Flexible production and entry: Institutional, technological, and organizational determinants

Journal Article (Review;Journal)

Academics, the media, and policy makers 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 overcome 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 data set on entry by stand-alone firms and group affiliates, we provide evidence in support of the model.

Full Text

Duke Authors

Cited Authors

  • Belenzon, S; Bennett, VM; Patacconi, A

Published Date

  • September 1, 2019

Published In

Volume / Issue

  • 4 / 3

Start / End Page

  • 193 - 216

Electronic International Standard Serial Number (EISSN)

  • 2333-2077

International Standard Serial Number (ISSN)

  • 2333-2050

Digital Object Identifier (DOI)

  • 10.1287/stsc.2019.0081

Citation Source

  • Scopus