How costly are restrictions on size?

Abstract

We develop a simple framework to address government policies that restrict the size of establishments in a particular sector. The economy we study is a two-sector extension of the span-of-control model of Lucas [Lucas, R.E., 1978. On the size distribution of business firms. Bell Journal 9, 508-523]. In the model, production requires a managerial input, and individuals sort themselves into managers and workers. Since managers are heterogeneous in terms of their ability, establishments of different sizes coexist in equilibrium in each sector. We then study government policies that aim to change the size distribution of establishments in a given sector, such as Japan's Large Scale Retail Location Law. How costly are these policies? What is their impact on productivity, the number and size distribution of establishments? We find that these effects are potentially large. # 2005 Elsevier B.V. All rights reserved.JEL classifications: D58; L11; O4Ø

Firm Size Distortions and the Productivity Distribution: Evidence from France

“…Most calibrations seem to take a value of around 0.8 (e.g. Guner et al, 2006, use a  = 0802 for Japan).…”

Gatekeepers to consumer markets: the role of retailers in international trade

“…Flath (2003) disagreed with this, and argued that Japan's retail sector structure, characterized by relatively small shops, is a function of scarcity of living space and the inconvenience of using a car in urban areas, and less a result of regulation. 4 Guner, Ventura, and Yi (2006), in contrast, argue that regulations in the form of shop size restrictions have had a large impact on the average size and productivity of Japanese retail stores, which in turn may have affected sourcing patterns.…”

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“…For example , Garicano et al (2016) and Gourio and Roys (2014) focus on the many labor laws in France that are binding for firms with 50 employees or more and estimate the welfare costs of these regulations. Guner et al (2006) and Guner et al (2008) show, using the Lucas model, that size-dependent laws, such as Japan's Large Scale Retail Location Law, distort the firm-size distributions. García-Santana and Pijoan-Mas (2014) focus on the Small Scale Reservation Laws in India that reserve several products for production by small-scale industries.…”