On the equivalence of weak dominance and sequential best response

In this paper, we identify the conditions under which a strategy is weakly dominated if and only if it is not sequential best response. In addition, we explore the implication for extensive form rationalizability.     

On forward induction in money-burning games

Summary. We first consider money-burning games studied by Ben-Porath and Dekel [6]. We show that iterative weak dominance and extensive form rationalizability yield the same unique outcome in this class of games. This result suggests that weak dominance captures the forward induction logic implied by extenisve form rationalizability. Next, we consider an example of entry model by Arvan [1] to demonstrate the power of forward induction. In this example, despite the presence of multiple equilibria, forward induction chooses a unique outcome. Received: January 25, 2000; revised version: January 5, 2001     

Heterogeneous multinational firms and productivity gains from falling FDI barriers

This paper quantitatively assesses the impact of falling foreign direct investment (FDI) barriers on individual firms and its implications for intra-industry reallocation and aggregate productivity. We calibrate the firm-heterogeneity model of Eaton et al. (Econometrica 79(5):1453–1498, 2011) to match micro-level data on Japanese multinational firms facing fixed and variable costs of foreign production. We demonstrate that the calibrated model can be used to replicate the entry and sales patterns of Japanese multinationals. Counterfactual simulations show that declining FDI barriers lead to a disproportionate expansion of foreign production by more efficient firms relative to less efficient firms. A hypothetical 20 % reduction in FDI barriers is found to generate up to a 26.8 % improvement in industry-level productivity through global market-share reallocations within the industry. Compared with fixed entry barriers, reallocation effects and productivity gains are larger for a reduction of variable costs of foreign production.     

Fertility,Intra‐Generational Redistribution,and Social Security Sustainability

Incorporating heterogeneity in preference to having children into an overlapping generations model of a small open economy, we examine the effects of changes in the size of pay‐as‐you‐go (PAYG) social security on fertility choices of individuals and population growth of the economy. It is shown that PAYG social security will raise population growth by increasing the number of individuals who have children and the number of children parents have if the system involves redistribution between retirees with different contributions, whereas, if it has no redistribution, PAYG social security does not affect the fertility decisions of individuals.     

Labor markets and cultural values: Evidence from Japanese and American views about caregiving immigrants

One overlooked reason for the persistence of distinct cultural values across rich democracies, we argue, is a country's labor market structure. Parents seeking to position their children for long‐term success would do well to instill values consistent with requirements of the labor market in the country where their children are likely to work. To the extent that labor markets are fluid, as in the United States, parents should teach their children to be resourceful and creative. In countries like Japan with relatively rigid labor markets, where workers have one chance to land a long‐term contract with a leading company, parents instead should instill the values of hard work and respect for authority. We find evidence consistent with this argument in survey experiments about attitudes in the United States and Japan about the desirability of employing immigrants for care work, and what values the immigrant care workers should hold. We also find evidence of indirect norm creation. American and Japanese respondents prefer immigrants—not just caregiving immigrants—whose values align with their country's type of valued human capital.     

Do international flights promote FDI? The role of face‐to‐face communication

International passenger flights facilitate business travel for in‐person meetings abroad. However, the significance of face‐to‐face communication (FFC) is not clear. To identify the FFC channel, this paper examines whether flights promote FDI more strongly for multinational firms that face relatively intensive FFC in foreign production. Expatriate employees are used as a proxy for the FFC intensity. Using firm‐level data on Japanese multinational firms for the period 1989 to 2006, I show that more frequent flights increase new FDI entry, with the larger positive effects for multinationals in high FFC sectors. The results support the FFC channel to connect flights and FDI.     

On the comparison of alternative specifications for money demand: The case of extremely low interest rate regimes in Japan

Using Japanese money market data, this paper compares the predictive ability of the log–log specification with infinite elasticity at a zero interest rate and the semilog specification with a one time switch from moderate to relatively high semielasticity at annual interest rates less than 0.5%. We find that the latter specification dominates the former in terms of predictive ability for the extremely low interest rate regime (the period between 1999 and 2006) because under the former the semielasticity is excessively sensitive to slight changes in interest rates. We find that interest rate semielasticity has remained stable at a high level since the mid-1990s.     

Human capital investment,credentialing, and wage differentials

This study considers how individuals determine at what ratio they will invest in two different types of education. The first type contributes to the development of labor skills, while the other does not. We refer to the former as human capital investment and the latter as unproductive investment, which improves test scores but has no beneficial effect on students' human capital. We formulate an overlapping‐generations economy in which the rich and poor households invest in both types of education. We find that the ratio of human capital investment to unproductive investment is lower in the economy with medium size of the wage differentials. In a dynamic analysis, we identify two patterns of stable steady states for the dynamics of the wage differentials, namely, no‐inequality and high‐inequality steady states. Further, we show that a rapid increase in the level of skill‐biased technology may cause a switch from a steady state with no‐inequality to one with high inequality. This causes at least a temporary increase in the ratio of unproductive investment during the transition to the new steady state.