Temporary shocks and offshoring: The role of external economies and firm heterogeneity

We construct a model of offshoring with externalities and firm heterogeneity. Due to the presence of externalities, temporary shocks like the Y2K problem can have permanent effects, i.e., they can permanently raise the extent of offshoring in an industry. Also, the initial advantage of a country as a potential host for outsourcing activities can create a lock in effect, whereby late movers have a comparative disadvantage. Furthermore, the existence of firm heterogeneity along with externalities can help explain the dynamic process of offshoring, where the most productive firms offshore first and the others follow later. Finally, we work out some unexpected welfare implications which show that net industry profits can be lower in an outsourcing equilibrium than in a regime of no outsourcing. Consumer welfare rises, and under fairly plausible conditions this effect can offset the negative impact on profits.     

On capital accumulation paths in a neoclassical stochastic growth model

Summary. Boldrin and Montrucchio [2] showed that any twice continuously differentiable function could be obtained as the optimal policy function for some value of the discount parameter in a deterministic neoclassical growth model. I extend their result to the stochastic growth model with non-degenerate shocks to preferences or technology. This indicates that one can obtain complex dynamics endogenously in a wide variety of economic models, both under certainty and uncertainty. Further, this result motivates the analysis of convergence of adaptive learning mechanisms to rational expectations in economic models with (potentially) complicated dynamics. Received: June 21, 1996; revised version: October 31, 1996     

Utilitarianism for infinite utility streams: A new welfare criterion and its axiomatic characterization

A definition of a utilitarian social welfare relation (SWR) for infinite utility streams is proposed. Such a relation is characterized in terms of the Pareto, Anonymity and Partial Unit Comparability Axioms. The merits of the utilitarian SWR, relative to the more restrictive SWR induced by the overtaking criterion, are examined.     

Hysteresis in unemployment: Fact or fiction?

A stylized fact of European unemployment dynamics is one of extreme persistence and possible unit root behavior. This has led to a major reconsideration of the natural rate paradigm. We apply the Kalman filter to estimate the natural rate of unemployment for Germany and France. When the moving natural rate model is tested against the alternative of a unit root process, the unit root hypothesis is resoundingly rejected.     

THE COORDINATED REFORM OF TARIFFS AND INDIRECT TAXES

Tariff reduction designed to encourage outward-oriented developmentwill work only if alternative sources can be found to replenishrevenue lost in the cause of reducing protection. Integratedreform of tariffs with taxes would seem to be the answer, butso far analysts have often tended to treat the two instrumentsseparately. This article looks at the tariff and tax instruments used bydeveloping countries to protect their producers and to increasetheir revenues, and then lays out the contours of an integratedstructure for taxes with tariffs. This structure takes intoaccount not only objectives of efficiency and equity but alsoconstrained administrative capacity. The analysis concludeswith an examination of how these ideas may be used to guidethe coordinated reform of tax and tariff structures.      

Robust ergodic chaos in discounted dynamic optimization models

Summary We identify a family of discounted dynamic optimization problems in which the immediate return function depends on current consumption, capital input and a taste parameter. The usual monotonicity and concavity assumptions on the return functions and the aggregative production function are verified. It is shown that the optimal transition functions are represented by the quadratic family, well-studied in the literature on chaotic dynamical systems. Hence, Jakobson's theorem can be used to throw light on the issues of robustness of ergodic chaos and sensitive dependence on initial conditions.