Economic integration and corruption

We study the link between corruption and economic integration. Integration is modeled by a common regulation for public procurement. We show that integration resolves a term of trade driven prisoner's dilemma and will always take place in the absence of corruption. Corruption may destroy the incentives for integration. If the propensities to corruption are too different, the more honest country, which benefits less from integration, will not be willing to join the union. This difference in corruption propensities can be offset by a difference in efficiency. We also show that integration has the positive effect of reducing corruption.     

Secret information acquisition in Cournot markets

Summary. Two-stage game models of information acquisition in stochastic oligopolies require the assumption that firms observe the precision of information chosen by their competitors before determining quantities. This paper analyzes secret information acquisition as a one-stage game. Relative to the two-stage game firms are shown to acquire less information. Policy implications based on the two-stage game yield, therefore, too high taxes or too low subsidies for research activities. For the case of heterogeneous duopoly we briefly discuss comparative statics results. Received: August 9, 1999; revised version: May 31, 2000     

Allocating Ideas: Horizontal Competition in Tournaments

We develop a stylized model of horizontal and vertical competition in tournaments with two competing firms. The sponsor cares not only about the quality of the design but also about the design location. A priori not even the sponsor knows his preferred design location, which is only discovered once he has seen the actual proposals. We show that the more efficient firm is more likely to be conservative when choosing the design location. Also, to get some differentiation in design locations, the cost difference between contestants can be neither too small nor too big. Therefore, if the sponsor mainly cares about the design location, participation in the tournaments by the two lowest-cost contestants cannot be optimal for the sponsor.     

Wild Bids. Gambling for Resurrection in Procurement Contracts

This paper analyses the problem of abnormally low tenders in the procurement process. Limited liability causes firms in a bad financial situation to bid more aggressively than financially healthy firms in the procurement auction. Therefore, it is likely that the winning firm is a firm in financial difficulties with a high risk of bankruptcy. The paper focuses on the regulatory practice of surety bonds to face this problem. We show that the use of surety bonds reduces and sometimes eliminates the problem of abnormally low tenders. We provide a characterization of the optimal surety bond and show that the U.S. practice of requiring that surety bonds cover over 100% of the contract price can be excessive, implying overinsurance to the problem of abnormally low tenders.     

Protection with many sellers: An Application to Legislatures with Malapportionment

What effect, if any, does legislative malapportionment have on international trade protection? This paper argues that in malapportioned legislatures, such as the U.S. Senate, industries become over‐represented in a legislature if they are disproportionately located in small constituencies. As a result, industries that are disproportionately located in smaller constituencies are likely to receive greater protection from international trade. To argue this point theoretically, this paper develops a new model, combining legislative bargaining and a model of lobbying to study trade protection while allowing for a legislature with multiple legislators and differently sized constituencies. We then test the predictions of this new model using tariff votes from the U.S. Senate in the late nineteenth and early twentieth centuries and a panel of tariffs and non‐tariff barriers to trade in the U.S. in the 1990s. Considerable support is found for the model's predictions. Industries concentrated in states where the population is low receive greater protection from imports.     

Electoral regime and trade policy

We study how trade protection varies with the electoral rules for legislative representation. In particular, we investigate different hypotheses about why trade policy differs between countries with legislatures elected by a plurality election rule in single member constituencies and legislatures elected by a proportional, or party-list, rule. Our results, which are in line with the existing literature, show that countries with list-PR systems tend to have lower trade barriers than countries with majoritarian systems. We expand on this literature by looking at the mechanisms through which this correlation can be explained. Our findings indicate that, contrary to existing theory, neither constituency size nor party strength are important when explaining this correlation. Country size does matter, but does not explain the whole of the correlation.     

U.S. import and export elasticities: a panel data approach

This article describes the creation of a new dataset on sectoral-level import and export elasticities in the U.S. between the years 1978 and 2001. It proposes the use of panel data techniques as a means of generating import price indexes, and then using them to measure trade elasticities while instrumenting for the endogeneous variables. In particular, it provides a dataset listing trade elasticities for a broad range of sectors at the North American Industry Classification System 4-digit, and 6-digit and the Harmonized Tariff System 6-digit, and 10-digit levels of industry aggregation. These results are compared to previous estimates in the literature. The resulting estimates can be used in a wide-range of applications in empirical studies of international trade policy, particularly in analyzing the welfare effects of international trade.     

A Monte Carlo study of growth regressions

Using Monte Carlo simulations, this paper evaluates the bias properties of estimators commonly used to estimate growth regressions derived from the Solow model. We explicitly allow for measurement error, country-specific fixed effects and regressor endogeneity. An OLS estimator applied to a single cross-section of variables averaged over time (the between estimator) performs best in terms of the extent of bias on each of the estimated coefficients. Fixed-effects and the Arellano–Bond GMM estimator overstate the speed of convergence under a wide variety of assumptions, while the between estimator understates it. Finally, fixed effects and Arellano–Bond bias towards zero the slope estimates on the human and physical capital accumulation variables, while the between estimator and the Blundell–Bond system GMM estimator bias these coefficients upwards.