duopoly supergames with product differentiation abstract when goods are complements or very close substitutes more tacit collusion is supported by trigger strategies in price setting supergames than in quantity setting supergames for moderate or poor substitutes the situation is reversed this contrasts with the static situation where price setting strategies always lead to higher welfare

transfers and the generalized theory of distortions and welfare recent theoretical attention devoted to the transfer paradox has included attempts to incorporate it into the body of commercial policy in this paper the existence of a family of always feasible corrective tax policies is proved which guarantees normal welfare response the set of pol icies is shown to contain the external trade fixing tariff and the op timal tariff the set of policies is then extended to include a capit al flow fixing profits tax to deal with the problems of foreign inves tment the results are then interpreted in terms of a general proposi tion in the theory of distortions and welfare copyright 1987 by the review of economic studies limited

foreign aid tariffs and nontraded private or public goods abstract the possibility of transfer paradoxes or immiserizing growth in tariff ridden small open developing countries with a nontraded goods sector is analysed in four models a short run sector specific factor model a dual economy model capital is mobile between some but not all sectors a long run model factors are mobile between all sectors and a model with public goods several results of the received literature on transfer paradoxes and or immiserizing growth in distorted small open economies are generalized to nontraded private and public goods allowing for intersectoral factor mobility or immobility

foreign investment and economic growth characterization of a second best policy for welfare gains abstract this paper prescribes corrective taxes for immiserizing growth and customs union formation growth through removal of trade barriers when the home country and the rest of the world are financially linked through foreign investment and ownership of assets an always feasible policy which generates pareto welfare gains for home country residents and union countries residents is found with foreign ownership the policy generally requires a specific profits tax in addition to the usual taxes on traded goods and factors the policy does not harm residents in the rest of the world growth is pareto non inferior from the world point of view

optimal symmetric punishments in a bertrand differentiated products duopoly abstract this paper studies how product differentiation affects collusive pricing in a duopoly when products are horizontally differentiated and firms compete in prices in contrast to earlier work the punishment mechanism supporting collusion is assumed to be the optimal symmetric punishment proposed by abreu 1986 journal of economic theory 39 191 225 such punishments have previously been characterized only for cournot oligopolies and for bertrand oligopolies with capacity constraints the optimal symmetric punishment turns out to have a simple two phase structure after one period of an intense price war firms return to the collusive outcome if prices are restricted to be non negative and the discount factor is large the price war will be extended to more than one period the best collusive price is shown to be lower the more substitutable are products

collusion with costly consumer search i use standard consumer search models to study how an increase in market transparency lower search costs or higher share of fully informed consumers affects cartel stability when firms sell horizontally differentiated products cartels become more stable as the search cost increases with homogeneous products by contrast the opposite holds a higher share of fully informed consumers makes collusion less stable when the market is initially sufficiently transparent whereas it happens otherwise if the market is originally little transparent

foreign ownership and the theory of trade and welfare some standard topics in the theory of international trade are reconsidered in this paper by distinguishing between national and aggregate income when fixed supplies of foreign inputs are present within the home country under conditions that would ensure a national welfare gain if foreign ownership were absent international transfer economic growth or tariff policy might cause a national welfare loss in the presence of foreign ownership the techniques developed could be applied to other domestic distinctions such as those based on race sex age or ethnicity and to the theory of customs unions in a three country world

taming capital flows abstract the argument of this paper is that growing capital mobility is unavoidable domestic financial liberalization and the revolution in information and communications technologies make it much more difficult to stop capital flows at the border effective controls will therefore have to become increasingly comprehensive onerous and distortionary the issue is therefore how to cope with the reality of high capital mobility and to manage the transition this means not freeing capital flows before substantial progress has been made in liberalizing domestic financial markets and strengthening financial supervision it means liberalizing foreign direct investment first access to stock and bond markets second and offshore bank funding last it means putting in place exchange rate monetary and fiscal policies that do not destabilize the capital account it means reforming monetary and fiscal institutions to assure the markets of the capacity to deliver desirable monetary and fiscal outcomes

the transfer paradox in a one sector overlapping generations model abstract this paper examines the effects of international income transfers on capital accumulation and welfare in a one sector overlapping generations model it is shown that a strong form of the transfer paradox in which the donor country experiences a welfare gain while the recipient country experiences a welfare loss may occur both in and out of steady state in addition it is shown that a weak form of the transfer paradox where either the donor or recipient but not both experiences a paradoxical welfare effect may characterize all segments of the transition path not already characterized by the strong transfer paradox

international migration non traded goods and economic welfare in the source country abstract this paper examines the economic effects of emigration in a source country producing both traded and non traded commodities it is shown that even if the economy faces fixed terms of trade emigration can still affect the welfare of the non migrants and the direction of the effect in this context will always be negative

do rockets rise faster and feathers fall slower in an atmosphere of local market power evidence from the retail gasoline market this study explores the possibility that local market power influences the observed asymmetric relationship between changes in wholesale gasoline costs and changes in retail gasoline prices i exploit an original data set of weekly gas station prices in southern california from september 2002 to may 2003 and take advantage of detailed station and local market level characteristics to determine the extent to which geographic and product differentiation influence price response asymmetry i find that brand identity proximity to rival stations and local market features and demographics each influence a station s predicted price response asymmetry

the welfare effects of trade and capital market liberalization treatise on the welfare effects of trade and capital market liberalization consquenses of the capital account liberalization in the presence of trade restrictions specifies on the liberalization of trade in the presence of foreign borrowing constraints proves superiority of gradual liberalization of trade to an abrupt liberalization

the global correspondence principle a generalization this paper generalizes the global correspondence principle by extending in two major ways samuelson s 1971 analysis of the exchange rate response to an international purchasing power transfer first the authors analyze the price effect of a shift in anyparameter not necessarily a transfer second the authors explore the resulting adjustments in any nonprice variable such as welfare as the analysis shows the direction of these adjustments depends neither on whether they are small or large nor on whether equilibrium is locally stable or unstable thus the authors generalize the conventional algebra of comparative statics which typically assumes small shifts from a stable equilibrium copyright 1987 by american economic association

the possibility of recipient harming donor benefiting transfers with more than two countries the possibility of a commodity transfer among nations which simultaneously benefits the donor and harms the recipient is examined an example of a three country exchange economy is presented where a transfer may be made which gives the counter intuitive result the result is then explained

the generalized theory of transfers and welfare bilateral transfers in a multilateral world paul samuelson s 1952 1954 classic papers on the transfer problem addressed two separate analytical issues the positive effect of a transfer on the terms of trade and the welfare effect of the transfer on the donor and the recipient since then a considerable body of literature has grown up on the positive analysis while samuelson 1954 himself had extended the 2 x 2 x 2 free trade analysis to allow for tariffs and transport costs subsequent writers have analyzed other extensions of the model for example to allow for nontraded goods as with leisure in samuelson 1971 or general nontraded goods in john chipman 1974 and ronald jones 1970 1975 remarkably however the welfare analysis of transfers has not paralleled these developments since wassily leontief 1936 produced an example of immiserizing transfer from abroad and samuelson 1947 argued that the example required market instability the proposition that has monopolized attention has been that a transfer in the conventional 2 x 2 x 2 model in its free trade version cannot immiserize the recipient or enrich the donor as long as world markets are stable in the walras sense interestingly samuelson 1954 who did extend the positive analysis to include tariffs did not go on to ask whether immiserization of the transfer recipient and hence symmetrically enrichment of the donor in a two country model could now arise consistent with market stability recently the welfare analysis of transfers has been extended in two different directions both apparently unconnected and both yielding the conclusion that transfers from abroad can be immiserizing and that the donor may improve its welfare despite market stability one route to this conclusion has been the introduction of a third economic agent or country that is outside of the transfer process in the appendix of his 1960 paper analyzing the interaction between trade policy and income distribution harry johnson discussed the possibility of welfareparadoxical redistribution between two factor income classes capital and labor in an open economy thereby providing what can be interpreted as a treatment of the threeagent transfer problem for the case in which donor and recipient are both completely specialized in the ownership of a single different factor an independent analysis of the three agent transfer problem using a restrictive model with given endowments of goods and fixed coefficients in consumption was also undertaken in an important paper by david gale 1974 2 brecher and bhagwati bhagwati department of economics columbia university new york ny 10027 brecher department of economics carleton university ottawa on kis 5b6 hatta department of political economy the johns hopkins university baltimore md 21218 we thank the national science foundation grant no 524718 for partial financial support of the research underlying this paper the paper was written when brecher and hatta were visiting columbia university 1981 82 gratefully acknowledged are helpful comments and suggestions from john chipman avinash dixit jacques dreze robert feenstra jacob frenkel ronald jones murray kemp andreu mas colell michael mussa john riley lars svensson and robert willig from anonymous referees and from seminar participants at berkeley harvard minnesota rochester chicago and the university of california los angeles after the present paper was submitted for publication and following its presentation at rochester our attention was drawn to this appendix which was noticed by a student of ronald jones subsequently we learned from makoto yano that motoshige itoh had pointed out an important related paper by ryuotaro komiya and t shizuki 1967 whose condition 11 for the johnson case anticipated our equation 12 below we are grateful for having both of these references brought to our attention 2 gale constructs an example in which the donor is enriched along with the recipient furthermore this immediately implies that a reverse transfer will immis

the regional economic consequences of tariffs and domestic transportation costs a small open economy is assumed to consist of two regions where interregional transport costs are higher than international transport costs cross hauling of identical commodities occurs and things such as terms of trade changes tariffs and domestic taxes have distinctly regional effects if tariffs generate interregional trade a welfare loss equal to the previous tariff collection occurs tariffs may also increase welfare for one region and may reverse the trade pattern for the economy tariffs and domestic taxes subsidies are not equivalent in this model tariffs also generate regional factor price differences which will not be eliminated by migration unless relative endowments are equalized les effets economiques regionaux des tarifs douaniers et des coats de transport domestique l auteur examine le cas d une petite 6conomie ouverte faite de deux regions entre lesquelles les couits de transport sont plus 6lev6s que les couits de transport internationaux on observe des mouvements de biens identiques entre pays dans les deux directions et des changements dans les termes d echange dans les tarifs douaniers et dans la fiscalit6 domestique ont des effets regionaux distincts si les tarifs douaniers engendrent un commerce interregional une perte de bien etre 6gale a la perte des droits de douane collect6s ant6rieurement se produit l introduction de tarifs douaniers peut accroftre le bien etre d une region et renverser le pattern de commerce international pour l 6conomie dans son ensemble dans ce modele tarifs douaniers et taxes subventions ne s 6quivalent pas les tarifs douaniers peuvent engendrer des diff6rences regionales dans le prix des facteurs qui ne s 6limineront pas par les mouvements migratoires a moins que les dotations relatives de facteurs ne soient 6galis6es

exclusive territories and manufacturers collusion this paper highlights the rationale for exclusive territories in a model of repeated interaction between competing supply chains we show that with observable contracts exclusive territories have two countervailing effects on manufacturers incentives to sustain tacit collusion first granting local monopolies to retailers softens competition in a one shot game hence punishment profits are larger thereby rendering deviation more profitable second exclusive territories stifle deviation profits because retailers of competing brands adjust their prices to the wholesale contract offered by a deviant manufacturer whereas intrabrand competition prevents such instantaneous reaction we show that the latter effect tends to dominate thereby making exclusive territories a more suitable organizational mode to cooperate these insights are robust to endogenous communication between manufacturers we also consider retailers service investments here a novel effect emerges that softens the procollusive value of exclusive territories retailers of a deviant manufacturer increase investments which renders deviation more profitable this paper was accepted by preyas desai marketing

research joint ventures product differentiation and price collusion abstract we investigate the interplay between firms decisions in product development either joint or independent and their ensuing repeated pricing either collusive or bertrand nash a joint venture develops a single product whereas independent ventures develop their respective products which can be differentiated we prove that joint product development and the resulting lack of horizontal product differentiation may destabilise collusion whilst firms r d decisions have no bearings on collusive sustainability if differentiation is vertical we also discover the non monotone dependence of firms venture decisions at the development stage upon their time preferences as well as upon consumers willingness to pay

terms of trade and domestic distribution export led growth with abundant labour abstract a general equilibrium macro model is constructed to explore effects of export led growth policies on the terms of trade and the domestic distribution of a developing region with abundant labour this region the south trades with another the north they have different technologies and supplies of factors it is shown that under certain conditions of dualism in the production of goods and of abundant labour supply in the south an increase in the volume of exports from the south may bring about a sustained worsening of the south s terms of trade with the north even if this increase in exports is due to a positive shift in demand from the north this change in the terms of trade is accompanied by a sustained loss of purchasing power of wages within the south these results take place in a walrasian stable market when technologies are more homogenous and labour less abundant the results are reversed increased exports will take place together with improvements in terms of trade and a tendency to equalise factor prices between the regions the results argue for coordination of domestic and international policies with special attention to technologies and labour markets

investor heterogeneity market segmentation leverage and the equity premium puzzle abstract financial economists for the past two decades have attempted to explain why the equity premium is so high now known as the equity premium puzzle epp we model investor heterogeneity market segmentation and optimal leverage using the time separable standard power utility market completeness and ignoring transaction costs to explain the epp we explain both the epp and the related risk free rate puzzle without resorting to preference modification furthermore we show a unique interior equilibrium for the debt ratio contrary to the work by f modigliani m h miller the cost of capital corporation finance and the theory of investment american economic review 48 1958 261 297 corporate income taxes and the cost of capital american economic review 53 1963 433 443 and s c myers presidential address the capital structure puzzle journal of finance 39 1984 575 592 our simulations show the relevance of our models

optimal tariffs and income taxes under imperfect and uncertain foreign investment international investment as well as international trade is now a wide phenomenon and optimal policies to be selected in the presence of both international trade and investment have been a great concern jones 7 and kemp 9 have done pioneering works in this area of study previous studies however have mostly postulated that international capital movements are perfect while perfect capital mobility is expected in the long run bhagwati and brecher 2 and brecher and bhagwati 3 emphasized short run sluggishness of foreign investment that is even in the presence of international differentials in rates of return to capital the amount of foreign capital existing in the host country is fixed in the short run a realistic case however will be between complete fixity and perfect mobility of foreign capital this is especially true in the medium run in such a case the amount of foreign capital existing in a country at a particular future point in time may be reasonably conceived as uncertain to that country uncertainty may arise for various reasons the case includes uncertainty about the level of the rate of return to capital in the world market and also uncertainty about production technology employed by foreign investors these cause amounts of foreign capital to be received by the host country uncertain to it even under perfect international capital mobility uncertainties in such a case are relevant when the host country government has a long run perspective and is concerned with the long run consequences of its policies this paper addresses the open question of levels of optimal policies to be chosen when foreign capital movements are uncertain as well as imperfect and examines whether they modify or make intact the optimal policies established traditionally policies considered here are import tariff and income tax by the host country since these are prevalent and have attracted much attention in the literature of international trade and investment

trade theory distribution of income and immigration this paper examines the impact of mass immigration utilizing the analytical framework of so called trade theory as such its emphasis is on general equilibrium effects and on the constraints imposed by the openness of the economy on such effects the analysis will center on the distributional impact of unskilled labor immigration excerpt

international capital mobility shadow prices and the cost of protection this paper studies the welfare losses from tariff protection in a small open economy when some factors are internationally mobile our principal result is that international fictor mobility must raise the cost of protection more specifically the welfare loss resulting from a uniform increase in tariffs in a competitive small open economy is greater when tariff induced international factor movements take place than when factors are internationally immobile by contrast an exogen1ous inflow of factors in the presence of tariffs may increase or reduce the welfare loss associated with protection depending on whether or not the protected commodities use the foreign owned factors intensively relative to domestically owned factors these results are proven for a very general specification of the economy s technology in particular no restrictions are placed on the degree of vertical integration in production on the sectors into which factors are internationally mobile or on the number of goods and factors our main result holds whether or not an increase in tariff rates leads the economy to specialise in addition we show how our results relate to earlier work on immiserising capital inflows and on negative shadow prices for factors of production thus synthesizing a number of recent results within a common framework the paper is organised as follows in section 2 we explain our framework and derive expressions for the welfare effects of tariffs when all factors are domestically owned and when some factors are foreign owned but not internationally

international capital transfers and the choice of production technique a simple two country model abstract a two country two factor two good world with incomplete specialization is explored in the context of international capital transfers where the techniques of production of the same good differ across sectors of the world economy it is shown that the terms of trade for the south will worsen with a capital transfer to the south under a wide range of assumptions about the nature of the technology used in the north owned sector of the south the implied redistribution of world income as well as the implications of a change in the production technique of the foreign owned sector of the south are then examined

on the stability of multimarket collusion in price setting supergames abstract in this paper we examine how trade liberalization affects collusive stability in the context of multimarket interactions the model we consider is a segmented markets duopoly with differentiated goods in which price setting firms pool their incentive constraints across markets to sustain their most collusive outcome we find that when goods are very close substitutes and trade costs are sufficiently high a marginal reduction in trade costs facilitates collusion exactly the opposite is true if for any given degree of product substitutability trade costs are sufficiently low we also study the dependence of multimarket collusion on product differentiation

optimal foreign aid and tariffs this paper investigates the optimal choice of foreign aid when trade policies are decided in a non cooperative fashion three alternative scenarios depending on the timing of the actions and on whether aid is tied are analyzed it is shown that in the case where aid is decided before tariffs untied aid can lead to the reduction of the recipient s optimal trade tax when the donor can tie the aid to a reduction in the recipient s tariff the optimal aid level is always positive and the world can always achieve a pareto efficient equilibrium

delivered pricing and the impact of spatial differentiation on cartel stability abstract this paper analyzes the impact of spatial differentiation on the sustainability of collusion on delivered prices it shows that the choice of the punishment mechanism that enforces collusion is crucial for determining whether differentiation facilitates cartel pricing or not if punishments are optimal then differentiation tends to facilitate collusion optimal punishments impose minmax profits on deviators independently of the degree of differentiation a high degree of differentiation then renders deviations less profitable since it makes business stealing more costly but does not affect the deviator s punishment profits depending on the transport cost technology excessive differentiation may have a countervailing effect however because it also implies high transport costs for the cartel if collusion is sustained by standard grim trigger punishments instead then collusion may be easiest for minimal differentiation the reason is that competitive and thus grim trigger punishment profits are higher the higher the degree of differentiation

intertemporal product choice and its effects on collusive firm behavior this study analyzes the collusive behavior of firms in markets characterized by horizontal product differentiation the special features are that product choice is endogenized and that firms may redesign their products intertemporally at a fixed cost the main objective is to examine the relationships between the extent of product differentiation the product redesigning cost and the degree of collusion supportable the findings indicate that flexible product design makes collusion more difficult to sustain since in the event collusion breaks down firms have an incentive to mitigate the severity of punishment by redesigning their products and thus reducing price competition copyright 1992 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

the distributional impact of a resource boom abstract sizeable export growth led by a booming natural resource extraction sector has recently been experienced in a number of countries this form of growth holds potentially important implications for the distribution of income and in this paper a simple general equilibrium trade model is presented which is aimed at exposing the effects of a resource boom on factor owners real incomes the analysis highlights the critical role played by the real exchange rate and also explores the consequences of a resource boom in the presence of real international capital flows and endogenous protection wherein one group of factor owners uses commercial policy to maintain the group members real incomes

optimal policy in the presence of licensed technology from abroad this paper extends the theory of international trade to analyze optimal commercial policy of a country importing technology for which royalties must be paid to foreigners as the analysis shows the country can maximize national welfare by combining a tax on international trade in commodities and a domestic commodity market tax or subsidy depending respectively on whether foreigners are net exporters or importers of the commodity whose technology is licensed internationally the analysis also demonstrates that the maximum level of national welfare might be lower with than without technological imports if the country s exportable commodity uses the foreign technology

welfare aspects of the transfer problem using the standard trade model with three countries and allowing for substitutability in both production and consumption this paper demonstrates that a country may gain by giving a transfer that the receiver may lose and that these two phenomena may appear at the same time this result is an extension of gale s example in a fixed coefficient model where he shows both transferer and transferee may become better off harming the third country and it is contrasted with the traditional welfare proposition whereby a giver is immiserized and a recipient is enriched

tacit collusion in differentiated cournot games abstract in a simple oligopoly with quantity setting firms we analyze the conditions under which more product differentiation makes tacit collusion easier it is found that the net effect can go either way

multilateral transfers export taxation and asymmetry abstract it has been established that under free trade transfers that are proportional to the trade volumes of recipient nations cannot immiserize them we investigate this result in the context of a three country model of export taxation by recipient nations proportional transfers can be immiserizing in the presence of fixed export taxes under nash welfare maximizing export taxes proportional transfers cannot immiserize the recipients consequences of asymmetry in size and in nash equilibrium tax rates are also explored the findings are relevant for developing nations who use export taxes and also receive foreign aid

the possibility of an immiserizing transfer under uncertainty in a two country two commodity trade model with production uncertainty an international transfer can harm the recipient and benefit the donor this result holds even when equilibrium prices are stable moreover the form in which the transfer is paid can matter for the welfare consequences of the transfer

asset returns with transactions costs and uninsured individual risk abstract we explore whether incorporating an explicit motive for holding liquid assets within an equilibrium asset pricing model helps explain the following features of asset returns and turnover in the post war u s economy i the low risk free real interest rate ii the large spread between returns on liquid assets and stocks and iii the greater transaction velocity of liquid assets relative to stocks we introduce a demand for liquid assets by adding uninsured individual risk together with differential costs of trading securities numerical simulations attempting to match the return data generate a ratio of liquid assets to income considerably below observed levels

strategic trade policy and welfare foreign equity ownership is shown empirically to weaken significantly and occasionally reverse common strategic trade policy results existing levels of u s cross ownership for example reduce the average optimal export subsidy by 47 relative to the brander and spencer journal of international economics 1985 18 83 100 value in industries with particularly high cross ownership and relatively small imputed labor rents optimal subsidies fall to less than one seventh of their former level previous studies which overlook high rates of cross ownership overstate the effectiveness of strategic policies most sharply in sectors with above average expected profitability scope for strategic investments and barriers to rent dissipation

price vs quantity competition in oligopoly supergames abstract in a repeated oligopoly with differentiated products and firms following trigger strategies quantity competition leads to a less efficient outcome than price competition this result contrasts with the repeated duopoly result where price competition is less efficient under certain conditions

multivariate proxies and asset pricing relations abstract a framework is developed in which inferences can be made about the validity of an equilibrium asset pricing relation even though the central aggregate in this relation is unobservable a multivariate proxy for the true market portfolio consisting of an equal weighted stock index and a long term government bond index is employed in an investigation of the sharpe lintner capm the empirical evidence suggests that we can reject the joint hypothesis that a capm is valid and b multiple correlation between the true market portfolio and proxy assets exceeds 0 7 connections to the equilibrium factor pricing literature are also explored

on the tying of aid to tariff reform this paper considers the welfare effects of foreign aid that is tied to changes in the recipient s tariff by constructing a three country model with tariffs and by allowing for changes both in the amount of aid and in the tariff rates we are able to consider the welfare implications of two different rules of aid conditionality i a rule which leaves the donor s welfare unchanged and ii a rule which leaves the recipient government s total revenue unchanged it is shown that the tying of aid to a tariff reform can inter alia be used to ensure pareto improvement

from a customs union to a common market the need for factor tax harmonization abstract wooton 1988 demonstrates that a movement of a small customs union towardsa common market may result in a welfare loss if the common external tariff rates are not zero the present paper building on wooton s model demonstrates that even if the common external tariff rates are zero the movement towards a common market may still result in a welfare loss if the tax rates on factor s rates of return are not equal among partners within two special models the analysis also demonstrates that when the tax rates on factors rates of return are equal among member countries then the movement towards a common market is optimal regardless of whether or not the common external tariff rates are zero

foreign ownership non traded goods and the effects of terms of trade changes on national welfare abstract this paper extends the theory of international trade in the presence of foreign ownership to incorporate non traded goods it is shown that with non traded goods national and aggregate welfare might move in opposite directions in response to a terms of trade deterioration even when national and aggregate trade specialization patterns coincide

aid nontraded goods and the transfer paradox in small countries this paper constructs a model of the transfer paradox for a small open economy with nontraded goods it demonstrates that increased production of nontraded goods can change their domestic price so as to offset the otherwise beneficial effect of aid and under certain conditions to create a transfer paradox even in a small country the model is estimated with time series data for 44 aid dependent countries for the period 1970 90 the results support the model and show that the nontraded goods expansion effect is more likely to cause immiserization than harry g johnson s 1967 tariff distorting export displacement effect

tied aid and the paradoxes of donor enrichment and recipient impoverishment it is part of received doctrine that in a two country world without hindrance of commodity taxes or other distortions and with market stability assured international transfers necessarily harm the donor and benefit the recipient 2 however in the case of most non private international aid those conditions fail donors often require that aid be spent in a manner not closely related to private preferences in the recipient countries indeed not closely related to any well behaved preferences and they normally finance the aid by means of distorting taxation hence one cannot rule out by appeal to standard theorems the possibility that aid perversely leaves the donor better off and or the recipient worse off let us say that aid is tied in the recipient if it is spent inefficiently in terms of individual preferences and that aid is tied in the donor if it is financed inefficiently thus whether aid is tied is a question of how it is spent or financed it is not a question of the numeraire in terms of which aid is accounted nor of the form in which it is offered 3 evidently the definition of tying is uncommonly broad for example aid may be tied in the recipient not because the donor attaches strings but because the government of the recipient is incompetent or unrepresentative moreover the definition is relevant however the aid is applied whether to private or public goods whether to consumption or investment goods we follow the literature on the transfer problem in assuming that aid is spent on private consumption goods like hospital services and powdered milk this is a matter of convenience and continuity only 4 in the present note we seek to rework the economics of foreign aid under novel assumptions in particular allowance will be made for the possibility that aid is tied in whole or in part in the donor or in the recipient it will be verified that the donor may benefit and the recipient suffer and that these outcomes are com

aid and trade this paper surveys the recent theoretical and empirical literature that explores the relations between aid and trade and asks about the complementarity or substitution effects at work we distinguish between the effects of aid on trade flows and on trade policies of the donor as well as the recipient countries special focus is given on trade facilitation or aid for trade

the generalized theory of transfers and welfare exogenous policy imposed and endogenous transfer induced distortion this paper reconsiders the welfare effects of a transfer payment in a two commodity world with two agents countries by taking the presence of exogenous and endogenous distortions into account when there is an exogenous tax cumsubsidy on production consumption or trade the analysis demonstrates that a transfer may paradoxically enrich the donor and immiserize the recipient under certain specific conditions these welfare paradoxes are also shown to be possible if the transfer endogenously induces directly unproductive profit seeking activity of lobbyists concluding remarks emphasize the paper s relevance for policymakers

imported technologies urban unemployment and the north south dialogue abstract this paper extends the harris todaro model with intersectoral capital mobility to include sector specific imported technologies technologies are assumed to be embodied in imported capital goods the small economy in the south for which the model is defined can import any amount of these technologies from the north at given royalty rates we find that if the north agrees to reduce the royalty rate on the industrial technology both the level and the rate of urban unemployment would rise and the income distribution change against the wage earners whereas such a reduction for the agricultural technology would have just the opposite effects a decrease in either royalty rate would increase the national income in the south although the magnitude of the increase in income would be larger with reduced royalty rate for agricultural rather than industrial technology the policy implication is that the south should emphasize the import of agricultural technology over the industrial technology

the economics of the to and fro migrant some welfare theoretical considerations the effects of international to and fro migration on the economic welfare of the migrants and the nonmigrants in the host and home countries are examined a to and fro migrant is defined as a worker who changes residence from origin to destination without any systematic tendency to remain in any of the two permanently the study is based on the theoretical framework developed by krauss the results indicate that to and fro emigration from a source country to a recipient country increases the economic welfare of the migrants and the nonmigrants residing in the host country but it tends to decrease the welfare of the nonmigrants residing in the source country in general the migration also tends to be pareto optimal from a world point of view excerpt

intermediate goods and the formation of duty free zones abstract if a country forms a duty free zone by lowering tariffs on intermediate goods and taxes on foreign capital used in the zone then resources are attracted from the surrounding domestic zone this can worsen the effects of the distortions due to the tariffs remaining in the domestic zone and can lower the host country s national income and welfare this tends to occur if 1 there is less substitutability between the intermediate and labor than between these factors and capital 2 there is currently a small foreign owned sector in which the share of labor in total costs is large relative to the share of the imported intermediate in the foreign sector and relative to the share of labor in total costs in the domestic zone ironically under the latter circumstances the host country is likely to regard a duty free zone as an attractive option

internal decision making rules and collusion we study the impact of internal decision making structures on the stability of collusive agreements to this end we use a three firm spatial competition model where two firms belong to the same holding company the holding company can decide to set prices itself or to delegate this decision to its local units it is shown that when transportation costs are high collusion is more stable under delegation furthermore collusion with maximum prices is more profitable if price setting is delegated to the local units profitability is reversed for low discount factors

foreign aid and public goods abstract most less developed countries ldcs use foreign economic aid to finance public consumption goods or public intermediate inputs this paper constructs a two country general equilibrium trade model where an income transfer that takes place between the two countries is used by the recipient to finance a public consumption good within this framework the paper identifies the conditions under which the income transfer improves or deteriorates the donor country s terms of trade and shows that the transfer can be welfare enriching for the donor and welfare immiserizing for the recipient country the paper also demonstrates that the transfer can raise reduce world welfare in which case a welfare increase decrease in both the donor and the recipient country is possible

tariffs foreign capital and immiserizing growth with urban unemployment and specific factors of production abstract in this note we show that a recent observation of brecher alejandro as regards tariff induced capital inflows essentially extends to a setting with urban unemployment three factors of production and a variety of labor market conditions in the urban sector

international trade and labor migration a theory of the relationship between international trade and labor mobility is developed that takes into account five characteristics of such migration including its temporary nature differences between migrant and native labor the acceptance of unpredictable conditions of employment by migrant labor the ready availability of further labor resources and international capital mobility particular attention is paid to the role of international labor migration in helping to insulate native populations from the rigors of industrial fluctuations and in helping to preserve import competing industries that would have succumbed without the availability of cheap imported labor

endogenous product design in an infinitely repeated game abstract this paper examines the incentives to differentiate products horizontally in a repeated game when redesigning costs are negligible the main findings are the following if firms are patient with respect to future profits i e the discount factor is high they will choose an intermediate degree of differentiation the lower the discount factor the more firms are forced to increase differentiation in order to keep collusion from breaking down unless the discount factor is extremely low prices will be unconstrained monopoly prices

collusive pricing in markets for vertically differentiated products abstract this paper examines the relationship between product differentiation and the sustainability of collusive pricing in markets for vertically differentiated products the main finding is that collusion is more easily sustained the more similar the products are exactly the opposite result may be obtained in models of horizontal differentiation consequently when products are differentiated both horizontally and vertically theory provides no clearcut prediction

immiserizing transfer under variable returns to scale this paper examines the welfare consequences of a unilateral transfer for both the transfer paying and the transfer receiving country in which the production functions are subject to variable returns to scale we obtain the conditions for the strong paradox that is the welfare of the transfer paying country improves and that of the transfer receiving country declines in the standard two country framework the conditions for the weak paradox that is both the transferor and transferee gain or lose simultaneously and the normal results that is the transferor loses and the transferee gains are also derived transferts appauvrissants quand les rendements a l echelle sont variables ce memoire examine les effets de bien etre d un transfert unilateral a la fois pour le pays donateur et le pays recipiendaire quand les fonctions de production ont des rendements variables a l echelle les auteurs d6veloppent les conditions qui sous tendent le paradoxe fort i e le cas oii le bien r ils d6rivent aussi les conditions qui sous tendent le paradoxe faible i e le cas oui les deux pays gagnent ou

some results on optimal penal codes in asymmetric bertrand supergames abstract optimal penal codes in asymmetric bertrand supergames exhibit security level punishments for the largest firm if no firm has sufficient capacity to service the market then collusion that is barely sustainable by optimal penal codes entails higher capacity utilization by the largest firm than by the other firms collusion supported by optimal penal codes in models with a large firm facing a competitive fringe can result in the large firm having low capacity utilization and thus providing a price umbrella for the fringe firms which have high capacity utilization journal of economic literature classification numbers c72 c73 l11 l13

on the provision of official and private foreign aid abstract the provision of official relative to private foreign aid varies considerably between donor countries we explain the variations in terms of country size household composition income distribution and the government s ability to commit to aid and derive inter alia the results 1 official aid crowds out private aid 2 total aid and official aid collected from each household are lower in more populous countries 3 total aid is lower if i the distribution of income favors the more altruistic households and ii the government can credibly commit to a certain level of aid evidences suggest that the theoretical results can explain stylized facts

asset trading transaction costs and the equity premium summary a model is developed that attempts to explain the historical size of the us equity premium by distinguishing between gross and net returns accruing to agents the model derived by mehra and prescott 1985 is augmented with a bid ask spread calibrated and simulated equity premia in the order of 3 4 are generated for plausible values of the transactions parameters this contrasts with mehra and prescott who find a maximum equity premium of 0 4 while the historic equity premium has been about 6 2 estimates of the bid ask spread are obtained using gmm and tests of the overidentifying restrictions are not rejected for several lists of instrumental variables

unemployment and the optimal export processing zone abstract in a country with harris todaro unemployment the formation of an urban export processing zone reduces national income unless it raises rural wages in that case increases in zone wages increase national income by less than dollar for dollar if foreign capital is taxed optimally then intermediate imports into the zone should be subsidized while the wage should be at the minimum feasible level for a given tax policy either the wage should be at the minimum or the ad valorem tariff on the intermediate should exceed the inverse of the elasticity of supply of labor from the countryside existing zone policies depart from these prescriptions

transfers the terms of trade and capital accumulation in the context of a two sector overlapping generations model it is demonstrated that a steady state transfer paradox may arise under commodity trade with stability and without distortions or bystanders the existence of the paradox is due to the effect of the transfer on world capital accumulation which is shown to always i e for any ranking of factor intensities and savings rates improve the donor s terms of trade transfers may also improve steady state welfare for both donor and recipient and produce paradoxical welfare results along the transition path la litterature en statique du commerce international a conclu que en l absence de distorsions ou de tierces parties les mouvements des termes d echange induits par les transferts ne peuvent pas etre suffisamment importants quand il y a stabilite walrasienne pour engendrer le paradoxe du transfert on a tire la conclusion de modeles dynamiques a un secteur que le paradoxe du transfert est possible mais en comptant sur la mobilite internationale du capital et sur les mouvements dans le niveau mondial du taux d interet plutot que sur les prix et les marches des biens dans un modele dynamique a deux secteurs ou les generations se chevauchent ce qui permet des effets a la fois statiques et intertemporels dans les termes d echange le commerce des biens peut engendrer un paradoxe du transfert en regime permanent quand il y a stabilite walrasienne sans distorsions et tierces parties l existence du paradoxe est attribuable a l effet du transfert sur l accumulation du capital qui toujours pour tout ordre des intensites de facteur et des taux d epargne ameliore les termes d echange du donneur les transferts peuvent aussi ameliorer le bien etre du donneur et du recipiendaire en regime permanent et produire des resultats paradoxaux de bien etre dans le sentier de transition

international capital mobility and commercial policy in an economic region abstract if two small countries are linked by capital movements then at low tariff levels any increase in capital flows induced by the commercial policy of either country will harm that country and benefit the other country while at low levels of international investment a tariff increase always harms the country levying the tariff nevertheless an increase in one country s tariff could benefit both countries by alleviating regional distortions in factor allocation if the countries liberalize factor movements within a customs union then conflicts must arise in choosing the level of the common external tariff

immiserizing transfers from abroad abstract this paper shows that an international transfer payment may paradoxically immiserize the recipient country or increase the donor country s welfare even when world markets are stable despite the traditional view that such a paradox theoretically requires market instability to demonstrate this paradoxical possibility the paper extends the conventional trade theoretic analysis to admit exogenous distortions created by tax cum subsidies in domestic production or endogenous distortions due to additionality requirements imposed by the donor on the recipient this analysis of immiserizing transfers from abroad immediately suggests significant implications for important policy issues including the evaluation of real benefits from foreign aid

the effects of product differentiation on collusive pricing abstract using the spatial competition framework of hotelling 1929 this paper explores the relationship between the degree of product differentiation and the ability of firms to collude with respect to price we show that the minimum discount factor required to support the joint profit maximum as an equilibrium outcome monotonically increases as products become better substitutes when the joint profit maximum cannot be supported the optimal collusive price is shown to decline as products become more substitutable these findings suggest that firms producing stronger substitutes tend to find it tougher to collude in terms of their product price

reevaluating the role of trade agreements does investment globalization make the wto obsolete abstract international ownership alters the role of multilateral trade institutions by redefining pecuniary externalities among countries regardless of the underlying cause whether foreign direct investment international portfolio diversification cross country mergers or multinational firms international ownership can mitigate incentives that lead large countries to set inefficiently high tariffs at the same time however foreign ownership introduces the potential for expropriation by investment host countries which can extract rent from foreign owners by manipulating local prices the basic principle of reciprocity continues to serve as an important guide to efficiency though its application must account for the pattern of international ownership in addition to traditional measures of market access

optimal penal codes in price setting supergames with capacity constraints this paper constructs optimal pure strategy penal codes for a broad class of symmetric bertrand supergames with capacity constraints the results should simplify the analysis of bertrand supergames because the punishments comprising the penal codes constructed below have a very simple form and the associated payoffs are often easy to calculate it is also shown that for a commonly employed subclass of the games considered the admission of mixed strategies does not allow severer punishments the analysis draws heavily on the pathbreaking work of abreu 1984 he demonstrated that in the search for optimal penal codes attention can be restricted to simple penal codes simple penal codes are characterized by a vector of outcome paths one for each player the ith outcome path is interpreted as the punishment to be imposed on the ith player if he deviates from the equilibrium path or from any punishment path section 2 explains the basic framework of analysis the class of bertrand games studied is very general no particular rationing rule is imposed some mild restrictions are placed on the firms sales functions instead the commonly used models of levitan and shubik 1972 and beckman 1965 are special cases of the games analysed below it is assumed throughout that there is a price firms can be induced to charge if the punishment for charging a different price gives the offending firm a payoff equal to its security level for the supergame thus either there must exist a static nash equilibrium in pure strategies or else the discount factor must not be too close to zero in section 3 optimal penal codes are constructed and it is established that the punishments comprising them always drive punished firms to their security levels the arguments employed make clear that optimal penal codes are not generally unique this issue is addressed in section 4 where it is also shown that the levitan shubik rationing rule exhibits more types of optimal penal codes than do other rules in particular if the levitan shubik rule is employed then punishments that are analogous to abreu s 1986 symmetric two phase punishments for cournot games can be used to construct optimal penal codes in bertrand games this property does not hold generally however

cartel stability and product differentiation abstract this paper employs a supergame theoretic model of collusion to analyze the effects of different levels of product differentiation on cartel stability in contrast to earlier work the ability of the parties to reach an agreement is assumed here the focus is on how greater product homogeneity increases both the gain to cheating on a collusive agreement and the magnitude of the punishments that follow a defection the total effect on the likelihood a cartel is stable is therefore unclear two particular differentiated products models are then used to demonstrate that contrary to the conventional view greater homogeneity can reduce cartel stability