The study examines differences in the incomes of entrepreneurs and paid employees and considers alternative explanations for such differences. We do so with the help of National Science Foundation surveys of recipients of BA/BS or higher degrees in science and engineering for the years 1995, 1997 and 1999. In contrast to the results of earlier studies, we find that entrepreneurs earned more on average than paid employees. However, they earned less at the low end of the income distribution. The difference in results for average income is explained by whom the various studies sampled.

The article examines the effects of two horizontal mergers on the performance of the respective operating companies. The effects of the mergers are investigated by comparing the performance of the merging companies with a control group of nonmerging companies and also the performance of the merging companies before and after merger. The article concludes that mergers did not produce net economies of scale, did not lead to substantial productivity growth or cost reduction, and did not generate significant shareholder wealth effects. It is, to the authors' knowledge, the first study of mergers that combines the analysis of productivity and cost effects, on one hand, with an examination of the effects on financial variables, on the other hand. (JEL L11 , L9 )

The paper deals with the question of why most investment is made on old rather than on new plants, notwithstanding the greater flexibility in the choice of inputs that new plants offer. It explains the phenomenon in the context of a dynamic programming model with multiple classes of capital goods to show how capital expenditures on existing plants change over the lives of the plants. The empirical specification shows that the path of capital expenditures is explained by (a) complementarities between old and new capital goods, (b) the age of plants, (c) the rate of technical change and (d) the labor intensiveness of a plant when it is newly born. The model is tested with Census data for roughly 6,000 manufacturing plants that were born after 1972.

The paper attempts to examine the effects of two horizontal mergers between Baby Bells, the SBC-Pacific Telesis merger and the Bell Atlantic-Nynex merger, on the performance of the respective operating companies. The effects of the mergers are investigated by comparing the performance of the merging companies with a control group of non-merging companies and also, the performance of the merging companies before and after merger. The comparisons are made on total factor productivity (TFP) change, shifts in the total cost function and shareholder returns. In addition, the estimation of total cost functions provides estimates for economies of scale and scope, which are often cited as one of the main drivers for mergers. The empirical analysis is carried out with annual data for 38 operating companies over the period 1991-2000. One of the main results is that while in terms of shareholder returns merged holding companies slightly outperformed non-merged companies for a short-period, this small gain soon disappeared. There was no significant increase in TFP for merged companies before and after merger and also, no systematic difference in TFP between merged and non-merged companies. The TFP regressions show that mergers have a negative or zero impact on TFP. Moreover, the cost analysis indicates that mergers might have even increased total costs. We control for demand fluctuations, the state of technology and two policy variables (regulation and competition) in both the productivity and the cost analysis. Finally, no economies of scale and scope are identified. Based on all these findings, the paper suggests that mergers between large Baby Bells did not produce net economies of scale and did not lead to substantial productivity growth.

The study seeks to explain the attrition rate of new manufacturing plants in the United States in terms of three vectors of variables. The first explains how survival of the fittest proceeds through learning by firms (plants) about their own relative efficiency. The second explains how efficiency systematically changes over time and what augments or diminishes it. The third captures the opportunity cost of resources employed in a plant. The model is tested using maximum-likelihood probit analysis with very large samples for successive census years in the 1967-97 period. One sample consists of an unbalanced panel of about three-fourths of a million plants of single and multi-unit firms, or alternatively of about 300,000 plants if only the most reliable data are considered. The second is restricted to the plants of multi-unit firms in the same time span and consists of an unbalanced panel of more than 100,000 plants. The empirical analysis strongly confirms the predictions of the model.

The paper focuses on the impact of managerial efficiency on output. Three sources of managerial efficiency are identified: (a) superior initial managerial endowments, (b) the accumulation of managerial knowledge and skills through learning and (c) the impact of an effective market for managerial resources internal to the firm. All three are explicitly measured by appropriate variables and their impact is examined in the context of variously specified production functions. The empirical analysis is carried out with data for approximately 5,000 new manufacturing plants in the United States over the 1973-92 period. It is found that variation in managerial endowments is an important explanatory variable for output with all other relevant inputs controlled. It is further found that the survival of plants with superior managerial efficiency, and the death of those with inferior efficiency, explains a substantial fraction of total factor productivity change in the manufacturing sector of the U.S. economy. There is also clear evidence of the significance for efficiency of internal markets as well as evidence of learning as plants age. Learning and superior managerial resources of old plants largely offset the benefits of capital goods of later vintage of new plants.

We propose a model for explaining the demand for human capital based on a CES production function with human capital as an explicit argument in the function. The resulting factor demand model is tested with data on roughly 6,000 plants from the Census Bureau’s Longitudinal Research Database. The results show strong complementarity between physical and human capital. Moreover, the complementarity is greater in high than in low technology industries. The results also show that physical capital of more recent vintage is associated with a higher demand for human capital. While the age of a plant as a reflection of learning-by-doing is positively related to the accumulation of human capital, this relation is more pronounced in low technology industries.

The study focuses on forecasts of cost savings from merger based on an analysis of economies of scale for eight U.S. telephone companies providing mainly local service. Based on data for the period 1951-91, we conclude that cost savings from mergers and economies of scale are unlikely for large regional telephone companies in the United States. This conclusion is sustained after various adjustments are made to eliminate the distorting effect arising from the presence of excess capacity. Further analysis suggests that economies of scale associated with the use of capital are offset by other diseconomies. In particular, the evidence is not inconsistent with the conclusion that monitoring costs for labor offset scale economies in the use of capital.

Gross domestic product today is only modestly bigger than it was 100 years ago, at least if it’s measured in tons! While this may seem an absurd way to measure GDP, the point is that how economic variables are measured is important.

Discovering how economies grow is vitally important for economists and policymakers alike. This Commentary shows that more than half of U.S. economic growth can be attributed to technological advance in equipment and structures.

Methods currently used to calculate capital consumption, the capital stock, and the sources of economic growth do not adequately measure the underlying growth in inputs due to technological advance. This lack affects tax policy as well as programs targeting potential areas of economic growth. The authors present a model designed to surmount the deficiencies of current calculation methods.

The paper decomposes the determinants of firm survival into firm and product (industry) attributes. Industry attributes, we hypothesize, encompass primarily exogenous variables that exert their influence both over time and across markets. These consist mainly of the characteristics of demand and of the rate and form of technical change. Variations across firms, we hypothesize, arise mainly from endogenous variables, namely learning by doing, Darwinian survival of the fittest and the obsolescence of initial endowments. It is shown that there exist both industry and firm life cycles. Our hypotheses are tested with new data for all firms active in 33 product markets. The data encompass the time span from the initial introduction of the product to the maturity of the market by 1991. Survival is viewed as a function of a vector of firm variables and a vector of industry variables. And the latter, in turn, are assumed to be largely, but not exclusively, dependent on the phase of the product life cycle that the firm is in at any given point in time. Firm survival is affected by the phase of the industry life-cycle within which the firms operate. The paper further examines the role of endogenous firm variables in explaining the pattern of hazard rates within each phase of the product's life cycle. It is found that the principal variables that affect hazard rates are learning by doing, the dynamics of attrition of inefficient firms and technological intensiveness via its impact on obsolescence of initial endowments. Thus the firm's life cycle depends on the technological intensiveness of its production process.

How much technological progress has there been in structures? An attempt is made to measure this using panel data on the age and rents of buildings. The data are interpreted with the help of a vintage capital model where buildings are replaced with some chosen periodicity. The results indicate there has been significant technological advance in structures that accounts for an important part of economic growth.Journal of Economic LiteratureClassification Numbers: O3 and O4.

The authors analyze the measurement of the capital stock when technological advance is embodied in capital. The source of the problem is that capital is not homogeneous across vintages. Which measure of the capital stock to use is dictated by the question being addressed.

Managers of equal ability differ with respect to risk aversion and with respect to the degree of optimism with which they assess their personal chances of promotion. Conversely, firms differ with respect to their need for managers with inclinations for caution or risk-taking and with respect to their ability to reward risk-taking. The paper develops a model to explain which firms get which managers in terras of the above attributes. In the process, it shows how the optimal degree of inequality in compensation varies systematically across firms.

The paper examines learning by doing in the context of a production function in which the other arguments are labor, human capital, physical capital, and vintage as a proxy for embodied technical change in physical capital. Learning is further decomposed into organization learning, capital learning, and manual task learning. The model is tested with time-series and cross-section data for various samples of up to 2,150 plants over a 14-year period.

and empirical economic analyses that serve to improve the statistical programs of the U.S. Bureau of the Census. Many of these analyses take the form of CES research papers. The papers are intended to make the results of CES research available to economists and other interested parties in order to encourage discussion and obtain suggestions for revision before publication. The papers are unofficial and have not undergone the review accorded official Census Bureau publications. The opinions and conclusions expressed in the papers are those of the authors and do not necessarily represent those of the U.S. Bureau of the Census. Republication in whole or part must be cleared with the authors.

A widely held view is that innovative behavior by firms is determined primarily or exclusively by the chance discovery of opportunities in combination with the external economic constraints to which a firm is subject. An alternative hypothesis is that firms have distinct personalities and that these personalities significantly influence innovative behavior. A firm's personality may evolve as a consequence of a sequence of historical accidents or, alternatively, may be predictable from its structural attributes.