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Playing the lottery or dressing up? A model of firm-level heterogeneity and the decision to export

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  • Naudé, Wim
  • Gries, Thomas
  • Bilkic, Natasa

Abstract

In models of firm heterogeneity whether firms export or not depends on their productivity. These models assume that firms enter a market only to find their productivity levels revealed to them as in a lottery. However, if productivity is not determined as in a lottery, why do some firms export early and some late? In this paper we propose a model of firm heterogeneity to address this question. In our model exporting is an investment decision with a real option value. Our model illustrates that whether not a firm exports is a matter of timing. Some firms may always find it more worthwhile to postpone exporting, depending on the nature of the product, the target market, and firm-level characteristics. For instance, our model shows that firms evaluating exporting to a volatile, or two foreign market, will need more time to dress up (prepare) for this. We derive implications for policies to support exporting.

Suggested Citation

  • Naudé, Wim & Gries, Thomas & Bilkic, Natasa, 2015. "Playing the lottery or dressing up? A model of firm-level heterogeneity and the decision to export," The Quarterly Review of Economics and Finance, Elsevier, vol. 58(C), pages 1-17.
    • Handle: RePEc:eee:quaeco:v:58:y:2015:i:c:p:1-17
    DOI: 10.1016/j.qref.2015.02.010
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    References listed on IDEAS

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    Cited by:

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    More about this item

    Keywords

    International entrepreneurship; Firm-level heterogeneity; Start-ups; Real options; Stochastic dynamic programming;
    All these keywords.

    JEL classification:

    • D92 - Microeconomics - - Micro-Based Behavioral Economics - - - Intertemporal Firm Choice, Investment, Capacity, and Financing
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • L26 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Entrepreneurship
    • M13 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - New Firms; Startups

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