Sorting, reputation and entry in a market for experts

This paper analyses the market for professional (expert) services where the experts are motivated by reputational concerns. A key feature of such markets, which is often overlooked, is that clients can have specific characteristics that affect their evaluation of the service, and (or) the likelihood the service can be provided successfully. These different characteristics can induce clients to choose between experts with different reputations. The paper shows that clients choices have an important impact on the incentives of experts to provide a high quality service. In particular, sorting of clients affects incentives through three channels: changes in the types of client who are indifferent between getting the service from experts of different reputation, changes in the information on good performance as a signal of an expert's talent, and changes in the average complexity of the service the expert provides which impacts on the marginal efficiency of effort. The paper also investigates under what conditions increased entry of experts increases their incentives to exert effort. The results of the model can be applied to examine the effects of entry into the markets for doctors, lawyers, professional consultancies.reputation, competition, sorting, experts, entry

Competing influence

This paper investigates the incentives of experts competing to influence decision making. Competition for influence is shown to have an ambiguous effect on truthtelling incentives and a decision maker might be better off relying on one source of information only. This result has important implications for organizational design: the paper shows that delegation and favoritism can arise as a way to promote the correct flow of information within an organization. Delegation can lead to stronger truthtelling incentives than communication and it can be optimal when the importance of the decision is intermediate or high. Favoritism, consisting in biasing the competition for influence in favour of one expert, can further increase truthtelling incentives.reputation, competition, delegation, favoritism

The pro-competitive effect of imports from China: an analysis of firm-level price data

The entry of China into world markets has been one of the strongest recent shocks to world trade and advanced countries. industrial sectors. This is particularly true for Italy where labour-intensive, low-technology production represents a large share of output. Using Italian manufacturing firm-level data on output prices over the period 1990-2006, we test whether increased import competition from China has affected firms’ pricing strategies causing a reduction in the dynamics of prices and markups. After controlling for other price determinants (demand and cost, domestic competition and import penetration), we find that this is indeed the case. Comparing China’s share of world exports to Italy with China’s total world export market share proves the causal nature of the relationship we find. Inspired by and in line with recent advances in the literature on international trade, we also show that the price effects of Chinese competitive pressures are stronger in less technologically advanced sectors and, within these sectors, on smaller firms.import competition, China, firms' prices and productivity

The age of the dragon: Chinese competition and the pricing behavior of the Italian firms

In this paper we use a unique dataset of Italian manufacturing firms that includes firm-level price data to investigate whether increased penetration of Chinese products affects the competitive environment in an advanced country like Italy. Instrumenting import penetration from China to account for potential endogeneity biases, we find that the increase of the penetration of Chinese products has a negative and sizeable causal impact on Italian firms~ price dynamics: firms operating in a sector where such penetration is 10 per cent higher contain output price growth by about 0.35 percentage points per year. In line with the factor proportions hypothesis we show that this impact is stronger on less skill-intensive sectors. Finally, as predicted by the recent theoretical trade literature with heterogeneous firms, we find that, especially in low skill-intensive sectors, less productive firms are the ones that are forced to reduce prices more.import penetration, competition, China, prices and productivity

Bank balance sheets and the transmission of financial shocks to borrowers: evidence from the 2007-2008 crisis

We use Italian data on bank lending to firms to study the transmission of shocks affecting bank balance sheets to the volume and cost of credit granted to business borrowers and to the probability of banks accepting loan applications from new borrowers during the 2007-2008 financial crisis. The identification of the credit-supply effect is based on a difference-in-difference approach because: a large number of firms in Italy borrow from more than one bank; the shocks to the wholesale funding market were exogenous to Italian banks; and Italian banks were affected to a varying extent by the crisis depending on their funding structure. Results indicate that supply conditions worsened most for the banks that were most exposed to the interbank market and for those that made the most use of securitization. While the initial capital position of banks did not significantly affect their lending, the deterioration of bank capitalization as proxied by charge-offs and profitability had a significant impact. Furthermore, our results suggest that bank capital influenced lending indirectly, with higher capital reducing the elasticity of lending to the shocks on the funding side.bank balance sheet, transmission of shocks, credit supply, financial crisis

Relationship lending in a financial turmoil

We investigate whether the shape of relations between banks and firms has had a detectable effect in mitigating the credit contraction that followed Lehman's default in September 2008. Using micro data on a large sample of Italian firms, we analyze the relation between firms' debt concentration and credit availability. We show that firms borrowing from a higher number of banks suffered on average a larger contraction in bank credit and a higher probability of experiencing a reduction in outstanding bank debt. The same results hold for firms diversifying their borrowing, concentrating a smaller proportion with the main bank. The stability of the bank-firm relationship, measured by its duration, also appears to have been of some value in mitigating the credit restriction. Our results also suggest the existence of a different regime in credit supply towards firms experiencing a reduction in outstanding bank debt. If there is a contraction in credit, the decrease is limited if relations are more intense i.e. a lower number of financial institutions from which the firm borrows, more concentrated lending and relations of greater duration. The opposite is true for firms with positive credit growth.relationship lending, financial crisis

Reputation and competition in organisations and markets.

This thesis investigates the effects of competition in settings where agents are motivated primarily by reputational concerns. This is typically the case when explicit contracts are difficult to write due to the lack of verifiability of the task performed by the agent, or of output quality. Such situations are widespread in the case of expert advice or professional services. Competition can generate interesting effects when interacting with reputational incentives. The first chapter contains a selective review of the literature on reputational incentives and on the market for expert advice. The second chapter analyses how competition affects the incentives to report truthful information of experts competing to influence a decision maker. The complex interaction between reputational incentives and competition provides important implications for organisational design, and there are situations when delegating decision powers, or adopting forms of favouritism improve upon letting experts communicate their information and compete to influence the decision maker. The third chapter contains an analysis of the effect of competition on the incentives of an important class of experts, financial analysts. A theoretical model is developed to highlight how the behaviour of sell side analysts is affected by the presence of non-sell-side analysts. The predictions of the model are then tested on a dataset of financial analysts recommendations. The main result is that stronger competition decreases the degree of optimism of sell side analysts. Finally, the fourth chapter investigates the effect of entry in a market for experts where customers have different valuation for the service and there is positive sorting, so that higher valuation clients prefer to be served by more reputable experts. The main result is that entry decreases effort incentives for more reputable agents, unless the type of customers also affects the likelihood of successful provision of the service

The long-term earnings' effects of a credit market disruption

This paper studies the long-term consequences on firms and workers of the credit crunch triggered by the 2007-2008 global financial crisis. Relying on a unique matched bank-employer-employee administrative dataset, we construct a firm-specific credit supply shock and examine firms’ and workers’ outcomes for 11 years after the crisis. We find that highly-exposed firms shrink permanently and invest less; these effects are larger for high capital-intensive firms. The impact on workers’ earnings is also long-lasting, especially for high skilled workers, who are more complementary to capital. Displaced workers reallocate mostly to low capital-intensive firms, experiencing persistent wage losse

Private equity and venture capital in Italy

This paper examines private equity and venture capital in Italy. The first part looks at the main features of the Italian market and its recent evolution; the second part considers the results of a survey of firms and intermediaries designed to gather information regarding contract features and the characteristics of investee firms and investing intermediaries. Finally, the paper discusses the main obstacles to the development of the sector using information from the survey of intermediaries.private equity, venture capital

Early bronchopulmonary involvement in Crohn disease: a case report

BACKGROUND: Bronchopulmonary manifestations of Crohn disease have been rarely described in children, including both subclinical pulmonary involvement and severe lung disease. CASE PRESENTATION: A 6.5-year-old girl is described with early recurrent bronchopulmonary symptoms both at presentation and in the quiescent phase of Crohn disease. Pulmonary function tests (lung volumes and flows, bronchial reactivity and carbon monoxide diffusing capacity) were normal. Bronchoalveolar cytology showed increased (30%) lymphocyte counts and bronchial biopsy revealed thickening of basal membrane and active chronic inflammation. CONCLUSIONS: Clinical and histological findings in our young patient suggest involvement of both distal and central airways in an early phase of lung disease. The pathogenesis of Crohn disease-associated lung disorders is discussed with reference to the available literature. A low threshold for pulmonary evaluation seems to be advisable in all children with CD