United States income inequality: The concept of countervailing power revisited

This article uses some of the conceptual infrastructure associated with J.K. Galbraith’s “countervailing power” argument to explore the deep history of U.S. income inequality. Two explanatory variables—institutional power and distributive conflict—have played an integral role in the shifting patterns of U.S. income inequality since the late nineteenth century. The “commodified” power of large firms, manifested in aggregate concentration and the markup, exacerbates inequality while the “countervailing” power of organized labor, manifested in union density and strike activity, mitigates inequality. One implication of this research is that U.S. income inequality is unlikely to diminish unless the labor movement (or a comparable social movement) is strengthened.     

Pricing to Firm: an Analysis of Firm‐ and Product‐level Import Prices*

We use Hungarian Customs data on product‐level imports of manufacturing firms to document that the import price of a particular product varies substantially across buying firms. We relate the level of import prices to firm characteristics such as size, foreign ownership, and market power. We develop a theory of “pricing to firm” (PTF), where markups depend on the technology and competitive environment of the buyer. The predictions of the model are confirmed by the data: import prices are higher for firms with greater market power, and for more essential intermediate inputs (with a high share in material costs). We take account of the endogeneity of the buyer’s market power with respect to higher import prices and unobserved cost heterogeneity within product categories. The magnitude of PTF is big: the standard deviation of price predicted by PTF is 21.5%.     

Developing Country Second‐Mover Advantage in Competition Over Environmental Standards and Taxes

We show that, in competition between a developed country and a developing country over environmental standards and taxes, the developing country may have a “second‐mover advantage.” In our model, firms do not unanimously prefer lower environmental standard levels. We introduce this feature to an otherwise familiar model of fiscal competition. Four distinct outcomes can be characterized by varying the marginal cost to firms of an environmental externality: (1) the outcome may be efficient; (2) the developing country may be a “pollution haven”—a place to escape excessively high environmental standards in the developed country; (3) the developing country may “undercut” the developed country and attract all firms; (4) the developed country may be a pollution haven.     

Origin of FDI and Intra‐Industry Domestic Spillovers: The Case of Greek and European FDI in Bulgaria

This paper uses firm‐level data to assess the horizontal impact of foreign firm ownership on domestic productivity in Bulgaria. We identify a theoretical tradeoff between technological distance (of domestic versus foreign firms) and internalization capacity (of spillovers) and examine the extent to which this is reflected in the impact on the domestic economy of different types and origins of FDI. Emphasis is placed upon the effects of Greek FDI, which is known to be of a distinctively “regional” character. We find that Greek FDI produces significantly larger positive spillovers, which appear more suitable for the Bulgarian context of transition and economic restructuring. We also unveil some notable “hysteresis” and “technology bias” effects for FDI spillovers of all origins, as well as some country‐specific ownership‐structure and threshold effects.     

Existence of a Condorcet Winner When Voters Have Other‐Regarding Preferences

In standard political economy models, voters are “self‐interested” that is, care only about “own” utility. However, the emerging evidence indicates that voters often have “other‐regarding preferences” (ORP), that is, in deciding among alternative policies voters care about their payoffs relative to others. We extend a widely used general equilibrium framework in political economy to allow for voters with ORP, as in Fehr and Schmidt (1999) . In line with the evidence, these preferences allow voters to exhibit “envy” and “altruism,” in addition to the standard concern for “own utility.” We give sufficient conditions for the existence of a Condorcet winner when voters have ORP. This could open the way for an incorporation of ORP in a variety of political economy models. Furthermore, as a corollary, we give more general conditions for the existence of a Condorcet winner when voters have purely selfish preferences.     

Rent Seeking with Politically Contestable Rights to Tariff‐rate Import Quotas**

This paper analyzes rent seeking for agricultural import quotas and the associated waste of resources when politically contestable licenses are allocated to either or both importers and exporters. In a two‐stage simultaneous contest where firms seek rent for licenses and then bargain over the import/export price, it is shown that (1) rents are not dissipated completely because of uncertainty in allocation of “rights,” (2) the dissipation ratio increases if the country with a more competitive contest increases the probability of establishing licenses, (3) rent seeking may cause the market structure to change, (4) less rent is dissipated in the case of pre‐existing market power, and (5) allocation of multiple licenses decreases rent‐seeking outlays.     

“Love of wealth” and economic growth

In a Ramsey–Cass–Koopmans growth framework it is shown that for an optimum a benevolent social planner cannot have an excessive “love of wealth”. With a “right” “love of wealth” an optimum exists and implies higher long‐run per‐capita capital, income, and consumption relative to the standard model. This has important implications for comparative development trajectories. The optimum implies dynamic efficiency with the possibility of getting arbitrarily close to the golden rule where long‐run per‐capita consumption is maximal. It is shown that the optimal path attains its steady state more slowly. Thus, the beneficial effects of love of wealth materialize later than in the standard model. Furthermore, the economy can be decentralized as a competitive private ownership economy. One can then identify “love of wealth” with the “spirit of capitalism.” The paper thus implies that one needs a “right” level of the “spirit of capitalism” to realize any beneficial effects for the long run.     

Long‐Run PPP under the Presence of Near‐to‐Unit Roots: The Case of the British Pound–US Dollar Rate*

Empirical tests typically provide evidence that the British pound–US dollar exchange rate and the relative wholesale price index contain exact unit roots and exhibit cointegration. However, the cointegrating vector is significantly different from [1, ?1], thus raising doubts on the validity of the purchasing power parity (PPP) hypothesis. Following Elliott (1998 ), we show that if the exchange rate and relative price series contain near‐to‐unit roots in the context of a bivariate system, then any inference on the “cointegrating” vector and consequently on PPP, which is based on standard cointegration estimation methods, will be misleading. We then argue that the existing evidence against the PPP hypothesis in the British pound–US dollar market can be attributed to the finite sample bias of the standard cointegration estimators, arising from an endogenous and “nearly” nonstationary regressor. We also show that when robust procedures are employed the evidence favors the PPP hypothesis.     

Race‐to‐the‐bottom Tariff Cutting

Unilateral tariff liberalization accounts for the lion's share of trade liberalization since the 1980s and has accompanied the most successful trade‐led development model of the past 50 years, “Factory Asia”. Understanding what drove this liberalization is therefore crucial to our grasp of the process of economic development. This paper provides empirical evidence for seven Asian emerging economies from 1988 to 2006 consistent with a tariff race to the bottom driven by a competition for foreign direct investment (FDI). The identification is two‐pronged. First, it is shown that tariffs on parts and components, intermediates and capital goods, crucial locational determinants for assembly firms, are correlated in competitive space, i.e. across countries at a similar level of development, but not across all countries. Second, it is shown that the tariff correlation in competitive space is significantly higher for inputs than consumer goods.     

Unionization,information asymmetry and the de‐location of firms

We analyze the effects of unionization on the decision of a firm to de‐locate internationally. In a model in which home and foreign workers are perfect substitutes and firms have an informational advantage concerning their productivity, the union offers a menu of wage–employment contracts. Because firms' outside options (producing abroad) depend on productivity, the problem is characterized by countervailing incentives. With the foreign profit sufficiently increasing in productivity, the overstating incentive dominates in equilibrium. Contracts are then characterized by overemployment. The union also affects the extensive margin. High‐productivity firms are excluded because this narrows the possibility to overstate productivity, which saves on information rent. Using a numerical simulation, we show that these effects are quantitatively sizable.     

α‐SERIAL MECHANISMS FOR THE PROVISION OF AN EXCLUDABLE PUBLIC GOOD

We present a new class of “α‐serial mechanisms” for the provision of an excludable public good. Those mechanisms have a similar structure to the serial mechanism, but may let the non‐consumers pay a positive cost. They inherit desirable properties such as anonymity, envy‐freeness, Maskin monotonicity, and population monotonicity from the serial mechanism. We calculate the “maximal efficiency loss” and “maximal manipulation” of α‐serial mechanisms and point out a trade‐off between these two properties.     

Retailer Market Concentration,Buyer‐Size Discounts and Inflation Dynamics

This study considers the macroeconomic effects of retailer market concentration and buyer‐size discounts on inflation dynamics. During Japan's “lost decades”, large retailers enhanced their market power, thus increasing the exploitation of buyer‐size discounts in the procurement of goods. We incorporate this effect into an otherwise standard New Keynesian model. Calibrating to the Japanese economy during the lost decades, we find that these developments led to a deflation of approximately 0.1% annually.     

Optimal fiscal policy in sunspot‐driven oligopolistic economies

Economies with oligopolistic markets are prone to inefficient sunspot fluctuations triggered by autonomous changes in firms equilibrium conjectures. A well‐designed taxation‐subsidization scheme can eliminate these fluctuations by coordinating firms in each sector on a single equilibrium, left unaffected. The optimal taxation scheme must select the number of active firms that makes the best trade‐off (in terms of consumer welfare) between the markup and the scale inefficiency distortions. Implementing such stabilization policy leads to significant welfare gains, attributable to an “efficient stabilization effect,” typically ignored in usual computations of the welfare costs of fluctuations.     

Intra‐industry Knowledge Spillovers from Foreign Direct Investment in Research and Development: Evidence from China's “Silicon Valley”

This study examines a specific channel of technology diffusion from multinational enterprises to domestic firms in less developed regions: research and development (R&D) activities of multinational enterprises in the host country. Using firm‐level panel data from a Chinese science park, known as China's “Silicon Valley,” we find that the R&D stock of foreign‐owned firms has a positive effect on the productivity of domestic firms in the same industry, while the capital stock of foreign firms has no such effect. These results suggest that foreign firms' knowledge spills over within industries through their R&D activities, but not through their production activities. In addition, we find no evidence of spillovers from domestic firms or firms from Hong Kong, Macao, or Taiwan, suggesting that the size of knowledge spillovers is larger when the technology gap between source and recipient firms is larger.     

Nonlinearity and asymmetry in the exchange rate pass‐through: What role for nominal price stickiness?

This paper examines the importance of nominal rigidity for nonlinearity and asymmetry of exchange rate pass‐through. For this purpose, we rely on company‐level data of French importing firms. We find that the well established fact that “prices rise faster than they fall,” which is characterized by the convex import price reaction function, lies primarily with the presence of nominal rigidity. Once price stickiness is controlled for, there is empirical evidence that the import price reaction function is rather concave if the linearity assumption can be rejected, indicating that firms aim primarily to protect their market share.     

“GATT‐think” with Asymmetric Countries*

We argue that a trade agreement which conforms to GATT’s reciprocity rule benefits the (stronger) less trade‐dependent country at the expense of the (weaker) more trade‐dependent country. Reciprocity is so unfavorable to the weaker country that it may be worse off under reciprocity than under the Nash‐ bargaining solution, a “power‐based” approach to trade negotiations that reflects power asymmetries among trading partners. Our results question Bagwell and Staiger’s (1999 , 2000 ) view of reciprocity as a rule that “serves to mitigate the influence of power asymmetries on negotiated outcomes.”     

ON THE INFORMATIONAL CONTENT OF WAGE OFFERS*

This article investigates signaling and screening roles of wage offers in a single‐play matching model with two‐sided unobservable characteristics. It generates the following predictions as matching equilibrium outcomes: (i) “good” jobs offer premia if “high‐quality” worker population is large; (ii) “bad” jobs pay compensating differentials if the proportion of “good” jobs to “low‐quality” workers is large; (iii) all firms may offer a pooling wage in markets dominated by “high‐quality” workers and firms; or (iv) Gresham's Law prevails: “good” types withdraw if “bad” types dominate the population. The screening/signaling motive thus has the potential of explaining a variety of wage patterns.     

买方抗衡势力对上游企业技术创新的影响——基于规模以上工业企业的实证分析

在考虑上游市场结构的情况下,利用2002年、2007年和2012年中国规模以上工业企业的行业面板数据,利用投入产出表中的直接消耗系数构造下游市场势力变量,通过构建计量模型从行业层面考察了买方抗衡势力对上游企业技术创新投入的影响,并讨论了该影响在不同行业的差异。所得结论如下:从整体回归结果来看,买方抗衡势力对上游企业的技术创新有促进作用;从分行业回归结果来看,买方抗衡势力对采矿业企业、轻纺制造业企业和机械电子业企业的技术创新有负向影响,对资源加工业企业的技术创新有正向影响,对公共生产服务业企业技术创新的影响不显著。     

Dynamic Analysis of an Endogenous Growth Model with Investment‐specific Technological Change

This paper examines a dynamically optimal subsidy policy in a continuous‐time version of the endogenous growth model developed by Krusell (Krusell, P. (1998) “Investment‐Specific R&D and the Decline in the Relative Price of Capital”, Journal of Economic Growth, vol. 3, no. 2, pp. 131–141), in which investment‐specific technological progress occurs endogenously because of R&D performed by monopolistic firms. It is demonstrated that a combination of the time‐invariant subsidy for investment and the time‐variant subsidy for R&D enables the market equilibrium to replicate the socially optimal allocation.     

A Note on α‐Gini Measures

This note provides a characterization of α‐Gini inequality measures. These measures generalize the standard Gini index by including one sensitivity parameter α, which captures different value judgments. The α‐Gini measures are shown to be weakly decomposable and unit consistent. Weak decomposition provides within‐group and between‐group inequalities. Unit consistency keeps unchanged the ranking of two income distributions when the income units vary. It is shown that the α‐Gini measures are relevant with either “leftist” or“rightist” views.