Testing for Complementarity and Substitutability in the Case of Multiple Practices

15 Pages Posted: 4 Mar 2008

See all articles by Boris Lokshin

Boris Lokshin

Maastricht University, School of Business and Economics

Martin A. Carree

University of Maastricht - Department of Organization & Strategy

René Belderbos

University of Leuven (KUL) - Department of Managerial Economics, Strategy and Innovation; Maastricht University - Department of Organization & Strategy

Date Written: 2007

Abstract

Recent empirical studies of firm-level performance have been concerned with establishing potential complementarity between more than two organizational practices. These papers have drawn conclusions on the basis of potentially biased estimates of pair-wise interaction effects between such practices. In this paper we develop a consistent testing framework based on multiple inequality constraints that derives from the definition of (strict) super modularity as suggested by Athey and Stern (1998). Monte Carlo results show that the multiple restrictions test is superior for performance models with high explanatory power. If practices explain only a minor part of organizational performance no test is able to identify complementarity or substitutability in a satisfactory manner.

Keywords: Complementarity, Constraint, Effects, Empirical study, Firm performance, Framework, Interaction effects, Model, Models, Performance, Power, Studies, Supermodularity

JEL Classification: C12, D24

Suggested Citation

Lokshin, Boris and Carree, Martin A. and Belderbos, Rene, Testing for Complementarity and Substitutability in the Case of Multiple Practices (2007). Available at SSRN: https://ssrn.com/abstract=1101447 or http://dx.doi.org/10.2139/ssrn.1101447

Boris Lokshin

Maastricht University, School of Business and Economics ( email )

P.O. Box 616
Maastricht, 6200 MD
Netherlands
+31 43 388 3697 (Phone)
+31 43 325 4893 (Fax)

Martin A. Carree (Contact Author)

University of Maastricht - Department of Organization & Strategy ( email )

P.O. Box 616
Maastricht, 6200 MD
Netherlands

Rene Belderbos

University of Leuven (KUL) - Department of Managerial Economics, Strategy and Innovation ( email )

Naamsestraat 69
Leuven, B-3000
Belgium
+32 16 32 6912 (Phone)
+32 16 32 6732 (Fax)

Maastricht University - Department of Organization & Strategy ( email )

P.O. Box 616
Maastricht, 6200 MD
Netherlands

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