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

36 Pages Posted: 19 Mar 2019 Last revised: 10 Feb 2023

See all articles by Sharon Belenzon

Sharon Belenzon

Duke University; NBER; Duke Innovation & Entrepreneurship Initiative

Victor Manuel Bennett

University of Utah

Andrea Patacconi

University of East Anglia (UEA) - Norwich Business School

Multiple version iconThere are 2 versions of this paper

Date Written: March 2019

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.

Suggested Citation

Belenzon, Sharon and Bennett, Victor Manuel and Patacconi, Andrea, Flexible Production and Entry: Institutional, Technological, and Organizational Determinants (March 2019). NBER Working Paper No. w25659, Available at SSRN: https://ssrn.com/abstract=3354313

Sharon Belenzon (Contact Author)

Duke University ( email )

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NBER ( email )

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(1) 617 588 1484 (Phone)

Duke Innovation & Entrepreneurship Initiative ( email )

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Victor Manuel Bennett

University of Utah ( email )

1645 E. Campus Center
Salt Lake City, UT 84112
United States

HOME PAGE: http://vmbennett.com

Andrea Patacconi

University of East Anglia (UEA) - Norwich Business School ( email )

Norwich
NR4 7TJ
United Kingdom

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