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

36 Pages Posted: 5 Oct 2015 Last revised: 28 Feb 2019

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: February 25, 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 over- come 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.

Keywords: entry, irreversibility, investment under uncertainty, real options, organizational forms

JEL Classification: L22, L23, K22

Suggested Citation

Belenzon, Sharon and Bennett, Victor Manuel and Patacconi, Andrea, Flexible Production and Entry: Institutional, Technological, and Organizational Determinants (February 25, 2019). Strategy Science, Forthcoming, Available at SSRN: https://ssrn.com/abstract=2669240 or http://dx.doi.org/10.2139/ssrn.2669240

Sharon Belenzon

Duke University ( email )

100 Fuqua Drive
Durham, NC 27708-0204
United States

NBER ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States
(1) 617 588 1484 (Phone)

Duke Innovation & Entrepreneurship Initiative ( email )

215 Morris St., Suite 300
Durham, NC 27701
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Victor Manuel Bennett (Contact Author)

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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