international journal of latest trends in finance and economic sciences

Volume 5 No. 3 September 2015

E-ISSN: 2047-0916

Editorial Board

Editorial Board

Editor in Chief

Prof. Dr. José António Filipe, Instituto Universitário de Lisboa (ISCTE-IUL),

Lisboa, Portugal

Managing Editor

Prof. Dr. Sofia Lopes Portela, Instituto Universitário de Lisboa (ISCTE-IUL),

Lisboa, Portugal

Editorial Board Members

1. Prof. Dr. Manuel Alberto M. Ferreira, Instituto Universitário de Lisboa

(ISCTE-IUL), Lisboa, Portugal

2. Prof. Dr. Rui Menezes, Instituto Universitário de Lisboa (ISCTE-IUL), Lisboa,

Portugal

3. Prof. Dr. Manuel Coelho, ISEG/UTL, Socius, Lisboa, Portugal

4. Prof. Dr. Isabel Pedro, IST/UTL, Lisboa, Portugal

5. Prof. Dr. A. Selvarasu, Annamalai University, India

6. Prof. Dr. Desislava Ivanova Yordanova, Sofia University St Kliment

Ohridski, Bulgaria

7. Prof. Dr. António Caleiro, University of Evora, Portugal

8. Prof. Dr. Michael Grabinski, Neu-Ulm University, Germany

9. Prof. Dr. Jennifer Foo, Stetson University, USA

10. Prof. Dr. Rui Junqueira Lopes, University of Evora, Portugal

11. Prof. Bholanath Dutta, CMR Inst. of Tech, Blore, India

12. Prof. Dr. Henrik Egbert, Anhalt University of Applied Sciences, Germany

13. Prof. Dr. Javid A. Jafarov, National Academy of Sciences, Azerbaijan

14. Prof. Dr. Margarida Proença, University of Minho, Portugal

15. Prof. Dr. Maria Rosa Borges, ISEG-UTL, Portugal

16. Prof Dr. Marina Andrade, Instituto Universitário de Lisboa (ISCTE-IUL),

Portugal

17. Prof. Dr. Milan Terek, Ekonomick´a Univerzita V Bratislava, Slovakia

18. Prof. Dr. Carlos Besteiro, Universidad de Oviedo, Spain

19. Prof. Dr. Dorota Witkowska, Warsaw Univ. of Life Sciences, Poland

20. Prof. Dr. Lucyna Kornecki, Embry-Riddle Aeronautical University, USA

21. Prof. Dr. Joaquim Ramos Silva, ISEG-UTL, Portugal

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Table of Contents

1. Income from Speculative Financial Transactions will always Lead to Macro-

Economic Instability ................................................................................................................... 922

Tobias Schädler, Michael Grabinski

2. Breast Cancer in Contemporary Greece: Economic Dimensions and Socio-

Psychological Effects .................................................................................................................. 933

Savvakis Manos, Tzanakis Manolis, Alexias Giorgos

3. Unemployment Modelled Through M|G|∞ Systems (Revisited) .................................. 941

Manuel Alberto M. Ferreira, José António Filipe, Manuel Coelho

4. Enhancing SME Internationalization in a Transition Economy: The role of Internal

Factors............................................................................................................................................... 945

Tsvetan Davidkov, Desislava Yordanova

5. Multicriteria and Multiobjective Models for Risk, Reliability and Maintenance

Decision Analysis - A Book Review ......................................................................................... 957

Manuel Alberto M. Ferreira

Int. J Latest Trends Fin. Eco. Sc. Vol-5 No. 3 September, 2015

922

Income from Speculative Financial Transactions

will always Lead to Macro-Economic Instability Tobias Schädler#1, Michael Grabinski#2

#Department of Business and Economics

Neu-Ulm University

Neu-Ulm, Germany [email protected]

[email protected]

Abstract— Starting with a macro-economic model

based upon the NAIRU (the nonaccelerating inflation

rate of unemployment), we show that, in a world with

no (speculative) financial transactions, the macro-

economy shows a stable equilibrium state. Including

income from (speculative) financial transactions will

lead to instability if the amount is sufficiently large.

Considering the present amount of financial

transactions, stability is impossible. Therefore, further

financial crashes are not only likely but inevitable.

Keywords— system dynamics; instability; speculative

financial transactions; conserved value; chaos.

1. Introduction

Economic models are in some sense the experiments

of economists. Real experiments, such as in physics,

are impossible in economics, so scrutinizing the

economy is either done through executing fiscal

policy or by “playing” with economic models. While

access to the first method is limited to very few

people (and may be immoral), the second method is

the way of choice for most economists in science.

Needless to say, there are very many different

economic models. It is virtually impossible to address

even a small part of them.

Our focus is not to add yet another new macro-

economic model to the long list already existing. The

main focus in many economic models is on finding

the equilibrium state when some parameter is

changed. One may, for instance, want to know by

how much inflation would rise if the central bank

lowered the interest rate by a certain percentage.

Furthermore, one might like to know within what

time span this new equilibrium would be reached.

These are important questions and answering them is

essential for fiscal policy makers.

Besides creating and solving an economic model, one

should always prove its stability. What happens when

all input parameters (e.g., tax rates) stay the same and

the model is put off equilibrium for a short period of

time? Will it come back to equilibrium (stability) or

shift to a new state (instability). In a stable economic

system, conducting fiscal policy makes sense. If an

economic system is unstable, however, fiscal policy

will never steer toward a proper equilibrium. In some

sense capitalism should be declared a failure. Since

real economic systems are extremely complex,

instability will lead to chaotic fluctuations (in a

mathematical sense, cf., e.g., Schuster (1984)).

Neither predictions nor governance are possible then.

Surprisingly little can be found about stability

analysis in economic systems. If done, the focus is

typically on a very particular model, and the goal is

to prove or forecast a particular scenario like a

financial crisis. Chiarella (2012) examined the

“financial meltdown” in that vein in 2008. Our focus

is slightly different, though. We want to give a more

general answer.

To see the point, we have to take a step back. An

economy is nothing other than an arrangement of

individual human beings and companies. Trying to

forecast a particular person’s income for the next year

or a company’s cash flow is surprisingly simple, and

the forecasts are highly accurate , see, e.g., SAP, a

manufacturer of ERP systems, in Appel (2011). To

predict its cash flow is quite simple. It can be

represented as a slightly rising line over many years

with hardly any fluctuations. Its stock price should be

proportional to its (future) cash flow. Surprisingly, it

fluctuates by ± 20 % within months as a typical

result. As explained recently by Appel (2011, 2012),

this is due to the often ignored difference between

price and value. Unfortunately, a rising stock price

may create real cash and therefore value to be

invested in the Realwirtschaft. Based on the work of ____________________________________________________________________________________ International Journal of Latest Trends in Finance & Economic Sciences IJLTFES, E-ISSN: 2047-0916 Copyright © ExcelingTech, Pub, UK (http://excelingtech.co.uk/)

http://excelingtech.co.uk/


923

Grabinski (2004, 2007), Appel (2011, 2012) defined

the term conserved value in contrast to non-

conserved value. Both values can be measured in

monetary units, and they may be physically existent.

However, conserved value can only change if

something else changes accordingly. This is like the

conserved quantity energy in physics; it is highly

predictable. In contrast, there is such a thing as the

“value” of a stock. It is not conserved, and may

change without notice at any time. A non-conserved

quantity is by no means suitable to describe a system.

If the system is sufficiently complex, there will be

chaotic fluctuations which are not predictable.

Within this concept, the momentum effect could be

explained (Appel (2012)). Furthermore, one can

show that a Tobin tax would always be positive and

could even be introduced nationally (Dziergwa

(2013)). As far as stability is concerned, one can also

show that dealing in financial products is in most

cases identical to gambling, Klinkova (2013).

Dziergwa (2015) applied the concept of conserved

value to a new accounting principle: Conserved value

based accounting principles (CVBAP). Our goal is to

apply it to the macro-economic world.

The conjecture that something has gone wrong in

economic modeling is not far-fetched. Consider, for

instance, a situation where a central bank raises or

lowers the interest rate by half a percentage point.

Reactions won’t be long in coming. With lower

interest, for example, borrowing is cheaper, and

investment should increase, eventually leading to

higher GDP. The reasoning behind this seems almost

trivial. The magnitude of its impact, however, is

surprising: Lowering interest rates by half a

percentage point will have a measurable effect. It will

not affect the investment decisions of (real-world)

companies, though. Typically one may demand a

gross return on investment of around 20 %, with an

assumed capital borrowing rate of, perhaps, 7 %. Not

a single decision would be changed if the borrowing

rate were 6 % or 8 %. (The latter of the authors of

this paper has advised many companies on

investment decisions in the past. As a rule, an interest

rate varying by ± 1 percentage point wouldn’t even

lead to the calculation being redone) There must be

another reason for this effect, and the only candidate

is trade in financial products. There, non-conserved

value is created by (regularly) borrowing money,

investing it in the stock market, and paying it back

after rapidly selling the stocks (or derivatives).

Depending very strongly on the interest rate, such

deals can be profitable or unprofitable (in the short

run). Hence the turnover and, with it, the profits (and

losses) on the stock market depend heavily on interest

rates.

Therefore, a suitable economic model should

distinguish between investments from the

Realwirtschaft (in general savings from work) and

the proceeds from financial transactions being

invested. It is hard to imagine that the former will

lead to instability. Based on the work of Klinkova

(2013), it is almost likely that the latter may imply

instability.

Ryshenko (2012) had a conjecture that instability

may occur in his own models, such as Ryshenko

(1999, 2001, 2002). That is the starting point of this

work.

In chapter 2, we will construct a model. It has to be a

model that is very general and assumed to be valid in

all cases. On the other hand, it is not necessary for

this model to lead to accurate economic forecasts. In

other words, it should be a model that will be

accepted by (almost) everybody. Arguably, there are

two things agreed upon within the otherwise much

divided economic community: comparative

advantage and NAIRU (short for “non-accelerating

inflation rate of unemployment”).

A famous supporter and architect of the NAIRU

concept is Tobin (1980). NAIRU isn’t actually an

economic model in its pure form. It links the change

in inflation to the rate of unemployment, so one gets

two variables and one equation, which makes it

insoluble from a mathematical point of view.

Therefore, in chapter 2, we will create two

independent (non-linear) differential equations based

upon NAIRU. There, we will strictly stick to

investments from the Realwirtschaft into the

Realwirtschaft and will avoid income from

(speculative) financial transactions. Our model is

very general and therefore always valid. (Please note

that it is not very suitable for making economic

forecasts, as it contains (unknown) constants. But this

is of no consequence for our purpose here.) The

equations are soluble or at least integrable even in

their non-linear version. Their solutions are always

stable.

In chapter 3, we will introduce “speculation” to our

model, allowing investment from (speculative)

financial transactions. In other words, we will allow

non-conserved value to be transferred into the

Realwirtschaft. As a result, the differential equations

become more coupled. A rigorous stability analysis


924

shows that the solutions are unstable as soon as the

percentage of investment from speculations increases

too much. Assuming realistic values for the

constants, the solution will always be unstable and

this, in turn, results in the sorry fact that (over a

longer period of time) financial crises are inevitable.

Setting the “correct” interest rates can at best soften

the effect or prolong the period of time between two

crises. In order to avoid a future financial crisis,

income from financial transactions should be

sufficiently low. A Tobin tax would be a good way of

accomplishing this (Dziergwa (2013)), but, most

likely, it would not suffice. New accounting

principles such as the ones suggested by Dziergwa

(2015) and additional tax legislation are the only

possible way to achieve this, but a discussion of this

is essentially left to further research, as stated in

chapter 5.

In chapter 4, we will discuss our model critically. As

a result, we will see that, despite all possible

shortcomings, our postulate that speculation always

lead to instability will remain valid. In chapter 3, we

will show that financial crises are (almost) inevitable.

Describing the dynamics of a financial crisis itself is

impossible not only within our model but within all

models based upon differential equations.

In Appendix A, we will derive our models from a

very general mathematical point of view. This will

prove that they are correct in the lowest non-trivial

order. While it is impossible to tell whether this

lowest order is sufficiently accurate to describe real

economic dynamics, it has no influence on the

stability analysis. In other words, our results about

instability due to speculation hold true even for the

most general model.

In Appendix B, we will comment on the connection

between our model and neo-classical and Keynesian

approaches.

2. The Extended NAIRU Model

NAIRU is arguably the most fundamental approach

in macro-economics. It states that there is a certain

equilibrium rate n of unemployment u(t) so that

inflation I(t) stays constant (in equilibrium). If

unemployment u(t) > n, inflation will decrease. This

is logical because many unemployed people are

typically willing to work for less money, which will

result in a deflation in labor costs. While labor is

cheap, employers tend to hire, which brings down

unemployment until equilibrium has been reached.

A similar mechanism works for too low

unemployment u(t) < n. Workers are scarce, so labor

costs will rise, resulting in an inflation in labor costs.

Because of the inflation, more money is needed to

build such things as factories, for example, which

will lead to less jobs being created and, therefore, to

an increase in unemployment until eventually u(t) = n

is reached. Please note that we do not add effects

such as the ones of minimum wages or job security,

as we want to have the “pure” model and prove its

stability or instability. Doing the same in a more

advanced model would always lead to the question

whether the original model or the add-ons produced

the stability or instability.

Classic textbooks will normally give a formula such

as this

𝜕𝑡𝐼(𝑡) = −𝑎 ∙ (𝑢(𝑡) − 𝑛) (1)

Here, the derivative with respect to time t is

proportional to the negative deviation of

unemployment u(t) from equilibrium unemployment

n. The constant “a” must be positive (a > 0), else the

argumentation above would not hold. Eq. (1) contains

two variables (I(t) and u(t)). Therefore, a second

differential equation is necessary to solve it. The

employment rate 1 – u is proportional to the number

of jobs and therefore to the capital c(t) invested in

jobs:

1 − 𝑢(𝑡) = 𝑏 ∙ 𝑐(𝑡) (2𝑎)

The constant “b” is obviously positive because the

capital c(t) is positive, and the unemployment rate

u(t) ≤ 1 (u(t) = 1 means nobody is employed. Eq.

(2a) implies

𝜕𝑡𝑢(𝑡) = −𝑏 ∙ 𝜕𝑡𝑐(𝑡) (2𝑏)

In order to find capital c(t) to be invested in jobs, said

capital must be created first. In our case, people have

to work for it and save or invest what they do not

consume. (“The creation” of money through financial

transactions will be addressed in the next chapter.)

This means the change in capital is proportional to

the employment rate 1-u (the number of people who

are working) and the incentive they get for saving,

the interest rate z. Of course, interest alone is no

incentive; only the difference between interest and

inflation can be an incentive. This leads to

𝜕𝑡𝑐(𝑡) =𝜅

𝑏 ∙ 𝑎∙ (𝑧 − 𝐼(𝑡)) ∙ (1 − 𝑢(𝑡)) (2𝑐)


925

The proportional constant κ/(b a) has been chosen in

this way to keep the final result simpler. Of course,

this proportional constant must be positive and so is

κ. Eliminating ċ(t) from Eq. (2c) by using Eq. (2b)

yields

𝜕𝑡𝑢(𝑡) =𝜅

𝑎∙ (𝐼(𝑡) − 𝑧) ∙ (1 − 𝑢(𝑡)) (2)

Eqs. (1,2) are a set of coupled ordinary first order

non-linear differential equations which can be solved.

The interest z from Eq. (2) and normal rate of

unemployment n from Eq. (1) are the equilibrium

rates of I(t) and u(t), respectively. Please note that the

interest rate z is generally not equal to the interest

rate set by a central bank. However it is a

monotonous function of it. (For a more general

approach, please see Appendix A.) The interest rate z

is a rate which makes people save money. A number

of psychological factors may be involved in that. The

same is true for the strength of the investment (or

divestment) κ. With the following substitution

𝐼(𝑡) = 𝑧 + 𝜀(𝑡) 𝑎𝑛𝑑 𝑢(𝑡) = 𝑛 + 𝜂(𝑡) (3)

Eqs. (1,2) become

𝜕𝑡𝜀(𝑡) = −𝑎 ∙ 𝜂(𝑡) (4)

𝜕𝑡𝜂(𝑡) =𝜅

𝑎∙ 𝜀(𝑡) ∙ (1 − 𝑛 − 𝜂(𝑡)) (5)

Eqs. (4,5) are differential equations for inflation ε(t)

(= deviation from equilibrium inflation) and

unemployment η(t) (= deviation from equilibrium

unemployment). They yield no more information

than Eqs. (1,2), but they are more convenient for our

purpose. Of course, Eqs. (4,5) are easily transformed

into two decoupled second order differential

equations:

𝜀̈ = −𝜅 ∙ 𝜀 ∙ (1 − 𝑛 +1

𝑎∙ 𝜀̇) (6)

�̈� = −𝜅 ∙ 𝜂 ∙ (1 − 𝑛 + 𝜂) −�̇�

1 − 𝑛 − 𝜂 (7)

Just by taking the linear parts of Eqs. (6,7), it is easy

to see that they display a harmonic oscillator with a

frequency of

√𝜅 ∙ (1 − 𝑛)

Even in their non-linear version Eqs. (6,7) can be

integrated. Their solutions are almost identical to

their linear versions. Only for extremely high

inflation (say, 70 %) will the sinusoidal variation of

inflation turn into a saw-tooth like shape with a lower

frequency. Unemployment hardly changes due to the

non-linear terms. The details of this will be published

elsewhere. As has been stated several times already,

we are not focusing on solving an economic model;

we want to prove or disprove its stability. This is

done by linearizing Eqs. (4,5) to

𝜕𝑡 (𝜀(𝑡)

𝜂(𝑡)) = (

0 −𝑎𝜅

𝑎∙ (1 − 𝑛) 0 ) (

𝜀(𝑡)

𝜂(𝑡)) (8)

The eigenvalues λi of the matrix of Eq. (8) are

λ1,2 = ±√−𝜅 ∙ (1 − 𝑛) (9)

With both λi being purely imaginary, we have an

undamped harmonic oscillation, just as stated above.

Just for the sake of completeness, we will also give

the corresponding eigenvectors:

𝑒1,2 =1

√1 −𝑎2

𝜅 ∙ (1 − 𝑛)

(

∓𝑎

√−𝜅 ∙ (1 − 𝑛)

1)

This gives the formal solution of Eq. (8), which can

also be obtained by using a linear combination of sin

and cos functions as an ansatz:

𝜀(𝑡) = 𝐴 ∙ sin(𝑡 ∙ λ) + 𝐵 ∙ cos(𝑡 ∙ λ) (10)

𝜂(𝑡) = 𝐵λ

𝑎∙ sin(𝑡 ∙ λ) − 𝐴

λ

𝑎∙ cos(𝑡 ∙ λ) (11)

where λ = |λ1| = |λ2| from Eq. (9) and A and B are

arbitrary constants determined by the initial

conditions. Fig shows a typical plot of the Eqs.

(10,11). The parameter κ essentially determines the

period, here chosen so that the “economic cycle” is

seven years. Of course, any other length would also

be possible. The parameter “a” (defined in Eq. (1))

determines the shift between inflation and

unemployment. It also determines the strength of the

non-linearity, cf. Eq. (6). As stated, it does not matter

here.

The solution does not show any instability. Please

note that the solution might never look as smooth as

shown in Fig. This has essentially to do with the fact

that κ is influenced by the willingness to save, which

may change. The same is true for the perceived

interest z (cf. Eq. (2c)). And, of course, the interest

rate set by the central bank may change too.


926

Please note that the interest rate z does not appear in

the general solution of Eqs. (10,11). This is surprising

at first glance only. As long as the difference between

inflation and interest rate remains constant, nothing

will change. But, of course, changing the interest rate

within a certain system will change its behavior. In

order to see how it works, take a look at Fig. After

two years, inflation has grown by over three

percentage points, which is why the central bank

might raise the interest rate by one percentage point,

and this has the same effect on z. As can be seen in

Eq. (2), u̇(t) will decrease immediately. Such sudden

change will certainly have a big effect on the non-

linear terms. A detailed discussion will be published

elsewhere. Here, we will stick to the linear equations.

Of course, these will not give the correct result in

close proximity of t = 2 years, but otherwise the

result should be fine. It is displayed in Figure 1. After

the rise in interest, inflation and unemployment are

growing less rapidly, but, as stated earlier, in this

chapter, we assume a world without speculation,

which is unrealistic anyway. The next chapter will

eliminate this shortcoming.

3. The NAIRU Model with

speculation

Besides “creating” money through an increase in

conserved value, the financial industry also provides

money by changing it into non-conserved value,

Appel (2011, 2012) and Dziergwa (2015). This

process is commonly referred to as speculation. This

does not change Eqs. (2a, 2b), but it will change the

mechanism of how capital is created. Therefore, Eq.

(2c) will get an extension:


𝑏 ∙ 𝑎∙ (𝑧 − 𝐼(𝑡)) ∙ (1 − 𝑢(𝑡))

+𝜿𝑺

𝒃 ∙ 𝒂∙ (𝑰(𝒕) − 𝒛𝑺) (2𝑐𝑺)

If inflation I(t) is sufficiently high compared to an

effective interest zS , the amount of capital created

through speculative financial transactions will grow.

Please note that the effective interest rate zS will

typically change with the interest rate set by the

central bank without being identical to it. For a more

formal consideration, please see Appendix A. The

constant κS is assumed to be positive. However, the

willingness to invest in stocks and especially in the

more advanced financial products, such as derivatives

and the like, can change quite suddenly. As shown by

Appel (2011) and Dziergwa (2013), no capital is

created in the long run. Mathematically speaking, we

have

∫ 𝑑𝑡 𝜅𝑆

𝑏 ∙ 𝑎∙ (𝐼(𝑡) − 𝑧𝑆)

+∞

−∞

= 0 (11)

Typically, κS will be positive for a long time. For

very short periods of time, it will turn into a large

negative number, though. Any such period of time is

commonly referred to as a financial crisis. Changing

Eq. (2c) into Eq. (2cS) leads to an extended Eq. (2):

𝜕𝑡𝑢(𝑡) =𝜅

𝑎∙ (𝐼(𝑡) − 𝑧) ∙ (1 − 𝑢(𝑡))

−𝜅𝑆

𝑎∙ (𝐼(𝑡) − 𝑧𝑆) (2𝑆)

Eqs. (1,2S) are the new set of differential equations to

be solved, and the procedure is identical to the one in

the previous chapter. Note that a discussion of the

non-linear terms can be found elsewhere. Here, we

will stick to the linear version around the equilibrium.

The ansatz like Eq. (3) transforms into

𝐼(𝑡) = 𝑧̅ + 𝜀(𝑡) 𝑎𝑛𝑑 𝑢(𝑡) = 𝑛 + 𝜂(𝑡) (12)

Because of the new couplings in Eqs. (1,2S), the

equilibrium inflation z̅ is some combination of z and

zS:

𝑧̅ =𝜅 (1 − 𝑛)

𝜅 (1 − 𝑛) − 𝜅𝑆

∙ 𝑧 +𝜅𝑆

𝜅𝑆 − 𝜅 (1 − 𝑛)∙ 𝑧𝑆 (13)

Figure 1: Plot of off-equilibrium inflation ε and

unemployment η n = 5 %, κ ≈ 0.85/year2 and a

=1.5/year with one percentage raise in interest after

two years

Figure 2: Plot of off-equilibrium inflation ε and

unemployment η n= 5 %, κ ≈ 0.85/year2 and a =1.5/year


927

Besides the slightly more complicated form of the

equilibrium inflation, it can be positive or negative:

𝒄𝒂𝒔𝒆 𝟏: 𝜅𝑆 > 𝜅 (1 − 𝑛) 𝑎𝑛𝑑 𝑧𝑆 < 𝑧 ∙𝜅 (1 − 𝑛)

𝜅𝑆

𝑧̅ < 0

𝒄𝒂𝒔𝒆 𝟐: 𝜅𝑆 < 𝜅 (1 − 𝑛) 𝑎𝑛𝑑 𝑧𝑆 > 𝑧 ∙𝜅 (1 − 𝑛)

𝜅𝑆

𝑧̅ < 0

𝒄𝒂𝒔𝒆 𝟑: 𝑒𝑙𝑠𝑒 𝑧̅ > 0

Case 1 holds for a sufficiently large amount of

speculation. Unfortunately, this is quite likely

because proceeds from speculative financial

transactions are much higher than the ones from the

Realwirtschaft, see, e.g., Dziergwa (2013). Case 2

also leads to a negative equilibrium, but this may not

occur very often in reality. It is only case 3 that leads

to a positive equilibrium value. In summary, a

sufficiently high level of speculation implies a

negative equilibrium inflation, which is, of course,

never attainable. This does not come as a surprise.

“Profits” from speculative financial transactions are

nothing other than inflation (within a certain area), cf.

Dziergwa (2013). This is identical to “printing

money” in order to invest in jobs, and will always

lead to too high inflation.

But the problem of no equilibrium inflation is a

minor one compared to the problem of instability. To

see the point, one has to derive an equation analogous

to Eq. (8) from Eqs (1,2S). A straightforward

calculation yields

(𝜀̇(𝑡)

�̇�(𝑡)) = (

0 −𝑎𝜅

𝑎 (1 − 𝑛) −

𝜅𝑆

𝑎

𝜅

𝑎 ∆𝑧) (

𝜀(𝑡)

𝜂(𝑡)) (14)

with

∆𝑧 ≡ 𝑧̅ − 𝑧 =𝜅𝑆

𝜅𝑆 − 𝜅 (1 − 𝑛)∙ (𝑧𝑆 − 𝑧) (15)

The matrix in Eq. (14) has the eigenvalues

λ1,2 =𝜅 ∆𝑧

2 𝑎± √𝜅𝑆 − 𝜅 (1 − 𝑛) + (

𝜅 ∆𝑧

2 𝑎)

2

(16)

Depending on κS , one can distinguish between five

cases:

𝒄𝒂𝒔𝒆 𝟏: 𝜅𝑆 > 𝜅 (1 − 𝑛) 𝛌𝟏 > 0

𝑎𝑛𝑑 λ2 > 0 𝑖𝑓 ∆𝑧 > 0

𝒄𝒂𝒔𝒆 𝟐: 𝜅 (1 − 𝑛) ≥ 𝜅𝑆 > 𝜅 (1 − 𝑛) − (𝜅 ∆𝑧

2 𝑎)

2

𝑎𝑛𝑑 𝑧𝑆 < 𝑧 𝑖𝑚𝑝𝑙𝑖𝑒𝑠 𝑎𝑡 𝑙𝑒𝑎𝑠𝑡 𝛌𝟏 > 0

𝒄𝒂𝒔𝒆 𝟑: 𝜅 (1 − 𝑛) ≥ 𝜅𝑆 > 𝜅 (1 − 𝑛) − (𝜅 ∆𝑧

2 𝑎)

2

𝑎𝑛𝑑 𝑧𝑆 > 𝑧 𝑖𝑚𝑝𝑙𝑖𝑒𝑠 𝛌𝟏,𝟐 < 0

𝒄𝒂𝒔𝒆 𝟒: 𝜅𝑆 < 𝜅 (1 − 𝑛) − (𝜅 ∆𝑧

2 𝑎)

2

𝑎𝑛𝑑 𝑧𝑆 < 𝑧 𝑖𝑚𝑝𝑙𝑖𝑒𝑠 𝑹𝒆{𝛌𝟏} > 0

𝒄𝒂𝒔𝒆 𝟓: 𝜅𝑆 < 𝜅 (1 − 𝑛) − (𝜅 ∆𝑧

2 𝑎)

2

𝑎𝑛𝑑 𝑧𝑆 > 𝑧 𝑖𝑚𝑝𝑙𝑖𝑒𝑠 𝑹𝒆{𝛌𝟏,𝟐} < 0

Please note that the inequalities above are implicit

because Δz is a function of κS, cf. Eq. (15), and that it

is not straightforward to make them explicit. Because

it is impossible to stick to one eigenvector in real-life

situations, instability will occur in the above cases 1,

2, and 4. Stability, on the other hand, will only occur

in the above cases 3 or 5. In other words, a

sufficiently large amount of speculation will always

imply instability. This is the major result of this

publication.

In order to make the result more transparent, we also

give the explicit results of Eq. (14):

𝜀(𝑡) = 𝐴 ∙ 𝑒λ1∙𝑡 + 𝐵 ∙ 𝑒λ2∙𝑡 (17)

𝜂(𝑡) = −λ1

𝑎𝐴 ∙ 𝑒λ1∙𝑡 −

λ2

𝑎𝐵 ∙ 𝑒λ2∙𝑡 (18)

Figure 2: Plot of off-equilibrium inflation ε and unemployment η n = 5 %, κ ≈ 0.85/year2, a =1.5/year, z = 2 %, zS = 0.3 %, and κS = 0.9 κ


928

A and B are arbitrary real constants. Of course, only

the real parts of Eqs. (17,18) are solutions in the real

world. It is now possible to discuss the five cases

above in detail, which can be found elsewhere. To

illustrate the general line of our argument, we will

stick to case 4 here. Cases 1 and 2 are trivially

instable. Case 3 is an untypical stable solution, and

case 5 is stable because it is the limit toward no

speculation. As a typical result, case 4 gives a plot

such as in Figure 3. We stayed close to the values of

Fig and included some small amount of speculation.

Both inflation and unemployment show an oscillation

with an increasing amplitude. The length of the

business has roughly tripled compared to Fig. But

this is not very important here because it is not our

goal to insert the economic data of any one particular

real country.

After twelve years, Figure 3 shows a rise in inflation

of about 4 percentage points. Maybe the central bank

will decide to raise interest rates, which would

typically have a big effect on zS and a smaller one on

z. (This is because the financial world reacts strongly

to changes in interest, while the Realwirtschaft is

usually left fairly unimpressed, as already stated in

the introduction.)

As one can see in Figure 4, an increase in interest

slows down inflation but will also raise

unemployment (in this case, from a very low base).

Please note that the non-linear terms will also have a

big effect on the curves of Figure 4 at t ≈ 12 years,

but the general line of argumentation will stay the

same. Within our model (speculation included), non-

linear terms may have an effect for reasons discussed

in Appendix A. Although these may or may not have

an effect on areas of stability or instability, the

general line of argumentation should not change.

4. Critical evaluation

In the previous chapter, we have shown that

speculative financial transaction will, in almost all

cases, lead to non-stable solutions in the dynamics of

unemployment and inflation. Most of the other

economic variables show some more or less close

relationship to unemployment and inflation so that

their stability is affected in the same way. And it is

the important quantity GDP, in particular, that is

strongly tied to unemployment (and inflation).

Although our model is very general and contains the

perhaps most basic economic variables,

unemployment and inflation, these variables are not

without flaws. In contradiction to some of the basic

textbooks, one has to say that inflation is defined

precisely yet hard to measure accurately. The

opposite is true for unemployment: It is generally ill-

defined but very easy to measure within its particular

definition.

Inflation occurs when the same product or service

will cost more at a later point in time than they do

now. No one, of course, can take account of all

products and services. Therefore, a basket of goods is

defined as representative, which results in the

emergence of at least two separate inflation rates:

“consumer price inflation” and “industrial price

inflation.” As a matter of fact, there should be

different baskets depending on the specific industry

or the individual’s style of living. (This is the same

problem as with the definition of purchasing power

parity) With it, inflation becomes an almost arbitrary

quantity. Furthermore, any basket is normally

dominated by energy and housing. Speculation or a

bursting bubble can cause a huge inflation spike or

our current problem of deflation. Hence the strangely

low inflation or outright deflation in Japan has most

likely to do with the bursting property bubble of the

1990s, cf. The Economist (2015), and is no

counterexample to the theory of inflation and

demography.

It is also hard to decide what is meant by the terms

“same product or service.” Consider a laptop, for

example. If we take the word same at face value, we

have a huge deflation where laptops are concerned. If

we however assume that “the same product” only

ever means the premium laptop model, then inflation

is highly overstated.

Unemployment has an exact definition, which differs

from country to country, and it is impossible to give

the one most reasonable definition. Of course, one

Figure 3: Plot of off-equilibrium inflation ε and unemployment η n = 5 %, κ ≈ 0.85/year2, a =1.5/year, z = 2 %, zS = 0.3 %, and κS = 0.9 κ; z = 2.1 % and zS = 0.5 % after twelve years


929

could take all non-working people in a country and

divide this figure by the total population. But what

does non-working mean? How many hours a week

does a person need to work to be considered

working? Furthermore, dual education, for instance,

counts as work, while a university student is

considered non-working. And when a rich single

parent hires a nanny, a job is created and

unemployment decreases. If, however, he or she

marries the nanny, the job is destroyed and

unemployment rises. Similar arguments apply to the

elderly, the disabled, or people wealthy enough to

stay at home.

These remarks on inflation and unemployment apply

to all economic models. Therefore, it is almost

impossible to decide whether an economic model

reflecting, say, 90 % of reality is better than a model

that shows 80 % accuracy.

In addition, there is another problem with almost all

economic models (and with the ones in management

science). Its formulation goes back to Grabinski

(2004): Any economic outcome is the sum of all

actions of all participating human beings. Humans

have free will, which means that, strictly speaking,

even equations for NAIRU such as Eq. (1) are always

wrong, and can only be understood as a statistical

result. In order to use statistics, one has to consider

many actions, without a single one of them being

dominant. This, by the way, does not have its origin

in man’s free will. A gas consists of a large number

of molecules (with no free will whatsoever). A

macroscopic description by differential equations is

only possible if one considers time scales which are

long compared to the time of the individual

interactions between the molecules. The same is true

for the length scale.

At first glance, this does not seem to be an important

limitation. There are, however, particular situations in

physics where the internal length scales become very

long. This is, for instance, the case when water

freezes into ice or ice melts into water. At this very

point, none of the differential equations that

otherwise describe the behavior of water or ice

perfectly at almost all other temperatures can be used.

For some strange reason, physicists sometimes speak

of the “catastrophe theory” when, for instance,

describing the phase transition of water to ice.

Similar things may occur in economic models.

Consider Eq. (11) of our model, for example.

Typically, it implies a leap from κS > 0 to κS < 0 at a

certain point in time (e.g., because suddenly almost

everybody is selling his or her stocks). From a purely

mathematical point of view, one can solve the model

as long as non-linear terms are taken into account.

This would be a waste of time and effort, though.

Here, we have individual actions triggering an

avalanche, which makes any statistical approach, the

prerequisite for using differential equations,

impossible. This means we are faced with the sorry

fact that none of the models based upon differential

equations and the like is useful for describing the

dynamics of a financial crisis. In a typical financial

crisis, any economic model will leave the range of

validity.

It is hard to imagine that a proper description, such as

“catastrophe theory” in physics, will ever be found in

order to simulate the dynamics of a financial crisis

although (unlike in physics) the word catastrophe

theory seems very appropriate here.

5. Conclusions and next steps

We have shown that speculation will (almost) always

lead to non-stability. Furthermore, the equilibrium

rate of inflation can be negative due to speculative

financial transactions. Therefore, central banks and

financial policy makers can at best mitigate the

severity of financial crises. The only way out would

be to make speculative financial transactions become

extinct, with one way being to prohibit them

altogether. But this approach would be hard to

manage (What exactly is meant by “speculative

financial transaction”?). Furthermore, prohibiting

them would not fit into our liberal world. Another

way would be to implement a proper tax policy.

There are two ways of achieving this that appear to

be easy and very effective: one would be the

introduction of a Tobin tax, as suggested by

Dziergwa (2013). The effect on reasonable financial

transactions would be minimal because they occur

less frequently than speculative financial transactions

by a factor of one thousand or even one million. The

other possible measure would be to tax derivatives

differently. As stated by Klinkova (2013), their

market is much more instable than the “ordinary”

stock market, and the potential crashes there are

much more severe. Supporters of derivatives claim

that they are a reasonable way of providing insurance

against such risks as fluctuating oil prices. But if it is

an insurance, it should be treated as such. For one, it

is not allowed, for instance, to insure your neighbor’s

house against fire (i.e., to receive money in case it

http://www.merriam-webster.com/dictionary/effectual


930

burns down without having suffered a financial loss).

Again, it may be difficult to judge whether a person

or company is really exposed to damage due to

changing oil prices or whether that is just speculation.

However, when there is a real risk, people are willing

to pay some sort of tax on this insurance. To see how

it works in reality, consider insurance in Germany,

for example: An insurance tax of 19 % is imposed on

the premium you pay. And unlike the value added

tax, it is not refundable. Individuals and companies

experience substantial losses in case their house or

factory burns down. Therefore, almost all

homeowners and companies in Germany have fire

insurance, and the 19 % insurance tax does not seem

to hurt anybody. So why not introduce a similar tax

on “oil price insurance?”

The next steps in our area of research will be to:

1. Scrutinize the present model, and especially

the five cases in chapter 3, in more detail. .

2. Take non-linear terms into account. This

should prove that our general line of

argumentation is not affected by non-

linearities. Furthermore, effects of changes

in interest can be displayed more

realistically. There may be a chance to find

interesting effects, such as mathematical

chaos.

3. Check other models (unrelated to this one)

for instability.

6. Appendix A

Eqs. (2c,2cS) give the relation between change in

capital and interest. Although our argumentation

should be very plausible, one could not say that other

terms are forbidden or of less importance. Because

Eq. (2cS) is a generalization of Eq. (2c), it will do to

stick to the first one.

A change in capital c(t) may come from the

Realwirtschaft. In that case, it must be proportional to

the employment rate 1 – u(t). It may also come from

speculative financial transactions. Both parts will also

depend on the effective interest rate. Hence the most

general formulation of Eq. (2cS) will take the

following form:

𝜕𝑡𝑐(𝑡) = 𝑓(𝑖 − 𝐼(𝑡)) ∙ (1 − 𝑢(𝑡))

+𝑔(𝑖 − 𝐼(𝑡)) (19)

Here, “i” is the interest set by the central bank; f and

g are arbitrary functions. It is hard to imagine having

a more general approach. As long as f and g are

analytical functions, they have a Taylor expansion.

(If they were non-analytic, there would always be

arbitrarily accurate approximations to them which

would be analytic) The Taylor expansions of f and g

are as follows:

𝑓(𝑖 − 𝐼) = 𝑎0 + 𝑎1 ∙ (𝑖 − 𝐼) + 𝑂((𝑖 − 𝐼)2) (20)

𝑔(𝑖 − 𝐼) = 𝑏0 + 𝑏1 ∙ (𝑖 − 𝐼) + 𝑂((𝑖 − 𝐼)2) (21)

Of course, the an and bn are easily given by

𝑎𝑛 =1

𝑛!

𝜕𝑛𝑓(𝑥)

𝜕𝑥𝑛|

𝑥 = 0 , 𝑏𝑛 =

1

𝑛!

𝜕𝑛𝑔(𝑥)

𝜕𝑥𝑛|

𝑥 = 0

Making the following substitutions in Eq. (20,21)

𝑎0 ≡𝜅

𝑏 ∙ 𝑎∙ (𝑧 − 𝑖) 𝑎𝑛𝑑 𝑎1 ≡

𝜅

𝑏 ∙ 𝑎

𝑏0 ≡𝜅𝑆

𝑏 ∙ 𝑎∙ (𝑖 − 𝑧𝑆) 𝑎𝑛𝑑 𝑏1 ≡ −

𝜅𝑆

𝑏 ∙ 𝑎

and inserting them into Eq. (19) will transform Eq.

(19) into Eq. (2cS) if higher order terms are neglected.

So we have a proof that Eq. (2cS) is correct in the

lowest order.

It is an interesting question whether this lowest order

expansion makes sense. If z and zS were the

equilibrium values of the inflation I(t), it would be

absolutely correct within our stability analysis.

However, the z̅ from Eq. (13) is the true equilibrium

value of I(t). Linearization and stability analysis is, of

course, still possible. However, the values of κ and κS

will change with the deviation of z and zS from the

central bank interest rate i. This might change the

regimes of stability.

7. Appendix B

Our models are constructed from a very general

approach, especially when considering Appendix A.

Quite often macro-economic models are classified

into two categories: the neo- classical (or neo-liberal)

models on the one hand and the Keynesian approach

on the other. We did deliberately not follow this

classification. To have two schools and not to know

which one of them is the correct one resembles a

religious approach to macro-economics. Our model

should be scientific rather than creedal.


931

Nevertheless, some readers might ask whether our

model is Keynesian or neo-classical. In short, it is

both (or maybe neither). To see the point, consider

Eq. (2cS) again:


𝑏 ∙ 𝑎∙ (𝑧 − 𝐼(𝑡)) ∙ (1 − 𝑢(𝑡))

+𝜅𝑆

𝑏 ∙ 𝑎∙ (𝐼(𝑡) − 𝑧𝑆) (2𝑐𝑺)

The first part (with κ) connects labor and its proceeds

with change in capital. The main point is that one has

to work and save in order to invest in the economy.

This is the typical neo-classical approach. The

Keynesian critique of it would be that, if everybody

(or at least a lot of people) saves money (instead of

spending it), employment will shrink and the

economy will enter a downward spiral. As Keynes

put it, the otherwise reasonable micro-economic

approach is not valid in the macro-economic world.

(We will comment on this “conundrum” further

below)

The second part of Eq. (2cS) (with κS) implies an

increase in capital (for the creation of jobs) as long as

borrowing money is sufficiently cheap. It does not

question the origin of said money. This is exactly the

kind of financial stimulus Keynes would have

suggested. So our model encounters both worlds, the

neo-classical and the Keynesian one. Again, this

confirms that this is the most general of models.

Sadly, although the Keynesian stimulus may create

jobs, it will never lead to stability.

Now we will come back to the “conundrum”

mentioned above. If micro-economic mechanisms

were not valid in the macro-economic world, all

macro-economic models would be invalid. This is

because integrating (solving) differential equations is

nothing but the summing up of particular (micro-

economic) happenings.

To solve this puzzle, consider a heavily indebted

country, for example. All economists will agree that

this country obviously consumed more than it earned

by working, whereas people in countries abroad

earned more than they consumed, or else they

couldn’t have lent any money to this country. The

neo-classical remedy would be to save money. In

other words, the indebted country ought to consume

less and work more in order to repay its debts. The

Keynesian critique would be that, if the people in the

indebted country consume less, fewer goods will be

needed. And producing fewer goods will imply less

work and, thus, fewer jobs. However, this outcome is

not the only possible one: The people in the indebted

country could still produce more goods and consume

less. Using the excess, they could repay their debt. In

the real world, Keynesians, in particular, might argue

that the goods these people produce might not be

greatly sought after in foreign countries. This might

even be the reason why their country got into debt in

the first place. But generally, this is not true; people

do not like or dislike certain products. What they do

like or dislike is the product-to-price-ratio. In other

words, you can flood the world market with almost

any product as long as it is sufficiently cheap. So the

neo-classical answer to an indebted people would be

as follows: Work more, without receiving more pay.

Consume only part of these products. Because of

their low production costs, the rest of these goods can

be exported. And since you consume less, you will be

able to repay your debts.

This means that fiscal policy should only soften the

hardship the indebted people most likely experience.

One way of achieving this would be to encourage

investments, either to produce new products or to

improve the efficiency in producing the old ones. But

even if the invested money is borrowed, that does not

mean that debt isn’t sometimes a good way of

helping countries to get out of it. It is a common

misunderstanding to assume that borrowing money in

order to invest it means getting into debt. This is only

the case if one only considers cash flow. However, as

any accountant knows, one has to consider both sides

of the balance sheet. Sadly, countries do not do so in

their “accounting.” So, if there is a reason why one

cannot add up all the micro-economic entries to

describe the macro- economy, it lies in the

cameralistics of governmental accounting. It may not

be easy to include assets and liabilities in

governmental accounting, but ignoring them and

drawing the wrong conclusions is just plain stupid.

As shown by Agarwala (2012), even a rough estimate

can lead to completely new and interesting results.

8. Acknowledgements

A fruitful discussion with Ryshenko in summer 2012

has been gratefully acknowledged. We thank Anna

Fischbach for proofreading this manuscript.

Bibliography

http://www.dict.cc/englisch-deutsch/cameralistics.html


932

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of financial crisis: A wrong definition of value”,

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Vol. 2-I, p 33.

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Ph.D. thesis, Neu-Ulm University

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(2012a), “Momentum and reversal: An

alternative explanation by non-conserved

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and Semmler, W. (2012), “Macroeconomic

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Macroeconomies”, Studies in Nonlinear

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(2013), “Why A Financial Transaction Tax Will

Not Hurt Anybody”, The Clute Institute

International, Las Vegas

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Fluctuations from Financial Statements”, Ph.D.

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Trade-off in a Model of the Kondratiev Cycle”,

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[17] The Economist (2015), “The relationship

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19-71.


933

Breast Cancer in Contemporary Greece:

Economic Dimensions and Socio-Psychological

Effects

Savvakis Manos*1, Tzanakis Manolis**2 and Alexias Giorgos***3

*Assistant Professor, University of the Aegean, School of Social Sciences, Department of Sociology,

Basement, Marine Building, Room 2.12, Xenia, Hill, Lesvos, 81 100, Greece. [email protected]. Corresponding Author.

** Assistant Professor, University of Crete, School of Social Sciences, Department of Sociology, Gallos Campus,

74100, Rethymno, Greece, Tel: (30) 28310-77494. [email protected]

*** Associate Professor, Panteion University, School of Social Sciences and Psychology, Department of Psychology,

New Building, Room C13, 136 Syggrou Avenue, 176 71, Greece. [email protected].

Abstract - The main purpose of this article is to

critically complete the economic perspective regarding

breast cancer offering a more spherical understanding

of the disease as well focusing on its socio-psychological

effects. The contribution presents some specific socio-

economic features of this particular illness in

contemporary Greece, emphasizing on some of the core

strategies these diagnosed women apply in respect with

their professional re-orientation. It as well analyses the

inter-subjective experience of breast cancer in as much

as participants record it as a turning point regarding

their economic status, socio-psychological state,

biographies and overall relationships.

The paper is based both on qualitative research,

grounded on fourteen biographical interviews with

Greek women, experiencing breast cancer and

mastectomy and on quantitative data provided by

secondary inquiry. In an integrated view, it is possible

to formulate some preliminary conceptual tools that can

account for the economic dimensions and socio-

psychological implications of the disease. Besides, we

present the energetic strategies these women employ to

mitigate personal suffering and transform their

“harmed” body to an energetic source of professional

re-orientations and biographical re-constitutions.

Keywords - Economic dimensions, Socio-Psychological

effects, Applied sociological research, Mix methods, Breast

cancer.

1. Introduction

Cancer is a very common disease in the

contemporary world with extremely high direct and

indirect economic costs and socio-psychological

effects. It is estimated that cancer cost the EU

Member States €126 billion in 2009, with healthcare

accounting for €51 billion (40%). Across the EU, the

healthcare costs of cancer were estimated at the

equivalent to €102 per citizen, but varied

substantially from €16 per person in Bulgaria to €184

per person in Luxembourg. Productivity losses due to

early death were estimated to cost €42.6 billion and

lost working days €9.43 billion. Informal care was

estimated to cost €23.2 billion. Lung cancer had the

highest estimated economic cost (€18.8 billion, 15%

of overall cancer costs), followed by breast cancer

(€15 billion, 12%), colorectal cancer (€13.1 billion,

10%), and prostate cancer (€8.43 billion, 7%).

Researchers point out that these estimates are

conservative, as some categories of health care costs,

such as screening programmes, were not included

due to the inability to obtain these data for all

countries under study (European Commission, 2014).

The expensive financial cost emerges from the

long hospitalization period, diagnostic tests,

surgeries, however, mainly by the high cost of

medication. Especially in Greece, all the previous

costs are largely paid by the National Health System

and it is roughly estimated that they count for almost

a 6.5% of the total expenditure on health care in the

country. In most countries of the world, as in Greece,

cancer is the second cause of death after

cardiovascular disease (Ministry of Health, 2008).

More specifically, breast cancer is one of the

most serious and life threatening forms of disease

that is the leading type of cancer in women,

especially in the so-called developed world. As a

result, this particular illness is connected to

significant economic implications, social-

psychological re-orientations and biographical

consequences both on a global and on a national

Greek level. It is furthermore responsible for a large

number of death cases or severe health problems

regarding lifetime (IARC, 2008).

Especially for women, breast cancer is the

second type of cancer after that of the lung. Statistics

account that more than 1.6 million women are

diagnosed with the disease each year worldwide.

According to recent research it is estimated that one

woman in eight is affected by the disease, or

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934

otherwise 13% of the world female population will

become ill during lifetime. Besides, the disease

affects all age groups from 20-90 years. The chances

of a woman to get infected significantly increase

through ageing, while the risk of developing breast

cancer quadruples after menopause (Tzala, 2004;

Ferlay et al., 2013). Particularly, in Greece, where

breast cancer is the leading cause of cancer death in

women, more than 4.900 women are diagnosed with

breast cancer each year and more than 2.000

eventually die (IARC, 2008).

According to recent epidemiological data

obtained from the Pan-Hellenic Archive of

pathological-tumors laboratories in 2011 the

incidence of breast cancer cases estimated in 6.454

(data from 97%-98% of laboratories). The interesting

element is that 27%-28% of these women are under

50 years of age, while 45% of them - diagnosed with

breast cancer - will proceed to mastectomy. The

scientists emphasize that if breast cancer is early

diagnosed and treated, the prognosis is very good.

Besides, even the metastatic breast cancer - in the

case of HER2 – can be treated satisfactorily (Ministry

of Health, 2008).

Thus, a closer scientific examination of this

phenomenon can account for the deeper economic

consequences of breast cancer, especially in the

contemporary Greek context. Is as well allows for a

more promising socio-psychological individual

management and treatment of the disease directed to

an effective regulation and contextualization of its

generating factors. This effort aims to reduce the

potential costs of the disease on economic figures

(macro level), socio-psychological dimensions

(middle level) and biographical disruptions (micro

level).

Breast cancer also results to a unique indirect

economic cost due to reduced productivity of both

the sufferer and the family that is burdened by

homecare and by the loss of working days regarding

at the same time the patient and the caregivers.

Indirect costs are estimated to be at least twice the

direct ones (Ministry of Health, 2008; Tzala, 2004).

Also, the social-psychological cost of breast cancer is

often quite unbearable. Sufferers undergo drastic

consequences in their personal, family, professional

and social-psychological lives.

Women diagnosed with the disease often

encounter compassion or rejection by their friendly or

family environment; an element that creates

additional unbearable socio-psychological

encumbrance on patients, who often incriminate and

blame themselves (Sparkes, 2012; Lam and Fielding,

2003). At the same time, the social stigmatization

affects the personality and dignity of these women

and makes the psychological and biographical

experience of breast cancer an extremely painful

process (Landmark and Wahl, 2002). Moreover,

patients are confronted with phenomena and

characteristics of the Greek health care system that

additionally cumber them mentally and strain them

physically (i.e. labyrinthine structures and

bureaucratic obstacles in the health system, high

costs of disease, unsatisfactorily operation of the

National Health System, etc).

The individual socio-economic level is

associated with the possibility of incidence of several

cancers. Cancers of the lung, stomach and esophagus

occur more frequently in the lower economic and

social strata. Breast cancer is detected more often in

the upper social strata, while the cervix into the

lower. Generally, mortality from malignant tumors

appears to be directly and strongly related to lower

socio-economic status, chronic psycho-social burden

and suffering situations such as unemployment and

poor living conditions (Toundas, 2001). It has also

been well documented that most cancers (i.e. lung,

colon and breast) affect people with poor socio-

economic status who have less access to health

services, resulting in insufficient prevention, late

diagnosis and improper treatment (Ministry of

Health, 2008).

Socio-economic factors are crucial regarding

both the appearance and the early diagnosis of breast

cancer thus influencing the effectiveness of treatment

in as much as psychosocial and vocational

rehabilitation. For this reason contemporary health

policies tend to take into account the social-

psychological effects and the economic dimensions

of breast cancer. These policies, at both European

and national level, despite the very serious problems

arising from the current economic crisis, aim to

increase public participation in actions and screening

programs. The recent epidemiological data indicate

that the mammography screening can reduce

mortality of breast cancer in women up to 35%

(IARC, 2008).

However, only 40-50% of women, obliged to go

through clinical testing for the disease, are controlled.

Thus, and due to the high survival rate of the disease,

the applied policies aim at managing the

consequences of breast cancer. Despite the alarming

increase with respect to the frequency of the disease,

the improvement of the diagnostic equipments and

therapeutic practices contribute to the gradual

reduction in the absolute number of deaths.

Specifically, mortality from breast cancer is reduced

at a rate of 2% per year. These epidemiological data

increase the scientific interest regarding the socio-

psychological effects and the economic dimensions

of survival these women retain (IARC 2008).

It is indicative that “Action 7” of the Greek

national action plan for cancer specifically aims to

improve the institutional framework and to

strengthen the professional and social rehabilitation

mechanisms for cancer patients, both the diagnosed

and the cured ones (Ministry of Health, 2008). The

above action aims to an effective and immediate

biographical recovery. Is as well strives to social and

vocational rehabilitation of cancer patients, because


935

although more than 50% of them are completely

healed less than 10%, fully return to their former

working and social activities (Ministry of Health,

2008).

The previous issues are closely connected to

specific economic features that influence the entire

social, psychological, cultural and historical patterns

in relation to the disease. They are as well combined

to inter-personal experiences and the subjective

interpretation of health problems. For this reason, the

article examines the consequences of breast cancer on

the professional re-orientation of these women. Is as

well explores the economic implications and the

socio-psychological patterns these women follow.

The crucial element is to focus upon every affected

person and on the everyday practices these women

discover in order to transform their socially,

psychologically and culturally “disadvantaged” body

into a meaningful source of biographical and

professional re-orientation. The management of the

disease ultimately leads to a redefinition of the basic

life values, within the framework of an energetic and

self-reflective social project with an often conflicting

content.

2. Method

The fundamental findings of this paper was

based on qualitatively empirical research, originally

grounded on fourteen biographical-narrative

interviews with women diagnosed with breast cancer

and mastectomy, aged 45-55 years. It was also based

on secondary research on statistics, reports and health

regulations regarding breast cancer, on a European

and on a national Greek level.

All research participants are enrolled in self-help

programs and voluntarily offer practical and moral

support in various solidarity groups. Women

diagnosed with breast cancer were invited to narrate

their life stories. They were strongly informed that

researchers were largely interested in the ways they

socially experienced and psychologically managed

this particular disease (Alexias et al., 2015). The

purpose was to examine how the experience of both

illness and therapy are connected to biographical

disruption (Savvakis and Tzanakis, 2004).

Accordingly, we explore the ways this biographical

discontinuity is connected to a plethora of economic

issues (i.e. work, vocational opportunities, etc) and is

related to specific professional re-orientations (Bury,

1982, 1997; Williams, 2001).

Research design roughly followed the general

lines of grounded theory and the interviews were

conducted in three phases (Strauss and Corbin, 1996).

The first phase of research design involved contacts

with psychologists at cancer hospitals and at

women’s breast cancer associations in Athens. At this

initial stage, what was recorded, through semi-

structured interviews, basically concerned their

overall and more specific estimations and evaluations

with respect to the key parameters of the disease. The

aim was an interactive relation to the research field,

which would allow us a more sensitive and open

conceptualization and question-posing process.

At the same time, this would take into

consideration that participants themselves and

professionals as well attribute meaning when

engaging in a sociological research (Savvakis and

Tzanakis, 2004). During this initial stage, we

highlighted specific social parameters as the social

and marital status, the educational level and the

economic budget. We additionally focused on the

patients’ economic, social and psychological needs

during treatment. At this phase, we finally conducted

participant observation at the aforementioned

institutions in order to preliminarily understand a

variety of characteristic aspects of the relationship

between women with breast cancer and health

professionals.

The second phase of the project included the

completion of six biographical narrative interviews

and their systematic analysis, extracting the important

themes that participants deemed as meaningful and

crucial, in order to create a more comprehensive

model of grasping all cases. Finally, the third phase

involved the completion of eight additional

biographical narrative interviews, following a similar

as above research approach.

The research was conducted mainly in Athens

and in the broader geographical region of Attica. The

overall project lasted from 2004-2009; consequently

it was completed a few months before the emergence

of the, still lasting, severe economic and social crisis.

The purpose was to understand the way in which the

occurrence of breast cancer and mastectomy affects

the women’s lives. More particularly, we focused on

some economic dimensions of the disease and on the

ways it affected their socio-psychological state, their

biographical trajectories and their professional

orientations.

The sample selection criteria included the

existence of mastectomy, as part of a therapy

concerning breast cancer, the expiration of a certain

period of time after the completion of interventional

therapies (mastectomy, chemotherapy and possibly

radiotherapy) without the appearance of metastases,

the voluntary participation in solidarity and self-help

groups, the family status (i.e. marriage and

parenthood), the average productivity age (i.e. a

decade before or after fifty) and the overall social

stratification (i.e. belonging to middle social strata).

Breast cancer forces to a radical rethinking of

the body as a whole; its economic capacities, its

productive abilities, its socio-psychological state and

the constitutive values of life itself. However, the

interesting feature is that women’s participation in

voluntary self-help groups - first as patients and

consequently as active members who offer caring,

nursing and assistance to new patients - as well

highlights the economic dimensions and the socio-


936

psychological effects of coping with this type of

cancer. Moreover, it gives to the research community

access to some particular forms of assistance that

have been developed in Greece, especially regarding

the decline of the ‘traditional’ middle-class, both on

an economic and on a cultural level (Alexias et al,

2015).

Participants were preliminarily informed that

interviews would be recorded exclusively for

research purposes and declared their agreement.

During the overall research period, all the required

and appropriate ethical standard, as decided by the

Senate of the University of Crete (Senate 229/22-3-

2012, http://www.en.uoc.gr/research-at

uni/eth/ethi.html and

http://ec.europa.eu/euraxess/index.cfm/rights/index)

were applied. All the narrators are protected through

the use of pseudonyms. Besides, in this study,

triangulation, an attempt to increase reliability and

validity of qualitative results, was pursued (Savvakis,

2014).

3. From the Initial Shock to

Professional Re-orientation

Regarding the early stage of the disease, namely

the “shock situation” we can highlight - based on the

overall empirical material – that the majority of

patients strive hard to rationalize and attribute a sense

of meaning to the occurrence of breast cancer. The

participants, in their effort to accept and rationalize

the diagnosis of this particular disease, reconstruct

the past and consider it as a basic reason for the

emergence of breast cancer in the present. This is an

effort to assign a sense of continuity to the events of

the past, as directly related to the disease.

Thus, the participants report that, before the

onset of the illness, they systematically experienced

severely traumatic events and endured painful

situations. As mentioned above, cancer patients often

claim that the most important factor in carcinogenesis

is a chronic suppression of emotions and desires.

Indeed, a common feature is that narrators are heavily

worried about various issues. They furthermore

develop anxiety and stress regarding situations that

are subsequently assessed as unimportant (Ovayolu et

al., 2013).

Participants regard the appearance of breast

cancer as a “particular and uneasy” moment of a

biographical pattern that is valued from a present

standpoint as incorrect and pathological. This

particular pathology is grounded on a personal

inability to retain a happy and self-determined life.

The participants demand honesty and sincerity from

the medical staff, since they claim that can plausibly

deal with and potentially overcome this predicament.

We may suggest that the actual knowledge of the

medical condition is absolutely necessary and

significant. The participants in general propose that

only a brave and conscious attitude towards breast

cancer suit women. They support that women

energetically demand to have control over their

situation. It seems like they stand against an enemy

whom is vital to know and meet in order to increase

their chances to beat it.

These biographical difficulties lead to a

conscious shift: the patients decide that they

ultimately want to stay alive. This powerful desire to

“stay alive” gradually opens up the space for a

transition from a “shock situation” to a struggling one

that these women fight to cope with the gap of

physical loss (mastectomy). At this second stage

(mastectomy phase), the important issue, as derived

from the data, is the awareness and the acceptance of

the modified body after surgery. During this second

phase, women have fortunately escaped the danger of

immediate death. Thus, they deal with the

management of chemotherapy and its side effects.

They as well strive to become reconciled with

the new sense of the bodily self. Participants recall

these situations and preserve a heroic, merely stoic,

attitude regarding side effects. Mastectomy is a direct

assault to their identity and self-confidence; however,

it did not eliminate passion for living and their ability

to plan for the future. In our research, it is

particularly the existence of the family and the

significant others that empower this concrete decision

to keep on living. Through the interviews, it is also

evident that these particular women seriously review

their views on life, revise their goals and set new

priorities, including professional re-orientation.

It is often remarked that women with

mastectomy abandon their work because of physical

weakness, particularly if this task requires manual

work. This happens because of the dysfunction

merely caused by the surgery to remove lymph

nodes. In our research is evident that this choice is

directly linked to the way in which the appearance of

the disease is justified. Moreover, changes over the

body are interpreted as part of an overall re-

orientation of life projects and plans. Consequently,

some typical alternatives emerge, which incorporate

an altering professional perspective in a new

biographical re-constitution. In what follows the

analysis shall focus on three typical energetic types

of professional re-orientation, as these were recorded

in our research.

3.1 Retirement form Work

Withdrawal from work can be total or partial

including even household and everyday shopping.

This alternative can be passive and be characterized

by a sense of powerlessness because of objective

physical difficulties. These options, however, can be

associated with an interpretative scope through which

the appearance of the disease is explained, namely as

a consequence of the lack of self-caring over the

body. Thus, withdrawal from work may not

exclusively be passively and connected to a “weak”

body. It might as well be - especially in these cases

http://www.en.uoc.gr/research-at%20uni/eth/ethi.html

http://www.en.uoc.gr/research-at%20uni/eth/ethi.html

http://ec.europa.eu/euraxess/index.cfm/rights/index


937

where work is replaced by alternative caring

activities of the self and the others (yoga,

participation in self-help groups, gymnastics, artistic

activities, etc.) – quite energetic, voluntarily and

enthusiastic.

The following extract from Mary is indicative:

After cancer I stopped working and

it was something that was my

choice. Why was my choice? I

thought it is better to sit home to

look after my children and do

things without stress, because when

you work and have a family you are

constantly in a state of doubt

whether to find time for household.

And I was just a little bit strict in

the way I did things. So I wanted to

chill, to stay home, and do what I

wanted to do. And what I wanted

was to take care of my family. I

liked very much to take care of my

children, my husband.

In this case, housework acquires a moral

dimension that did not previously retained, associated

with a reorientation of values and a serious

revaluation of what is meant as essential to life.

3.2 Reassessment of Job Opportunities

However, the job prospects are often coupled

with the assessment that the “harmed” body is

affected and an adaptation should occur according to

new conditions. In this case, as well, the adjustment

may be rational aiming to actively prove that the

“infected” body remains quite able to meet current

and demanding conditions.

Joan is a characteristic example who manages

the household simultaneously taking good care of her

image towards her beloved ones:

I did not demonstrate that I was

unable or depressed, that I could

not do my work like I did it in the

past. I was trying not to show it in

order not to influence them, my

family. I did not want them to think:

look how our mom and husband

ended up, in all the social roles to

say so. I did not show it and I

continued my life as before, as I

could. Of course, there were some

minor differences because as I said,

I could not lift weight, was

medically prohibited, I could not

shake the clothes or the carpets

outside. Of course I got used to it

(laughs) and gradually I did what I

could do; however, I continued my

life as before with some minor

changes.

It is, in other cases, also often that household in

combination with the previous profession take the

form of the last line of defence in maintaining a

positive and healthy image of the self.

Gogo accounts on this:

What helped me was the fact that I was

alone and on my own in the house, I had

no mom, I had no aunts, and I had no

brothers or sisters. It was just my husband

and I. During the chemotherapy an aunt of

my husband was visiting me [...] with some

friends and came and helped for two days.

During the other days I was on my own.

This did good to me because I had no time

to play the sick-role, vomiting and so on. It

was just impossible to think of

chemotherapy and side effects since I had

to feed my children.

3.3 Professional Re-orientation

In some cases of heavy surgery, patients are

entitled to a low disability pension but as a

consequence it is forbidden to work. However, it is

normal, as this was reflected in our research, to

supplement their income by additional part-time

professional occupations, which are “black”, non

typical, due to legal restrictions. In other words,

profession is both a means of income support and of

empowering a “damaged” self-image.

As Vivi reports:

I now get a disability pension that

binds me, for I cannot work. I just

do odd and part-time jobs whenever

I can, without IKA (Institution

social security), without anything

because it is forbidden due to this

disability pension.

A professional re-orientation is very common

feature in our research. The example of Miriam is

indicative of a typical choice. This professional

strategy is adopted either de facto due to infirmity or

it forms an explicit objective of policies aiming to

vocational rehabilitation. Miriam had problems in her

work because it was linked to operating hospital

machines. However, she changed her professional

direction and started writing of poetry and reports, a

shift heavily assisted and supported by her

colleagues.


938

Her account is as follows:

I was extremely helped from my

colleagues thus I changed

professional direction because I

could not operate machines which

were difficult to handle. These

machines demand some pressure,

some rhythm, which I cannot have

anymore due to the surgery on my

right hand. However, I eventually

managed to succeed and to leave

the scullery and move towards

research. I compensated - and I

really do not want to say that I won

with my illness - but I account on

my everyday life in a better way.

Over these years that I have

undergone this surgery I have

written one or two collections of

poems I think, apart from three

hundred to five hundred research

papers (laughs). I really think that I

have taken a great pleasure to from

this.

According to this logic, which is part of a typical

professional and biographical re-orientation, the

modification of working conditions is interpreted as a

positive change. This transformation is in line with

the new state of the body and is as well desirable to

the extent that is assessed as compatible with the new

relationship to the self. The interesting element is that

this new relationship with the self is directly

associated with a modified approach to the others that

is far more energetic than the “healthy’ past. This

acquires sociological significance when this

professional re-orientation is transformed into

voluntary action and support to groups of peers.

The narrators state that after surgery and proper

treatments, they felt an intense need for emotional

support. Through participation, they felt stronger and

undertook action to provide support to other

sufferers. Under this perception, the disease is

conceptualized as a new starting point for

professional and biographic action. The source of this

shift can be detected in the overall experience of the

“damaged body” and the “abused breast”.

Participants feel obliged to help other women and

transform cancer from a source of biographical

discontinuity and professional retirement to an

inspiration for life.

4. Discussion

The experience of illness potentially acts as a

mechanism for individualisation, connecting personal

experience with general economic transformations

and social developments (Bauman, 1997; Beck,

1999). Increasing complexity in western societies,

Greece included, have contradictory effects on how

people understand the past, live in the present and

plan for the future. The opportunities for individual

action seem to be multiplied; however, this takes

place on a ground that is constantly characterized by

economic uncertainty, social instability and

psychological tensions (Giddens, 1991).

Every modern person – and this was evident in

our research – is assigned with increasing

responsibilities in relation to the organization of

his/her life. He/she is as well, almost individually,

accountable for the sufficient management of critical

issues that affect economic prosperity, social

organization and psychological happiness. This

contradictory and struggling life project is everyday

performed without reference to generally accepted,

namely universally, criteria of life evaluation and

without a material basis of a steady professional

career, at least for a vast majority of people (Burke

et. al., 2012).

This has certain results on personal biographies

and on collective desicions forcing life to acquire,

sometimes mandatory, experimental elements and

improvisation. Therefore, every individual is carrying

an unprecedented “moral weight”, since everybody,

under a certain age, assumes responsibilities which

enter the realm of the constitution of subjectivity and

management of personal identity. Consequently,

she/he is forced to employ new practices of the self,

as defined by the late Foucault’s work (Foucault,

2008, 2009). Similar transformations are detected in

our research and have already been described in other

previous empirical sociological papers, regarding

Greek society (Alexias et al., 2012; Serdedakis and

Tsiolis, 2000).

More specifically, in our research, participants

intend to restore a stable relationship between

continuity of the healthy (past) and ill (present) self

and body, on economic, social and psychological

terms (Henriksen and Hansen, 2009; Katapodis et al.,

2005; Facione and Facione, 2006). Breast cancer

leads to a dialectical and biographical construction of

the past. This meaningful, retrospective, re-

constitution project is attempting to heal the personal

ruptures and it is, as well, related to the practical

purposes of managing the high risks of the disease,

on economic, social and psychological level (Bairati

et al., 2006).

It is precisely these radical individual changes

that participants in our research are forced to go

through, due to the experience of biographical

discontinuity caused by breast cancer. Women of our

sample thematise as “objective” the state of their

disease. At the same time, they inexorably link it with

individual challenges in all areas (economy, work,

family social relationships, psychological stability,

political action, etc). This eventually leads to a

rational reflection of the capabilities, opportunities

and constraints of the “damaged” body within a


939

particular economic and socio-psychological

environment. Experiencing the loss of previous

certainties leads to a severe and painful renegotiation

of - taken for granted in time and space – general

concepts and everyday practices. This process

touches fundamental dimensions of existence and

influences constitutive aspects of individual identity.

Nevertheless, and this is vital, women, their relatives

and families do not remain passive within the new

situation.

For example, profession, a fundamentall

economic dimension of modern living, plays a key

role in this radical social re-orientation process but

does not shape an obvious choice. On the contrary it

is dependant, every time, upon a particular social,

cultural and economic milieu, which is activated

within a framework of existential dilemma. This

process is neither one-dimensional nor univocal and

it is not absolutely based on voluntarily action or

good will. On the contrary, it is a lifetime project

grounded on calculations, cancellations and re-

orientations. It is an ambivalent process that is

materialized through the personal confrontation with

social conditions and through interaction with

significant others. It is a multifaceted process with

different, partial, individual objectives (Serdedakis et

al., 2003).

Thus, breast cancer, through this biographical

restructuring process and the subsequent re-

orientation of economic priorities based on

professional re-settlement, produces some positive

social results. Actually, it redefines social identity

and highlights contribution and engagement as

dominant categories of existence. In other words,

subjectivity does not acquire the form of an isolated

individualisation or a turn to the inner self. On the

contrary, it is a project of energetic contribution,

deeply rooted in self-help groups, which does not

promote a one-dimensional individualisation. It

rather constitutes a complex social mechanism, which

might lead to new forms of economic exchanges,

altered political paths and more psychological

features.

The intervention of medicine is often

accompanied by a process of self-empowerment that

participants retain regarding both the previous

situation and the future (Tzanakis, 2014). Thus, the

suffering female body becomes at the same time the

object of medical institutions and of personal care.

Voluntary action is precisely a concrete result of this

contradictory experience. Medical interventions tend

to produce subjectivities that are involved in risk

situations that promote new forms of co-existence.

The objectification of the body, through medical

intervention, is accompanied by a parallel process of

individualization and subjectification.

These two elements constitute a practice of the

self (Foucault, 2008, 2009) resulting to the

development of professional re-orientation, voluntary

action and self-help. Through this action, a state of

non-normality (i.e. breast cancer that threatens

profession, family, social and psychological stability

and life itself) is converted to a mechanism of social

integration and economic re-capitulation. This assists,

especially after a successful treatment, to the

restoration of a positive view that leads to a deep

understanding of life and to a paradigm shift.

This transformation is closely connected to a

demand for a personalized treatment for each patient.

The ultimate goal and philosophy of modern breast

cancer treatment, is, as demonstrated, to have a

specific treatment for each patient identity and not in

general for the diseases. This goal, advocated by

applied sociological research, ultimately forms a

solid basis for moderate economic costs and for more

balanced social and psychological effects.

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941

Unemployment Modelled Through M|G|∞

Systems (Revisited) Manuel Alberto M. Ferreira*1, José António Filipe*2, Manuel Coelho#

* Lisbon University Institute ISCTE-IUL, BRU-IUL, ISTAR-IUL, ISTAR-IUL

Portugal [email protected]

[email protected]

#SOCIUS, ISEG-University of Lisbon, Portugal

[email protected]

Abstract - Here it is resumed the work presented in

Ferreira, Filipe and Coelho (2014) where, using the

results on the M|G|∞ queue busy period, it is presented

an application of this queue system in the

unemployment periods’ parameters and distribution

function study. Now it is completed with an evaluation

of the assistance costs.

Keywords - | |M G , busy period, unemployment.

1. The Model

In the M|G| queue system

- The customers arrive according to a

Poisson process at rate

- Receive a service which time length is a

positive random variable with

distribution function .G and mean

- When they arrive, each one finds

immediately an available server

- Each customer service is independent

from the other customers’ services and

from the arrivals process

- The traffic intensity is .

It is easy to understand how the | |M G queue

can be applied to the unemployment study. Then

- is the rate at which occur the firings,

supposed to occur according to a

Poisson process

- The service time is the time between the

worker firing and the moment he/she

finds a new job.

In a queue system a busy period is a period that

begins when a costumer arrives at the system finding

it empty, ends when a costumer abandons the system

letting it empty and in it there is always at least one

customer present. So in a queuing system there is a

sequence of idle and busy periods.

In the | |M G queue system the idle periods have

an exponential length with mean1 .

But the busy period’s distribution is much more

complicated. In spite of it, it is possible to present

some results as it will be seen.

For what interests in this work

- A busy period is a period of

unemployment

- An idle period is a period of full

employment.

The results that will be presented are on

unemployment periods length and their number in a

certain time interval.

2. Unemployment Periods Length

Call D the random variable unemployment period

length. According to the results known for the

| |M G queue busy period length distribution

- 1

(2.1)e

E D

whichever is a worker unemployment time length

distribution (see Takács, 1962) ____________________________________________________________________________________ International Journal of Latest Trends in Finance & Economic Sciences IJLTFES, E-ISSN: 2047-0916 Copyright © ExcelingTech, Pub, UK (http://excelingtech.co.uk/)



942

- As for Var D depends on the whole

unemployment time length distribution probabilistic structure. But Sathe (see Sathe,

1985) demonstrated that

2 2 2 2 2max 2 1;0se e e Var D

2

22 1 1 1 (2.2),se e e

where s the unemployment time length

coefficient of variation

- If a worker unemployment time length

distribution function is

, 0, (2.3)1 t

eG t t

e e e

the D distribution function is

1 1 , 0 2.4 ,e tD t e e t

(see Ferreira, 1991)

- If the unemployment time length of a worker

is such that

1

11 , 0 (2.5)

1t

e

G t t

e e

the D distribution function is

1

11 , 0 2.6 ,

e tD t e t

see (Ferreira, 1995)

- For and great enough (very intense

unemployment conditions) since .G is

such that for great enough

0, 0G t t ,

1 , 0 2.7 ,e tD t e t

(see Ramalhoto and Ferreira, 1994).

Note:

- As for this last result, begin noting that many

probability distributions fulfill the condition

0, 0G t t for great enough. The

exponential distribution is one example.

- As for the meaning of and great

enough, computations presented in

Ramalhoto and Ferreira (1994) show that for

1 , after 10 it is reasonable to

admit (2.7) for many distributions.

Calling the mean number of unemployed people

in the unemployment period, if .G is exponential

.

For any other .G probability distribution

(see Ferreira and Filipe 2010). Of course, multiplying

(2.8) or (2.9), as appropriate, by the mean cost of

each unemployment subsidy it is possible to estimate

the assistance costs caused by the unemployment

period.

Be the probability that everybody is

working at time t, being the time origin the

unemployment period beginning.

Being , where is the probability

density function associated to .G , the service time

hazard rate function1,

,

see Proposition 3.1 in Ferreira and Andrade (2009).

And calling the mean number of seek people

at time t, being the time origin the pandemic period

beginning

1That is: the rate at which unemployed people finds a job.


943

,

see Proposition 5.1 in Ferreira and Andrade (2009).

3. Mean Number of Unemployment

Periods in a Time Interval

After the renewal processes theory, see (Çinlar,

1975), calling ( )R t the mean number of

unemployment periods that begin in 0, t , being

0t the beginning instant of an unemployment

period, it is possible to obtain, see (Ferreira, 1995),

0 0

1 1

0

(3.1)

t u

tG v dv G v dv

R t e e du

and , consequently,

1 1 (3.2),e t R t t

see Ferreira (2004).

Also,

A)

, 01 t

eG t t

e e e

1 (3.3)R t e t

B) 1

11 , 0

1t

e

G t t

e e

2

11 1 3.4t

eR t e e e t e e e

C) 0,

1,

tG t

t

1,

1 ,

tR t

e t t

(3.5)

D) If the unemployment time length is

exponentially distributed

1 1

(3.6)

t t

e e

e e t R t e t

4. Concluding Remarks

So that this model can be applied it is necessary that

the firings occur according to a Poisson process at

constant rate. It is an hypothesis that must be tested.

Among the results presented, (2.1), (2.2), (2.7) and

(3.2) are remarkable for its simplicity and also for

requiring only the knowledge of the firings rate ,

the mean unemployment time , and the

unemployment time variance.

The other results are more complex and demand

the goodness of fit test for the distributions indicated

to the unemployment times.

References

[1] Takács, L. (1962). An introduction to queueing

theory. Oxford University Press.

[2] Ferreira, M. A. M. (1991). Um sistema M|G|

com período de ocupação exponencial. Actas

das XV Jornadas Luso-Espanholas de

Matemática, Vol. IV, D63-D66, Universidade

de Évora, Évora. Accession Number: WOS:

A1991BV70Y00123 .

[3] Ferreira, M. A. M. (1995). Comportamento

transeunte e período de ocupação de sistemas de

filas de espera sem espera. PhD thesis. ISCTE.

[4] Ferreira, M. A. M. (2004). | |M G queue

busy cycle renewal function for some particular

service time distributions. Proceedings of the

International Conference Quantitaive Methods

in Economics (Multiple Criteria Decision

Making XII), 42-47, Virt, Slovakia. Accession

Number: WOS:000288041600006 .

[5] Ferreira, M. A. M., Andrade, M. (2009). The

Ties between the | |M G Queue System

Transient Behaviour and the Busy Period.

International Journal of Academic Research,

1(1), 84-92.


944

[6] Ferreira, M. A. M., Filipe, J. A. (2010).

Economic Crisis: Using | |M G Queue

Systems Busy Period to solve Logistics

Problems in an Organization. China-USA

Business Review, 9(9), 59-63.

[7] Ferreira, M. A. M., Filipe, J. A., Coelho, M.

(2014). Unemployment Modelled Through

M|G|∞ Systems. International Journal of Latest

Trends in Finance and Economic Sciences, 4(1),

677-679, 2014.

[8] Ramalhoto, M. F., Ferreira, M. A. M. (1994).

Some further properties of the busy period of an

| |M G queue. Central European Journal

for Operations Research and Economics, 4(4),

251-278.

[9] Sathe Y. S. (1985) . Improved bounds for the

variance of the busy period of the | |M G

queue. Advances in Applied Probability, 17(4),

913-914. http://dx.doi.org/10.2307/1427096

http://dx.doi.org/10.2307/1427096


945

Enhancing SME Internationalization in a

Transition Economy: The role of Internal

Factors Tsvetan Davidkov #1, Desislava Yordanova #2

#Department of Business Administration, Sofia University “St. Kliment Ohridski”

Sofia, 125 Tzarigradsko Shosse Blvd., bl. 3 [email protected]

[email protected]

Abstract - This study explores the internal factors that

may enhance SME internationalization. It contributes

to the field of international business by providing

hypotheses about organizational and owner-manager’s

characteristics which affect SME internationalization.

Combining the Resource-Based View and the Upper

Echelons Theory the study creates a more complete

picture of the effect of organizational and owner-

manager’s characteristics on the likelihood of SME

internationalization. The proposed hypotheses are

tested in a sample of Bulgarian SMEs offering empirical

evidence about SME internationalization in a transition

context and addressing the call for more research in this

context.

Keywords – Internationalization, SMEs, Bulgaria,

Organizational factors.

1. Introduction

The development of information and

communication technologies, increasing

globalization, and increasingly important role of

small and medium-sized enterprises (SMEs) in the

economy stimulate SMEs to go to foreign markets

(Storey, 2008). The internationalization of SMEs is

an important policy issue because it was suggested

that internationalized SMEs make “a disproportionate

direct contribution to wealth creation” (Storey,

2008:xiv). In transition economies with small

domestic market, such as Bulgaria, the ability of

SMEs to acquire competitive advantage in foreign

markets may be essential for their survival and

growth (Glas et al., 1999; Zhu et al., 2006). However,

SMEs may face size-related characteristics that may

diminish their ability to take advantage of new

opportunities and respond to threats from

internationalization, mainly greater uncertainty in

external environment, limited resource base, and

distinctive behavioural characteristics stemming from

the combination of ownership and management

(Smallbone et al., 1998).

The internationalization of SMEs has been

researched extensively in developed economies. In

transition economies the phenomenon has received

relatively little attention. The available literature on

SMEs’ internationalization aims to explain and

predict how SMEs will internationalize investigating

various aspects including process, resources, firm’s

operations, relationships, networks, and international

environment (Ruzzier et al., 2006). This research has

important practical implications for practitioners and

public decision-makers as it generates knowledge

about effective and successful approaches and

favourable conditions for internationalization. The

research findings about SMEs’ internationalization in

developed countries can not be directly applied to

transition countries due to economic, institution, and

cultural differences. The internationalization of new

and small firms has been researched extensively in

developed economies (Chiao et al., 2006; Coviello

and Jones, 2004), while in transition economies this

phenomenon has received relatively little attention

and there is a need for more research on

internationalization of SMEs in Central and Eastern

Europe (CEE) (Meyer and Peng, 2005; Smallbone et

al., 1998). It was acknowledged that transition

economies in CEE provided a unique environment

for testing and developing theories in international

business (Meyer and Peng, 2005).

The existing research on internalization of SMEs

operating in CEE is limited in several aspects. Most

studies are descriptive and deal with the nature,

environment and barriers to SMEs’

internationalization. They are either qualitative or

rely on limited samples. There is a lack of

understanding why some SMEs tend to

internationalize, what factors determine the nature of

SMEs’ internationalization, and what is the effect of ____________________________________________________________________________________ International Journal of Latest Trends in Finance & Economic Sciences IJLTFES, E-ISSN: 2047-0916 Copyright © ExcelingTech, Pub, UK (http://excelingtech.co.uk/)



946

internationalization decisions on SME performance

in transition economies. Therefore some authors call

for future research on internationalization in CEE

(Meyer and Peng, 2005; Smallbone et al., 1998).

Therefore, the purpose of the present study is to

identify internal factors that enhance the likelihood of

SME internationalization. The paper is organized as

follows. In the next section the specific context of the

research is described. The third section contains

literature review and hypotheses of the study. The

research methodology is described in the following

section. The fifth section contains the empirical

results of the study. The final section presents

conclusions, implications and recommendations for

future research.

2. The Context of the Study

In this section, the context of the present research on

internal factors enhancing SME internationalization

is described. The geographic/political location is an

important cotextual factor for understanding the

internationalization of young and small firms (Ratten

et al., 2007; Dana et al., 2008). This study

investigates the internationalization of SMEs in

Bulgaria, a transition country situated in Eastern

Europe. Although the transition economies in Central

and Eastern Europe differ significantly in various

cultural, political, and economic aspects, they share a

specific context before and during the transition to

market economy (Dana and Ramadani, 2015).

During the period of planned economy, large

state-owned industrial enterprises using mass

production methods and relatively inflexible

production processes and producing for

geographically restricted markets, dominated the

economies in CEE (McMillan and Woodruff, 2002;

Tkachev and Kolvereid, 1999). In most countries in

CEE including Bulgaria, entrepreneurship was not

always a legal activity (Tkachev and Kolvereid,

1999). Private businesses were practically eliminated

in most countries (Manolova et al., 2007) and existed

only as part of the grey economy (Smallbone and

Welter, 2001).

Transition to market economy was a complex

process involving both radical economic and political

transformations in all Eastern European countries

(Dana and Ramadani, 2015). The political transition

included political liberalization, free elections and

democratization and resulted in the establishment of

liberal democracy and civic society in transition

countries (Sokol, 2001). The economic transition

entailed economic liberalization, privatisation and

marketisation and prompted the emergence of a

functioning market economy in these countries

(Sokol, 2001). Bulgaria started the transition process

in 1989 and was one of the first transition countries to

adopt a new constitution, but the privatization and

other necessary reforms were delayed especially in

the early years of transition (Ramadani and Dana,

2013). The preparation of the accession of Bulgaria

to the European Union exercised a positive influence

on the environment for enterprise development. In

2007, after fulfilling economic and political criteria,

Bulgaria joined the European Union, but the

transition is not completed yet, which may be

attributed to the fact that people’s mindset adapts

slower than regulatory reforms (Dana and Ramadani,

2015). Despite the steady economic growth in the

recent past, Bulgaria remains one of the least

developed countries in the European Union. It is

easier to do business in most EU member states than

in Bulgaria (World Bank, 2014). In terms of Global

Competitiveness Index, Bulgaria also lags behind the

majority of the EU member states. Problematic

factors for doing business include corruption, access

to financing, inefficient government bureaucracy,

policy instability, etc. (World Economic Forum,

2014).

The transition created many opportunities for

entrepreneurship in transition countries and

entrepreneurship became an important factor for the

transition from centrally-planned to market economy

(McMillan and Woodruff, 2002). The stage of

development of transition economies affects

significantly both domestic entrepreneurship and

SME internationalization (Dana et al., 2008). The

major obstacles to entrepreneurship development in

transition countries were the heritage from the

planned era and the lack of appropriate institutions

(Dana and Ramadani, 2015). Specific obstacles to

entrepreneurship development in Bulgaria include

political uncertainty, energy issues, lack of

management skills, problematic financing,

infrastructure deficiencies, stigma associated with

entrepreneurship, etc. (Ramadani and Dana, 2013).

SME sector makes a significant contribution to

the Bulgarian economy. SMEs account for more than

99% of all non-financial enterprises in the Bulgarian

economy (Simeonova-Ganeva et. al, 2012, 2013).

Within the SMEs population, the share of micro

enterprises is more than 92% (Simeonova-Ganeva et.

al, 2012, 2013). SMEs provide more than half of the

total employment in the non-financial enterprises and

contribute to a greater extent to gross value added


947

and turnover than large private non-financial

companies (Simeonova-Ganeva et. al, 2012).

Bulgarian SMEs are characterized with low share of

exporters, low innovativeness, low use of intellectual

property, low competitiveness, and low access to

finance, and low integration into European and world

business networks (Simeonova-Ganeva et. al, 2012;

Simeonova-Ganeva et. al 2013). Most SMEs have not

implemented good management practices and have

insufficient access to finance (Simeonova-Ganeva et.

al, 2012; Simeonova-Ganeva et. al 2013). The

adaptation of the Bulgarian SMEs to the European

requirements and global economy is a slow and

painful process. The average labour productivity in

the Bulgarian SMEs is significantly lower than the

average in the European Union. These enterprises are

involved predominantly in activities with low value

added. The main factors that foster the modernization

of Bulgarian SMEs are:

• the external influence from the EU through

regulations;

• the internal influence exerted by the

subsidiaries of multinational companies operating in

Bulgaria.

In summary, during the last decade the

Bulgarian economy has achieved macroeconomic

stability and growth. Various measures were

implemented in order to improve the environment for

doing business especially for SMEs. However, the

Bulgarian economy is characterized by very low

competitiveness in comparison with the other

European Union member states. The reasons for the

low competitiveness of the Bulgarian economy can

be found at both macro-economic and micro-

economic levels.

3. Background and Hypotheses of the

Study

2.2 The role of organizational factors for

SME internationalization

SMEs’s ability to enter foreign markets is directly

related to their accumulated stocks of resources both

in developed and transition economies (Ratten et al.,

2007; Dana et al., 2008; Westhead et al., 2001;

Bloodgood et al., 1996). The Resource-Based View

of the firm (RBV) (Barney, 1991) is a powerful and

influential theoretical framework for rigorous

research in the field of international business as well

as in the context of emerging and transition

economies (Meyer and Peng, 2005). The RBV

assumes that strategic formulation and competitive

advantage are dependent on the resources and

capabilities of the firm (Barney, 1991). Only rare,

valuable, inimitable, and non-substitutable resources

may be sources of sustained competitive advantage

(Barney, 1991). Firms with unique resources may

have a greater propensity to internationalize their

business (Bloodgood et al., 1996). Resources and

capabilities are important not only for SME capacity

for internationalization, but also for its continuing

success (Ratten et al., 2007). Empirical research

confirms that various organizational resources and

capabilities encourage SME internationalization

(Westhead et al., 2001). In this study, the RBV is

used to explain the role of organizational

characteristics for understanding SME

internationalization.

Entrepreneurial orientation may be seen as an

important organizational resource for international

involvement. It was acknowledged that

internationalization is an entrepreneurial act because

it consists of identifying and exploiting

entrepreneurial opportunities in foreign markets

(Jantunen et al., 2005; Ripollés-Meliá et al., 2007).

Entrepreneurial orientation and its dimensions have a

significant positive impact on the likelihood of

internationalization (Ripollés-Meliá et al., 2007),

degree of internationalization (Javalgi and Todd,

2011), scope of internationalization (Ripollés-Meliá

et al., 2007), and international performance (Jantunen

et al., 2005). Therefore, we suggest that:

H1: Entrepreneurial orientation increases the

likelihood of SME internationalization.

Internationalization is considered as a process of

organizational learning and knowledge development

(Basly, 2007). Internationalization knowledge

influences positively the internationalization degree

of the firm (Basly, 2007). Learning is an

organizational capability, which is critical for

increasing the stock of knowledge and knowledge

intensity in the internationalizing firm (Prashantham,

2005:38). Firms’ international learning effort is

positively associated with internationalization intent

(De Clercq et al., 2005), while the chance to acquire

new knowledge is important for the decision to

continue exporting (Burpitt and Rondinelli, 2000).

Learning orientation increases export propensity of

SMEs (Burpitt and Rondinelli, 1998) and affects

positively international performance (Jantunen et al.,

2008). Therefore, we suggest that:

H2: Learning orientation increases the likelihood

of SME internationalization.


948

The lack of resources for internationalization

may impede exploiting abroad the competitive

advantages gained in domestic markets (Fernandez

and Nieto, 2005). Financial resources are necessary

to fund international activities and to introduce the

changes within the firm required for

internationalization including development of firm’s

production, managerial, and marketing capabilities

(Graves and Thomas, 2008). The access to finance

enhances export intensity (Du and Girma, 2007) and

determines internationalization pathway undertaken

(Graves and Thomas, 2008). Therefore, we suggest

that:

H3: Access to financial resources increases the


The presence of foreign investors in companies

operating in Central and Eastern Europe is associated

with numerous positive effects including high

learning, high efficiency governance, and high

corporate restructuring effectiveness (Filatotchev et

al., 2003). Foreign investors may provide SMEs in

transition economies with resources, knowledge and

capabilities in internationalization (Dana et al., 2008;

Filatotchev et al., 2008). Empirical research confirms

the importance of foreign ownership for export

propensity (Rojec et al., 2004), export intensity

(Filatotchev et al., 2008), international sales (Calabrò

et al., 2013). Drawing upon these considerations, we

formulate the following hypothesis:

H4: The presence of foreign investors increases

the likelihood of SME internationalization.

Most empirical research demonstrates that

family businesses and especially family SMEs are

less likely to get involved in international activities

than non-family businesses (Jorissen et al., 2005;

Fernandez and Nieto, 2005; Cerrato and Piva, 2012).

Family SMEs that want to go to international markets

may face the challenge to change their objectives,

culture, structure, and strategy (Gallo and Sveen,

1991). Although family firms may posses unique

resources and capabilities stemming from the the

systematic interaction between the business, the

family and its members, family businesses may also

face some disadvantages such as the ability to make

appropriate shedding decisions about resources,

which may influence negatively their performance

(Sirmon and Hitt, 2003). The lower export propensity

and intensity of family SMEs compared with non-

family SMEs is explained with the difficulties for

acquiring essential resources and capabilities for

building competitive advantage in international

markets (Fernández and Nieto, 2005). Therefore, we

suggest that:

H5: Family SMEs are less likely to have

internationalized their business than non-family

SMEs.

3.2 The role of owner-manager’s

characteristics for SME

internationalization

In the present study, the Upper Echelons Theory is

used to explain the role of owner-manager’s

characteristics for SME internationalization. The

Upper Echelons Theory (Hambrick and Mason,

1984) is one of the key theoretical approaches for

understanding managerial decision-making in

international business (Aharoni et al., 2011). Top

executives in organizations have bounded rationality

and their decision-making is based on biases and

dispositions, which are crucial for understanding the

functioning and performance of organizations

(Hambrick, 2007). Strategic choices of executives

including international strategic choices are a

function of executives’ cognitive processes

(Hambrick and Mason, 1984; Aharoni et al., 2011).

Observable characteristics of executives can be used

as valid indicators of their cognitive base, values and

behaviours (Hambrick and Mason, 1984; Hambrick,

2007; Aharoni et al., 2011). Such observable

characteristics include age, tenure in the organization,

education, functional background, tenure, career

experiences, socioeconomic background, stock

ownership of top executives, etc. (Hambrick and

Mason, 1984). The upper echelons theory has been

substantially supported in empirical research

(Hambrick, 2007; Aharoni et al., 2011).

According to the Upper Echelons Theory education is

an indicator of the knowledge and skill base of

managers (Hambrick and Mason, 1984). Managers

with high educational attainment may exhibit higher

cognitive abilities and skills (Wiersema and Bantel,

1992). Executives with higher educational level may

engage in a more in-dept decision-making analysis,

which is important for managing the

internationalizing business because

internationalization requires learning about unique

national settings with specific cultural and

institutional features (Hsu et al., 2013). Empirical

evidence suggests that top management team’s level

of education is positively associated with strategic

change (Wiersema and Bantel, 1992), level of

internationalization (Casillas and Acedo, 2005), and

scale of internationalization (Hsu et al., 2013).


949

H6: The owner-manager’s level of education

increases the likelihood of SME internationalization.

There are distinct patterns of executive behaviour

within an executive’s tenure in a position (Hambrick

and Fukutomi, 1991). Long tenure is associated with

increasing commitment to the executive’s paradigm

for running the firm, decreasing interest in the job,

relying on narrower and more finely filtered

information, and slowing increase in task knowledge

(Hambrick and Fukutomi, 1991). CEOs tend to

exhibit more conservative attitude toward change as

their tenure increases (Musteen et al., 2006). CEO’s

tenure influence negatively entrepreneurial risk-

taking, especially a firms’ emphasis on innovation

and venturing in domestic and international markets

(Zahra, 2005). Organizational tenure of top

management team was found to be negatively

associated with strategic change (Wiersema and

Bantel, 1992). CEO position tenure is associated with

the choice of foreign market entry mode (Herrmann

and Datta, 2002) and the degree of firm’s

internationalization (Jaw and Lin, 2009).

H7: The owner-manager’s tenure decreases the


4. Research Methodology

This study uses a sample of 190 SMEs (83 family

businesses and 107 non-family businesses) operating

in Bulgaria. The sample was extracted from a

database about corporate entrepreneurship in

Bulgarian enterprises (Yordanova, 2013).

Respondents are the owner-managers of the

companies. The survey uses a structured

questionnaire containing questions about the

characteristics of the organization, the owner-

manager, and the environment. More than 64% of the

sample companies operate predominantly in the

service sector. Microenterprises represent 32.1% of

the sample firms, while small enterprises account for

41.6%. Approximately 44% of the sample firms

operate for less than 10 years.

Following Ruzzier et al., (2006:477), in this

research internationalization is defined as

“geographical expansion of economic activities over

a national country’s border”. As there is no

commonly accepted measure of internationalization

(Sullivan, 1996), researchers use various approaches

to operationalize internationalization. Some authors

explore one or more specific modes of entry to

foreign markets such as exporting and/or foreign

direct investment (Westhead et al., 2001; Chiao et al.,

2006). Empirical studies on internationalization using

data from Bulgaria or other Eastern European

countries are also focused either on exporting (Lloyd-

Reason et al., 2005; Smallbone et al., 1998) or on

foreign direct investment (Svetličič et al., 2007). The

modes of internationalization most frequently cited

by SMEs are direct exporting without an overseas

base and establishing an overseas base through some

form of foreign direct investment (Wright et al.,

2007). Therefore the present investigation, which is

based on a sample of SMEs, examines the

involvement of the sample companies in exporting

and/or foreign direct investment. The variable

INTERNATIONALIZATION is a binary variable. It

takes value 1 if the company exports products or

services and/or has made foreign direct investments

and value 0 if not.

The variable EO reveals the level

entrepreneurial orientation of the sample firms. EO is

measured with 9-item, 7-point Likert scale proposed

by Covin and Slevin (1989). Its validity and

reliability was poven in previous research (Wiklund,

1998). In this study the EO scale reports acceptable

reliability (Cronbach alpha’s value is 0.858).

The variable LO indicates the level of learning

orientation of the studies companies. LO is measured

through a scale developed by Sinkula et al. (1997).

The scale is retested by Baker and Sinkula (1999)

who provide further evidence for its validity and

reliability. The Cronbach’s alpha of the learning

orientation scale adopted in this study is 0.833.

Following Wiklund and Shepherd (2005), this

study uses a subjective measure of the owner-

manager’s access to financial capital. The dummy

variable RESOURCES is coded 1 if the respondent’s

answer to this question is somewhat satisfactory,

mostly satisfactory or fully satisfactory for the firm’s

development and 0 if the respondent has given

another answer.

The dummy variable FOREIGN indicates the

presence of foreign owners (value 1) or otherwise

(value 0).

The most common definition of family business

applied in literature on internationalization of family

businesses is based on a combination of ownership

and management criteria (Kontinen and Ojala, 2010).

Therefore, in this study family SMEs are SMEs

where one family controls the company and is

represented in its management team (Naldi et al.,

2007). This approach to defining family business will

increase the comparability of our results with

previous empirical findings about internationalization


950

of family businesses, which was recommended by

Kontinen and Ojala (2010). The dummy variable

FAMILY indicates whether the company is a family

business (value 1) or not (value 0).

The dummy variable CEO_EDU indicates the

level of education acquired by the owner-manager of

the company (1 = university degree, 0 = other). The

variable TENURE indicates the owner-manager’s

tenure in this position in number of years.

Three control variables are used in the study.

The variable FIRM_AGE measures firm age in

number of years. The variable MANUFACTURING

indicates if the company operates predominantly in

the manufacturing sector (value 1) or not (value 0).

The variable SERVICES takes value 1 if the

company operates predominantly in the service sector

and value 0 if not.

A binary logistic regression was employed to

deal explicitly with the dependent variable

INTERNATIONALIZATION, which is a binary

variable (Greene, 1997). The logistic regression is a

robust method since according to Greene (1997):

• the dependent variable needs not to be

normally distributed;

• logistic regression does not assume a linear

relationship between the dependent and the

independent variables;

• the dependent variable needs not to be

homoscedastic for each level of the independent

variable(s);

• normally distributed error terms are not

assumed;

• independent variables can be categorical;

• it does not require independent variables to

be interval or unbounded.

The application of non-parametric techniques is

adequate when the independent variables are

predominantly categorical. The use of the maximum

likelihood approach is recommended when sample

selection bias is possible (Nawata, 1994).

Binary logistic regression provides a framework

that indicates if and how well independent variables

can adequately predict SME internationalization. The

estimated binary logistic models take the following

form:

Prob (SME internationalization)

= 1 / (1 + e-Z) (1)

where Z = f (Xi, C), i.e. a linear combination of

independent variables (Xi) and a constant (C).

The research hypotheses will be supported if

regression analysis provides an acceptable accuracy

of classification of cases and of goodness of fit

measures. In addition, the impact of explanatory

variables should be statistically significant at least at

the 10 percent level (two-tailed test) with the

predicted sign. Wald statistics will be used to

estimate the significance of the independent

variables. Data analyses are performed with the

statistical package SPSS version 15.0.

5. Empirical Results

In this section we present the empirical results of

hypotheses test in our sample of 190 Bulgarian

SMEs. A logistic regression model has been

estimated to identify which independent variables

predict SME internationalization (Table 1). The

model is significant at 99% confidence level

according to Chi-square statistics. The Variance

Inflation Factor (VIF) is calculated in order to check

for the presence of multicollinearity problems. The

values of the Variance Inflation Factor (VIF) for all

regressors included in Table 1 do not exceed 2, which

excludes multicollinearity. The overall predictive

ability of the regression model in Table 1 to classify

correctly companies by the presence of growth plans

is more than 76%, which is much higher than the

random chance (50%).

Four organizational characteristics seem to

impact significantly the probability of SME

internationalization. The coefficients of the variables

EO, MANUFACTURING, RESOURCES, and

FOREIGN are statistically significant and positive.

SME with higher entrepreneurial orientation are more

likely to have internationalized their business. The

presence of foreign owner(s) increases the probability

of SME internationalization. SMEs with good access

to financial resources are also more likely to have

internationalized their business. The choice of

manufacturing sector is related to higher probability

of internationalization. Hypotheses H1, H3, and H4

cannot be rejected.

Contrary to what was suggested, learning

orientation and family business status have no

statistically significant influence on the probability of

SME internationalization. The coefficients of the

variables LO and FAMILY are not statistically

significant. There are no significant differences in the

likelihood of going to foreign markets between

family and non-family SMEs in the sample. The level


951

of learning orientation is not associated with

differences in the likelihood of internationalization of

the studied SMEs. Hypotheses H2 and H5 can be

rejected. The control variables SERVICES and

FIRM_AGE have no impact on SME

internationalization. Firm age and the choice of

service sector are not associated with the odds of

internationalization.

Table 1 demonstrates that individual

characteristics of the owner-manager included in the

present study have no significant impact on the

dependent variable INTERNATIONALIZATION.

Contrary to our expectations, education level and

tenure of the CEO are not related to the probability of

going to foreign markets. Hypotheses H6 and H7 can

be rejected.

Table 1 The effect of internal factors on SME

internationalization

Variables Coefficients Std.

Error

Wald

EO 0.041** 0.020 4.070

LO -0.020 0.021 0.904

RESOURCES 0.694* 0.378 3.372

FOREIGN 2.154*** 0.497 18.765

FAMILY 0.316 0.397 0.636

EDU 0.643 0.672 0.917

TENURE -0.061 0.040 2.369

FIRM_AGE 0.026 0.018 2.156

MANUFACTURIN

G

1.910*** 0.618 9.561

SERVICES 0.431 0.508 0.721

Constant -2.912** 1.306 4.969

Chi-square 62.990***

-2 Log likelihood 195.649

Overall % correct

predictions

76.8

N 190

* p<0.1 ** p<0.05 ***p<0.01

6. Discussion and Conclusions

The shift from centrally planned to market economy

in the countries in Central and Eastern Europe has led

to the emergence of a large number of privately

owned SMEs, which play important role for

countries’ economic development. In order these

enterprises to remain competitive in both local and

international markets it is of the utmost importance to

gain understanding what factors encourage their

internationalization. Due to increasing globalization

and volatility of markets, internationalization

constitutes an important strategic option to SMEs to

increase their competitive advantage in national and

international markets (Calabrò et al., 2013). This

study explores the internal factors that may enhance

SME internationalization. It contributes to to the field

of international business by providing hypotheses

about organizational and owner-manager’s

characteristics which affect SME internationalization.

Combining the Resource-Based View and the Upper

Echelons Theory the study creates a more complete

picture of the effect of internal factors on the

likelihood of SME internationalization and a deeper

understanding of the relationship between the internal

factors and various owner-manager’s and

organizational characteristics. The proposed

hypotheses are tested in a sample of Bulgarian SMEs

offering empirical evidence about SME

internationalization in a transition context and

addressing the call for more research in this context

(Meyer and Peng, 2005; Smallbone et al., 1998).

This study reveals that several organizational

factors play important role for stimulating SME

internationalization. Manufacturing SMEs are

significantly more likely to go to foreign markets

than othet SMEs, which is not a surprising finding

about a country with small domestic market such as

Bulgaria. The presence of foreign owners has a

strong positive effect on the odds of

internationalization. Similarly to previous research

(Rojec et al., 2004; Filatotchev et al., 2008; Calabrò

et al., 2013) our findings demonstrate that foreign

investors play an important strategic role for SME

internationalization. This is consistent with the RBV

which suggests that foreign owners may provide

SMEs in transition economies with resources and

capabilities needed for their internationalization such

as new products and marketing skills, knowledge,

technology, management skills, know-how, etc.

(Dana et al., 2008; Filatotchev et al., 2008).


952

Entrepreneurial orientation has a significant

positive effect on the likelihood of SME

internationalization. SMEs with pro-active, risk

seeking and innovative behaviour are more likely to

identify and exploit entrepreneurial opportunities in

foreign markets. This finding is consistent with

resource-based perspective that entrepreneurial

orientation may be seen as an important resource

driving international involvement. From a research

standpoint, these results enhance existing body of

knowledge about the strategic importance of

entrepreneurial orientation to internationalization

(Ripollés-Meliá et al., 2007; Javalgi and Todd, 2011;

Jantunen et al., 2005).

The finding that the access to financial resources

enhances the odds of internationalization is in line

with previous research (Du and Girma, 2007). It

seems that the lack of access to financial resources

impedes the studied SMEs to exploit abroad the

competitive advantages gained in domestic markets

(Fernandez and Nieto, 2005). SMEs with insufficient

access to financial resources may not be able to fund

international activities and to introduce the changes

within the firm required for internationalization

including development of firm’s production,

managerial, and marketing capabilities (Graves and

Thomas, 2008).

The proposed hypotheses about the effects of

learning orientation and family business status were

rejected. Learning orientation is not associated with

SME internationalization, which is in contradiction

with previous empirical evidence about the

importance of learning orientation for

internationalization (Burpitt and Rondinelli, 1998;

Jantunen et al., 2008). Empirical findings of the

present study demonstrate that family and non-family

SMEs do not differ significantly in the likelihood of

internationalization. Contrary to previous research in

other countries and contexts (Jorissen et al., 2005;

Fernandez and Nieto, 2005; Cerrato and Piva, 2012),

family SMEs are not less likely to internationalize

their operations than non-family SMEs in the studied

sample from a transition economy.

The present study did not find support for the

role of owner-manager’s characteristics for

explaining SME internationalization. Although

previous research finds that top executive’s tenure

(Jaw and Lin, 2009; Herrmann and Datta, 2002) and

education (Casillas and Acedo, 2005; Hsu et al.,

2013; Arregle et al., 2012) are associated with firm’s

internationalization, our analysis reveals that the

effects of owner-manager’s tenure and education

level on SME internationalization are not statistically

significant in the studied sample.

Before discussing the implications of the

findings, some limitations of the study should be

noted. First, this exploratory study uses a relatively

small sample of SMEs and therefore the findings

should be interpreted with caution. Second, data was

collected through a self-reported survey and thus may

be subjected to cognitive biases and errors. Third, the

findings may be influenced by specific features of the

Bulgarian cultural and institutional environment and

therefore may not be applicable to other developed or

developing economies. Finally, due to the cross-

sectional design of the research causal relationships

cannot be deduced.

In order to enhance the understanding of

internationalization in family and non-family SMEs

operating in different contexts, future research needs

to examine the following aspects. The presented

hypotheses should be tested in a large representative

sample of Bulgarian SMEs. Future research should

examine the importance of other individual and

organizational characteristics for SME

internationalization. Future research should also

examine to what extent the findings of this study can

be generalized to SMEs operating in other transition

countries or in other contexts. A longitudinal analysis

of SME internationalization should complement the

findings of this research in order to confirm causal

relationships. The multiple measurements of

independent and outcome variables in the study over

time will allow examining the bidirectional

relationships between the variables studied.

The findings reported here have several

important implications for practitioners. It is clear

from the results of our study that owners and

managers in SMEs must foster entrepreneurial culture

throughout the organization in order to stimulate the

internationalization of their business opperations.

Attracting foreign investors appears as a critical

factor for SME internationalization. SMEs should be

aware that foreign investors may provide valuable

resources such as know-how, finance and other

resources, knowledge, information about foreign

clents and markets, etc., which may enhance their

chances to enter successfully foreign markets and to

achieve competitive advantage in these markets.

Therefore, SMEs should try to attract foreign

investors in order to be able to benefit from the

presence of foreign investors and to dispose with

valuable resources that these investors may provide

for their internationalization. Policy makers should


953

implement specific policies, instruments and

mechanisms for improving the SMEs’ access to

financial capital in order to enhance their

internationalization. Loan institutions, risk capitalists,

business partners and business angles trying to

identify SMEs with propensity to internationalize

their operations should pay more attention on

organizational factors including its entrepreneurial

orientation, the presence of foreign investors, secotr

and access to resources.

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957

Multicriteria and Multiobjective Models for

Risk, Reliability and Maintenance Decision

Analysis - A Book Review Manuel Alberto M. Ferreira

Lisbon University Institute ISCTE-IUL, BRU-IUL, ISTAR-IUL

Portugal

[email protected]

Abstract - The objective of this work is the book

“Multicriteria and Multiobjective Models for Risk,

Reliability and Maintenance Decision Analysis”, 978-3-

319-17968-1, from Springer Series “International Series

in Operations Research & Management Science”

review.

The authors are:

- de Almeida,

A.T.

- Cavalcante,

C.A.V.

- Alencar, M.H.

-Ferreira, R.J.P.

- de Almeida-

Filho, A.T.

- Garcez, T.V.

It is composed of twelve chapters

Chapter I

Multiobjective and Multicriteria Problems and

Decision Models

Almeida, Adiel Teixeira (et al.)

Chapter II

Multiobjective and Multicriteria Decision Processes

and Methods


Chapter III

Basic Concepts on Risk Analysis, Reliability and

Maintenance


Chapter IV

Multidimensional Risk Analysis


Chapter V

Preventive Maintenance Decisions


Chapter VI

Decision Making in Condition-Based Maintenance


Chapter VII

Decision on Maintenance Outsourcing


Chapter VIII

Spare Parts Planning Decisions


Chapter IX

Decision on Redundancy Allocation


Chapter X

Design Selection Decisions


Chapter XI

Decisions on Priority Assignment for Maintenance

Planning


Chapter XII

Other Risk, Reliability and Maintenance Decision

Problems

Almeida, Adiel Teixeira (et al.).

According to the authors “Multicriteria and

Multiobjective Models for Risk, Reliability and

Maintenance Decision Analysis” is implicitly

structured in three parts. The first part deals with

MCDM/A (Multi-Criteria Decision

Making/Analysis) concepts methods and decision

processes. The second part presents the main

concepts and foundations of RRM (Risk, Reliability

and Maintenance). Finally the third part deals with

specific decision problems in the RRM context

approached with MCDM/A.

1. The Review

Since a long time Operations Research is

connected with Management. In this sense it is a

fundamental tool in the management of

organizations, in particular the ones producers of

services and goods: the companies. There some of the

most important professionals are engineers and

____________________________________________________________________________________ International Journal of Latest Trends in Finance & Economic Sciences IJLTFES, E-ISSN: 2047-0916 Copyright © ExcelingTech, Pub, UK (http://excelingtech.co.uk/)

http://www.springer.com/series/6161


http://www.springer.com/us/book/9783319179681



958

managers.

The “Multicriteria and Multiobjective Models

for Risk, Reliability and Maintenance Decision

Analysis” authors represent a group of active

members of scientific societies in Operations

Research and RRM areas and are Professors in

Management Engineering. In this book they

efficaciously show how to use the multiple criteria

concepts and methods within the RRM context.

Applied Probability (Decision Analysis, Reliability

Theory,…), Decision Making ( MCDM, MCDA,…)

and Mathematical Programming (Multiobjective

Optimization,…) are the main tools used in the text.

The book is very well structured and written in

very good English. The whole cases studied are

consistently scientifically approached and their

practical application adequately exemplified.

It is divided, implicitly, not effectively, in three

parts. The first two are mainly conceptual and

methodological. The third is more operative. In the

first part are considered MCDM/A concepts methods

and decision processes. In the second part the main

concepts and foundations of RRM are presented.

Finally the third part, supported on the former ones,

deals with specific decision problems in the RRM

context approached with MCDM/A.

Since Reliability and Maintenance become of

major importance, due to

the demands that the services are

permanently available (generating each

interruption losses and customer

abandonment) and the products are of

consistently high quality (the lack of quality

causing complaints and opting for an

alternative product),

the companies fight to reduce the costs and

simultaneously improve their performances

in order to reach their strategic objectives,

failures may cause dramatic consequences in

terms of safety and environmental losses,

this book becomes important, even

indispensable, either for academic or for

professionals in the fields of service and industry.

Also as the whole subjects are explained very clearly,

in a very pedagogical way, it may conquer larger

number of readers.

2. Overall review

“Multicriteria and Multiobjective Models for


Analysis” is an outstanding text on the multiple

criteria concepts and methods use within the Risk,

Reliability and Maintenance context. It is an

indispensable book, either for academic or for

professionals in the fields of services and industry,

beginners or seniors, and for anyone curious on this

subject.

3. References

[1] de Almeida, A. T., Cavalcante, C. A.

V., Alencar, M. H., Ferreira, R. J. P., de

Almeida-Filho, A. T., Garcez, T. V..

Multicriteria and Multiobjective Models for


Analysis. International Series in Operations

Research & Management Science 231, ISBN: ",

978-3-319-17968-1. Springer International

Publishing Switzerland, 2015.



Call for Papers

The journal welcomes high quality original research papers, survey papers,

review papers, tutorial, technical notes as well as discussion papers.

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Making

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Management

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Forecasting Financial Markets Economic Policy

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Pricing and Risk of Financial

Instruments

Advances in Financial Econometrics

and Statistics

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International Journal of Latest Trends in

Finance & Economic Sciences

international journal of latest trends in finance and economic sciences

Documents

lisboa iscteiul

portugal abstracting

university of evora

instituto universitrio

stetson university

university of minho

annamalai university

manuel alberto