Do Higher Costs Spur Process Innovations and Managerial Incentives? Evidence from a Natural Experiment

22 Pages Posted: 11 Jul 2013

See all articles by Benoit Dostie

Benoit Dostie

HEC Montreal - Institute of Applied Economics; IZA Institute of Labor Economics

Rajshri Jayaraman

ESMT European School of Management and Technology

Date Written: Fall 2013

Abstract

This paper asks whether firms respond to cost shocks by introducing process innovations and increasing the use of managerial incentives. Using a large panel data set of workplaces in Canada, our identification strategy relies on exogenous variation in costs arising from increased border security along the 49th parallel following 9/11. Our longitudinal difference‐in‐differences estimates indicate that firms responded to the cost shock by introducing new or improved processes, but did not change their use of managerial incentives. These results suggest that the threat of bankruptcy may provide impetus for improving efficiency.

Suggested Citation

Dostie, Benoit and Jayaraman, Rajshri, Do Higher Costs Spur Process Innovations and Managerial Incentives? Evidence from a Natural Experiment (Fall 2013). Journal of Economics & Management Strategy, Vol. 22, Issue 3, pp. 529-550, 2013, Available at SSRN: https://ssrn.com/abstract=2292331 or http://dx.doi.org/10.1111/jems.12024

Benoit Dostie (Contact Author)

HEC Montreal - Institute of Applied Economics ( email )

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IZA Institute of Labor Economics

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Rajshri Jayaraman

ESMT European School of Management and Technology ( email )

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Berlin, Berlin 10178
Germany

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