The Implications of Declining Firm-Level Uncertainty for Consumption Variety and Cities (Unicredit & Universities Job Market Best Paper Award)


Editor’s note: In this post, Federica Daniele (Economics ’13 and PhD candidate at UPF-GPEFM) shares a summary of her paper, “The Implications of Declining Firm-Level Uncertainty for Consumption Variety and Cities,” which has won the 2017 UniCredit & Universities Economics Job Market Best Paper Award. She also offers some advice to aspiring PhD students in the Barcelona GSE Master’s programs.

Paper summary

There is something alarming about the direction in which firm dynamics have been changing over the course of the last decades. Today it’s much rarer to encounter firms that undergo large up/downsizings than it used to be in the past: in other words, firms have become more tied to their rank in the firm size distribution. This has been of concern for many economists, who see this happening jointly with a slowdown in aggregate productivity growth and competitiveness. Being aware that the question on the drivers behind this trend and its consequences was still open to debate, coupled with an interest for entrepreneurship, is what pushed me to dive into this topic to better our understanding of the issue in my paper, “The Implications of Declining Firm-Level Uncertainty for Consumption Variety and Cities.”

An explanation for the decline in business dynamism consistent with the data is that technological change has caused the degree of idiosyncratic uncertainty that firms routinely face about their chances to grow to go down. This implies that today most of the return from starting a firm is determined by its initial (in)success as opposed to luck in the development of the business over its life-cycle. Based on evidence drawn from data on the universe of German establishments, in the paper I argue that a reduction in firm-level uncertainty is consistent with lower incentives for potential entrepreneurs to start a new business. My paper offers a new insight into the literature on the role of uncertainty for economic activity: some degree of uncertainty is beneficial, because – by unlocking the opportunity for a given firm to grow large out of fortuitous events (such as a favourable demand turn) – it encourages entrepreneurship. In this sense, my paper provides a defence of the classical argument by Frank Knight according to which risk-taking is a characterising feature of entrepreneurship.

A deficit in the growth rate of the stock of establishments triggered by a decline in firm-level uncertainty is cause of concern for multiple reasons. In my paper, I investigate the importance of two dimensions: first of all, the fact that consumers get to consume a less wide variety of goods than otherwise; and secondly, the fact that, being the loss in entrepreneurship larger in big cities, fewer consumers find appealing to move to large cities than otherwise, thus diminishing the extent of positive spillovers due to higher urban density. Another outcome of interest would have been, for example, the process of innovation within an industry.

All in all, the contribution of this paper consists of assessing both empirically and theoretically novel long-run consequences on economic activity of declining firm-level uncertainty.

Advice for future PhD students

I think Barcelona GSE masters students who are considering going the PhD / academic career route should be strategic. There is no harm in taking one year to do some exploratory work, working as RA, for example, for some good professor, if that buys the time to figure out what kind of research best matches your interests, in which institution you would feel better fulfilled, or whether academia suits you at all.

In the end, if you choose to pursue the academic route, you will have most certainly achieved a better match with the institution/supervisor, and spared a lot of time later on during the course of the PhD, which you can instead dedicate to producing research of good quality.

But even if you decide that academia is not for you, the value of the investment will still be positive, as experimenting early during one’s working career is much less costly than doing it later.

BGSE Data Talks: Professor Piotr Zwiernik

The Barcelona GSE Data Science student blog has a new post featuring an interview with Piotr Zwiernik (UPF and BGSE), Data Science researcher and professor in the BGSE Data Science Master’s Program.

The Barcelona GSE Data Science student blog has a new post featuring an interview with Piotr Zwiernik (UPF and BGSE), Data Science researcher and professor in the BGSE Data Science Master’s Program:

Hello and welcome to the second edition of the „Data Talks“ segment of the Data Science student blog. Today we have the honor to interview Piotr Zwiernik, who is assistant professor at Universitat Pompeu Fabra. Professor Zwiernik was recently awarded the Beatriu de Pinós grant from the Catalan Agency for Management of University and Research Grants. In the Data Science Master’s Program he teaches the maths brush-up and the convex optimization part of the first term class „Deterministic Models and Optimization“. Furthermore, he is one of the leading researchers in the field of Gaussian Graphical Models and algebraic statistics. We discuss his personal path, the fascination for algebraic statistic as well as the epistemological question of low-dimensional structures in nature…

Read the full interview on the Barcelona GSE Data Scientists blog

Markets or organisations? UPF guest lecture by Robert Gibbons


Image source: UPF

If an alien came to earth from outer space wearing glasses that show organizations in pink, and markets in green, what would it see? Would it see more green, and describe our activities on earth as a market economy, or more pink, pointing to an organizational economy? What systematic differences would it notice between underlying circumstances that give rise to green systems, and circumstances that give rise to pink, and would the quality of the outcomes differ for markets and organizations? Finally, would the alien be able to give any advice on how to improve outcomes where we try to solve problems by means of organizations?

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The global network of payment flow – Barcelona GSE Data Scientists

Originally posted by Jordi Zamora ’15 on the Barcelona GSE Data Scientists blog.

At the Rényi Hour on November 20th, Samantha Cook presented her recent research on the description and categorisation of the global SWIFT (Society for Worldwide Interbank Financial Telecommunication) interbank network. Samantha is currently the Chief Scientist at Financial Network Analytics in Barcelona. Previously, she was a Quantitative Analyst at Google’s Research Group in New York and a professor at Columbia University in New York and Pompeu Fabra University in Barcelona.
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Samantha Cook ready to give her talk

The study focused on understanding the underlying structure of a network of messages between financial institutions in different countries. It looked at how the network was affected by various recent economic events and evaluated the robustness of the system over time.

The data set underpinning the study contains standard MT103 SWIFT messages from 1 January 2003 and 31 July 2013, a period characterised by extreme economic turmoil. Each message represents a single customer credit transfer from bank to bank. The data is aggregated at the country level.

Samantha showed us different statistical analyses of the data set. The analysis of the data in terms of a complex weighted network was particularly interesting. In the network, each node represented a country and the edges connecting two different nodes were weighted according to the amount of messages those country exchanged in a given time period. The resulting network follows approximately a Core-Peripheral structure, that is, some nodes are fully connected with each other (the so-called core) while some others are mostly connected only to a node of the core: these are the peripheral nodes. Interestingly, events such as the introduction of new regulations or the beginning of the financial crisis was clearly reflected in the links and even more striking this network structure was resilient during the period studied. This work showcases a novel approach to understanding the structure of the complex financial system and the findings may provide a way to help improve the global service.

The discussion also identified some opportunities for further research. For example, we discussed why the degree distribution does not behaves as other related financial networks, and why the number of links decreases while the number of messages has a clearly increasing trend. These questions, and others that emerge, may provide ideas for further research and modelling work in this area.

Useful links:

Healthcare: Are we demanding bad goods?

Details is a trendy American style magazine showcasing movie stars and the latest in everything fashionable and chic. So when they name a health economist as one of the 50 most influential men under 45 it should raise a well-groomed eyebrow (or two).

Submitted by Scott Robertson, Master Program in Health Economics and Policy

Details is a trendy American style magazine showcasing movie stars and the latest in everything fashionable and chic.  So when they name a health economist as one of the 50 most influential men under 45 it should raise a well-groomed eyebrow (or two).

As if that doesn’t give him enough credibility, David Cutler is one of the most-cited minds in modern health economics with a persistent focus on driving the discussion of quality.  Modern Healthcare recently said he is one of the 30 people likely to have a significant impact on the future of healthcare.  Plus he’s a professor at MIT and was an advisor to U.S. Presidents Clinton and Obama.

In short: Cutler is a big deal.  If the UPF, and ostensibly the Barcelona GSE want to prove the profile of their economics program, attracting this star to inaugurate the academic year could be an indicator of success.  The auditorium filled to standing-room only shows the opportunity was not lost on students either.

UPF Economics Department
David Cutler delivers the UPF Economics Department opening lecture in October 2012. Photo credit: UPF

Continue reading “Healthcare: Are we demanding bad goods?”