Internet Technology and the Extensive Margin of Trade: Evidence from eBay in Emerging Economies

Online platforms such as eBay offer technologies that make it easier for firms to export. This paper dissects a new firm‐level dataset that covers sales made through eBay by sellers based in 21 emerging economies to provide a new lens through which to look at the effect of trade costs on the extensive margin of trade. Comparing eBay sellers with “offline” firm‐level data from the World Bank's Exporter Dynamics Database allows us to test whether the observed trade patterns on eBay fit with the trade‐liberalization predictions of heterogeneous‐firm models. We find that eBay firms export to more destinations, suggesting low destination‐specific fixed costs on eBay. We then show that the distribution of export destinations across eBay sellers is well approximated by a balls‐and‐bins model of frictionless trade, suggesting eBay indeed lowers fixed export costs. Finally, we compare the gravity of eBay with that of offline trade and find geographic distance, languages, and trade agreements to matter less for online trade.     

The Heckscher–Ohlin model and the network structure of international trade

This paper estimates for 28 product groups a characteristic parameter that reflects the topological structure of its trading network. Using these estimates, it describes how the structure of international trade has evolved during the 1980–2000 period. Thereafter, it demonstrates the importance of networks in international trade by explicitly accounting for their scaling properties when testing the prediction of the “Heckscher–Ohlin” model that factor endowment differentials determine bilateral trade flows. The results suggest that factor endowment differentials increase bilateral trade in goods that are traded in “dispersed” networks. For goods traded in “concentrated” networks, factor endowment differentials are less important.     

Social network and private provision of public goods

Using a simple model with interdependent utilities, we study how social networks influence individual voluntary contributions to the provision of a public good. Departing from the standard model of public good provision, we assume that an agent’s utility has two terms: (a) ‘ego’-utility derived from the agent’s consumption of public and private goods, and (b) a social utility which is the sum of utility spillovers from other agents with whom the agent has social relationships. We establish conditions for the existence of a unique interior Nash equilibrium and describe the equilibrium in terms of network characteristics. We show that social network always has a positive effect on the provision of the public good. We also find that, in networks with “small world”-like modular structures, ‘bridging’ ties connecting distant parts of social network play an important role inducing an agent’s contribution to public good. Assumptions and results of the model are discussed in relation to the role of social capital in community-level development projects and to the effect of innovation networks on firms’ R&D investments.     

Fragmentation, Engel's Law, and Learning

This paper outlines the conditions under which trade is beneficial for a developing country's growth. A developing country suffers from two disadvantages: low income and a comparative disadvantage in the production of modern manufactured goods—goods which allow a high rate of human capital accumulation through learning by doing. Low income together with Engel's law imply that developing countries consume and produce very few modern goods in autarky and hence grow slowly. With international fragmentation of production, a developing country may find comparative advantage in the production of some stages of modern goods despite an absence of comparative advantage in the production of modern goods under “100% local content.” More resources can then be allocated to the modern goods sector leading to greater learning externalities and hence growth under free trade than in autarky.     

The engine of growth or its handmaiden?

This paper presents an analysis of time-series data for the countries in the Summers-Heston (1991) data set, in an attempt to ascertain the evidence for or against the export-led growth hypothesis. We find that standard methods of detecting export-led growth using Granger-causality tests may give misleading results if imports are not included in the system being analyzed. For this reason, our main statistical tool is the measure of conditional linear feedback developed by Geweke (1984), which allows us to examine the relationship between export growth and income growth while controlling for the growth of imports. These measures have two additional features which make them attractive for our work. First, they go beyond meredetection of evidence for export-led growth, to provide a measurement of itsstrength. Second, they enable us to determine the temporal pattern of the response of income to exports. In some cases export-led growth is a long-run phenomenon, in the sense that export promotion strategies adopted today have their strongest effect after eight to 16 years. In other cases the opposite is true; exports have their greatest influence in the short run (less than four years). We find modest support for the export-led growth hypothesis, if “support” is taken to mean a unidirectional causal ordering. Conditional on import growth, we find a causal ordering from export growth to income growth in 30 of the 126 countries analyzed; 25 have the reverse ordering. Using a weaker notion of “support”—stronger conditional feedback from exports to income than vice versa, 65 of the 126 countries support the export-led growth hypothesis, although the difference in strength is small. Finally, we find that for the “Asian Tiger” countries of the Pacific Rim, the relationship between export growth and output growth becomes clearer when conditioned on human capital and investment growth as well as import growth.     

PLATFORM PRICING IN MIXED TWO‐SIDED MARKETS

When a consumer can appear on both sides of a two‐sided market, such as a user who both buys and sells on eBay, the platform may want to bundle the services it provides to two sides. I develop a general model for such “mixed” two‐sided markets and show that a monopolist platform's incentive to bundle and its optimal pricing strategy are determined by simple formulas using familiar price elasticities of demand, which embody the bundling effect, and price‐cost margins adjusted for network externalities, which incorporate “two‐sidedness.” The optimal pricing rule in such markets generalizes the familiar Lerner formula.     

Import-push or export-pull? An industry-level analysis of the impact of trade on firm exit

Does the selection effect of trade work solely through competition from imports, or does the export market further contribute to firm selection? This paper provides a re-interpretation of the different mechanisms in terms of selection on profitability—rather than productivity—and derives novel predictions regarding the export market and the role of product differentiation. Empirical results for a sample of Danish manufacturing industries confirm the import-“push” hypothesis as well as the export-“pull” hypothesis, but also reveal differences across industries. The selection effect of trade is mainly driven by the “import-push” if product differentiation is high, whereas it is driven by the “export-pull” if goods are homogeneous.     

A NOTE ON DURABLE GOODS MONOPOLISTS: COMMITMENT TO FORWARD COMPATIBILITY

This note re‐examines the previous results on durable goods monopolists under the time inconsistency problem that the firm tends to make its goods less compatible as a “planned obsolescence” strategy in the presence of network effects. We find that the possibility of the commitment to forward compatibility is profitable to the monopolist, depending upon the degree of technological progress and network effects. Therefore, contractual commitments that are frequently feasible and observed in real‐world markets make the society better off.     

Consumption risk-sharing under terror shocks: Evidence from value-chain network rosters in Nigeria

Households in Nigeria live in inherently risky environments; accentuated by the preponderance of terror incidences, banditry, and farmer–herder-related clashes that are more concentrated in the northern than southern parts of the country. This study examines the proposition that households with a robust network roster—especially networks related to ethnicities and financial remittances from outside their communities—are better able to weather the idiosyncratic and aggregate impact of terror-related shocks; and thus, experience less consumption variability to terror-related shock than other similar households without the “insurance” of an external network. Our main empirical strategy applies a panel difference-in-differences specification to three waves of the LSMS-ISA surveys for Nigeria. The results from the study indicate that having external networks outside the community is an important coping mechanism for terror-related shocks, both for overall welfare and food consumption. The difference in consumption variability between groups with outside network “insurance” and those without could be as high as 20 percentage points. Thus, risk-sharing arrangements for households should exploit outside network insurance mechanisms to mitigate welfare losses from terror-related shocks.     

Distributive politics of public goods networks through multistage voting

Public goods networks create conflict between districts needing the network and districts that pay the costs. Thus, it is difficult for pork barrel politicians to achieve logrolling with other districts. I show that logrolling is possible for such politicians if they set their agenda properly. To show this, I model the centralized decision‐making process as a multistage vote among representatives from different districts. I assume the districts are better off if and only if the public good “connects” them to the network. Public goods can be provided universally by setting the agenda properly, even when costs exceed the benefits.     

AN ANALYSIS OF INTERNATIONAL PRICE DIFFERENTIALS ON EBAY

Online auction sites like eBay provide ways to measure what consumers buy and how much they pay. Does this imply that consumers pay similar prices, irrespective of their location? Comparing prices for homogeneous, tradable goods in the euro area and the United Kingdom, we find that prices differ significantly. The differential is not related to countries' having different currencies. However, price dispersion—the variance of prices—does seem to be smaller if two countries share a common currency. Our results confirm the importance of national borders in explaining price differences and their magnitude is related to (not) sharing a common currency. (JEL E30, E31, E50, F40)     

What can be learned about peer effects using college roommates? Evidence from new survey data and students from disadvantaged backgrounds

Previous papers which examine the importance of peer effects using exogenous variation in college roommates have found only very limited evidence that a student's first year grade performance is influenced by the observable academic characteristics of his/her roommate. One possible explanation for this finding is that peer effects do not play a particularly important role in the higher education setting. However, another very plausible explanation for this finding is that peer effects are important in higher education but that these previous empirical efforts have simply not been “looking in the right place” to find the evidence of peer effects in this setting. Thus, while these papers have received considerable attention due to the general difficulty of finding credible exogenous variation in peer quality, they have difficulty answering the most fundamental question related to peer effects in this higher education—whether peer effects play an important role or not. This paper provides depth to the peer effects literature using unique new survey and administrative data.     

Firm growth in multinational corporate groups

This paper formulates an econometric model of firm growth that explicitly accounts for interdependence of firm growth rates within multinational corporate networks. We apply a recently introduced IV-estimation procedure for peer group effects to directly test for growth spillovers within multinational corporate networks. Using European firm level data, our estimation results indicate negative spillovers within horizontally organized multinational networks, with this effect being most pronounced for corporate groups producing in a larger number of different countries. In contrast, they are positive for vertically organized multinational corporate groups. In the former case, the spillovers lead to more within-network heterogeneity in the firm growth processes and slower average size adjustments. In the latter case, multinational corporate groups as a whole are more stable and, on average, members adjust their size faster. Finally, the robustness analysis demonstrates that the growth spillover effects in purely domestic corporate groups differ from their multinational counterparts and shows that our baseline results are not driven by spurious correlation of individual firm growth rates.     

Remittances and healthcare expenditure: Human capital investment or responses to shocks? Evidence from Peru

This paper estimates the effect of international remittances on healthcare expenditures, taking into account both the interdependence with other consumption goods and the effects of health shocks. More precisely, we assess whether the budget allocation decisions of remittance‐receiving households reveal different preferences to invest in health capital, even when the simultaneous effect that health shocks may have on the demand of remittances and on other types of nondurable expenditures is accounted for. Using data from the “Peruvian National Survey of Households,” we find that remittances have a positive impact on healthcare budget shares, net of the remittance‐related income effect and independently of the occurrance of a health shock. They also have a positive impact on housing and a negative one on other expenditure items, that is, clothing, transport, and education. Hence, our results indicate a “pure” tendency of remittance‐receiving households to devote larger shares of their budget to health capital investment, rather than to other types of consumption goods.     

资产专用性、网络扩展和私人秩序

“公地悲剧”自哈丁提出以来 ,该名词成了揭示并批判公有产权的理论依据。可是 ,回眸现实 ,我们常听到网络、网络外部性 ,也常看到经济中的许多现象是公有产权 ,并且这些公有产权还在不断地扩展并呈繁荣之势。对此 ,理论上的解释是一个模糊的概念———网络外部性。本人对此提出自己的解释。通过自我实施的合约分析 ,我认为由于资产专用性的存在 ,个人进入网络投下不可收回的沉淀成本 ,由此构成可置信性承诺 ,通过私人秩序扩展了网络 ,实现了“公地繁荣”①。本文分为四部分 :第一部分提出观点 ;第二部分是私人秩序的博弈分析与论证 ,第三部分理论应用 ;最后归纳全文。     

Economics,Power, and Regulation of Multinational Corporations

Contingent — rather than secure — provisioning is the core of the institutions of capitalism. This differential access to means of life is a method of prodding labor force participation, considered “coercion” by “old” institutional economists and “freedom” by neoliberal thinkers. Status differentials, which are based on pay hierarchies and branded consumer goods, help reinforce the individual competition for differential rewards. Reform would require reconstituting the labor market, as well as financial institutions, and restructuring the rationales for income distribution.     

Fiscal Discipline as a Social Norm: The European Stability Pact

This paper reviews the arguments for and against the “Stability and Growth Pact.” We find the theoretical debate to be inconclusive, as both externality and credibility arguments can be used to yield opposite and plausible conclusions. Empirical evidence in favor of a Pact‐like rule is also scant. We therefore suggest the view that the Stability Pact is a public social norm, that countries obey in order to preserve reputation among the other members of the European Union. Using this extreme—but not implausible—hypothesis, we build a simple model similar in spirit to Akerlof's (1980) seminal work on social norms, and we show that reputation issues may cause the emergence of a stable but inferior equilibrium. Increased heterogenity generally has the effect of further reducing aggregate welfare; we conclude that the problems posed by the Pact/social norm are likely to increase following the enlargement, when a number of countries anxious to prove their “soundness” joined the club.     

Modeling IT relationship quality and its determinants: A potential perspective of network externalities in e-service

This article addresses the development of relationship quality in the service context of information technology (IT) based on the network externalities theory. The model predicates the IT relationship quality is influenced by both synchronization value and autarky value, whereby autarky value is influenced by the availability of complementary goods. At the same time, synchronization value is influenced by relationship commitment and perceived critical mass, while availability of complementary goods is influenced by perceived compatibility and overall installed base. Note that the autarky value represents the value generated by the product itself even if there are no other users (e.g., the printing and copying functions of a fax/printer machine), while synchronization value represents individuals’ perceived value obtained through interaction (e.g., chatting functions of Skype). The model is examined using data obtained from employees of different companies in Taiwan. The empirical findings and their implications are discussed herein.     

The Role of Income Effects in Early Retirement

We provide a long‐term perspective on the individual retirement behavior and on the future of retirement by emphasizing the role of (negative) income effects. We consider a political economic theoretical framework, with actuarially “fair” and “unfair” early retirement schemes, and derive a political equilibrium with positive social security contribution rates and early retirement. A reduction in the wages in youth, consistent with the recent labor market trends since the massive introduction of temporary jobs, induces workers to postpone retirement, and—in the “unfair” system—leads to lower contribution rates. A reduction in the growth rate of the economy has opposite effects on the retirement decisions, leading—in the “unfair” system—to more early retirement. Aging induces a negative income effect, but has also an opposite political effect on social security contributions and retirement decisions. For an actuarially “fair” social security system, we provide conditions for the political effect to dominate; in an “unfair” scheme, numerical simulations confirm a slight predominance of the political effect, as contribution rates increase. These results may shed some light on the future of early retirement in aging societies.     

An experimental study of auctions with a buy price under private and common values

eBayʼs Buy It Now format allows a seller to list an auction with a “buy price” at which a bidder may purchase the item immediately and end the auction. When bidders are risk averse, then theoretically a buy price can raise seller revenue when values are private (but not when values are common). We report the results of laboratory experiments designed to determine whether in practice a buy price is advantageous to the seller. We find that a suitably chosen buy price yields a substantial increase in seller revenue when values are private, and a small (but statistically insignificant) increase in revenue when values are common. In both cases a buy price reduces the variance of seller revenue. A behavioral model which incorporates the winnerʼs curse and the overweighting by bidders of their own signal explains the common value auction data better than the rational model.