On the Interconnection of Networks and Gains from Trade in Business Services
|
|
- Willis Hawkins
- 8 years ago
- Views:
Transcription
1 Toru Kikuchi / Journal of Economic Research 8 (2003) 69{76 69 On the Interconnection of Networks and Gains from Trade in Business Services Toru Kikuchi 1 Kobe University Received 1 April 2003; accepted 1 November 2003 Abstract Using a two-country model of monopolistic competition with country-speci c communications networks, this note establishes a link between gains from trade in intermediate business services and gains from the interconnection of networks. Keywords: Monopolistic competition; Interconnection of communications networks; Trade in intermediate business services JEL classi cation: D43; F12 1 Introduction Ever since the seminal work of Ethier (1979), intra-industry trade in intermediate business services (e.g., business software development, accounting, data processing) has been one of the major aspects of trade theory. Harris (1998) explores an important relationship between trade in business services and advancement in communications networks (e.g., the Internet, mobile telecommunications networks). 2 1 Graduate School of Economics, Kobe University 2-1, Rokkodai Nada,Kobe,Japan, ( ) kikuchi@econ.kobe-u.ac.jp. The author is grateful to James Atsu Amegashie, David Anderson and two anonymous referees for helpful comments. The author is also grateful to the Department of Economics at Simon Fraser University for generous support and hospitality over the period in which this paper was written. 2 Along this line, Kikuchi(2002) develops a two-country trade model that emphasizes theroleofcommunicationsnetworksin determining comparative advantages. See, also, Kikuchi(2003).
2 70 On the Interconnection of Networks and Gains from Trade in Business Services He emphasizes that advanced networks will facilitate the enhancement of international trade in intermediate business services.evidence of this includes, for example, the fact that sophisticated software engineers from India can deliver their services to the United States and Europe via the Internet. In the trade theory literature, however, relatively little is known about the welfare consequences of trade in intermediate business services via communications networks. The main contribution of this note is to establish a link between gains from trade in intermediate business services and gains through network e ects. These links are obtained by introducing the concept of `interconnected networks' into the workhorse two-country model of monopolistic competition (i.e., Krugman, 1980). In this model, a country is treated as a collection of regions which produce di erentiated business services and exchange them via a country-speci c communications network. The welfare e ects of the international exchange of services are examined on the basis of this model. Trade liberalization in the service sector can be interpreted as the interconnection of countryspeci c networks. It will be shown that the distribution of gains from the interconnection of networks will be varied according to the degree of substitution between business services. The next section develops a model of monopolistic competition in which business services are traded via country-speci c networks. Section 3 deals with the question of the distribution of gains from the interconnection of networks. 2 The Model Suppose that there are two countries in the world, Home and Foreign, and that they are similar in regard to consumers' preferences and production technologies but not necessarily in regard to size. There is only one primary factor of production: labor. There are two sectors: the competitive sector which uses only business services as inputs, and the monopolistically competitive sector which produces a large variety of business services. A country might be thought of as a collection of regions among which business services are exchanged via a countryspeci c communications network. Each region is endowed with L units
3 Toru Kikuchi / Journal of Economic Research 8 (2003) 69{76 71 of labor, and labor is assumed to be physically immobile across regions. Home (Foreign) consists of m(m )regions. Without loss of generality, Home is assumed to be larger than Foreign (m >m ). Each region's production function of the nal good is as follows: 3 Ã 1 nx µ X = x µ! i ; 0 <µ<1; (1) i where n is the number of available intermediate business services, x i is the quantity of service i, and1=(1 µ) > 1 is the elasticity of substitution between every pair of services. Business services are supplied by monopolistically competitive rms. The central assumption is that both the production and the distribution of services require communications through the country-speci c network, which is provided by the natural monopolist. To get on the network, each service rm has to pay a xed fee, w, where w is the wage rate. 4 Once each rm gets on the network, it has a constant marginal cost, w. With the number of service rms being very large, the elasticity of demand for each service becomes 1=(1 µ). Thus each service is priced at a markup over marginal cost: p = w=µ. Withn rms, the pro t of each rm, ¼, is given as: ¼ = px w( + x). Thus the level of output thatgenerateszeropro tsisgivenby¹x = µ= (1 µ). If a region does not exchange business services with other regions, the output level of that region becomes X = n (1 µ)=µ (n¹x): (2) The number of services produced within a region is given by n =(1 µ)l=. In what follows, units are chosen such that n = 1: each region is assumed to produce one type of service, and without exchange, that is the only service available to the region. At monopolistically competitive equilibrium, each region specializes in a di erent service. 3 One may think of this as the utility of households that are consuming di erentiated consumption goods. 4 This assumption implies (a) that there are aggregate constant returns in providing communications services, and (b) that the pricing of communications services is done on an average-cost basis. See Harris (1998).
4 72 On the Interconnection of Networks and Gains from Trade in Business Services Consider the Home autarky equilibrium in which m regions' services are exchanged via a Home-speci c communications network. In this case, service rms in each region send their own services to other regions via the network. At the same time, the volume of services importsineachregionisgivenby¹x(m 1)=m. This implies that, in each region, nal good producers assemble m types of services provided via the network. Each region produces the following amount of output: X = m (1 µ)=µ ¹x. Thus, one can think of Home (Foreign) itself as representing a network of size m(m ). The total amount of the Home output becomes: V A mx A = m (m (1 µ)=µ ¹x) =m 1=µ ¹x; where superscript A represents the autarky value. This shows that the productivity per region (V=m) rises as the total number of regions increases. The productivity bene ts of communications are the gains from trade that accrue from increased specialization in the provision of business services. 5 3 Gains from the Interconnection of Networks This section investigates the welfare consequences of trade in business services. Before turning to the analysis, some terminology needs to be clari ed. First, `trade in services' is synonymous with the `interconnection of country-speci c networks': through the interconnected networks, every service rm sends its service to the other country. Second, gains from the interconnection of networks are measured in terms of changes in the level of total output. Suppose that two countries of size m and m are connected through the internationally interconnected networks: Home-speci c network and Foreign-speci c network are interconnected. 6 In this case, both coun- 5 In the literature of network economics, network e ects denote positive externality, which is di erent from the simple proportional increase of output with the increased service diversity discussed here (e.g., Katz and Shapiro, 1985). However, in this model, to keep matters simple, it is assumed that there is no positive externality, although it is important to include the positive externality e ect. 6 It is natural to assume that there is an additional cost of interconnection for each network. However, to keep matters simple, assume that there are no additional costs.
5 Toru Kikuchi / Journal of Economic Research 8 (2003) 69{76 73 tries will gain through an increase in the range of available business services. In each region, nal good producers assemble m + m types of services provided via the interconnected networks. Thus the total amount of the Home output becomes: 7 V T mx T = m (m + m ) (1 µ)=µ ¹x; where superscript T represents the trading equilibrium. Increases in the level of output in each country are calculated as: V V T V A =[m (m + m ) (1 µ)=µ m 1=µ ]¹x; (3) V V T V A =[m (m + m ) (1 µ)=µ m 1=µ ]¹x: (4) Subtracting (4) from (3) yields the relationship V V =[(m m ) (m + m ) (1 µ)=µ m 1=µ + m 1=µ ]¹x: (5) 7 Since the zero-pro t output ¹x remainsconstantinthismodel,thereareneither gains nor loss from changes in each rm's average cost. Thus, the gains from trade come solely through increased service diversity. Krugman (1979) develops a di erent model in which trade leads to an increase in scale of production as well as an increase in diversity.
6 74 On the Interconnection of Networks and Gains from Trade in Business Services Figure 1. Figure 1 plots the relationship between V V and µ. This shows that gains from the interconnection of networks might be asymmetrical between the two countries. This surprising feature can be summarized as follows: Proposition: If the elasticity of substitution is below (above) the cuto level, the larger country will gain more (less) than the smaller one from the interconnection of networks. Two special cases warrant further attention. First, given that µ < 0:5 holds, the di erence in gains grows as µ decreases, i.e., the value placed on variety increases. The reason is as follows. From (2),
7 Toru Kikuchi / Journal of Economic Research 8 (2003) 69{76 75 it follows that X is convex (concave) in the number of available services when µ<(>)0:5. 8 Thus, given that µ<(>)0:5 holds, the larger (smaller) a country is, the more it gains from interconnection. This result is quite contrary to the one from the competitive analysis (i.e., the smaller country gains more than the larger country). 9 It also implies that there might be asymmetric incentives for interconnection. Thus, when network e ects are incorporated into trade models, the argument for trade gains might require modi cation. Next, consider the case in which µ =0:5. Here the value of the Home network before interconnection takes place is m 2, in accordance with `Metacalfe's Law' which says that the usefulness of a network is proportional to the m 2 of the number of people it connects. In this case, from (5), one can conclude that each country gets equal value from interconnection (i.e., V V = 0). The intuition behind this is fairly simple. On one hand, each region in the larger country gets a bit of extra value from connecting to the smaller country, but there are many regions. On the other hand, each region in the smaller country gains more through an increase in the number of available services, but there are fewer regions in the smaller country. 10 This implies that, given the particular value of the elasticity of substitution, gains from interconnection are split more or less equally, even among countries of di erent size. As Varian (2000) suggests, this gives some rationale for why settlement-free interconnection is common among large backbone providers of the Internet. Though the model presented here is extremely simple and crucially dependent on several restrictive assumptions, it establishes a link between the workhorse trade model of monopolistic competition and network e ects. Furthermore, the analysis presented here provides at least some grounds for the widespread concern over gains from the interconnection of networks. 8 By using (2), it is easy to calculate that partialx=partialnj n¹x=const: = [(1 µ)=µ]n (1 2µ)=µ (n¹x), 2 X=@n 2 j n¹x=const: =[(1 µ)(1 2µ)=µ 2 ]n (1 3µ)=µ (n¹x). 9 This is known as Mill's Paradox. See Chipman (1965). 10 One can also interpret this result as follows: V canbeexpressedas V = m v; where v measures gains from trade per region. For the larger country m is greater than m, but v is smaller than v. Thus, whether V is greater than V or not depends on the value of variety.
8 76 On the Interconnection of Networks and Gains from Trade in Business Services References Chipman, J. S.,\A survey of the theory of international trade: part 1, the classical theory," Econometrica 33, 1965, 477{519. Ethier, W. J.,\Internationally decreasing costs and world trade," Journal of International Economics 9, 1979, 1{24. Harris, R. G.,\Internet as the GPT," in: Helpman, E., ed., General Purpose Technologies and Economic Growth, MIT Press, Cambridge, 1998, 145{166. Katz, M. L. and C. Shapiro,\Network externalities, competition, and compatibility,"american Economic Review 75, 1985, 424{440. Kikuchi, T.,\Country-speci c communications networks and international trade in a model of monopolistic competition," Japanese Economic Review 53, 2002, 167{176. Kikuchi, T.,\Interconnectivity of communications networks and international trade," Canadian Journal of Economics 36, 2003, 155{167. Krugman, P.,\Increasing returns, monopolistic competition, and international trade," Journal of International Economics 9, 1979, 469{ 479. Krugman, P., \Scale economies, product di erentiation, and pattern of trade," American Economic Review 70, 1980, 950{959. Varian, H. R.,\Market structure in the network age," in: Brynjolfsson, E. and B. Kahin, eds., Understanding the Digital Economy, MIT Press, Cambridge, 2000, 137{150.
Corporate Income Taxation
Corporate Income Taxation We have stressed that tax incidence must be traced to people, since corporations cannot bear the burden of a tax. Why then tax corporations at all? There are several possible
More informationGains from trade in a Hotelling model of differentiated duopoly
Gains from trade in a Hotelling model of differentiated duopoly Kenji Fujiwara School of Economics, Kwansei Gakuin University and Department of Economics, McGill University August 8, 009 Abstract Constructing
More informationNBER WORKING PAPER SERIES MISSING GAINS FROM TRADE? Marc J. Melitz Stephen J. Redding. Working Paper 19810 http://www.nber.
NBER WORKING PAPER SERIES MISSING GAINS FROM TRADE? Marc J. Melitz Stephen J. Redding Working Paper 980 http://www.nber.org/papers/w980 NATIONAL BUREAU OF ECONOMIC RESEARCH 050 Massachusetts Avenue Cambridge,
More informationReal Wage and Nominal Price Stickiness in Keynesian Models
Real Wage and Nominal Price Stickiness in Keynesian Models 1. Real wage stickiness and involuntary unemployment 2. Price stickiness 3. Keynesian IS-LM-FE and demand shocks 4. Keynesian SRAS, LRAS, FE and
More informationOligopoly and Trade. Notes for Oxford M.Phil. International Trade. J. Peter Neary. University of Oxford. November 26, 2009
Oligopoly and Trade Notes for Oxford M.Phil. International Trade J. Peter Neary University of Oxford November 26, 2009 J.P. Neary (University of Oxford) Oligopoly and Trade November 26, 2009 1 / 11 Oligopoly
More information14.581 MIT PhD International Trade Lecture 9: Increasing Returns to Scale and Monopolistic Competition (Theory)
14.581 MIT PhD International Trade Lecture 9: Increasing Returns to Scale and Monopolistic Competition (Theory) Dave Donaldson Spring 2011 Today s Plan 1 Introduction to New Trade Theory 2 Monopolistically
More informationHyun-soo JI and Ichiroh DAITOH Tohoku University. May 25, 2003. Abstract
Interconnection Agreement between Internet Service Providers and the Optimal Policy Intervention: The Case of Cournot-type Competition under Network Externalities Hyun-soo JI and Ichiroh DAITOH Tohoku
More informationWelfare E ecta Ectal model of Trade
Wor King Papers Economics Working Papers 202-07 Additive versus multiplicative trade costs and the gains from trade Allan Sørensen As of January 202 ECON-ASB working papers are included in Economics Working
More informationQuality differentiation and entry choice between online and offline markets
Quality differentiation and entry choice between online and offline markets Yijuan Chen Australian National University Xiangting u Renmin University of China Sanxi Li Renmin University of China ANU Working
More informationAn optimal redistribution scheme for trade gains
An optimal redistribution scheme for trade gains Marco de Pinto y University of Kassel May 25, 202 Abstract The contribution of this paper is to derive an optimal redistribution scheme for trade gains
More informationHow To Find Out How To Balance The Two-Country Economy
A Two-Period Model of the Current Account Obstfeld and Rogo, Chapter 1 1 Small Open Endowment Economy 1.1 Consumption Optimization problem maximize U i 1 = u c i 1 + u c i 2 < 1 subject to the budget constraint
More informationINTERNATIONAL ECONOMICS, FINANCE AND TRADE Vol.I - Economics of Scale and Imperfect Competition - Bharati Basu
ECONOMIES OF SCALE AND IMPERFECT COMPETITION Bharati Department of Economics, Central Michigan University, Mt. Pleasant, Michigan, USA Keywords: Economies of scale, economic geography, external economies,
More informationCan a Lump-Sum Transfer Make Everyone Enjoy the Gains. from Free Trade?
Can a Lump-Sum Transfer Make Everyone Enjoy te Gains from Free Trade? Yasukazu Icino Department of Economics, Konan University June 30, 2010 Abstract I examine lump-sum transfer rules to redistribute te
More informationUnilateral and Multilateral Gains from Trade in International Oligopoly
Unilateral and Multilateral Gains from Trade in International Oligopoly Kenji Fujiwara Graduate School of Economics, Kobe University Japan Society for the Promotion of Science Received January 2005; Final
More informationNBER WORKING PAPER SERIES MARKET SIZE, DIVISION OF LABOR, AND FIRM PRODUCTIVITY. Thomas Chaney Ralph Ossa
NBER WORKING PAPER SERIES MARKET SIZE, DIVISION OF LABOR, AND FIRM PRODUCTIVITY Thomas Chaney Ralph Ossa Working Paper 18243 http://www.nber.org/papers/w18243 NATIONAL BUREAU OF ECONOMIC RESEARCH 1050
More informationImported Inputs and the Gains from Trade
Imported Inputs and the Gains from Trade Ananth Ramanarayanan University of Western Ontario February, 23 PRELIMINARY AND INCOMPLETE Abstract The bulk of international trade takes place in intermediate
More informationLecture 9: Keynesian Models
Lecture 9: Keynesian Models Professor Eric Sims University of Notre Dame Fall 2009 Sims (Notre Dame) Keynesian Fall 2009 1 / 23 Keynesian Models The de ning features of RBC models are: Markets clear Money
More informationPaid Placement: Advertising and Search on the Internet
Paid Placement: Advertising and Search on the Internet Yongmin Chen y Chuan He z August 2006 Abstract Paid placement, where advertisers bid payments to a search engine to have their products appear next
More informationPopulation aging, education and skill premium in international trade
Population aging, education and skill premium in international trade Xiao Chen University of New South Wales Alan Woodland y University of New South Wales February 20, 2015 Abstract This paper is primarily
More informationThe Greater the Differences, the Greater the Gains?
The Greater the Differences, the Greater the Gains? Wilfred J. Ethier Department of Economics University of Pennsylvania First version: 30 November 2007 This printing: 21 April 2009 The Greater the Differences,
More informationEconomics II: Micro Fall 2009 Exercise session 5. Market with a sole supplier is Monopolistic.
Economics II: Micro Fall 009 Exercise session 5 VŠE 1 Review Optimal production: Independent of the level of market concentration, optimal level of production is where MR = MC. Monopoly: Market with a
More informationEconS 503 - Advanced Microeconomics II Handout on Cheap Talk
EconS 53 - Advanced Microeconomics II Handout on Cheap Talk. Cheap talk with Stockbrokers (From Tadelis, Ch. 8, Exercise 8.) A stockbroker can give his client one of three recommendations regarding a certain
More informationNBER WORKING PAPER SERIES WHEN DOES LABOR SCARCITY ENCOURAGE INNOVATION? Daron Acemoglu. Working Paper 14809 http://www.nber.
NBER WORKING PAPER SERIES WHEN DOES LABOR SCARCITY ENCOURAGE INNOVATION? Daron Acemoglu Working Paper 14809 http://www.nber.org/papers/w14809 NATIONAL BUREAU OF ECONOMIC RESEARCH 1050 Massachusetts Avenue
More informationOptimal insurance contracts with adverse selection and comonotonic background risk
Optimal insurance contracts with adverse selection and comonotonic background risk Alary D. Bien F. TSE (LERNA) University Paris Dauphine Abstract In this note, we consider an adverse selection problem
More informationHeterogeneous firms and dynamic gains from trade
Heterogeneous firms and dynamic gains from trade Julian Emami Namini Department of Economics, University of Duisburg-Essen, Campus Essen, Germany Email: emami@vwl.uni-essen.de 14th March 2005 Abstract
More informationChapter 4. Specific Factors and Income Distribution
Chapter 4 Specific Factors and Income Distribution Introduction So far we learned that countries are overall better off under free trade. If trade is so good for the economy, why is there such opposition?
More informationThe Stock Market, Monetary Policy, and Economic Development
The Stock Market, Monetary Policy, and Economic Development Edgar A. Ghossoub University of Texas at San Antonio Robert R. Reed University of Alabama July, 20 Abstract In this paper, we examine the impact
More informationGains from Trade: The Role of Composition
Gains from Trade: The Role of Composition Wyatt Brooks University of Notre Dame Pau Pujolas McMaster University February, 2015 Abstract In this paper we use production and trade data to measure gains from
More informationLabor Market Cycles and Unemployment Insurance Eligibility
Labor Market Cycles and Unemployment Insurance Eligibility Miquel Faig Min Zhang y Febrary 16, 2008 Abstract If entitlement to UI bene ts must be earned with employment, generous UI is an additional bene
More informationIntroduction to Macroeconomics TOPIC 2: The Goods Market
TOPIC 2: The Goods Market Annaïg Morin CBS - Department of Economics August 2013 Goods market Road map: 1. Demand for goods 1.1. Components 1.1.1. Consumption 1.1.2. Investment 1.1.3. Government spending
More informationThe Real Business Cycle Model
The Real Business Cycle Model Ester Faia Goethe University Frankfurt Nov 2015 Ester Faia (Goethe University Frankfurt) RBC Nov 2015 1 / 27 Introduction The RBC model explains the co-movements in the uctuations
More informationCowles Foundation for Research in Economics at Yale University
Cowles Foundation for Research in Economics at Yale University Cowles Foundation Discussion Paper No. 1758R March 21 Revised August 21 TARGETING IN ADVERTISING MARKETS: IMPLICATIONS FOR OFFLINE VS. ONLINE
More information14.452 Economic Growth: Lectures 2 and 3: The Solow Growth Model
14.452 Economic Growth: Lectures 2 and 3: The Solow Growth Model Daron Acemoglu MIT November 1 and 3, 2011. Daron Acemoglu (MIT) Economic Growth Lectures 2 and 3 November 1 and 3, 2011. 1 / 96 Solow Growth
More informationLectures, 2 ECONOMIES OF SCALE
Lectures, 2 ECONOMIES OF SCALE I. Alternatives to Comparative Advantage Economies of Scale The fact that the largest share of world trade consists of the exchange of similar (manufactured) goods between
More informationDiscussion of Growing Like China
Discussion of Growing Like China by Song, Storesletten and Zilibotti Alberto Martin CREI and UPF December 2008 Alberto Martin (CREI and UPF) Discussion of Growing Like China December 2008 1 / 10 This paper
More informationTechnology Licensing by Advertising Supported Media Platforms: An Application to Internet Search Engines
No 23 Technology Licensing by Advertising Supported Media Platforms: An Application to Internet Search Engines Geza Sapi, Irina Suleymanova June 2011 IMPRINT DICE DISCUSSION PAPER Published by Heinrich
More informationThe New Trade Theory. Monopoly and oligopoly in trade. Luca De Benedictis 1. Topic 3. 1 University of Macerata
The New Trade Theory Monopoly and oligopoly in trade Luca De Benedictis 1 1 University of Macerata Topic 3 A new generation of models Main characteristics and insights: Countries do not trade, rms do.
More informationECO364 - International Trade
ECO364 - International Trade Chapter 2 - Ricardo Christian Dippel University of Toronto Summer 2009 Christian Dippel (University of Toronto) ECO364 - International Trade Summer 2009 1 / 73 : The Ricardian
More informationMarket Penetration Costs and the New Consumers Margin in International Trade
Market Penetration Costs and the New Consumers Margin in International Trade Costas Arkolakis Yale University, Federal Reserve Bank of Minneapolis, and NBER I am grateful to my advisors Timothy Kehoe and
More informationWELFARE ENHANCING COORDINATION IN CONSUMER COOPERATIVES UNDER MIXED OLIGOPOLY. WP-EMS Working Papers Series in Economics, Mathematics and Statistics
ISSN 1974-4110 (on line edition) ISSN 1594-7645 (print edition) WP-EMS Working Papers Series in Economics, Mathematics and Statistics WELFARE ENHANCING COORDINATION IN CONSUMER COOPERATIVES UNDER MIXED
More informationResearch Policy and U.S. Economic Growth
Research Policy and U.S. Economic Growth Richard M. H. Suen August 4, 203. Abstract This paper examines quantitatively the e ects of R&D subsidy and government- nanced basic research on U.S. economic growth
More informationThe Specific-Factors Model: HO Model in the Short Run
The Specific-Factors Model: HO Model in the Short Run Rahul Giri Contact Address: Centro de Investigacion Economica, Instituto Tecnologico Autonomo de Mexico (ITAM). E-mail: rahul.giri@itam.mx In this
More informationDomestic and Cross-Border Mergers in Unionized Oligopoly
Domestic and Cross-Border Mergers in Unionized Oligopoly Beatrice Pagel y Christian Wey z June 202 Abstract We re-examine the model of Lommerud et al. (2006) which shows that cross-border mergers should
More informationAggregative Oligopoly Games with Entry 1
Aggregative Oligopoly Games with Entry 1 Simon P. Anderson 2, Nisvan Erkal 3 and Daniel Piccinin 4 First version: November 2009 This version: May 2013 1 We thank Maxim Engers, Daniel Halbheer, Joe Harrington,
More informationThe Global Impact of Chinese Growth
The Global Impact of Chinese Growth by Ippei Fujiwara, Keisuke Otsu, and Masashi Saito 2008 International Conference: Frontiers in Monetary Theory and Policy Discussion by Selo Imrohoro¼glu USC Marshall
More informationUNIVERSITY OF OSLO DEPARTMENT OF ECONOMICS
UNIVERSITY OF OSLO DEPARTMENT OF ECONOMICS Exam: ECON4310 Intertemporal macroeconomics Date of exam: Thursday, November 27, 2008 Grades are given: December 19, 2008 Time for exam: 09:00 a.m. 12:00 noon
More informationDirect Investment Liberalization, Commodity Trade, and Income Distribution: What Can the WTO Do? Kar-yiu Wong University of Washington
Direct Investment Liberalization, Commodity Trade, and Income Distribution: What Can the WTO Do? Kar-yiu Wong University of Washington April 2001 Abstract This paper analyzes a model of two-way movement
More informationLabor Market Cycles, Unemployment Insurance Eligibility, and Moral Hazard
Labor Market Cycles, Unemployment Insurance Eligibility, and Moral Hazard Min Zhang y Miquel Faig z May 4, 2011 Abstract If entitlement to UI bene ts must be earned with employment, generous UI is an additional
More informationtariff versus quota Equivalence and its breakdown
Q000013 Bhagwati (1965) first demonstrated that if perfect competition prevails in all markets, a tariff and import quota are equivalent in the sense that an explicit tariff reproduces an import level
More informationThe E ect of Trading Commissions on Analysts Forecast Bias
The E ect of Trading Commissions on Analysts Forecast Bias Anne Beyer and Ilan Guttman Stanford University September 2007 Abstract The paper models the interaction between a sell-side analyst and a risk-averse
More informationUniversity of Saskatchewan Department of Economics Economics 414.3 Homework #1
Homework #1 1. In 1900 GDP per capita in Japan (measured in 2000 dollars) was $1,433. In 2000 it was $26,375. (a) Calculate the growth rate of income per capita in Japan over this century. (b) Now suppose
More informationLICOS Centre for Transition Economics
LICOS Centre for Transition Economics LICOS Discussion Papers Discussion Paper 159/2005 Performance of Exporters: Scale Effects or Continuous Productivity Improvements Ćrt Kostevc Katholieke Universiteit
More informationCommon sense, and the model that we have used, suggest that an increase in p means a decrease in demand, but this is not the only possibility.
Lecture 6: Income and Substitution E ects c 2009 Je rey A. Miron Outline 1. Introduction 2. The Substitution E ect 3. The Income E ect 4. The Sign of the Substitution E ect 5. The Total Change in Demand
More informationThe Prison S Dilemma and Its Connections
Games Played in a Contracting Environment V. Bhaskar Department of Economics University College London Gower Street London WC1 6BT February 2008 Abstract We analyze normal form games where a player has
More informationThe Timing of Signaling: To Study in High School or in College?
The Timing of Signaling: To Study in High School or in College? Sanghoon Lee 1 University of British Columbia, Canada Abstract American students study harder in college than in high school while East Asian
More informationWORKING PAPER NO. 12-20 DO FALLING ICEBERG COSTS EXPLAIN RECENT U.S. EXPORT GROWTH? George Alessandria Federal Reserve Bank of Philadelphia
WORKING PAPER NO. 12-20 DO FALLING ICEBERG COSTS EXPLAIN RECENT U.S. EXPORT GROWTH? George Alessandria Federal Reserve Bank of Philadelphia Horag Choi Monash University July 2012 Supersedes Working Paper
More informationEconomic Development and Gains from Trade
Economics Education and Research Consortium Working Paper Series Economic Development and Gains from Trade Georgi Trofimov Working Paper No 98/06 This project (No 96-161) was supported by the Economics
More informationOn the irrelevance of government debt when taxes are distortionary
On the irrelevance of government debt when taxes are distortionary Marco Bassetto a,b,, Narayana Kocherlakota c,b a Department of Economics, University of Minnesota, 271 19th Ave. S., Minneapolis, MN 55455,
More informationGROWTH, INCOME TAXES AND CONSUMPTION ASPIRATIONS
GROWTH, INCOME TAXES AND CONSUMPTION ASPIRATIONS Gustavo A. Marrero Alfonso Novales y July 13, 2011 ABSTRACT: In a Barro-type economy with exogenous consumption aspirations, raising income taxes favors
More informationDo capital adequacy requirements reduce risks in banking?
Journal of Banking & Finance 23 (1999) 755±771 Do capital adequacy requirements reduce risks in banking? Jurg Blum * Institut zur Erforschung der wirtschaftlichen Entwicklung, University of Freiburg, D-79085
More informationDoes horizontal FDI lead to more knowledge spillovers than vertical FDI?
NiCE Working Paper 10-101 January 2010 Does horizontal FDI lead to more knowledge spillovers than vertical FDI? Nicole Roording Albert de Vaal Nijmegen Center for Economics (NiCE) Institute for Management
More informationOnline shopping and platform design with ex ante registration requirements
Online shopping and platform design with ex ante registration requirements Florian Morath Johannes Münster y December 5, 2014 Abstract We study platform design in online markets in which buying involves
More informationNet neutrality and innovation at the core and at the edge
Net neutrality and innovation at the core and at the edge Carlo Reggiani Tommaso Valletti y 15th May 2011 - Very preliminary and incomplete Abstract Net neutrality is a hotly debated topic. A key point
More informationOptimal Investment. Government policy is typically targeted heavily on investment; most tax codes favor it.
Douglas Hibbs L, L3: AAU Macro Theory 0-0-9/4 Optimal Investment Why Care About Investment? Investment drives capital formation, and the stock of capital is a key determinant of output and consequently
More informationRATIONALIZATION AND SPECIALIZATION
Universität des Saarlandes University of Saarland Volkswirtschaftliche Reihe Economic Series RATIONALIZATION AND SPECIALIZATION IN START-UP INVESTMENT Christian KEUSCHNIGG Economic Series No. 9901 February
More informationUnemployment Insurance in the Presence of an Informal Sector
Unemployment Insurance in the Presence of an Informal Sector David Bardey, Fernando Jaramillo and Ximena Peña May 014 bstract We study the e ect of UI bene ts in a typical developing country where the
More informationOptimal Unemployment and Disability Insurance*
Optimal Unemployment and Disability Insurance* Erik Höglin Stockholm School of Economics erik:hoglin@hhs:se July 2007 ABSTRACT. This paper considers optimal unemployment and disability insurance in an
More informationInformation Gatekeepers on the Internet and the Competitiveness of. Homogeneous Product Markets. By Michael R. Baye and John Morgan 1.
Information Gatekeepers on the Internet and the Competitiveness of Homogeneous Product Markets By Michael R. Baye and John Morgan 1 Abstract We examine the equilibrium interaction between a market for
More informationCapital markets, nancial intermediaries, and liquidity supply
Journal of Banking & Finance 22 (1998) 1157±1179 Capital markets, nancial intermediaries, and liquidity supply Paolo Fulghieri a,b, Riccardo Rovelli c, * a Finance Area, INSEAD, Boulevard de Constance,
More informationContract Law and the Boundaries of the Firm
Susheng Wang and Tian Zhu / Journal of Economic Research 9 (2004) 93{113 93 Contract Law and the Boundaries of the Firm Susheng Wang 1 Hong Kong University of Science and Technology Tian Zhu 2 Hong Kong
More informationPricing Health Bene ts: A Cost-Minimization Approach
Pricing Health Bene ts: A Cost-Minimization Approach Nolan H. Miller March 14, 2005 Abstract We study the role of health bene ts in an employer s compensation strategy, given the overall goal of minimizing
More informationINTEGRATION VERSUS OUTSOURCING IN INDUSTRY EQUILIBRIUM*
INTEGRATION VERSUS OUTSOURCING IN INDUSTRY EQUILIBRIUM* GENE M. GROSSMAN AND ELHANAN HELPMAN We develop an equilibrium model of industrial structure in which the organization of rms is endogenous. Differentiated
More informationBusiness models for media rms: Does competition matter for how they raise revenue?
Business models for media rms: Does competition matter for how they raise revenue? Hans Jarle Kind Norwegian School of Economics and Business Administration hans.kind@nhh.no Tore Nilssen University of
More informationLecture 1: The intertemporal approach to the current account
Lecture 1: The intertemporal approach to the current account Open economy macroeconomics, Fall 2006 Ida Wolden Bache August 22, 2006 Intertemporal trade and the current account What determines when countries
More informationExchange Rate Pass-Through, Markups, and Inventories
Federal Reserve Bank of New York Staff Reports Exchange Rate Pass-Through, Markups, and Inventories Adam Copeland James A. Kahn Staff Report No. 584 December 2012 Revised December 2012 FRBNY Staff REPORTS
More informationCHAPTER 7: AGGREGATE DEMAND AND AGGREGATE SUPPLY
CHAPTER 7: AGGREGATE DEMAND AND AGGREGATE SUPPLY Learning goals of this chapter: What forces bring persistent and rapid expansion of real GDP? What causes inflation? Why do we have business cycles? How
More informationHow Does the Life Settlement A ect the Primary Life Insurance Market?
How Does the Life Settlement A ect the Primary Life Insurance Market? Hanming Fang Edward Kung y June 12, 2008 Abstract We study the e ect of life settlement market on the structure of the long-term contracts
More informationTRADE WITH SCALE ECONOMIES AND IMPERFECT COMPETITION (CONT'D)
ECO 352 Spring 2010 No. 14 Mar. 25 OLIGOPOLY TRADE WITH SCALE ECONOMIES AND IMPERFECT COMPETITION (CONT'D) Example using numbers from Precept Week 7 slides, pp. 2, 3. Ingredients: Industry with inverse
More informationEmployment Protection and Business Cycles in Emerging Economies
Employment Protection and Business Cycles in Emerging Economies Ruy Lama IMF Carlos Urrutia ITAM August, 2011 Lama and Urrutia () Employment Protection August, 2011 1 / 38 Motivation Business cycles in
More informationInternational Pricing with Costly Consumer Arbitrage
Review of International Economics, 7(1), 126-139,1999 International Pricing with Costly Consumer Arbitrage Simon P. Anderson and Victor A. Ginsburgh* Abstract Consumer arbitrage affects international pricing
More informationMarket Power and Efficiency in Card Payment Systems: A Comment on Rochet and Tirole
Market Power and Efficiency in Card Payment Systems: A Comment on Rochet and Tirole Luís M. B. Cabral New York University and CEPR November 2005 1 Introduction Beginning with their seminal 2002 paper,
More informationImport Substitution and Economic Growth
Import Substitution and Economic Growth Mauro Rodrigues University de Sao Paulo, Brazil Abstract Despite Latin America s dismal performance between the 1950s and 1980s, the region experienced strong capital
More informationthe transmission channels of monetary policy the fragility of the nancial system the existence of nancial cycles
1 The macroeconomic consequences of nancial imperfections the transmission channels of monetary policy the fragility of the nancial system the existence of nancial cycles the real eects of nancial intermediation
More information1 Further Pricing Relationships on Options
1 Further Pricing Relationships on Options 1.1 The Put Option with a Higher Strike must be more expensive Consider two put options on the same stock with the same expiration date. Put option #1 has a strike
More informationClass Notes, Econ 8801 Lump Sum Taxes are Awesome
Class Notes, Econ 8801 Lump Sum Taxes are Awesome Larry E. Jones 1 Exchange Economies with Taxes and Spending 1.1 Basics 1) Assume that there are n goods which can be consumed in any non-negative amounts;
More informationReal Business Cycle Theory. Marco Di Pietro Advanced () Monetary Economics and Policy 1 / 35
Real Business Cycle Theory Marco Di Pietro Advanced () Monetary Economics and Policy 1 / 35 Introduction to DSGE models Dynamic Stochastic General Equilibrium (DSGE) models have become the main tool for
More informationImplications of Intellectual Property Rights for Dynamic Gains from Trade
FEDERAL RESERVE BANK OF SAN FRANCISCO WORKING PAPER SERIES Implications of Intellectual Property Rights for Dynamic Gains from Trade Michele Connolly Duke University and Diego Valderrama Federal Reserve
More informationHow To Model Fair Trade
NiCE Working Paper 2-06 September 202 The effects of Fair Trade when productivity differences matter Maarten Breimer Albert de Vaal Nijmegen Center for Economics (NiCE) Institute for Management Research
More informationEmployee Stock Options, Financing Constraints, and Real Investment
Employee Stock Options, Financing Constraints, and Real Investment Ilona Babenko Michael Lemmon Yuri Tserlukevich Hong Kong University of Science and Technology and University of Utah March 2009 Our goals
More informationA. GDP, Economic Growth, and Business Cycles
ECON 3023 Hany Fahmy FAll, 2009 Lecture Note: Introduction and Basic Concepts A. GDP, Economic Growth, and Business Cycles A.1. Gross Domestic Product (GDP) de nition and measurement The Gross Domestic
More informationPareto gains from trade: a dynamic counterexample
Economics Letters 83 (2004) 199 204 www.elsevier.com/locate/econbase Pareto gains from trade: a dynamic counterexample Gerald Willmann* Department of Economics, Institute für VWL, Universität zu Kiel,
More information4. Only one asset that can be used for production, and is available in xed supply in the aggregate (call it land).
Chapter 3 Credit and Business Cycles Here I present a model of the interaction between credit and business cycles. In representative agent models, remember, no lending takes place! The literature on the
More informationShort Run Market Equilibrium. The market supply curve is found by horizontally adding the supply curves of individual rms. If there are m rms, we have
Short Run Market Equilibrium The market supply curve is found by horizontally adding the supply curves of individual rms. If there are m rms, we have X s (p x )= mx j=1 x j (p x ): Just as we can talk
More informationFederal Reserve Bank of New York Staff Reports. Deficits, Public Debt Dynamics, and Tax and Spending Multipliers
Federal Reserve Bank of New York Staff Reports Deficits, Public Debt Dynamics, and Tax and Spending Multipliers Matthew Denes Gauti B. Eggertsson Sophia Gilbukh Staff Report No. 551 February 2012 Revised
More informationAdverse selection, moral hazard and. propitious selection 1
Adverse selection, moral hazard and propitious selection 1 Philippe De Donder 2 Jean Hindriks 3 First version: December 2006 This version: May 2008 1 Previous versions of this paper have circulated under
More informationDollar Pricing, the Euro and Monetary Policy Transmission
Dollar Pricing, the Euro and Monetary Policy Transmission Juha Tervala University of Helsinki and HECER University of Helsinki, Department of Economics Discussion Paper No. 624:26 ISBN 952 1 2767 3, ISSN
More informationOptimal Paternalism: Sin Taxes and Health Subsidies
Optimal Paternalism: Sin Taxes and Health Subsidies Thomas Aronsson and Linda Thunström Department of Economics, Umeå University SE - 901 87 Umeå, Sweden April 2005 Abstract The starting point for this
More informationThree Essays on Monopolist Second-degree Discrimination Strategies in the Presence of Positive Network E ects by Gergely Csorba
Three Essays on Monopolist Second-degree Discrimination Strategies in the Presence of Positive Network E ects by Gergely Csorba Submitted to the Economics Department on October 24, 2005, in partial ful
More informationMidterm Exam - Answers. November 3, 2005
Page 1 of 10 November 3, 2005 Answer in blue book. Use the point values as a guide to how extensively you should answer each question, and budget your time accordingly. 1. (8 points) A friend, upon learning
More informationVolatility, Productivity Correlations and Measures of. International Consumption Risk Sharing.
Volatility, Productivity Correlations and Measures of International Consumption Risk Sharing. Ergys Islamaj June 2014 Abstract This paper investigates how output volatility and productivity correlations
More information