Firms’ Objectives and Internal Organisation in a Global Economy: Positive and Normative Analysis

212 Pages·2009·93.703 MB·English

by  Luca Lambertini (eds.)

CENTRAL ISSUES IN CONTEMI'ORARY ECONOMIC TIIEORY AND POLICY
General Editor: Gustavo I'iga, ,\f1ll1(ISinS /:.'ilit<l', Ril'isfil di I'olitica E((JII(Jllli(<I, RonI<', Italy
l'nlJlisileil tilll's ille/IIII!':
Mario Baldassarri, Luigi Paganetlo and Edmund S. Phelps (l'ditor,l)
INTERNATION,\L ECONOMIC INTERDEPENDENCE, l'AlTERNS OF TRADE BALANCES
AND ECONOMIC POLICY COORDINATION
Mario Baldas~rri (edi/or)
KEYNES AND TilE ECONOMIC POLICiES OI'TIIE 1980s
MariO Ilaldas~rri (rili/or)
OLlGOI'OLY AND DYNAMIC COMI'ETITION
Mario Baldassarri (rili/or)
TilE ITALIAN ECONOMY
Heaven or 1Ie1l?
Mario Baldas~rri and Paolo Annunziato (CliilofS)
IS THE ECONOMIC cycn: STILL ALIVE?
Theory. EVidence and Policies
Mario Baldas~rri.John McCallum and Robert ,\, Mundell (rr/i/(m)
DEBT, DEFICIT AND ECONOMIC PERFORMANCE
Mario Baldassarri,John McCallum and Robert A. M\lIldeli (rditors)
GI.OBALOISEQUILIURIUM IN TilE WORLD ECONOMY
MariO Baldassarri and Robert A, Mundell (I'ili/III):)
llUILOING THE NEW EUROPE VOIS Iii: II
Mario Baldassari (('ililor)
PRIVAnz,\TION PROCESSES IN Ei\SrERN EUROPE
Theoretical I'oundations and Empirical Results (Vols I IS II)
Mario Ilaldassarri (rilitor)
HOW TO REDUCE UNEMPLOYMENT IN EUROPE
MariO Baldas~rri (rili/lir)
THE NEW WELFARE
Unemployment and Social Security in Europe
Maria Baldassarri, Michele Bagella and Luigi Paganeno (edi/ors)
FlNANCII\L M,\RKETS
Imperfe<:j Information and Risk Management
Mario Baldassarri and llruno Chiarini (rili/or.l)
STUDIES IN L,\IlOUR MARKETS AND INDU~'TRIAL RELATIONS
Maria Baldas~rri and I'ierilligi Ciocca «-r/i/ors)
ROOTS OI'THE ITALIAN SCHOOL OF ECONOMICS AND FINANCE
From Ferrara (1857) to Einaudi (1944) (three I'olullles)
Mario Baldassarri. Massimo Di Mattco and Ro\)('rt ,\, Mundell (editors)
INTERNATIONAL PROllLEMS OF ECONOMIC INTERDEJ'ENDENCE
Mario B.lldas~rri, Ce~re Imbriani and Dominick Sall'atore (I'<li/'''$)
TilE INTE.RNATIONAL SYSTEM BETWEE.N NEW INTEGR,\Tl0N AND
NEO·I'ROTECrIONISM
fo,lario llaldassMri and Llica lambcrtini «('(/il(lr.l)
ANTITRUST, REGULATION AND COMPETITION
Maria llaldas~rri, Alfredo Macchiati and Diego l'iacentino (l'ili/or_l)
TilE I'RIVATIZ,\TION 01' PUIlLlC UTILITIES
The Case of !tal)'
Mario Haldassarri, Luigi Pagan('tto and Edmund S. Phelps (.'di/()r.~)
EQUITY, EHICIENCY AND GROWTI!
Th(' Futur(' of the W('lfar(' Stat('
Mario Baldassarri, I.uigi Pagan('tto and Edmund S. I'h('lps (('llit()r.~)
THE 1990sSLUMI'
Causes and Cur('s
Mario Baldassarri, I.uigi I'aganetto and Edmund S. Phelps «'Ilitor.~)
WORLD SAVING. PROSPERITY AND GROWTH
Mario Baldassarri, Luigi l'aganetto and Edmund S. Phelps kdi/()r.~)
INTERNATIONAL DII'FF.RENCES IN GROWTH R,\TF.5
tl.iarket Globali7.ation and Economic Ar('as
MariO lIaldassarri and Paolo RobNti (edi/ors)
FISCAL I'ROIILEMS IN THE S!NGLE·MARKET EUROPE
Mario lIaldassarri and Franco Modigllanl ktlil"r~)
nlE ITAUAN ECONOMY
What Next?
MariO Haldassarri (/'IIi/or)
tl.iAFFEO PAr-HALEONI
At ttle Origin of the Italian School of Economics and Financ('
MariO lIaldassarri, Luigi Paganetto and Edmund S. ['helps (t'llitor.~)
IN!\wrlTUTIONS AND ECONOMIC ORGANIZATION IN THE ADVANCED ECONOMlf.5
The Governance l'erspCl:tive
Gooffre)' Br('nnan (t'lIit()r)
COERCiVE POWER AND ITS AllOCATION IN THE EMERGENT EUROPE
Guido Coni and Roberto Cellini (flli/()r~)
Ir-HELLECTUAL PROI'ERTY, COMI'ETITION, AND GROWTH
Debora Di Gioacchino, sergio Ginebri and Laura Sabani ("ilitorI)
THE ROLE OF ORGANIZED INTEREST GROUPS IN POUCY MAKING
Luca Lambertini «("iii/or)
FIRMS' OBJF.CTIV~:S AND INTERNAL ORGANIS,\T10N IN A GLOBAL ECONOtl.1Y
POSitive and Normative J\rwlysis
Riccardo Looni and Giusep0' Usai (('ditor:;)
ORGANIZATIONS TODAY
Marco Malgarini and Gustavo l'iga ("</i/"r.~)
CM'ITAL ,\CCUMULATION. I'RODUC1"IV1TY AND GROWn I
Monitoring Italy 200S
Stefano tl.lanzocchi (rdi/"r)
TI1E ECONOMICS OF ENLARGEMENT
Gustavo l'iga and Khi V. Thai
THE ECONOMICS OF PUBLIC PROCUREMENT
Central Issues in ContcmpoTilry Eeonom ie Theory ~nd Pol il·y
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Firms' Objectives and
Internal Organisation in a
Global Economy
Positive and Normative Analysis
Edited by
Luca Lambertini
palgrave
macmillan
* (l Servizio Italiano Pubblicazioni Internazicnal; 2009
Softcover reprint of the hardcover 1st edition 2009 978-0-230-22927-3
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Contents
Preface 3
Lllea Lall/bertill;
Existence and Uniqueness of Equilibrium in Labor-Managed
COllTna! Oligopoly 9
Ko;! OkUgllc!l; - F('rCIlC 5zidamvszky
Wage-Rise Contract and Couma! Competition with
Labor-Managed Firms 17
Kalil/lim Ollllislli
Price Setting is Popular among Firms: WillI! Persist in Vertical
Relationships with Market Uncertainty 33
Giallpa% Rossini
Contagious "Social Markel Enterprises": The Role of Fair Traders 51
Leol/(lr(/o llecclletli - GillSCppill(l Giall(reda
Should One Sell Domestic Firms \0 Foreign Ones? A TaJe of
Delegation, Acquisition and Collusion 85
Davide Drasolle
The Make-or-Buy Choice in a Mixed Oligopoly: A Theoretical
Investigation 113
Roberto Cc/lini - Lilea Lall/bertill;
Entrepreneurs' Behaviour and Performance: An Empirical
Analysis on ltalian Firms 133
Filippo Oropal/o - Stef(/I/ia Rossetti
Firms' International Status and Heterogeneity in Performance:
Evidence from Italy 151
Lorellzo Caso/Jllri - Vakria Gat/ai - G. Alfredo Millerl'(I
Vertical Specialisation in Europe: Evidence from the Import
Content of Exports 189
ElllaImete Breda - Rila Ctlppariello - Roberla l izza
Preface
Luca Lambertini*
University of Bologna and Un;vcrsHy of AmSlcrd .. m
Whether finlls illdeed behave so as to maximize profils is a long
stal/ding issue in industrial economics, as testified by several
classical contributions datillg back to rhe lale '50s and '60s, well
before the gallle theory revolutiol1 that has generated (he New
Industrial ECOll011lics, now knoul/1 as Theory of Industrial
OrgaJlization. That early debate, now alas almost forgotten,
discussed the possibility {or firms to maxil1lize the growth rate, the
volume of safes, or revenues, instead of profits (see Balllnol, 1958;
Marris, 1953; Penrose, 1959; Williamson, 1966; and Solow, 1971).
A parallel but completely independent stream of literaltlre focLlsed
upon labour-managed firms (Ward, 1958; Vanek, 1977; Ireland and
Lenv, 1982), or - almost eqLlivalently - workers' el1ferprises (Serte!,
1982; Aoki, 1984), whose objective is the maximization of valLIe
added per worker, and/or profit sharing. Relatively later, the theory
of strategic delegation has revived the il/terest for the idea that
managerial firms may actually aim at maximizing a combination of
profits and sales (Vickers, 1985) or profits and revenues (Fershllnan
and Judd, 1987).
After approximately two decades of globalization, the issLle of
defining firms' objectives has come back to the fore once again,
strictly entmlgled with the companion issue of outsourcing vs
vertical integral ion (see McLaren, 2000; GrOSSllWll and Helpl11an,
2002, inter alia). In a l1utshell, the problem boils down to
detennilling jointly the internal structure of the finll and its long-
* dllca./[email protected]>, Department of Economics.
3
FIRMS' OBJECTIVES AND INTERNAL ORGANISATION IN A GLOBAL ECONOMY
nm investment projects In Ilew products and technologies, in
relation with the global market where specialized labour or capital
inputs can be sought for outside the firm itself and even outside the
country of residence of the finn. This clearly implies that
globalizatioll is not just a matter of free trade. It has expanded the
set of possibilities made available to any given finn but it has also
increased the competitive pressure to which the finn is exposed,
along several dimensions.
The papers presented herewith revisit the theme of defining
{inns' objectives in the cOl'nparatively new perspective shaped by
globalization. Far from pretendhlg 10 be exhaustive, this collection
of original studies aims at providing the reader with some new
insights on the links between the internal structure of finns, their
incentives, and their pet[on1lance.
The first two papers deal with labour·managed (LM) firms.
While Okuguchi and Szidarovszky investigate the existence of
equilibrium in a Cournot oligopoly with LM finns uShlg Brouwer's
fixed point theorem, Ohnishi studies the possibility of using wage
premia in LM markets.
In the third paper, Cianpaolo Rossini investigates the
plausibility of price·setting behaviour in a model where the {inns
must choose between vertical integration and outsourcing under
uncertainty. He examines two differellt vertical relationships, namely
a non symmetric (impet[ectly) competitive one and a cooperative
one based 011 a bargaining process amollg vertical production stages
(or {inns}. In the first, quantity setting is preferred by {imls, because
it eliminates uncertainty in expected temlS. In the second, he shows
that uncertainty entails an asymmetric distribution of gains along
the vertical production chain.
The fourth paper deals with fair trade, which is, so to speak, a
new entry in the current spectrum of strategies a firm could adopt.
Here, Becchetti and Cianfreda show that a desirable side-effect
generated by the introduction of socially responsible goods is that of
inducing socially responsible imitation by traditional profit
maximizing {inns. As a consequence, there arises a consumer-driven
market mechanism promoting equity.
The papers by Dragone and Cellini and !Ambertini revisit
4
L. LAMBERTINI Preface
Vickerss (1985) model o{ strategic delegation to tackle, respectively,
the issues o{ (i) horizontal mergers and collusion, and (ii)
outsourcing. Dragone shows that, in a Cournot oligopoly, the
presence o{ a managerial {ringe may indeed affect the stability o{
collusion in outputs. The interesting policy ilnplication o{ his
analysis is that, choosing the appropriate size o{ the fringe, a
regulator may affect the equilibrium outcome so as to enhance social
welfare. Cellini and Lamberrini analyse the make-or-buy decisions
of finns in a mixed duopoly where one unit is a pure profit-seeker
while the other has operated a strategic separation between
ownership and COl1lrol. The main finding is that that different
equilibria may arise, depending on demwld and cost parameters: if
the technology employed for producing the intermediate input is too
costly, then the internal organization o{ firms at equilibrium is
mixed, implying a conflict between private alld social preferences,
as the latter would always prefer vertical integration to outsourcing.
The last three papers deal with the empirical side o{ the issue,
that is, they focus on the measurement of {inns' performance.
Oropallo and Rossetti use micro-data drawn {rom Istat structural
business statistics on Italian firms to evaluate the impact of several
factors, such as investments, human capital, service inputs, age, and
context variables, on profits alld productivity.
Casaburi, Gattai alld Minerva look at the empirical evidence
about the link between {inns' per{omwnce altd their hlternational
status, using a sample of Italian enterprises. Their results can be
summarized as {ollows: (i) {inns that engage in the {oreign
production of final goods, in addition to export activities, are more
productive thalt finns that only export abroad; (ii) finns that engage
in final goods off-shoring are more productive than finns that engage
in inputs off-shoring; and (iii) over the period 1998-2003, exporters'
performance in Italy was not any better than non-exporters' one. The
authors' overall appraisal of the analysis carried out in their paper
is that lhe better per{onnance characterising globally ellgaged {inns
can be mainly attributed to the selection driven by {IXed costs
associated to operating internationally. Breda, Cappariello and Zizza
use iltput-output tables to estimate the import content o{ exports {or
several European countries, interpreting it as a measure o{
5
FIRMS' OBJECTIVES AND INTERNAL ORGANISATION IN A GLOBAL ECONOMY
internationalisation in recel1l years. They show that Italy experienced
the weakest growth whereas GennallY enjoyed the most sizeable rise,
and argue that Italial1 firms might have felt a lower pressure to
transfonn their orgmlisation as a result of lagged effects of the Lira
crisis ill !he firs! half of !he '90s.
6