The Dynamics of Industrial Competition

Baldwin, John R.; Gorecki, Paul K.; Caves, Richard E.; Dunne, Tim; Haltiwanger, John

doi:10.1017/cbo9780511664700

Cited by 258 publications

(193 citation statements)

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“…Since the two agents discount cash flows at the same rate, the optimal contract 6 As shown below, there is an incentive compatible and feasible contract for any V ≥ 0.…”

Section: A Benchmark: Contracts Under Symmetric Informationmentioning

confidence: 99%

A Theory of Financing Constraints and Firm Dynamics

2002

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There is widespread evidence supporting the conjecture that borrowing constraints have important implications for firm growth and survival. In this paper we model a multi-period borrowing/lending relationship with asymmetric information. We show that borrowing constraints emerge as a feature of the optimal long-term lending contract, and that such constraints relax as the value of the borrower's claim to future cash-flows increases. We also show that the optimal contract has interesting implications for firm dynamics. In agreement with the empirical evidence, as age and size increase, mean and variance of growth decrease, firm survival increases, and the sensitivity of investment to cash-flows declines.

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“…Since the two agents discount cash flows at the same rate, the optimal contract 6 As shown below, there is an incentive compatible and feasible contract for any V ≥ 0.…”

Section: A Benchmark: Contracts Under Symmetric Informationmentioning

confidence: 99%

A Theory of Financing Constraints and Firm Dynamics

2002

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“…Many new businesses fail shortly after inception (Baldwin, 1995;Dunne et al, 1988) and entrepreneurship is a career choice that does not, on average, o¤er improved …nancial remuneration compared to alternatives. Hamilton (2000) has shown that, except for the highest 25% of entrepreneurial incomes, remaining in a wage-producing job (or moving back to it) makes more economic sense than starting a new business.…”

Section: Introductionmentioning

confidence: 99%

Slipping the surly bonds: The value of autonomy in self-employment

Croson

Minniti

2012

Journal of Economic Psychology

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This paper models the tradeo¤ between increased autonomy from self-employment and the generally higher income that traditional employment o¤ers. While the demand for autonomy is a purely psychological construct, the economic tradeo¤s involved in its achievement are eminently amenable to quanti…cation and analytical modeling characteristic of economic analysis. We use this setup to o¤er a multifactor utility formulation formalizing the notion of an explicit, autonomy-based preference for self-employment. We propose that such a formulation as a theoretically-defensible alternative to the classic (and also psychologically-based) overcon…dence hypothesis in explaining why self-employment is chosen despite evidence that newly self-employed individuals earn less than comparable individuals who continue their current employment. Our model, founded on utility maximization by a rational individual, demonstrates not only that newly self-employed individuals are willing to accept lower earnings outcomes in exchange for psychic bene…ts from self-employment, but also that the structure of their optimal launch-timing decision guarantees that they will quit at a time such that their income will (at least initially) be reduced. We conclude with implications for the design of empirical instruments to quantify the relative importance of autonomy and income.

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“…Hence, more productive entrants can appear less profitable when prices are not observed. 9 For evidence on the cross-cohort and within-cohort productivity distribution, see Baldwin (1995), Balk andGort (1993), Foster, Haltiwanger andSyverson (2003). For evidence on cohort productivity dynamics, see Balk and Gort (1993) and Jensen, McGuckin and Stiroh (2000).…”

Section: Introductionmentioning

confidence: 99%

The scarring effect of recessions

Ouyang

2009

Journal of Monetary Economics

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This paper explores the role that recessions play in resource allocation. The conventional cleansing view, advanced by Schumpeter in 1934, argues that recessions promote more efficient resource allocation by driving out less productive units and freeing up resources for better uses. However, empirical evidence is at odds with this view: average labor productivity is procyclical, and jobs created during recessions tend to be short-lived. This paper posits an additional "scarring" effect: recessions "scar" the economy by killing off "potentially good firms". By adding learning to a vintage model, I show that as a recession arrives and persists, the reduced profitability limits the scope of learning, makes labor less concentrated on good firms, and thus pulls down average productivity. Calibrating my model using data on job flows from the U.S. manufacturing sector, I find that the scarring effect is likely to dominate the conventional cleansing effect, and can account for the observed pro-cyclical average labor productivity.

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The Dynamics of Industrial Competition

Cited by 258 publications

References 0 publications

A Theory of Financing Constraints and Firm Dynamics

A Theory of Financing Constraints and Firm Dynamics

Slipping the surly bonds: The value of autonomy in self-employment

The scarring effect of recessions

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