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

Sharon Belenzon, Victor Bennett, Andrea Patacconi

Research output: Contribution to journalArticlepeer-review

7 Citations (Scopus)
37 Downloads (Pure)


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 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 dataset on entry by standalone firms and group affiliates, we provide evidence in support of the model.
Original languageEnglish
Pages (from-to)193-216
Number of pages24
JournalStrategy Science
Issue number3
Early online date19 Jul 2019
Publication statusPublished - Sep 2019

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