Bradley K. Hobbs

Economic Freedom and Service Industry Growth in the United States

The growth of an economy depends upon entrepreneurial activities leading to the formation of new businesses and the production of new goods and services. In turn, institutions influence entrepreneurial activity. Public policy is an attribute of the institutions under which entrepreneurs operate. One element of the institutional environment is the degree of economic freedom under which entrepreneurs form and operate their business activities. The degree of economic freedom affects not only profit opportunities for entrepreneurs, but also the level and the type of economic activities they pursue. We examine how the entrepreneurial activity and level of employment in U.S. service industries respond to changes in the degree of economic freedom among states. Our findings suggest that the relationship between entrepreneurial outcomes and economic freedom varies significantly by industry. In some industries, such as business and personal services, increases in economic freedom lead to growth in the number of firms and the level of employment. However, the reverse is true for other industries, such as health, social, and legal services.

Estimating the Mark-to-Market Premium Required to Fill Vacant Business School Faculty Lines: The Case of Finance.

As the supply of new PhDs in business has declined in the past decade in the face of increasing demand, the cost of filling vacant faculty lines with qualified professors of business has increased substantially. Because salaries of current faculty members normally fail to keep up with market salaries, when a faculty line is vacated the college must pay a premium by offering a higher, competitive salary. In this study, the authors estimated the salary premium associated with filling a vacated finance faculty line. Results from a national survey show that the premiums required for replacing finance faculty members at all ranks are substantial.

Local Government Finance and Entrepreneurial Activity in U.S. Metropolitan Areas

Recent empirical literature finds that greater economic freedom at the state level tends to have a positive effect on entrepreneurial activity and economic growth generally. However, state boundaries are relatively arbitrary, and the level of economic freedom in local economies can vary widely within individual states. While there is currently no economic freedom index for metropolitan areas, this paper uses data for government revenue and expenditure as a proxy. It provides the first examination of that relationship at the local level, using data on net new business formation for 288 U.S. metropolitan areas over the period 1990-2003. We found a statistically significant negative relationship between increases in all seven selected sources of revenue (used to fund an equal increase in spending on public welfare) and net new business formation. We also found that replacing welfare spending with higher spending for seven of eight selected spending categories was positively and significantly associated with net new business formation.

Productive versus unproductive entrepreneurship: Industry formation and state economic growth

Purpose – The purpose of this paper is to examine the correlation between the degree of economic freedom in state institutions and industry employment and then determine how these correlations relate to economic growth. Design/methodology/approach – The authors find the correlation between employment and economic freedom for each NAICS industry code and then calculate total employment in industries with positive correlation and negative correlations. The authors use these values in a GDP equation. Findings – The authors find that employment growth in industries characterized by a negative correlation is associated with a decline in state per capita GDP. When the correlations between employment and economic freedom are positive, state per capita GDP tends to grow, even after accounting for overall economic freedom in the state. Research limitations/implications – Eliminating or reducing opportunities for firms to use government institutions to gain special treatment will lead to greater economic growth. Or...

Testing Murphy, Shleifer and Vishny

We use the model developed by Murphy, Shleifer and Vishny (1991) to examine the causal relationship between institutions as measured by economic freedom and industry employment, and then given the causality, examine how the amount of employment in these causal industries influences economic growth. Only a small percentage of employment in each state has a causal relationship with economic freedom, but when the causal relationship is negative, greater employment in these industries generally leads to reductions in state per capita GDP. When the causal relationship between employment and economic freedom is positive, state per capita GDP tends to grow, even after accounting for overall economic freedom in the state. Policy implications are that removing the opportunities for firms to use government for special treatment will lead to greater economic growth.

Protectionism and Property Rights: Coasian Bargaining and Debt‐For‐Nature Swaps

Debt‐for‐nature swaps (DNSs) are a method of simultaneously addressing debt problems in developing countries and protecting environmentally‐sensitive tracts of land and forests. The number and scope of DNSs declined after a flurry of activity in the early to mid‐1990s. While a number of problems have been identified that may have contributed to this pattern the literature has ignored the role that weakly defined and enforced property rights may play. DNSs are interpreted as Coasian bargains and an explanation for their decline based upon property rights, transactions costs, and competitive bidding is advanced.

IQ and the Economic Growth of U.S. States

In the cross-country literature, cognitive skills are robust predictors of economic growth. We investigate claims by psychologists that the same is true at the state level. In a variety of specifications using four proxies for average state IQ used in the psychology literature, little evidence is found for a robust IQ-growth relationship at the state level.