Trade Liberalization and the Degree of Competition in International Duopoly

This paper analyzes how a reduction in trade costs influences the possibility for firms to engage in international cartels, and hence how trade liberalization affects the degree of competition. We consider a particular intra‐industry trade model amended to allow for firms producing differentiated products. Our main finding is that trade liberalization may have an anti‐competitive effect. We find that there is no unique relation between a reduction in trade costs and the degree of competition. When products are differentiated, a lowering of trade costs is pro‐competitive if trade costs are initially high, but anti‐competitive if trade costs initially are low. Hence, trade policy is not necessarily a substitute for competition policy.     

Contents Volume 15 2000

Volume Contents

Contents Volume 15 2000     

Cost-effective design of agri-environmental payment programs: U.S. experience in theory and practice

Key features of U.S. agri-environmental programs are reviewed and analyzed using literature review and program data. We focus, in particular, on several key questions: Has benefit-cost targeting increased the environmental benefit obtained from program budgets? Has competitive bidding reduced program costs? To what extent have these program designs resulted in additional gain (that would not have otherwise been obtained)? Previous research illustrates how benefit-cost targeting using environmental indices (such as the Environmental Benefits Index in the Conservation Reserve Program) can increase environmental cost-effectiveness. Previous research and data from two U.S. programs suggests that bidding has reduced costs, but that the full potential of bidding may not have been realized. Finally, most U.S. programs are intended to yield environmental gains that would not have otherwise been obtained, but sometimes fall short of this goal.     

Revisiting the Relationship between Ethnic Diversity and Preferences for Redistribution: Comment

In this paper, we revisit the question raised in Dahlberg et al. ( 2012 , Journal of Political Economy 120, 41–76) concerning a causal relationship between ethnic diversity and preferences for redistribution. We find that their results are based on (i) an unreliable and potentially invalid measure of preferences for redistribution, (ii) an endogenously selected sample, and (iii) a mismeasurement of the refugee placement program. Correcting for any of these three problems reveals that there is no evidence of any relationship between ethnic diversity and preferences for redistribution. We also discuss what is currently known about the refugee placement program, and to what extent it can be used for estimating causal effects more generally.     

The relationship between domestic and outward foreign direct investment: The role of industry-specific effects

Previous research has been inconclusive as regards the effect of outward foreign direct investment (FDI) on domestic investments. In this article, we show that this inconclusiveness can be explained at a disaggregated level as a function of the way industries are organized. Based on a simple theoretical framework including monitoring and trade costs, we argue that a complementary relationship can be expected to prevail in vertically integrated industries, whereas a substitutionary relationship can be expected in horizontally organized production. The empirical analysis confirms a significant difference between the two categories of industry as regards the impact of outward FDI on domestic investment. The results may thus have profound policy implications. JEL no. F12, F21, F23, G34.     

Knowledge maturity as a means to support decision making during product‐service systems development projects in the aerospace sector

Streamlining new product development forces companies to make decisions on preliminary information. This article considers this challenge within the context of project management in the aerospace sector and, in particular, for the development of product‐service systems. The concept of knowledge maturity is explored as a means to provide practical decision support, which increases decision makers' awareness of the knowledge base and supports cross‐boundary discussions on the perceived maturity of available knowledge, thereby identifying and mitigating limitations. Requirements are elicited from previous research on knowledge maturity in the aerospace industry, and a knowledge maturity model is developed through five industry‐based workshops.     

Local Pollution in Federal Systems

It is widely accepted that decentralized control of local pollution is inefficient if the central and the local authorities are imperfectly informed. This paper shows how the central authority can introduce a flexible grant-in-aid system that induces the local authority to use a weighted combination of local and central information when the local authority suffers from confirmatory bias. If the central authority is highly uncertain about the environmental effects of a specific pollutant, the tax/subsidy scheme can be designed to allow local information to play an essential role in the environmental policy. If the central authority is certain that a pollutant must not exceed a specific limit, the tax/subsidy scheme can be designed to allow local information little influence on the environmental policy.     

Financial Contracting Theory Meets the Real World: An Empirical Analysis of Venture Capital Contracts

We compare the characteristics of real-world financial contracts to their counterparts in financial contracting theory. We do so by studying the actual contracts between venture capitalists (VCs) and entrepreneurs. The distinguishing characteristic of VC financings is that they allow VCs to separately allocate cash flow rights, board rights, voting rights, liquidation rights, and other control rights. We describe and measure these rights. We then interpret our results in relation to existing financial contracting theories. We also describe the interrelation and the evolution across financing rounds of the different rights.     

Trade policy in majoritarian systems: the case of the U.S.

Abstract We provide a theory of trade policy determination that incorporates the protectionist bias inherent in majoritarian systems, suggested by Grossman and Helpman (2005) . The prediction that emerges is that in majoritarian systems, the majority party favours industries located disproportionately in majority districts. We test this prediction using U.S. data on tariffs, Congressional campaign contributions, and industry location in districts represented by the majority party over the period 1989–97. We find evidence of a significant majority bias in trade policy: the benefit to being represented by the majority party appears at least as large in magnitude as the benefit to lobbying.