Raymond Fisman

The Effect of Foreign Competition on Forecasting Bias

Abstract:
This paper studies the effect of foreign competition on the extent of forecasting bias. I focus on two biases often described in the behavioral economics literature: overoptimism and excessive belief in trends. Using data from firm-level surveys in five African countries, I show that firms that do not face foreign competition generate forecasts of sales growth that have greater trend and optimism biases than firms that have foreign competitors. I further provide evidence that these erroneous forecasts have real effects on firms? inventory management.

Source: Review of Economics and Statistics
Exact Citation:
Fisman, Raymond. "The Effect of Foreign Competition on Forecasting Bias." Review of Economics and Statistics 88, no. 1 (February 2006): 61-68.
Volume: 88
Number: 1
Pages: 61-68
Date: 2 2006