal agent relationships. Although there is ample evidence confirming the predicted positive incentive effect of sanctions, it has also been shown that imposing sanctions may reduce compliance by crowding out intrinsic motivation. We add to the literature on the hidden costs of control by showing that these costs are restricted to situations where the principal actively chooses to sanction low performance and where this choice is known to the agent. In such a situation, the principal's commitment to sanction low performance might indicate that she or he is a distrustful “type” and hence conveys a negative signal. To the contrary, if (a) an agent is not informed about whether low performance will be sanctioned or if (b) the computer determines whether low performance will be sanctioned, the principal's “type” is not revealed, and we find no evidence of crowding out.



Peer pressure and social comparisons with heterogeneous ability

2017-08-15T00:50:28.176932-05:00

When workers' efforts are not contractible, we investigate whether the display of workers' efforts to coworkers influences wage and effort decisions. We find that employers mainly increase the wages offered to the more valuable workers when they are observed that increases the difference in wages in such setting. We find evidence of peer pressure and strategic complementarity in efforts. Additionally, low-ability workers are more sensitive to peer pressure than their more productive coworkers, and these workers exert less effort with increases in the reciprocity of their coworkers. Finally, the display of workers' efforts to coworkers is detrimental to the employer's payoff but enhances efficiency.



Diversification, capital structure, and performance: A simultaneous equation approach

2017-08-07T21:10:55.649732-05:00

This paper examines the relationships between diversification, capital structure, and performance jointly on the financial sector. Our dataset covers 412 French financial institutions over the period ranging from 2002 to 2012. Furthermore, we use a three-stage least squares to check reverse causality. Our three-stage least squares results show positive significant simultaneous interdependencies between performance and leverage. Performance reduction and debt levels increase are associated with activity diversification. Performance and leverage reduction is due to geographic diversification. Our estimation confirms reverse association between the interaction of diversification, leverage, and performance. Moreover, the findings are robust after taking into account alternative measures of diversification.



The role of task meaning on output in groups: Experimental evidence

2017-07-27T01:25:24.616653-05:00

Previous research has shown a detrimental effect of low task meaning on individual work output. This paper analyzes whether peer settings are able to counteract this negative effect of low task meaning. First, our results confirm that a low level of task meaning decreases individual output when working alone. However, this effect vanishes completely when working in the presence of a peer. Our analysis implies that organizing work in peer settings might be particularly beneficial in work environments with a low level of task meaning.



An option pricing approach to optimal bidding in construction projects

2017-07-26T01:50:41.42942-05:00

Reaching an optimal mark-up value in the context of construction projects' bidding competitions has been a research topic for more than 40 years. This paper aims to contribute to this debate by applying a real options approach. The proposed model has a pure theoretical nature and is based on a maximization problem, whose outcome is the optimal price, that is, the price that should be included in the bid proposal. The model is later extended to accommodate the existence of penalty costs if the selected bidder refuses to enter into contract. Results reached using a numerical example demonstrate that the optimal price is higher when penalty costs are considered.



Assessment of rapid growth ventures, an extension of Schwartz and Moon model

2017-07-26T00:40:28.221332-05:00

It is a challenge to incorporate randomness into financial projections that are at the core of new venture assessment. We present a model based on Schwartz and Moon () and apply it to a real firm data. We find that our 10-year projections conform to the actual realized values. The model allows addressing crucial questions regarding the venture survival, its extreme potential outcomes, and its sensitivity to its parameters. It facilitates identifying risk drivers and assessing potential remedies. To our knowledge, we are the first to propose such a comprehensive stochastic model for risky ventures' simulation and analysis.



Decision support for firm performance by real options analytics

2017-07-23T23:30:51.734937-05:00

This paper develops a real options decision support tool for raising the performance of the firm. It shows how entrepreneurs can use our intuitive tool quickly to assess the nature and type of action required for improved performance. This exploits our estimated econometric relationship between precipitators of entrepreneurial opportunities, time until exercise, and firm performance. Our 3D chromaticity plots show how staging investments, investment time, and firm performance support entrepreneurial decisions to embed, or to expedite, investments. Speedy entrepreneurial action is securely supported with this tool, without expertise in econometric estimation or in formulae for real options valuation.



Internet diffusion and free riding in insurance markets: An empirical investigation

2017-07-19T00:00:21.560572-05:00

This paper studies the effect of internet diffusion on free riding in insurance markets, with a focus on automobile insurance. Internet usage affects both the demand and supply sides of insurance markets, while also having a bearing on institutions. Our cross-sectional analysis based on the United States supports the main hypothesis that greater internet diffusion reduced free riding by uninsured motorists. This response was fairly elastic and the reduction in the prevalence of uninsured motorists holds across different empirical specifications. Implications of these findings are discussed.



Price dispersion and optimal price categories with limited memory consumers

2017-07-17T22:31:04.098064-05:00

In this paper, we study consumers with limited memory and examine the effects of their price categorization on the pricing strategies of competing firms. The valuations of consumers are assumed to be heterogeneous. We find that it is possible to observe price dispersion even when each firm charges a single price if the consumers categorize prices non-optimally. Moreover, we demonstrate that the likelihood of a price dispersion outcome is reduced when consumers with limited memory set up the price categories optimally. These findings suggest that the consumers' limited memory and their sub-optimal behavior, that is, their inability to choose price categories optimally can be a reason for observed price dispersion.



Apple's disaster: Linking two-sided markets and strategic delegation

2017-07-14T01:26:43.4441-05:00

Asymmetric pricing structure and different intergroup network externalities are characteristics of two-sided markets not captured in the analysis of one-sided markets. Focusing on Cournot duopoly where membership decision may be delegated to a manager, several equilibrium regimes are sustained depending on the fixed cost of managerial hiring and strength of the network externality exerted by the side whose demand is more price sensitive. The change from null to full delegation sharpens the asymmetric pricing structure and reduces the price level in two-sided markets. Contrary to one-sided markets with direct network effects, the prisoner's dilemma holds for sufficiently strong indirect network externalities. Imperfect interside discrimination of managerial incentives ensures profit maximization and efficient consumers' allocation. Private hiring should occur when the two-sided market exhibits symmetric pricing structure. An explanation for Apple's unprecedented event is provided. The reduction of revenue and managerial bonus in 2016 may be justified by the dissemination of full delegation in the Chinese information technology industry. Apple's upcoming strategy may consist on reducing both access prices, although the side whose demand is more price sensitive should have a greater price reduction. Alternatively, improving the content quality may constitute Apple's corporate strategy, thereby inducing a skimming pricing strategy on Chinese rivals.



Why in rugby union does “Toulouse” mean “to win”? Estimation of a production function of sports results (2011–2016)

2017-07-13T02:15:20.343868-05:00

The objective of this article is to understand more fully the determinants of sports performance. To do this, we estimate a production function of sports results that explains the results of the Toulouse rugby union team's matches expressed as the gap in points between it and its opponents. To the best of our knowledge, this is the first time that a production function has been estimated in rugby union. In addition, it is one of the few production functions specified at the match level. The study confirms the relevance of some variables already identified in the literature, such as home advantage, ranking, the role of the referee, and in-match statistics. It also shows the influence of new variables, such as weather conditions and the relative strength of fielded teams measured by comparing the teams selected on match day to the ideal teams defined at the beginning of the season.



Are athletes more cooperative than nonathletes? A laboratory experiment

2017-07-13T02:05:31.1755-05:00

Former athletic employees receive a better wage when hired than other employees because recruiters associate positive values to athletic participation. Whereas athletes are considered as more cooperative than others, this assumption lacks empirical support. We implement a laboratory experiment in order to examine whether athletes (i.e., individuals engaged in intense athletic participation) exhibit more cooperative behaviours than nonathletes. We compare the cooperative behaviours of athletes and nonathletes in a single-shot public good game using a variant of the strategy method. We find that athletes exhibit significantly more conditional cooperative behaviours than nonathletes but no significant differences in unconditional behaviours.



Information and profit sharing between a buyer and a supplier: Theory and practice

2017-07-11T01:00:45.728125-05:00

This paper is about aspects of an optimal relationship between 2 firms, a supplier and a retailer, in a 2-party supply chain. The focus is on sharing private information when demand uncertainty exists so as to better coordinate the supply chain. It draws inspiration from a real case in Ireland of a new fish-processing company, Oceanpath, and a supermarket chain, Superquinn, in which information was shared. The argument is that sharing the retailer's information increases supply chain profit, as well as benefiting consumers. Profit sharing will be needed to guarantee that both the retailer and the supplier gain when information is shared.



Private information in futures markets: An experimental study

2017-07-06T22:00:38.316921-05:00

This paper presents the results of an experimental study on how people use their private information to estimate the “fair” futures price and how the quality of this information affects the traders' behavior and desire to trade. It finds that subjects are able to use their information correctly and that their desire to rely on it depends positively on the information precision. It shows that subjects are able to recognize that they are expected to lose money on futures trading when other traders have better quality information. However, subjects failed to recognize the symmetry of the futures contracts.



A pricing-error rule on share distribution in equity joint ventures: The Bayesian approach

2017-07-06T21:55:59.525565-05:00

Equity joint ventures (EJVs) are a popular governance mode of inter-firm cooperation that has attracted substantial research attention. The literature, however, still lacks a precise rule for the parents to follow in splitting the equity shares of an EJV, although share distribution is critical to almost all aspects of the co-ownership relationship. In this study, we fill this literature gap by taking the Bayesian approach to draw a pricing-error rule on share distribution in EJVs. More specifically, we contend that equity participation by two firms in an EJV allows profit sharing to correct for the errors that they might commit in pricing their inputs to the EJV. For profit sharing to fully nullify such pricing errors, the shares of an EJV must be split between the parent firms in a percentage combination that matches the relative sizes of their pricing errors. Because pricing errors are observable only afterward, share distribution in EJVs resembles a Bayesian process, in which the partners keep updating their estimates on pricing errors to adjust share distribution to a percentage combination that could best nullify their pricing errors. Thus, the eventual outcome of share adjustment is EJV buyout, in that the partner whose pricing errors remain substantial buys out the shares of the other whose pricing errors have become tolerable.



Should managerial delegation contracts be made before or after union wage setting? A game-theoretic analysis

2017-07-06T21:46:22.026949-05:00

This paper analyzes a multiple-stage game in which, at the final stage, two (managerial) firms compete over quantities in the product market. Prior to this stage, firm-specific unions set the workers' wages, while the owners of both firms hire managers and provide them with incentive contracts. Owners can freely decide to arrange the managerial contract before or after the (non-managerial) wage determination stage. Hence, the endogenous choice of the incentive contract stage is derived. The possibility of multiple equilibria arises, where both owners choose managerial contracts before or after unions' wage setting, crucially depending on unions' preferences. Such results also prove to be true for a remarkable degree of asymmetry in preferences over wages vis-à-vis employment across unions.



Subscription ticket sales for symphony orchestras: Are flexible subscription tickets sustainable?

2017-07-04T00:20:26.72362-05:00

We examine the fixed subscription ticket market for U.S. symphony orchestras, which is a crucial element of their business model and has experienced declining sales in recent years. We find that subscription ticket buyers are more sensitive to price changes than total ticket buyers. Hiring a new music director may increase subscription ticket sales, and economic downturns will decrease ticket sales. We find that increasing flexible subscriptions contributes to a decline in total subscription tickets and single ticket sales, in general. In addition, with increasing advertising costs per attendee and falling revenue from fixed subscriptions, symphony orchestra management should consider ticket prices, which have risen significantly in recent years, more strategically.



Quality competition and entry deterrence: When to launch a second brand

2017-06-28T21:25:54.084484-05:00

We study the rationale for an incumbent to launch a second brand when facing potential entry into a market with quality-differentiated products and a fringe producer. Depending on market size, the cost of a second brand and a potential entrant's setup cost the incumbent might use a second brand both when deterring and when accommodating entry. For low costs of brand proliferation, the high-quality firm will prevent entry with limit qualities or multiple brands. The high-quality incumbent will accommodate entry only if it cannot be prevented. Accommodation is always accompanied by an additional brand safeguarding the premium brand.



Performance implications of centrality in franchisee advice networks

2017-06-27T02:17:44.121191-05:00

Although the literature has provided ample evidence for the decisiveness of the franchisor–franchisee relationship in explaining organizational success or failure, performance effects of franchisee–franchisee relationships remain largely unexplored. Yet a growing body of research indicates that by building interfranchisee relationships, franchisees can form advice networks in the chain. Such networks offer privileged access to resources such as knowledge, information, and best practices that help individual franchisees to become more productive. In this context, we study linkages between a franchisee's centrality in franchisee relationships and various individual performance outcomes, using comprehensive data from franchisees in 3 different chains in the largest European franchise market, France. We find that conditional on the specific governance structure of each chain, the results document a strong impact of centrality in advice networks on franchisee performance. Accordingly, we offer theoretical contributions concerning knowledge-sharing processes in franchise chains, and managerial implications as regards more effective cooperation management in practice, from the perspective of both a franchisee and a franchisor.



Competition and innovation: The tango of the market and technology in the competitive landscape

2017-06-05T01:35:25.833598-05:00

Technology innovation can be a double-edged sword in helping a firm to address competitive pressures. We explore the relationships among market competition, technology competition, and firms' advancement to a higher generation of production technology. Though market competition drives technology advancement as firms attempt to escape competition and technology competition also drives technology advancement as firms try to stay in the technology race, concurrent high market and technology competition lead a firm to defer advancement. We find supportive evidence with data on global flat panel display makers. Our findings shed light on how competition interacts with a firm's technology advancement decision and, in general, a firm's technology strategy.



Strategic trade policy with bargaining over managerial contracts

2017-06-01T02:27:56.027904-05:00

This paper re-examines the well-known activist regime's inefficiency (governments set export subsidies) in a sales–delegation game with owner–manager bargaining over contracts. Contrary to the received literature, this bargaining process may (a) induce governments to set a tax if products are not too substitute or complements and (b) lead to an efficient (inefficient) equilibrium provided that products are sufficiently differentiated (not too complements). Therefore, unilateral public intervention can be optimal: in case of rival governments' retaliation, under appropriate product competition degrees, welfares are larger than under free trade even for small managers' power. Thus, managerial delegation practices are crucial also for international trade issues.



Contract design in dynamic agency: An experimental analysis

2017-05-25T22:05:28.349339-05:00

This paper reports results from an experiment studying contract design in a dynamic 2-period agency relationship with unobservable effort. A deferred compensation contract is theoretically optimal—it places all incentives on the outcomes in the second period. Observed contract choices offer a substantial part of the incentives for the high outcome in the first period suggesting a strong preference for timely rewards. Information about theoretically optimal bonuses and effort decisions shifts contract choices towards a deferred compensation contract. This contract structure is more profitable for principal participants.



Buyer cartels and private enforcement of antitrust policy

2017-05-23T22:10:24.824881-05:00

Collusion among buyers leads to social welfare losses, which provide the economic rationale for public enforcement of the antitrust law. This conduct also imposes losses on the victimized sellers, which provide the foundation for private enforcement through private damage actions. In this paper, we present a rigorous economic analysis of buyer cartels. This effort includes both full participation and partial conspiracies. We review the antitrust treatment of collusive monopsony in the United States, the European Union, and Asia, offer a measure of antitrust damages, and examine the necessary precision of the damage estimate. We also suggest that the proper use of modern econometrics should allay judicial concerns with speculation.



Equity-based incentive contracts and behavior: Experimental evidence

2017-05-15T02:05:42.938647-05:00

Equity-based incentive contracts provide managers with dual incentives, motivating both effort and fraud. We report the results from an experiment in which manager subjects make effort and fraud decisions that affect a firm's value. The main treatment variable is the incentive contract, which can be of either the simple equity or stock option type. We find that both effort and fraud are increasing in a manager's share of equity and decreasing in the strike price of an option. Interestingly, the stock option contract induces relatively more fraud than the simple equity contract, even though the two induce the same effort.



Acquisitions in the biopharmaceutical IPO market: Collaboration, competition and co-opetition

2017-05-10T22:25:23.344975-05:00

The present paper explores the little studied area concerning the acquisition of recent biopharmaceutical initial public offering firms. We examine the nature of the relationship between the acquiring firm and the acquired initial public offering firm prior to the acquisition and from the perspective of the resource-based view. We find to some extent that firm specific-resources affect the prospect that the firm will be acquired. Furthermore, our findings show that firms with more of these types of resources are likely to be acquired by firms engaged in co-opetition rather than by firms engaged solely in collaboration, competition, or (to a limited extent) with no prior relationship.



Flexible collective bargaining agreements: Still a moderating effect on works council behaviour?

2017-05-10T22:15:29.042964-05:00

We analyse the interaction between different labour market institutions in Germany, namely, industry-level bargaining and firm-level codetermination by works councils. In particular, we are interested in the moderating effect of flexibility measures on the link between the existence works councils and collective agreements on wages and productivity. In presence of institutional changes, the question is whether works councils in covered plants still generate rather than redistribute rents, given recent decentralisation processes in the German system of industrial relations. We augment a theoretical model to provide hypotheses, which are then tested using empirical analysis of representative German plant level data. We find that the existence of flexibility provisions in collective bargaining agreements does not alter the effect of works council on firms' wages. We find, however, that with flexibility provisions works council presence is associated with higher productivity levels than without such provisions. These findings, however, depend on the level of collective bargaining: they can only be observed in plants covered by industry-level contracts, but do not hold in plants covered by firm-level contracts.



Business models: Formal description and economic optimisation

2017-05-08T21:15:26.128823-05:00

This paper picks up on established concerns that the concept of a business model is underdetermined and lacking formalisation in the current academic literature. Matrix methods may usefully be deployed to characterise the architecture of resources, costs, and revenues that a business uses to create and deliver value to customers that defines its business model. Systematisation of this technique would support a taxonomical approach to empirical studies of business models. Generalisation of this matrix approach provides a formal linkage between business models, strategy, and value creation using the Hamiltonian economics associated with the Maximum Principle. Factor analysis permits the endogenous identification of critical resource combinations in the business model that underpins resource-based views of strategy, resolving the tautological impasse identified by Priem and Butler ().



A systematic approach for ranking football players within an integrated DEA-OWA framework

2017-04-19T02:27:02.40034-05:00

The ranking of players has always been an important input for key decisions in the football industry. This paper introduces a systematic methodology for ranking football players through objective performance factors within a framework that integrates data envelopment analysis and ordered weighted averaging operators. Players from European Premier League Football clubs are selected and ranked under a decision setting that involves the players' desirable and undesirable performance factors alongside the attitude of the decision maker. The robustness of the proposed methodology is evaluated using different levels of optimism of the decision maker.



Dual licensing strategy with open source competition

2017-04-09T22:30:34.09847-05:00

Software firms that produce and sell proprietary software can use dual licensing (DL) strategies, that is, they can distribute their products under different (proprietary, OS, e.g., open source) licensing terms. We investigate the relevance and impacts of such distribution strategies in the presence of an OS software competitor. We determine the conditions for this strategy to be profitable for the software firm, and its impact on price, market share, and welfare. We show that a DL strategy can be used to crowd the OS software out of the market. This strategy then is profitable for the software firm only if the spillovers coming from the hybrid software (i.e., second distribution launched by the software firm) are sufficiently high and result in both a higher price and a lower market share for the proprietary software. We also consider a situation where the introduction of DL leads to a market shared between the firm's software and the OS competitor. In this situation, the profitability of the DL strategy depends also on the degree of compatibility between the proprietary software and its OS competitor. We show also that this situation can generate conflicts of interests between proprietary software vendors and users, resulting in suboptimal outcomes.



Are risk disclosures an effective tool to increase firm value?

2017-03-28T00:26:09.224069-05:00

The objective of this paper is to test the effect of risk disclosures on firm value. The results show that the disclosure of information on risks is positively associated with the value of a firm. In addition, our findings highlight that this association is mediated by corporate reputation, which improves for enhanced risk disclosure practices. This evidence is particularly important to understand the usefulness of the disclosure of information on risks in the dialogue between a firm and its stakeholders. Managers and regulators can better understand the consequences of the communication of information on risks.



Efficiency of U.S. hospitals between 2001 and 2011

2017-03-26T19:10:26.054168-05:00

This study focuses on finding the trend of efficiency in the healthcare industry in recent years. We applied stochastic frontier analysis and data envelopment analysis methods to capture the efficiency of 1,471 hospitals and found a sign of the Baumol effect, which is detected by the decreasing trend of hospital efficiency with increasing trend of labor costs. Furthermore, we compared the results of both approaches (stochastic frontier and data envelope analyses) in capturing efficiency scores and suggest the U-shaped curve of the size effect may indicate the practice of “cream skimming” by some small hospitals.



R&D investment under spatial price discrimination

2017-03-23T05:00:48.670505-05:00

This paper uniquely examines an R&D rivalry under spatial price discrimination and compares two alternative timings. When firms invest first, they locate efficiently but overinvest in cost-reducing R&D if spillover is modest. When firms locate first, they locate inefficiently and always underinvest in cost-reducing R&D. Although the R&D investment improves social welfare under either timing, profit always declines and so it would never be undertaken if firms cooperate. Both timings are relevant as we identify circumstances under which each will endogenously be chosen in a premarket stage. Critically, the equilibrium timing is often not the socially beneficial timing.



Issue Information - Info page

2017-09-04T04:02:18.117106-05:00

No abstract is available for this article.



How an Economic Recession Affects Qualitative Entrepreneurship: Focusing on the Entrepreneur's Exit Decision

2016-11-03T00:10:46.014651-05:00

This study analyzes how an economic recession affects entrepreneurship from a qualitative perspective. We define entrepreneur as a person who takes risks under uncertainty. Based on this definition, an entrepreneur's exit decision is modeled using real options theory to measure entrepreneur's willingness to accept uncertainty. We find that entrepreneurs who entered before a recession exit when their critical revenue stream reaches 0.16 times the average revenue stream value. The equivalent value for entrepreneurs who enter during an economic recession is 0.33 times the average revenue stream. Furthermore, when uncertainty doubles, the exit probability of entrepreneurs who enter during an economic recession is approximately 2.75 times higher than that of entrepreneurs who enter before recession. We conclude that the majority of entrepreneurs who enter during an economic recession are qualitatively disadvantaged, which leads to the overall decrease in qualitative entrepreneurship. Copyright © 2016 John Wiley & Sons, Ltd.



The Low-Quality Advantage in Vertical Product Differentiation

2016-11-03T00:22:45.419909-05:00

By assuming a triangular distribution of consumers' willingness to pay for quality, this paper makes use of the stylized fact that low-income households are more numerous than high-income households, and thus, income distributions are right-skewed. Accordingly, we present a straightforward two-firm, two-stage vertical product differentiation model with quality-dependent marginal production costs, where the firm offering the low-quality product has the larger market share and profit than the top-quality competitor. This can be termed low-quality advantage and may explain the success of large retailers serving the masses by offering low-quality products. Copyright © 2016 John Wiley & Sons, Ltd.



Hired to be Fired: The Publicity Value of Managers

2016-10-11T01:05:43.927079-05:00

Sports teams frequently fire and hire managers when they experience losing. However, determining managerial responsibility for player performance is difficult to measure. This study examines how major-league baseball players perform under different managers and estimates that managers have little effect on performance. The study further investigates whether or not replacing managers serves as a signal to fans that the team is improving, which boosts attendance. The results indicate that new managers were associated with increased attendance in the 2000s; however, such effects were not present in the 1980s and 1990s. Copyright © 2016 John Wiley & Sons, Ltd.



IT Outsourcing—A Source of Innovation? Microeconometric Evidence for Germany

2016-11-02T03:48:52.983734-05:00

Does IT outsourcing really influence firms' process innovativeness? We investigate this question with a distinguished view on manufacturing and service sectors. Previous studies suggest firms sourcing out IT services to external service providers are generally more process innovative. Based on a firm-level data set comprising 1452 firms from the German manufacturing and services sectors, the econometric analysis confirms a positive and significant relationship between IT outsourcing and process innovation activity on an aggregate level. As proposed by our framework of differences between manufacturing and service firms, a more detailed analysis reveals that this positive relationship only holds for services firms. Copyright © 2016 John Wiley & Sons, Ltd.



Communication versus Information Transparency in One-Shot Interactions: A Labor Market Experiment

2017-01-22T21:40:33.4589-05:00

This is an experimental study of communication and information transparency in one-shot labor market relations with incomplete contracts. We find that communication in the form of non-binding broadcast chat messages increases wages, effort levels, and overall efficiency regardless of the information regime. It serves as a negotiation platform and helps workers and firms learn how to cooperate. Communication outperforms information transparency in motivating trust and cooperative behavior in one-shot interactions. Although transparency might be important in the long term, it does not improve any of the market outcomes in short-term relations unless it is combined with communication. Copyright © 2017 John Wiley & Sons, Ltd.



Quota Bonuses as Localized Sales Bonuses

2017-02-28T01:40:32.470849-05:00

In this article, we compare quota bonuses to profit-based evaluation and sales (quantity) bonuses in a duopoly setting with independent demand shocks. Contrary to the previous findings, we find that under certain circumstances, either quota bonuses or sales bonuses may be optimal compensation plans. This may explain the coexistence of different bonus schemes in situations where the strategic aspect of the incentive problems is relevant. Copyright © 2017 John Wiley & Sons, Ltd.



Institutional Path Dependence in Competitive Dynamics: The Case of Paper Industries in Finland and the USA

2016-12-27T08:30:26.32112-05:00

Prior research on competitive dynamics has failed to offer tools to understand distorted patterns of competition that emerge from distinct institutional and historical contexts. Our analysis suggests that a joint effect of institutional rules, governance structures, and shared cognition plays a pivotal role in firm-level competitive behavior and capability development. We show how globally significant market positions can result from specific institutional arrangements between firms and governments, especially if coupled with interfirm contractual commitments. Our results call for more attention to these interfirm commitments that are built on formal rules and governmental support, but whose impact they yet exceed. Copyright © 2016 John Wiley & Sons, Ltd.



Antitrust Compliance: Managerial Incentives and Collusive Behavior

2017-01-23T01:41:00.309544-05:00

This article analyzes a manager's incentives to establish and sustain an illegal collusive agreement if her firm is subject to profit shocks, if her utility function is concave in profits (e.g., because of risk aversion), and if she incurs opportunity costs (e.g., by violating a social norm). The model supports the empirical observation that if collusion is to be established and sustained in a state with low profits, then this state must be quite persistent. It also indicates that compliance with antitrust laws can be ensured best by combining a zero tolerance policy with a strategy of forgiveness. Copyright © 2017 John Wiley & Sons, Ltd.



Consumer Risk-reduction Behavior and New Product Purchases

2017-01-16T01:45:52.223227-05:00

Consumers purchase lower quantities of new products compared with those they have purchased in the past. We explain this observation as a result of risk-averting behavior by utility-maximizing consumers. If a new product involves a higher degree of risk that quality expectations will not be met compared with an incumbent product, we show that utility will be more concave for the new product. We test this prediction using a multiple-discrete/continuous extreme value (MDCEV) model of demand. We show that utility is indeed more concave for new products relative to previously purchased products. Copyright © 2017 John Wiley & Sons, Ltd.



How Strategic Groups Act Competitively Within and Across Markets

2017-02-16T01:55:32.887216-05:00

Our study analyzes rivalry within and across markets of size-defined strategic groups in the banking industry. We consider that, owing to group-level effects, like efficiency and funding, the degree of rivalry of size-defined strategic groups depends on whether the competitor is acting in the same or in a different market and whether the competing firms are within the same strategic group or in different groups. We estimate the effect of group interactions within and across loans and deposits markets on firm performance in the Spanish banking industry. We find evidences of rivalry as described in our hypotheses. Copyright © 2017 John Wiley & Sons, Ltd.



Risk Aversion, the Disposition Effect, and Group Decision Making: An Experimental Analysis

2017-02-14T01:00:28.791675-05:00

This article reports a laboratory experiment comparing the behavior of individuals and groups in terms of their susceptibility to the disposition effect. A total of 174 students took part in six experimental sessions in which they made decisions individually, in pairs, or in three-person groups. It was observed that the disposition effect was attenuated when the decisions were made in groups of two or three members. It was also noted that the attenuating effect of group decision making was the result of a reduction in the proportion of gains realized, indicating that the groups were less risk averse than individuals. Copyright © 2017 John Wiley & Sons, Ltd.



Risk aversion in Entrepreneurship Panels: Measurement Problems and Alternative Explanations

2017-02-01T02:52:29.4951-05:00

In this study, we investigate the pitfalls associated with measuring risk aversion within studies of entrepreneurial behavior. First, we raise substantial concerns as to whether standard questions employed can be used to infer risk aversion among nascent entrepreneurs. In our work we show that the US, Canadian and Swedish panel study datasets do not offer evidence that entrepreneurs are more risk averse than non-entrepreneurs. In fact, we show that the measurements used for risk aversion in these studies are not compatible with classic expected utility theory. Furthermore, our analysis reveals that probability weighting may even counteract the respondent's risk attitude. Therefore, inferring the respondent's risk attitude from choices in the panel study datasets can be misleading in the presence of probability weighting. We therefore suggest that alternative theories of decision making under risk, like prospect theory, are relevant and should be taken into account in future studies on entrepreneurship. Copyright © 2017 John Wiley & Sons, Ltd.



Managerial Altruism and Governance in Charitable Donations

2017-03-17T00:10:32.026667-05:00

We describe a double agency problem in firms' charitable donations. When managers have better knowledge about the effectiveness of donations and their altruistic preferences, it is difficult for shareholders to tell whether charitable donations are made for a strategic purpose or due to managerial altruism. We characterize the equilibrium donations in a heterogeneous competition model. We show that managerial altruism is a substitute for the effectiveness of donations, and excess donations cannot be prevented by a compensation scheme that reduces the interest conflicts between ownership and management. Under board authorization, the board will tolerate donations with high effectiveness and low altruism as well as donations corresponding to low effectiveness and high altruism. Under a penalty scheme, the altruistic manager will increase donations, in order to increase donation's strategic benefit to compensate for the loss from the penalty. Copyright © 2017 John Wiley & Sons, Ltd.