Networks,firms, and trade

Fixed costs associated with learning about demand and setting up distribution networks are expected to be lower when there are more potential contacts in the destination market, suggesting a greater probability of market entry and larger export revenues. We match historically-determined emigration stocks with detailed firm-level data from Portugal to examine the effect of migrant networks on these export outcomes. We find that larger stocks of emigrants in a given destination increase export participation and intensity. In addition, we show that the former of these effects tends to be more pronounced among firms that are more likely to have close ties with the emigrants. These results are consistent with a multiple-destination version of the Melitz (2003) model featuring market-specific entry costs and idiosyncratic firm-destination demand shocks.     

The Breakdown of Idiosyncratic Volatility Into Expected and Unexpected Components and Its Effects on Stock Returns in Brazil

Based on studies of idiosyncratic volatility developed in the recent literature, this study analyzes its relation with expected returns through the breakdown of idiosyncratic volatility in the Brazilian stock market and presents evidence of the importance of expected idiosyncratic volatility for asset pricing. We study the impact of the expected and unexpected components of idiosyncratic volatility on the returns of shares listed on the BOVESPA between 2004 and 2011. The results show a strong positive and significant relation between expected idiosyncratic volatility and returns. This evidence is highlighted when we use unexpected idiosyncratic volatility to control for unexpected returns. Additional robustness tests, controlling for size and momentum effects, also have positive and significant coefficients, corroborating previous findings.     

Estimating the extensive margin of trade

Understanding and quantifying the determinants of the number of sectors or firms exporting in a given country is of relevance for the assessment of trade policies. Estimation of models for the number of exporting sectors, however, poses a challenge because the dependent variable has both a lower and an upper bound, implying that the partial effects of the explanatory variables on the conditional mean of the dependent variable cannot be constant. We argue that ignoring these bounds can lead to erroneous conclusions and propose a flexible specification that accounts for the doubly-bounded nature of the dependent variable. We empirically investigate the problem and the proposed solution, finding significant differences between estimates obtained with the proposed estimator and those obtained with standard approaches.     

An ideal Kyoto protocol: emissions trading, redistributive transfers and global participation

We demonstrate that an interregional policy scheme featuringtrading of carbon dioxide emissions, redistributive resourcetransfers and global participation, a scheme which we call ‘IdealKyoto Protocol’, yields an efficient equilibrium allocationfor a global economy. An altruistic international agency—say,the Global Environment Facility—should operate the resourcetransfer mechanism. In addition, regional governments shouldbe able to make independent policy commitments regarding howto control regional emissions of carbon dioxide in anticipationof the redistributive transfers. Our efficiency result suggeststhat the USA should be ‘bribed’ to reverse its decisionof not participating in the Kyoto Protocol.     

Environmental degradation,self-protection choices and coordination failures in a North–South evolutionary model

Environmental degradation may lead agents to increase their work effort to replace the consumption of depleted free access environmental goods with that of private substitute goods. The rise in the activity level that follows may further deplete the environment, which in turn increases the production and consumption of substitute goods. Using a North–South evolutionary model, we show that the existence of a coordination failure among interacting heterogeneous agents may lead the economy towards Pareto-dominated attracting stationary states where individuals work and produce “too much” (i.e. more than socially optimal). Finally, we analyse possible welfare effects of transferring the environmental impact of Northern production to the South and show that such a policy may decrease welfare in both hemispheres.