Impact of international trade under dual labor markets

A country's unemployment rate can be affected by technology choice and the opening of international trade. This general equilibrium model examines the impact of international trade with the presence of dual labor markets in which manufacturing firms engage in oligopolistic competition and choose technologies with different marginal and fixed costs to maximize profits. In a closed economy, it is shown that an increase in labor market efficiency or a population increase induces manufacturing firms to adopt more advanced technologies and the wage rate in the manufacturing sector increases. With the existence of a continuum of technologies, technology choice is not a source of firm heterogeneity. The opening of international trade leads to an increase in the wage rate in the manufacturing sector and the price of the agricultural good. When countries are identical, international trade always increases national welfare.     

International Factor Mobility, Government Size and Welfare

An examination of the available data reveals that the size of government varies considerably across time and countries. By making use of a simple general equilibrium model, this paper demonstrates that size of government is affected by the availability of capital and labour within an economy. Specifically, this paper utilises a model of a closed economy that produces one-private and one-public good. Both goods are produced by means of capital and labour. Production functions are subject to constant returns to scale and perfect competition prevails in all markets. The elasticity of substitution between the public and the private good is greater than unity and there is no international factor mobility in the initial equilibrium. The size of government is measured by total spending on the public good as a proportion of the total expenditure on the private and public goods. It is shown that capital (labour) inflow can decrease (increase) the size of government. Capital inflow increases welfare if the private good is relatively capital intensive whereas labour inflow increases welfare if the public good is relatively capital intensive.     

Consumer poaching,brand switching,and price transparency

This paper addresses price transparency on the consumer side in markets with behavioral price discrimination which feature welfare reducing brand switching. When long-term contracts are not available, an increase in transparency intensifies competition, lowers prices and profits, reduces brand switching and benefits consumers and welfare. With long-term contracts, an increase in transparency reduces the use of long-term contracts, leading to more brand switching and a welfare loss. Otherwise, the results are the same as without long-term contracts.     

Inflation,tax rules,and the prices of land and gold

Traditional theory implies that the relative price of consumer goods and of such real assets as land and gold should not be permanently affected by the rate of inflation. A change in the general rate of inflation should, in equilibrium, cause an equal change in the rate of inflation for each asset price. The experience of the past decade has been very different from the predictions of this theory: the prices of land, gold, and other such stores of value have increased by substantially more than the general price level. The present paper presents a simple theoretical model that explains the positive relation between the rate of inflation and the relative price of such real assets. More specifically, in an economy with an income tax, an increase in the expected rate of inflation causes an immediate increase in the relative price of such ‘store of value’ real assets. The behavior of real asset prices discussed in this paper is thus a further example of the non-neutral response of capital markets to inflation in an economy with income taxes.     

Third-degree price discrimination,quality choice,and welfare

Employing an endogenous quality choice model, we reconsider the effect on welfare of monopolistic third-degree price discrimination. We prove that price discrimination always enhances welfare, mainly because the quality improvement owing to price discrimination increases consumer surplus. Moreover, we show that third-degree price discrimination benefits all parties, including consumers in the higher priced market if the preference differences between markets are sufficiently large.     

Public policy,footloose capital,and union influence

This document sets up a unionized general oligopolistic equilibrium model of countries, where capital is footloose and governments maximize utilitarian welfare. When capital owners have weak influence on public policy, there is unemployment and the governments compete for jobs, causing a distortion with suboptimal wages. Then globalization—as characterized by a decrease in impediments to international investment—increases the wage elasticity of capital flight, decreasing wages and increasing employment. This benefits the capital owners and the unemployed workers getting a job, but harms the other workers. International coordination of public policy alleviates these consequences of globalization.     

International outsourcing when labour markets are unionized

Abstract. We consider the implications of international outsourcing in a simple general equilibrium model where the wage rate is the outcome of negotiations between a firm and a trade union. The effects of potential, but non‐realized, international outsourcing, is a reduction in the wage rate and an increase in employment. Aggregate welfare increases, but the trade union becomes worse off while owners of capital become better off. Realized international outsourcing gives rise to an increase in the wage rate and a reduction in employment. Aggregate welfare decreases, but the trade union becomes better off, while owners of capital become worse off.     

Communication in repeated monetary policy games

A central bank and the public are engaged in an infinitely repeated monetary policy game with communication. For reasonable discount factors, there exists an equilibrium in which the central bank fully reveals its private information. The fully revealing equilibrium is superior to the uninformative equilibrium. The welfare gain of transparency increases with the slope of the Phillips curve, the natural rate of unemployment, and the degree of heterogeneity in the population. Transparency results in lower inflation but a higher variability of inflation.     

The impact of macroprudential policies on the transmission of shocks across financially integrated countries

We study the implications of macroprudential policies across countries on the transmission of shocks when international investment activities are allowed. In a two-country dynamic stochastic general equilibrium (DSGE) model in which international investors are borrowing constrained and pledge international assets, we introduce a time-varying loan-to-value (LTV) ratio that adjusts to the variation of three different financial vulnerability indicators. We examine the effect of these policies on negative productivity and borrowing capacity shocks. Although time-varying LTV ratios reduce the international propagation of the productivity shock, their response to the shock depends on the financial vulnerability indicator with which the LTV ratio changes. With a productivity shock, the adjustment of the LTV ratio to the deviation of credit or asset price helps to reverse the negative impact of the shock. With a financial shock, LTV ratios varying with a deviation of credit-to-GDP ratio or aggregate credit can mitigate the impact of a negative financial shock. Adjustment of the LTV ratios reduces the fluctuation of international investors' balance sheets, investment, and productivity. We find that countries improve their welfare when time-varying LTV ratios are in place. The magnitude of the welfare gain differs with both the financial vulnerability indicator and the shock.     

Measuring transnational leakage of forest conservation

Forest conservation in one country can influence the degree of conservation or deforestation in other countries because of international linkages of the forest products industry and markets and a lack of global coordination. Thus leakage and offsetting losses of environmental quality may be present. This paper develops an analytical framework for measuring this leakage and estimates its magnitude via general equilibrium modeling. We find that the magnitude of leakage depends upon the price elasticities of supply of and demand for forestry products across the countries and degree of cooperation in forest conservation. We estimate that a significant portion (42%-95%) of the reduced forestry production implemented in a country/region can be transferred to elsewhere, offsetting environmental gains. Leakage generally diminishes as more countries cooperate, but cooperation among only a few countries does not always dramatically reduce leakage. Thus forest conservation efforts and associated environmental quantity gains in a country or group of countries can be seriously undermined in terms of global net conservation gain in the absence of effective global cooperation. Our results also point to the importance of taking leakage into account in evaluating local or regional forest carbon sequestration projects.     

TOURISM,DUTCH DISEASE AND WELFARE IN AN OPEN DYNAMIC ECONOMY*

This paper examines the effects of an expansion in tourism on capital accumulation, sectoral output and resident welfare in an open economy with an externality in the traded good sector. An expansion of tourism increases the relative price of the nontraded good, improves the tertiary terms of trade and hence yields a gain in revenue. However, this increase in the relative price of nontraded goods results in a lowering of the demand for capital used in the traded sector. The subsequent de‐industrialization in the traded good sector may lower resident welfare. This result is supported by numerical simulations.     

A Simple Model of Privately Profitable But Socially Useless Speculation

The paper presents a general equilibrium model of a pure exchange economy with stochastic endowments, in which speculation in the forward market is profitable and stabilizes prices but is useless from a welfare point of view. Reconciling the Siegel paradox with the theory of incomplete markets, we show that banning speculation by closing the forward market may increase social welfare. We also show that the addition of a market might reduce the gains from international trade for all participating countries.
JEL Classification Numbers: F10, F11, F19.     

Aging, Asset Markets, and Asset Returns: A View From Europe to Asia

The extent of the demographic changes is dramatic especially in some Asian and European countries. This paper investigates the effect of aging on global asset markets and asset returns, focusing on markets for productive capital, and especially on interactions between European and Asian economic development. Aging has complex effects on the markets for real capital. If elderly people save less than younger people, interest rates will increase. At the same time, however, the younger generation becomes smaller, which reduces the demand for new investment. The equilibrium effect is thus uncertain. Our multicountry computational equilibrium model delivers a subtle picture: there will be some decline in the return from productive capital, but it is relatively small. We find noticeable interaction effects between labor market and pension reforms in Europe on the one hand, and the demographic and economic developments in Asia, especially India and China, on the other hand.     

标准专利许可中可变价格的社会福利效应:基于产品差异化的视角

技术标准在产品生产过程中的使用越来越广泛,标准专利许可定价形式问题关系到技术标准所有者和产品生产者的收益,有待拓展研究。通过构建古诺竞争模型,从产品差异化角度对标准专利许可中可变价格形式的社会福利效应进行分析,得到的主要结论为:当产品市场达到均衡,且标准专利许可采用的价格形式是可变价格时,社会总福利随着产品差异化程度的提高而增加,随着差异化产品市场中标准专利使用者数量的增加而增加,随着可变价格中可变费用比率的提高而降低;均衡产量随着产品差异化程度的提高而增大,随着可变价格中可变费用比率的提高而降低;均衡价格与产品差异化程度呈现出倒“U”型关系,临界点为特定的市场规模;标准专利使用者的均衡利润随着产品差异化程度的提高而增大。由此可见,标准专利许可的可变费用比率下降有利于激励技术标准使用者生产更多的差异化产品,提升社会总福利。     

ADVERSE SELECTION WITH HETEROGENEOUSLY INFORMED AGENTS

A model of over-the-counter markets is proposed. Some asset buyers are informed in that they can identify high-quality assets. Sellers with private information choose what type of buyers they want to trade with. When the measure of informed buyers is low, a unique equilibrium exists, and interestingly, price, trading volume and welfare typically decrease with more informed buyers. When the measure of informed buyers is intermediate, multiple equilibria arise. A switch from one equilibrium to another can lead to large drops in liquidity, price, trading volume, and welfare, like a financial crisis. Implications of an endogenous measure of informed buyers are also studied.     

Neoclassical Growth, Manufacturing Agglomeration, and Terms of Trade

This study reverses the prediction of geography and growth models that trade integration may cause income divergence. Moreover, a new dynamic welfare gain of trade openness is identified. These results are obtained from embedding a new economic geography model into a neoclassical growth model. Starting from symmetric countries, a country that accumulates more capital than the other increases its home market size, improves its terms of trade, and lowers its relative consumption price index, because trade costs drive a wedge in between relative producer and consumption price indices. Both effects in turn tend to increase its marginal revenue product of capital relative to the other country (divergence forces), while factor substitution diminishes its marginal revenue product of capital (convergence force). Reducing trade costs decreases the wedge and weakens the divergence forces, while the convergence force is unaffected. Hence, divergence is more likely with higher rather than lower trade costs.     

Wedges: Distribution,distortions, and market integration

This paper's model lets an international wedge continuously index a country's capital market integration with the rest of the world, and studies politico-economic determination of a domestic labor wedge that corrects market imperfections and/or redistributes welfare across differently wealthy voters. International integration influences the equilibrium policy, at given country-specific political and structural features, through the strength of factor price effects and through ownership of domestic and foreign capital by the country's citizens. If policy reduces market employment, then it unambiguously does so more strongly when a capital-poor country integrates more tightly with the rest of the world.     

Asset pricing in large information networks

We study asset pricing in economies with large information networks. We focus on networks that are sparse and have power law degree distributions, in line with empirical studies of large scale social networks. Our theoretical framework yields a rich set of novel asset pricing implications. We derive closed form expressions for price, volatility, profitability and trading volume, as functions of the network topology. We also study agent welfare and show that the network that optimizes total welfare is typically a uniform one with an intermediate degree of connectedness.     

Fragility of competitive equilibrium with risk of default

We study competitive equilibrium in sequential economies under limited commitment. Default induces permanent exclusion from financial markets and endogenously determined solvency constraints prevent debt repudiation. Our analysis shows that such an enforcement mechanism is essentially fragile, leading to equilibrium multiplicity. We accomplish this by establishing Welfare Theorems under a weaker notion of constrained efficiency, inspired by Malinvaud, corresponding to the absence of welfare improving feasible redistributions over finite (though indefinite) horizons. A Negishi?s Method permits to show that, for any arbitrary value of social welfare in between autarchy and constrained optimality, there exists an equilibrium attaining that value. Thus, competitive equilibria might differ dramatically in terms of volumes of trade, asset price volatility, individuals? ability to insure against idiosyncratic risk and consumption inequality.     

Decreasing marginal impatience destabilizes multi-country economies

Despite the empirical evidence that consumers' degree of impatience decreases with wealth, the implication of decreasing marginal impatience (DMI) for general equilibrium dynamics has been insufficiently analyzed. By deriving the stability condition of multi-country equilibrium, we show that DMI is hardly compatible with stability. If there are two or more DMI countries, wealth distribution is necessarily unstable and hence inequality is inevitably divergent. In the presence of a DMI country, the number of interdependent countries should be small enough for stability. To integrate capital markets, participant countries must thus arrange jointly certain stabilizing international schemes.