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Miguel Espinosa awarded Young Economist Prize for research on vertical integration of knowledge workers

Miguel Espinosa awarded Young Economist Prize for research on vertical integration of knowledge workers

The prize was given by the JEI scientific committee for his analysis on the roles of specialised workers and firms' hiring practices

06.10.2017
Prof. Miguel Espinosa

Recently hired Assistant Professor of Economics Miguel Espinosa has been awarded the Young Economist Prize at the XXXII Jornadas de Economia Industrial (JEI) conference in September. The JEI conference is an annual event for researchers working in Industrial Economics to present and discuss work in progress. The Young Economist Prize is awarded to an exceptionally original and high-quality paper selected by the JEI scientific committee, and must be written by a researcher who has completed their PhD within the last five years. The winner of the Young Economist Prize is awarded an honorarium of €1,000.

Prof. Espinosa's winning paper, titled "Sourcing of Expertise and the Boundaries of the Firm: The Case of Lobbyists", analyses the roles of knowledge workers and firms' hiring practices. Using the theoretical framework developed by Luis Garicano and the specific case of the US lobbying industry, Prof. Espinosa found that firms hire knowledge workers internally (e.g., lobbyists, IT workers, managers, lawyers, etc.) when the tasks that firms face are frequent, require low levels of skills, or when the client-specific knowledge required to solve these tasks is high.

The benefit of hiring someone internally is the client-specific skills that the worker acquires, though the upfront cost may be more expensive than an outsourced worker. This cost is labeled as the "cost of acquiring skills." Alternatively, firms may hire external workers from outsourcing firms. While these workers often acquire larger levels of skills than in-house workers and may be cheaper upfront, they do not benefit from an inside view of the firm or its culture. Firms can transmit this cultural knowledge, which is labeled as the "cost of communication."

With the main trade-off being between expertise about the client or expertise about the issues, Prof. Espinosa empirically tested his predictions using different approaches. In one of those he shows that the BP oil spill of 2010 increased the use of high-knowledge witnesses studying the bills of the affected oil and gas industry. The increase represented a rise in the issue-specific knowledge of the problems that the firms needed to solve, and aligned to the theoretical prediction, the affected firms outsourced more external lobbyists.

The research has relations to other work by Prof. Espinosa, including two essays on the organisational economics of the lobbying market. In "Technological Change and the Boundaries of the Firm: The Case of Lobbyists", he finds that technologies that decrease the cost of acquiring issue-specific skills increase both the level of vertical integration in the economy and the leverage of external providers, but decrease the earnings inequality of the economy. On the other hand, technologies that decrease the cost of communicating firm-specific knowledge decrease the vertical integration in the economy and increase both the span of external providers and earnings inequality. Prof. Espinosa shows theoretically how and why these mechanisms occur and uses exogenous shocks in the lobbying market to test these predictions.

In another essay, "Market Concentration and Lobbying Expenditures", he shows that – contrary to common belief based on Collective Action theories – less concentrated industries spend more on lobbying efforts than more concentrated industries. To explain this he explores the dimension of the level of excludability of goods being lobbied, and shows that less-concentrated industries tend to lobby more heavily for excludable goods. Controlling for the level of excludability of their advocacy goals, the standard collective action prediction is re-established. Prof. Espinosa then provides a model that includes the level of excludability of goods and uses US city-level lobbying data to test his predictions.

Find out more about Prof. Espinosa and his research:

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