Import Demand Elasticity and Exporter Response to Anti-Dumping Duties

ABSTRACT

This article investigates exporting firms’ behavior following the imposition of anti-dumping (AD) duties. AD duties tend to increase the prices of imported goods via a mechanism different from any other trade barrier because the AD duty size is endogenously dependent on import prices. Our model accounts for this feature and demonstrates that exporters are more likely to adjust their price upward when they face a less elastic demand. The theoretical predictions are supported empirically by relating product-level U.S. import demand elasticities and exporting firms’ reactions to duties inferred from a dataset on U.S. AD investigations from 1980 to 1995.     

The Risk Reduction Role of Advertising

This study shows theoretically and empirically that exposure to advertising increases consumers tendency to purchase the promoted product because the informative content of advertising resolves some of the uncertainty that the risk averse consumers face and thus reduces the risk associated with the product. We call this effect the risk-reduction role of advertising. The risk-reduction model implies that advertising effectiveness depends on (a) the risk preference parameter, (b) the precision of the advertising message, (c) the familiarity of the consumer with the product, (d) the consumers sensitivity to products attributes (and thus, her involvement level with the product), and (e) the diversity of products offered by multiproduct firms. These findings suggest that ads spending should be higher (a) for new and relatively unknown products, (b) for high-involvement products, (c) when ads can be quite precise, and (d) when the firm offers a diverse product-line. It also implies that ads should target consumers (a) who are more sensitive to risk, (b) who are more involved, and (c) those who are not familiar with the promoted product.The model allows ads to affect choices also through a direct effect on the utility (i.e., the standard approach to formulate the effect of advertising). In our empirical example (where the products are television shows) the risk-reduction effect is significant and strong and the direct effect is negligible behaviorally. We discuss the welfare implications of these findings, and illustrate the quantitative differences in managerial implications between our model and the traditional one.     

Conditional conservatism and disaggregated bad news indicators in accrual models

Conditional conservatism is an integral but often unmodeled part of the normal accrual process. The standard economic determinants of accruals contain information about unrealized losses. We argue that accountants recognize these unrealized losses as disaggregated write-downs for small asset pools. Modeling disaggregated impairments yields new economic insights about accruals and improved accrual models. We predict that accrual conservatism manifests as a sum of asymmetries for a vector of news indicators, rather than as an asymmetry for a scalar aggregate news proxy. We argue that more detailed segment-level and quarterly indicators have an incremental effect on annual firm-level accruals. We also predict a dynamic effect of successive loss indicators because accountants look for consistent patterns in these variables. Empirical results for U.S. firms support our predictions. The asymmetries in accruals are consistent with conservatism in validation tests. We also document improved statistical power and type I error in earnings management tests.     

Tolerance of Cheating: An Analysis Across Countries

Cheating is a serious problem in many countries. The cheater gets higher marks than deserved, thus reducing the efficiency of a country's educational system. In this study, the authors did not ask if and how often the student had cheated, but rather what the student's opinion was about a cheating situation. They investigated whether attitudes differ among students in Russia, the Netherlands, Israel, and the United States and conclude that attitudes toward cheating differ considerably between these countries. They offer various explanations of this phenomenon. In addition, they find that the student's attitude toward cheating depends on the student's educational level (high school, undergraduate, postgraduate). Finally, they show that the data from the sample can be aggregated in a natural and elegant way, and they suggest a tolerance-of-cheating index for each country.     

Non-equivalent pass-through of anti-dumping duties,countervailing duties and import tariffs

We directly compare the short-run pass-through of tariffs, anti-dumping (AD) duties and countervailing (CV) duties into US import prices. Consistent with the theoretical predictions, we find clear pattern of non-equivalence in import price reaction to the three duty types, with the most notable difference detected between AD duties and tariffs. According to our estimates, a tariff rate would have to be approximately two times higher than an AD duty rate in order to have the same effect on the delivered import price.     

Budget consolidation in a small open economy: a case study for Slovenia

In this article, we use the macroeconometric model SLOPOL10 to calculate simulations of the development of the Slovenian economy until 2030. Starting from the present favourable prospects of the European economies, the forecast is very optimistic but it can nevertheless be improved by optimal fiscal policies as calculated using the OPTCON2 algorithm. If a negative shock to world trade of a size comparable to the Great Recession occurs, it will entail a decline in GDP and a slow recovery. In this case, optimal fiscal policies should not act in an expansionary way as the effectiveness of fiscal policy with respect to output and employment is rather limited in a small open economy like Slovenia. Instead, the goal of budget consolidation will call for a more restrictive fiscal policy, at least if the shock is temporary.     

When do investors reward acquisitions and divestitures? The contrasting implications of normative and behavioral economic theories

We evaluate whether a contingency theory that combines a signaling hypothesis with behavioral economic theory can elucidate the discrepancy between positive expected returns to acquisitions and divestitures and the mixed‐to‐negative investor reactions observed in practice. We argue that, because of bounded rationality, uncertainty avoidance, and inertia, major organizational change is generally motivated by the detection of problems in an organization. Accordingly, although investors may view acquisitions and divestitures as positive corrective measures for low performers, such initiatives by high performers often signal problems that were heretofore unknown to the market. We contrast our results with predictions based on normative theories.     

Financial sector structure and financial crisis burden

We consider an overlapping generations model in the presence of financial intermediation. The paper focuses on the analysis of the consequences of a sudden negative repayments shock on financial intermediation capacity and consequently on the economy as a whole. The model exhibits a property of the ‘chain reaction’ when a single macroeconomic shock can lead to the exhaustion of credit resources and subsequently to the collapse of the banking system. To maintain the capability of the system to recover, a regulatory intervention is needed even in presence of the state guarantees on agents’ deposits in the banks. We compare the results for an intermediated economy with those derived for the market economy and draw some broad conclusions regarding the crisis consequences depending on the financial sector structure. We also compare the model predictions with the stylised facts about the Russian financial crisis of 1998.     

Macroeconomic Policies for Slovenia in the “Great Recession”

The paper analyzes the effects of different reactions of fiscal (and to some extent monetary) policies to the Great Recession in Slovenia. We use the model SLOPOL8.1, an econometric model of the Slovenian economy, to simulate the effects of the global crisis under the assumption of no-policy reactions, i.e. assuming that macroeconomic policies are conducted without attempting to deal with the effects of the recession. Moreover, we investigate whether (and if so, how) fiscal policy can reduce or even annihilate the macroeconomic effects of the recession. It turns out that in order to achieve reasonable rates of growth and of unemployment, a highly expansionary design of fiscal policies is required, which is neither realistic nor sustainable. There are strong trade-offs between countercyclical fiscal policies and the requirements of fiscal solvency. Acceptable fiscal policies are mildly countercyclical and are not able to shelter the Slovenian economy from the negative effects of a slump like that occurring during the Great Recession.