Relatedness, Coherence, and Coherence Dynamics Empirical Evidence from Italian Manufacturing

This paper investigates the determinants of coherence and coherence change using a sample of Italian leading firms in the period 1993-1996. Following a methodology developed by Teece et al (1994), the observed diversification patterns of our sample firms provide the information required to construct an index of relatedness between pair of sectors, which is in turn used to obtain a measure of firm’s coherence. The econometric analysis highlights that relatedness is higher when sectors share similar technological and marketing characteristics, and when they are positioned at different stages of the productive chain. Analogously, coherence is higher for firms active in industries characterised by similar R&D intensities and exploiting vertical integration links. Firms which enter the group of top 5 leaders are more coherent than the average. From a dynamic perspective, we find that coherence increases for firms with main activities in sectors which are expected to be more affected from EU integration. Finally, the results show that a deepening of vertical integration strategies is good for coherence change, while an increase of diversification brings a reduction in coherence.relatedness, coherence, diversification

Export Premia and Sub-Contracting Discount. Passive Strategies and performance in Domestic and Foreign Markets

This paper contributes to the literature on firms’ productivity and exporting decisions by analysing the role played by organizational choice aspects. Rather than setting up a vertically integrated structure, manufacturers may act as subcontractors in both domestic and foreign markets, and produce to satisfy the requirements of other firms. A very simple model is presented where the most productive firms self-select into exporting, while the least productive ones work as sub-contractors serving the domestic market only. These predictions are tested using a sample of Italian firms observed in the 1998-2003 period. The results of our estimates highlight a ranking of firms consistent with a priori expectations, and provide a clear indication that passive exporters (i.e. using sub-contracting in foreign markets)display lower TFP values as compared to direct exporters. Moreover, only the latter category exhibits higher pre-entry productivity levels and growth rates as well as higher post-entry TFP growth rates. Such findings are consistent with both the self-selection hypothesis and the learning by exporting explanation.Export Premia, Sub-contracting Discount, Total Factor Productivity, Firm Heterogeneity

Firm Diversification in the European Union: New Insights on Return to Core Business and Relatedness

According to ex-ante expectations, one effect of the increased competitive pressure within the Single Market was to drive firms to reduce diversification and refocus on their core business. This paper addresses two main questions: the extent and the purpose of multi-product strategies. Using a large database of 223 leading manufacturing firms in the EU, we document whether EU leaders reduced diversification over the decade 1987-1997. We then investigate if firms have de-diversified by re-focussing around a core of related activities, testing for alternative measures of "core" and "relatedness". Our results confirm that firms readjusted corporate structures around one (or more) core(s) of related activities.Firm diversification, European integration, Return to Core

Increasing Market Interconnection: An analysis of the Italian Electricity Spot Market

In this paper we estimate the benefits resulting from interconnecting the Italian electricity spot market. The market is currently divided into two geographic zones – North and South – with limited interzonal transmission capacity that often induces congestion, and hence potential inefficiency. By simulating a fully interconnected market, we predict that the total spot market expenditure would reduce substantially. Moreover, since savings do not increase linearly with the size of new transmission capacity, even a slight increment to transmission capacity is found to bring substantial benefits to end users. Finally, our analysis shows that the (partly State owned) dominant firm in the market is not maximizing short-term profits.Transmission constraints, zonal pricing, congestion, electricity industry

Hospital Industry Restructuring and Input Substitutability: Evidence from a Sample of Italian Hospitals

In this paper we investigate the economic rationality of the bed downsizing process characterising the hospital industry worldwide in the last decades, providing new evidence on the factor substitutability in the production of hospital services. We consider a sample of Italian regional producers and – differently from other studies – estimate a general cost function model, namely the Generalised Composite, firstly introduced by Pulley & Braunstein (1992). Alternative cost function specifications (included Translog) are estimated jointly with their associated input cost-share equations. For all models we derive Allen, Morishima and Shadow elasticities of substitution between input pairs, obtaining a fairly consistent picture across all specifications and elasticity concepts. More precisely, our results suggest a very limited degree of substitutability between factors in the production of hospital services (in particular, between beds and medical staff). These findings, consistent with previous evidence in the literature, suggest that a restructuring policy of the hospital industry which is confined to limiting the number of beds could not be a viable strategy for controlling the increase in public health care expenditure.Public health care expenditure, Hospital industry downsizing, Input substitutability

Entry and Collusion after Market Opening

2We analyze a setting typical of industries right after liberalization, or after structural demand and technology changes. An incumbent firm has an exogenous capacity, and a new entrant has to set its capacity level. We find that, in a dynamic context, higher capacity increases the severity of punishment after deviation, thereby favoring the emergence of cartels. The cartel in this case could hurt welfare, not only because of the standard deadweight loss motive, but also because of the cost inefficiency due to high and idle capacity. We conjecture that a competitive arrangement could be both welfare enhancing and profit-maximizing for the incumbent.openF. Boffa; D. VannoniBoffa, Federico; D., Vannon

Board Composition, Political Connections and Performance in State-Owned Enterprises

This paper analyses the effects of board composition on the behaviour and performance of a sample of 114 Italian local public utilities, for which information about 1630 directors during 1994-2004 has been collected. This period is particularly interesting because of the legal changes that forced many firms to alter their juridical form and allowed the entrance of private investors. We investigate whether board size and/or board composition do affect decisions about employment and how they ultimately impact on performance. Our main findings indicate that politically connected directors, representing the state or the local municipality, dominate boards of directors in the Italian public utilities in the period under investigation. Politically connected directors exert a positive and significant effect on employment, while they impact negatively on performance.board size; board composition; politicians; local public utilities