Thomas J. Holmes

A Theory of Entrepreneurship and Its Application to the Study of Business Transfers

We formalize a view of entrepreneurship in the spirit of Theodore W. Schultz. In this view, entrepreneurs are those individuals who respond to the opportunities for creating new products (and the like) that arise because of technological progress, for example. The theory has implications for entry and exit, specialization of labor, and business transfers. These business transfers correspond to, among other things, individuals changing jobs an sales of firms. Transfers are seen as a mechanism facilitating division of labor. We also discuss evidence on business transfers that occur through sales of firms.

Localization of Industry and Vertical Disintegration

Theory suggests that vertical disintegration should be greater in areas where industries localize. This paper provides some evidence that this implication is true for the U.S. manufacturing sector. Purchased inputs as a percent of the value of output is used as a measure of vertical disintegration. To measure the localization of industry, for each manufacturing plant the amount of employment in neighboring plants in the same industry is determined.

The Diffusion of Wal-Mart and Economies of Density

The roll-out of Wal-Mart store openings followed a pattern that radiated from the center out with Wal-Mart maintaining high store density and a contiguous store network all along the way. This paper estimates the benefits of such a strategy to Wal-Mart, focusing on the savings in distribution costs afforded by a dense network of stores. The paper takes a revealed preference approach, inferring the magnitude of density economies by the extent of sales cannibalization from closely-packed stores that Wal-Mart is willing to sustain to achieve density economies. The model is dynamic with rich geographic detail on the locations of stores and distribution centers. Given the enormous number of possible combinations of store-opening sequences, it is difficult to directly solve Wal-Marts problem, making conventional approaches infeasible. The moment inequality approach is used instead and it works well. The estimates show the benefits to Wal-Mart of high store density are substantial and likely extend significantly beyond savings in trucking costs.

GEOGRAPHIC CONCENTRATION AND ESTABLISHMENT SCALE

This paper shows that plants located in areas where an industry concentrates are larger, on average, than plants in the same industry outside such areas. In some sectors, such as manufacturing, the differences are substantial. The connection between size and concentration is stronger than what we would expect to find if plants were randomly distributed like darts on a dartboard.

Spatial distribution of economic activities in North America

In this chapter we discuss the data sources and methods available for studying the spatial distribution of economic activity in North America. We document facts about the specialization of states and regions, as well as locations differentiated by their degree of urbanization. We also report characteristics of the industries in which locations specialize. For example, establishment size and materials intensity are shown to vary in systematic ways with regional specialization. With these facts as a backdrop, we begin to consider the question, Why do locations specialize as they do?

The efficiency of advance-purchase discounts in the presence of aggregate demand uncertainty

Abstract The pricing behavior of two airlines is examined - one is operated by a welfare-maximizing social planner, the other by an unregulated monopolist. Total capacity is fixed and aggregate demand is uncertain. It is shown that advance-purchase discounts can assist in attaining an efficient allocation of capacity when it is not feasible to operate a spot market on the day of the flight. It is further shown that the planner may offer larger or smaller discounts than the monopolist.

On The Turnover of Business Firms and Business Managers

This paper develops a model of small business failure and sale that is motivated by recent evidence concerning how the failure and sale of small businesses vary with the age of the business and the tenure of the manager. This evidence motivates two key features of the model: a match between the manager and the business, and characteristics of businesses that survive beyond the current match. The parameters of the model are estimated, and the properties of this parametric model are studied. This analysis results in a simple characterization of the workings of the small business sector.

A gain from trade: From unproductive to productive entrepreneurship

Abstract There is a large and growing theoretical literature studying the allocation of individuals and their effort amongst productive and unproductive entrepreneurial activities. Trade and competition between regions have been recognized as potentially powerful forces limiting unproductive entrepreneurial activities. In this paper we extend the technology-ladder model of Grossman and Helpman to study this issue and demonstrate conditions under which lowering of tariffs leads to a shift from unproductive to productive entrepreneurial activities.

Mergers and the evolution of industry concentration: results from the dominant- firm model

To what extent will an industry in which mergers are feasible tend toward monopoly? We analyze this question using a dynamic dominant-firm model with rational agents, endogenous mergers, and constant returns to scale production. We find that long-run industry concentration depends upon the initial concentration. A monopolistic industry will remain monopolized and a perfectly competitive industry will remain perfectly competitive. For intermediate concentration levels, the dominant firm may acquire or sell capital, depending on its ability to commit to future behavior. Industry evolution also depends on the elasticities of demand and supply and the discount factor.

Bar Codes Lead to Frequent Deliveries and Superstores

This article explores the consequences of new information technologies, such as bar codes and computer tracking of inventories, for the optimal organization of retail. The first result is that there is a complementarity between the new information technology and frequent deliveries. This is consistent with the recent move in the retail sector toward higher frequency delivery schedules. The second result is that adoption of the crew technology tends to increase store size. This is consistent with recent increases in store size and the success of the superstore model of retail organization. Copyright 2001 by the RAND Corporation.