Trade Liberalisation, Closer Economic Relations and Intra-Industry Specialisation

Abstract
Much of the growth in trade among the industrialised countries, and more recently among countries in the Asia-Pacific region, has taken the form of intra-industry trade (HT). Australia has historically had one of the lowest shares of IIT among OECD countries. This article examines how Australia's IIT has changed in the 1980s in response to the process of trade liberalisation and completion of the Closer Economic Relations (CER) pact with New Zealand. HT indexes are estimated for Australia's multilateral and trans-Tasman trade for 1981 and 1991 for 132 industries using data at the 3 and 4-digit level of the Standard International Trade Classification (SITC). The results point to a sharp increase in the share of IIT for both multilateral and trans-Tasman trade. Industries that have undergone the largest reductions in protection levels have increased their shares of IIT quite considerably. Increased intra-industry specialisation suggests that the short-run adjustment costs associated with trade liberalisation are likely to be lower. If IIT continues to grow in response to the ongoing process of internationalisation of the Australian economy, then Australia's prospects for expanding its share of world trade are good.     

Learning,diversification and the nature of risk

In many economic settings, faster learning is achievable only through greater exposure to risk. We study this conflict in the context of project choice, where a risk-averse agent must choose whether to invest in two projects of the same type (focus) or of different types (diversification). Focus enables faster learning across periods, but is riskier due to common type-specific shocks. Optimal choice involves balancing these two considerations. We show that focus is preferred for intermediate learning speeds, and that higher prior uncertainty may encourage focus. Thus, what matters for the focus-diversification choice is not only the level of risk, but also whether the risk is permanent or can be “learned away.” We are grateful to two anonymous referees, Serkan Bahceci, Steve Cecchetti, Adam Jaffe, Bojan Jovanovic, Kala Krishna, Blake LeBaron, Rachel McCulloch, Yana Rodgers, participants at the 2004 AEA-CSWEP Meetings and the 2003 North East Universities Development Conference, and seminar participants at Brandeis University for comments and suggestions.     

Elevating Repositioning Costs: Strategy Dynamics and Competitive Interactions

Research summary: This article proposes an approach for modeling competitive interactions that incorporates the costs to firms of changing strategy. The costs associated with strategy modifications, which we term “repositioning costs,” are particularly relevant to competitive interactions involving major changes to business strategies. Repositioning costs can critically affect competitive dynamics and, consequently, the implications of strategic interaction for strategic choice. While the literature broadly recognizes the importance of such costs, game‐theoretic treatments of major strategic change, with very limited exceptions, have not addressed them meaningfully. We advocate greater recognition of repositioning costs and illustrate with two simple models how repositioning costs may facilitate differentiation and affect the value of a firm's capability to reduce repositioning costs through investments in flexibility. Managerial summary: This article illustrates how the decision to make a strategic change is affected by both the cost to the firm of making the various strategy modifications, as well as the cost to its rivals of changing their strategies in response. These “repositioning costs” are important because they shape the responses each competitor would likely make to a move by the other competitor, and should be anticipated when considering an initial change to one's own strategy. The paper shows how repositioning costs can be used strategically to facilitate differentiation, and to assess the value of potential investments in flexibility. Copyright © 2017 John Wiley & Sons, Ltd.     

Voluntary Disclosures When There Is an Option to Delay Disclosure

What incentives drive managers to disclose immediately when they have an option to delay disclosures? I examine this question in a two-period setting in which public news that is positively correlated with firm value arrives periodically. I show that, when the manager's likelihood of receiving information is independent of the public news, an informed manager is more likely to disclose immediately when the public news is good. This happens even as the disclosure threshold itself increases in the public news. My model provides a potential explanation for why managers have a higher propensity to provide earnings forecasts when current earnings are high. I also show that, even when disclosures are credible, the average price reaction to a voluntary disclosure is (i) decreasing in the magnitude of the public news and (ii) lower when the manager is more myopic. These results have potential implications for studies that use stock returns to measure the news contained in management disclosures.     

Dilution costs,underinvestment, and utility regulation under asymmetric information

This article addresses the problem faced by a regulated natural monopolist who must raise outside funds to finance socially desirable projects. We demonstrate that fair rate of return utility price regulation will lead to underinvestment incentives in the presence of asymmetric information between the firm and the capital markets regarding the firm's assets and future costs. This problem is especially severe when financing choice is restricted to equity. Underinvestment can be either completely eliminated by adjusting the allowed rate of return above the fair rate or reduced by switching to debt finance.Support from the Center for the Study of Regulated Industry at Georgia State University is gratefully acknowledged. We have benefited from the comments of Victor Andrews, two anonymous reviewers, and the editor, Michael A. Crew. The usual disclaimer applies.     

Spatial Decentralization and Programme Evaluation: Theory and an Example

This paper proposes an instrumental variable method for programme evaluation that only requires a single cross‐section of data on the spatial intensity of programmes and outcomes. The instruments are derived from a simple theoretical model of government decision‐making in which governments are responsive to the attributes of places, rather than to the attributes of individuals, in making allocation decisions across space, and have a social welfare function that is spatially weakly separable, that is, that the budgeting process behaves as if it is multi‐stage with respect to administrative districts and sub‐districts. The spatial instrumental variables model is then estimated and tested with a single cross‐section of Indonesian census data. The results offer support to the identification strategy proposed but also highlight some issues affecting validity.     

Shared autonomous vehicles and their potential impacts on household vehicle ownership: An exploratory empirical assessment

Emerging transportation technologies have the potential to significantly reshape the transportation systems and household vehicle ownership. Key among these transportation technologies are the autonomous vehicles, particularly when introduced in shared vehicle fleets. In this paper, we focus on the potential impact that fleets of shared autonomous vehicles might have on household vehicle ownership. To obtain initial insights into this issue, we asked a sample of university personnel and members of the American Automobile Association as to how likely they would consider relinquishing one of their household's personal vehicles if shared autonomous vehicles were available (thus reducing their household vehicle ownership level by one). For single-vehicle households, this would be relinquishing their only vehicle, and for multivehicle households (households owning two or more vehicles) this would be relinquishing just one of their vehicles. Possible responses to the question about relinquishing a household vehicle if shared autonomous vehicles are present are: extremely unlikely, unlikely, unsure, likely, and extremely likely. To determine the factors that influence this response, random parameters ordered probit models are estimated to account for the likelihood that considerable unobserved heterogeneity is likely to be present in the data. The findings show that a wide range of socioeconomic factors affects people's likelihood of vehicle relinquishment in the presence of shared autonomous vehicles. Key among these are gender effects, generational elements, commuting patterns, and respondents' vehicle crash history and experiences. While people's opinions of shared autonomous vehicles are evolving with the continual introduction of new autonomous vehicle technologies and shifting travel behavior, the results of this study provide important initial insights into the likely effects of shared autonomous vehicles on household vehicle ownership.     

Do micro start-ups fuel job creation? Cross-country evidence from the DynEmp Express database

Exploiting a novel database recently built from national business registers by the OECD with the support of an international network of experts, this paper investigates the growth dynamics of micro-firms (employing less than ten workers) across 16 countries. Results show that only a small proportion of micro-firms manage to grow beyond ten employees, but those contribute disproportionately to overall job creation. Econometric analysis focusing in particular on the role of age confirms that young micro-firms—especially those below 3 years of age—are much more likely to grow above ten employees than older firms. These findings are remarkably stable over the three time periods considered (2001–2004, 2004–2007, and 2007–2010), i.e., also during the Great Recession.