Measuring policy barriers in the American steel industry, 1950--1998

Integrated Steelmaking, or 'Big Steel' in America has had a history of deeply entrenched monopolistic business practices. This led to a cozy arrangement among the Big Steel firms and together with the collusion of Big Labor, a rent-seeking mechanism was devised. This consisted of granting wage concessions, followed by price hikes, which were defended by entry barriers of various forms.; While effective in garnering quasi-rents for the industry, this cooperative mechanism among the Big Steel firms and United Steel Workers bred obsolescence, sub-optimal usage of existing technologies and an erosion of global competitive edge. This dissertation measures the trends in technological efficiency and productivity among American steelmakers with greater precision and completeness than previously attempted. The dissertation also relates these trends to policy or institutional barriers within a theoretical model and empirically estimates and tests the level of such barriers and various explanatory factors for the observed trends.; I first estimate the technology frontier at various points in time, using non-parameterc methods (Data Envelopment Analysis) on firm-level data. I also estimate TFP growth rates for American and Japanese firms using panel data methods.; I then use two different proxies for intangible capital, namely, Union Membership and Revealed Comparative Advantage (RCA), to measure the level of policy barriers by estimating parameters of a production function based regression equation. Parameter estimates are obtained via two separate methods, Nonlinear Least-Squares and Autoregressive Distributed Lag models, to check for sensitivity.; My results show that the policy barrier level was sharply lower in the post 1974 period, providing numerical evidence for the storyline of a gradually intensifying competitive environment in steel, which coincided with productivity and efficiency gains.; Finally, I also perform an event study on stock prices of major American steelmakers, to test the direction and strength of market reaction toward capital-investment related announcements. My results show that investors responded favorably to sound investment decisions, that major steelmakers were not held back from innovation by Net Present Value considerations alone, and thereby justifying the institutional emphasis of this study.