Flexible Production and Entry: Institutional, Technological, and Organizational Determinants

Sharon Belenzon, Victor Manuel Bennett and Andrea Patacconi

No 25659, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Academics, the media, and policymakers have all raised concerns about the implications of human workers being replaced by machines or software. Few have discussed the implications of the reverse: firms’ ability to replace capital with workers. We show that this flexibility can help new firms overcome uncertainty and increase entrepreneurial entry. We develop a simple real options model where permissive labor regulations allow firms to take advantage of capital-labor substitutability by replacing ‘rigid’ capital with ‘flexible’ labor. The model highlights institutional, technological, and organizational preconditions to using this flexibility. Using a large and comprehensive dataset on entry by standalone firms and group affiliates, we provide evidence in support of the model.

JEL-codes: K22 L22 L23 (search for similar items in EconPapers)
Date: 2019-03
New Economics Papers: this item is included in nep-ent and nep-law
Note: LS PR
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Citations: View citations in EconPapers (9)

Published as Sharon Belenzon & Victor Manuel Bennett & Andrea Patacconi, 2019. "Flexible Production and Entry: Institutional, Technological, and Organizational Determinants," Strategy Science, vol 4(3), pages 193-216.

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