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The research tests Oliver Williamson’s proposition that transaction cost economics can explain the limits of firm size. Williamson suggests that diseconomies of scale are manifested through four interrelated factors: atmospheric consequences due to specialisation, bureaucratic insularity, incentive limits of the employment relation and communication distortion due to bounded rationality. Furthermore, Williamson argues that diseconomies of scale are counteracted by economies of scale and can be moderated by adoption of the multidivisional organisation form and by high internal asset specificity. Combined, these influences tend to cancel out and thus there is not a strong, directly observable, relationship between a large firm’s size and performance. A review of the relevant literature, including transaction cost economics, sociological studies of bureaucracy, information-processing perspectives on the firm, agency theory, and studies of incentives and motivation within firms, as well as empirical studies of trends in firm size and industry concentration, corroborates Williamson’s theoretical framework and translates it into five hypotheses: (1) Bureaucratic failure, in the form of atmospheric consequences, bureaucratic insularity, incentive limits and communication distortion, increases with firm size; (2) Large firms exhibit economies of scale; (3) Diseconomies of scale from bureaucratic failure have a negative impact on firm performance; (4) Economies of scale increase the relative profitability of large firms over smaller firms; and (5) Diseconomies of scale are moderated by two transaction cost-related factors: organisation form and asset specificity. The hypotheses are tested by applying structural equation models to primary and secondary cross-sectional data from 784 large U.S. manufacturing firms. The statistical analyses confirm the hypotheses. Thus, diseconomies of scale influence the growth and profitability of firms negatively, while economies of scale and the moderating factors have positive influences. This implies that executives and directors of large firms should pay attention to bureaucratic failure.

Information technology, like the telephone, influences market access; this paper answers the question about a reverse effect, does market access affect information technology, in particular its adoption? Using the introductionof the telephone in Bavaria, I demonstrate with a rank, order and stock effects diffusion model how market access affects the diffusion of local telephone exchanges over towns as well as the rate of adoption of telephone lines within towns. The results of a duration analysis show that market accessspeeds up the diffusion, a spatial correlation specification demonstrates that this is not just a geographic effect. The rate of adoption within towns is also affected by the adoption of lines in other towns, the results indicate that about 4% of all lines are due to the ability to call outside your local exchange network. Market access is therefore shown to impact the adoption of technology.

This paper provides a longitudinal perspective on changes in Spanish male earnings inequality for the period 1993-2000, by decomposing the earnings covariance structure into its permanent and transitory parts. According to the Spanish sample of the European Community Household Panel, cross-sectional earnings inequality of male full-time employees falls over the second half of the Nineties. The longitudinal analysis shows that such decline was determined by a decrease in earnings instability and an increase of the permanent earnings component. Given the marked decline in temporary employment over the sample period, we also examine the effect of the type of contract on earnings variance components, and we find that workers with fixed-term contract have on average more instability than workers with permanent contract. This evidence suggests that the decline in temporary employment is responsible for the decreasing earnings instability.

This paper investigates the determinants of college attrition in a setting where individuals have imperfect information about their schooling ability and labor market productivity. We estimate, a dynamic structural model of schooling and work decisions, where high school graduates choose a bundle of education and work combinations. We take into account the heterogeneity in schooling investments by distinguishing between two-, four-year colleges and graduate school, as well as science and non-science majors for four-year colleges. Individuals may also choose whether to work full-time, part-time, or not at all. A key feature of our approach is to account for correlated learning through college grades and wages, thus implying that individuals may leave or re-enter college as a result of the arrival of new information on their ability and productivity. We use our results to quantify the importance of informational frictions in explaining the observed school-to-work transitions and to examine sorting patterns.

The paper assess the relative importance of trade and foreign exchange liberalization, infrastructure availability and economic and political stability in increasing Middle East and North African (MENA) countries attractiveness with respect to FDI. The analysis is conducted for total FDI and for FDI in manufacturing. The results show that trade and foreign exchange liberalization, infrastructure availability and sound economic and political conditions increase FDI inflows. Their effects are much higher for FDI in the manufacturing sector than for total FDI. This result is robust to alternative indicators of trade and foreign exchange liberalization, and to change in the specification. The message to MENA’s policy makers is twofold. First, efforts toward trade and foreign exchange liberalization should be initiated or further increased in order to make the region attractive to foreign investors. Second improvements in other aspects of the investment climate are important complements to liberalization and result in additional and sensitive increase of FDI inflows.

The goal of this paper is to assess the influence of spatial mobility of knowledge workers on the formation of ties of scientific and industrial collaboration across European regions. Co-location has been traditionally invoked to ease formal collaboration between individuals and firms, since tie formation costs increase with physical distance between partners. In some instances, highly-skilled actors might become mobile and bridge regional networks across separate locations. This paper estimates a fixed effects logit model to ascertain precisely whether there exists a ‘previous co-location premium’ in the formation of networks across European regions.

This study describes patterns and trends of intellectual property (IP) use in Brazil, drawing on a new statistical database (BADEPI) containing all IP filings at Brazilian Instituto Nacional da Propriedade Industrial (INPI) over the period 2000-2011. This novel database contains a unique set of information about patents, utility models, industrial designs, trademarks, geographical indications, computer programs and IP-related contracts. In addition, the study documents the methodology to construct this novel database from bibliographical unit-record data, which among others makes use of unique identification of applicants and inventors across all forms of IP.

According to conventional wisdom, terms of trade shocks represent a major source of business cycles in emerging and poor countries. This view is largely based on the analysis of calibrated business-cycle models. We argue that the view that emerges from empirical SVAR models is strikingly different. We estimate country-specific SVARs using data from 38 poor and emerging countries and find that terms-of-trade shocks explain only 10 percent of movements in aggregate activity. We then build a fully-fledged, open economy model with three sectors, importables, exportables, and nontradables, and use data from each of the 38 countries to obtain country-specific estimates of key structural parameters, including those defining the terms-of-trade process. In the estimated theoretical business-cycle models terms-of-trade shocks explain on average 30 percent of the variance of key macroeconomic indicators, three times as much as in SVAR models.