investment and market dominance we analyze a model of oligopolistic competition with ongoing investment special cases include incremental investment patent races learning by doing and network externalities we investigate circumstances under which a firm with low costs or high quality will extend its initial lead through investments to this end we derive a new comparative statics result for general games with strategic substitutes which applies to our investment game finally we highlight plausible countervailing effects that arise when investments of leaders are less effective than those of laggards or in dynamic games when firms are sufficiently patient

the effect of annuity insurance on savings and inequality this paper examines the amount of precautionary savings and wealth inequality arising from life span uncertainty by comparing saving behavior under perfect insurance arrangements with that arising under imperfect arrangements namely when longevity risk can be pooled only with members of one s own family the central findings of the paper are that 1 perfecting insurance arrangements can sharply lower savings in both intergenerationally altruistic and life cycle economies and that 2 in altruistic economies perfecting annuity insurance can greatly influence inequality indeed in the long run in our model switching from imperfect family insurance to perfect insurance can mean the difference between absolute inequality and absolute equality

r d policies trade and process innovation we set up a simple trade model with two countries hosting one firm each the firms invest in cost reducing r d and each government may grant r d subsidies to the domestic firm we show that it is optimal for a government to provide higher r d subsidies the lower the level of trade costs even if the firms are independent monopolies if firms produce imperfect substitutes policy competition may become so fierce that only one of the firms survives international policy harmonization eliminates policy competition and ensures a symmetric outcome however it is shown that harmonization is not necessarily welfare maximizing the optimal coordinated policies may imply an asymmetric outcome with r d subsidies to only one of the firms

do trade missions increase trade in an effort to stimulate trade canada has conducted regular trade missions starting in 1994 often led by the prime minister according to the canadian government these missions generated tens of billions of dollars in new business deals this paper uses bilateral trade data to assess this claim we find that canada exports and imports above normal amounts to the countries to which it sent trade missions however the missions do not seem to have caused an increase in trade in the preferred specification incorporating country pair fixed effects trade missions have small negative and mainly insignificant effects dans un effort pour stimuler le commerce international le canada a mene des missions commerciales depuis 1994 souvent sous la direction du premier ministre selon le gouvernement canadien ces missions ont engendre des dizaines de millions de dollars en relations d affaires ce texte utilise des donnees sur le commerce bilateral pour evaluer cette proposition on decouvre que le canada exporte et importe des quantites au dessus de la normale vers et en provenance des pays ou il a mene des missions commerciales cependant les missions ne semblent pas avoir cause un accroissement du commerce dans la specification preferee incorporant les effets fixes des paires de pays les missions commerciales ont des effets faibles negatifs et en gros insignifiants

targeted export promotion with several oligopolistic industries abstract we study export promotion policies in situations where several oligopolistic industries compete for the services of a sector specific factor of production the partial equilibrium argument for strategic subsidies must be modified to incorporate general equilibrium effects working through the factor market we find that these effects generally weaken the case for profit shifting subsidies in a benchmark case with symmetric exporting industries fixed coefficients technologies and an inelastic supply of the specific factor free trade is shown to be optimal

strategic trade and industrial policy towards dynamic oligopolies we characterise optimal trade and industrial policy in dynamic oligopolistic markets if governments can commit to future policies optimal first period intervention should diverge from the profit shifting benchmark to an extent which exactly offsets the strategic behaviour implied by fudenberg and tirole s animal spirits taxonomy of business strategies without government commitment there is an additional basis for intervention whose sign depends on the strategic substitutability between future policy and current actions we consider a variety of applications to rd spillovers consumer switching costs etc and also extensions to constrained second best policies

do migrants improve governance at home evidence from a voting experiment can international migration promote better institutions at home by raising the demand for political accountability a behavioral measure of the population s desire for better governance was designed to examine this question a postcard was distributed to households promising that if enough postcards were mailed back results from a survey module on perceived corruption would be published in the national media data from a tailored household survey were used to examine the determinants of this behavioral measure of demand for political accountability undertaking the costly action of mailing the postcard and to isolate the positive effect of international emigration using locality level variation the estimated effects are robust to the use of instrumental variables including past migration and macro shocks in the destination countries the estimated effects can be attributed mainly to migrants who immigrated to countries with better governance especially migrants who return home

trade patterns and gains from trade with an intermediate good produced under increasing returns to scale abstract this paper considers a model with one primary factor one intermediate good and two final goods increasing returns to scale are introduced into the production of the intermediate good to analyze trade patterns and gains from trade with two assumptions about the market structure of the intermediate good average cost pricing and monopoly free trade does not necessarily lead to gains for the economy and either specialization or multiple equilibria are obtained this paper also provides interesting comparisons between the types of market structure showing for example that monopoly can be preferred to average cost pricing

immigrant links to the home country empirical implications for u s bilateral trade flows immigrants ties to their home countries can play a key role in fostering bilateral trade linkages immigrant ties include knowledge of home country markets language preferences and business contacts that have the potential to decrease trading transaction costs empirical results for the united states suggest that immigrant links have historically been important in increasing bilateral trade flows with immigrants home countries copyright 1994 by mit press

low income and poor health choices the example of smoking people with low incomes tend to make less healthy consumption choices than do high income people in the case of food agricultural economists have investigated whether this is due to the cost of a healthy diet studies of various aspects of the nutrition income nexus have generally been inconclusive we investigate a different possibility motivated by the fact that low income individuals are most likely to be smokers which cannot be due to limited budgets drawing on a body of related literature we develop a model in which income serves not only as a budget constraint but also as a source of future utility we test the model by estimating logistic models of beginning and quitting smoking we find support for the idea that low income consumers make less healthy choices because they face lower costs in terms of foregone future utility

the control of export credit subsidies and its welfare consequences a two stage bertrand duopoly model demonstrates how the sequence of firm and government actions can explain the origins of export credit subsidies and can affect the welfare consequences of international agreements to adopt subsidy rate ceilings firms act first by stating prices in applications for export credit and can induce positive subsidies by inflating the prices the subsidies transfer rents from governments to firms without changing welfare defined as profits less subsidy expenditures governments become the first to act by adopting subsidy rate ceilings that bind ceilings cause firms to lower prices such that if a positive ceiling binds welfare falls

health spending savings and fertility in a lifecycle dynastic model with longevity externalities we investigate health spending savings fertility and policy implications in a lifecycle dynastic model with longevity externalities in annuity returns we show that such externalities engender not only excessive health spending but also under saving and excessive fertility social security and health subsidization increase health spending and savings but reduce fertility from laissez faire levels a publicly funded universal health system under labour income taxation raises fertility taxing health spending or using social security and public health together can obtain socially optimal health spending savings longevity and fertility numerical results based on us observations suggest substantial variations among these cases especially in old age health spending

export subsidies for differentiated products abstract export subsidies in differentiated product markets are examined in a framework where the decision to establish subsidy programs occurs first but firms set prices before governments set subsidy levels in contrast to earlier results that governments should tax the exports of bertrand firms when subsidy levels are set before prices positive subsidies can be optimal adoption of a subsidy program by one producer s government does not necessarily hurt the unsubsidized competitor the subsidy itself hurts but the program facilitates collusion the results highlight the importance of timing and the distinction between the effects of policy regimes and policy instruments

technological competition uncertainty and oligopoly abstract in an oligopoly context the present technological choice of a firm which expects to receive private revelant information just prior to the uncertain market stage has both a flexibility value and a strategic commitment value in contrast to some common wisdom ideas we provide a natural two stage competition framework in which an increase in uncertainty always raises the commitment value of the technological choice of the firm and may decrease its flexibility value when the increased uncertainty takes the form of more variable beliefs the first result tends to reinforce therefore the findings of the strategic commitment literature under certainty

a model of declining health and retirement the declining u s average retirement age has been difficult to reconcile with cross section evidence that poor health is a primary cause of early retirement this paper reconciles those observations by building a grossman type model of investment in health distinguished from its predecessor by a more formal treatment of initial conditions a discontinuous mid life increase in health investment retirement is shown in general to be part of the optimal investment strategy time series productivity increases are shown to lower the optimal retirement age while varying health endowments and depreciation rates are shown to be able to account for cross section retirement age variations

migrants ancestors and foreign investments we use 130 years of data on historical migrations to the u s to show a causal effect of the ancestry composition of u s counties on foreign direct investment fdi sent and received by local firms to isolate the causal effect of ancestry on fdi we build a simple reduced form model of migrations migrations from a foreign country to a u s county at a given time depend on 1 a push factor causing emigration from that foreign country to the entire u s and 2 a pull factor causing immigration from all origins into that u s county the interaction between time series variation in origin specific push factors and destination specific pull factors generates quasi random variation in the allocation of migrants across u s counties we find that doubling the number of residents with ancestry from a given foreign country relative to the mean increases the probability that at least one local firm engages in fdi with that country by 4 percentage points we present evidence that this effect is primarily driven by a reduction in information frictions and not by better contract enforcement taste similarities or a convergence in factor endowments

the positive effects of the schengen agreement on european trade enacted in 1985 the schengen agreement is widely heralded as both a symbol and major institutional advancement of the european project by eliminating passport requirements for workers the compact ostensibly produces gains from travel ease of market access and economies of scale yet despite these optimistic predictions scholars know little about the actual effects of schengen on trade we fill this void by identifying why labour mobility should expand the cross country exchange of goods and services and then test our theory with data from europe spanning the period 1980 to 2011 we argue that labour mobility resulting from schengen yields positive effects on trade by increasing demand for foreign goods improving awareness of low cost producers abroad and lowering the risks associated with buying and selling outside the country using the gravity model of trade we show empirically that schengen membership makes european states more robust trading partners

export subsidies and oligopoly with switching costs abstract i examine export policy using a two period model of oligopolistic competition with switching costs a switching costs model captures the idea that market share in one period affects profits and welfare in future periods if consumers are impatient firms and governments are patient and switching costs are significant then governments subsidize first period exports and tax second period exports otherwise governments tax exports in both periods although governments may subsidize first period exports each country is made worse off when both countries subsidize in addition firms dump p mc under conditions similar to those required for export subsidies

the export effect of immigration into the usa much has been written on the connection between migration and international trade human history provides important examples of migrations leading to increased trade activity with perhaps the most well known example of the overseas chinese this study investigates the trade related importance of chinese and other immigrants into the usa previous studies may have underestimated or overestimated the relationship between trade and migration with nations treated as featureless plains rather than as varied landscapes this study contends that an understanding of the immigration trade relationship can be improved upon by examining the specific pattern and destination of immigration into specific us states using state level export data to 28 immigrant source countries in 1993 a strong immigration trade link is found reinforcing conclusions made by previous research using country level data the compelling connection between immigration and trade found in this study and others suggests that future change

scale economies in factor supplies international trade and migration this paper incorporates externalities generated by human capital into the heckscher ohlin samuelson framework to examine the patterns of international trade and migration individuals endowed with different levels of human capital choose to become either unskilled or skilled workers national scale economies with respect to human capital play an important role in endogenously determining these factor supplies and yield a number of interesting patterns of trade and migration migration could reinforce comparative advantage both skilled and unskilled workers could migrate in the same direction

a dynamic efficiency rationale for public investment in the health of the young in this paper we assume away standard distributional and static efficiency arguments for public health and instead seek a dynamic efficiency rationale we study a lifecycle model wherein young agents make health investments to reduce mortality risk we identify a welfare rationale for public health under dynamic efficiency and exogenous mortality even when private and public investments are perfect substitutes if health investment reduces mortality risk but individuals do not internalize its effect on the life annuity interest rate the philipson becker effect emerges when the young are net borrowers this works together with dynamic efficiency to support a role for public health resume raisons fondees sur l efficience dynamique pour l investissement public dans la sante des jeunes dans ce memoire on met de cote les arguments conventionnels de sante publique fondes sur la repartition des revenus et l efficience statique pour s interesser a explorer les raisons d efficience dynamique pour ce genre d investissement on etudie un modele de cycle de vie ou les jeunes agents font des investissements en soins de sante pour reduire le risque de mortalite on identifie un raisonnement en termes de bien etre en faveur de depenses en sante publique quand il y a efficience dynamique et mortalite exogene meme quand les investissements prives et publics sont de parfaits substituts si l investissement en soins de sante reduit le risque de mortalite mais que les individus n internalisent pas ses effets sur le taux d interet sur les rentes viageres l effet philipson becker emerge quand les jeunes sont des emprunteurs nets cet effet joue dans le meme sens que l efficience dynamique en faveur d un role pour la sante publique

international migration the brain drain and poverty a cross country analysis the aim of the paper is threefold first it empirically investigates the effect of international migration on poverty in origin countries using data from a cross country analysis second it explores the specific part of the income distribution from which migrants are drawn by comparing the effect of international migration on different income quintiles of the population finally given that the selection of migrants depends not only on the income level of their households but also on the skill levels of movers the paper casts some light on the implications of the emigration of skilled workers on poverty this article shows that the stock of international migrants have a positive effect on the income of the poor while it does not have a significant impact on the income of the middle and top quintiles of the population in particular a 10 per cent increase in the per capita stock of migrants resident in oecd nations augments the income of the poor by 1 per cent on average and ceteris paribus finally the poverty reducing effect of migration holds even when the emigration process selects the best and the brightest

social security and the rise in health spending abstract in a quantitative model of social security with endogenous health i argue that social security increases the aggregate health spending of the economy because it redistributes resources to the elderly whose marginal propensity to spend on health is high i show by using computational experiments that the expansion of us social security can account for over a third of the dramatic rise in us health spending from 1950 to 2000 in addition social security has a spill over effect on medicare as social security increases health spending it also increases the payments from medicare thus raising its financial burden

foreign direct investment with unemployment and endogenous taxes and tariffs it is well known that high tariffs can induce foreign direct investment or tariff jumping this paper analyzes tariff jumping in the context of a host government which can set specific tariffs and taxes subject to the credibility constraint that the chosen levels be optimal once capital is irreversibly in place the foreign multinational is assumed to choose its location and level of investment strategically taking into account the induced tax and tariff levels in the presence of unemployment the optimal tariff exceeds the optimal tax for any given level of capital investment leading to foreign direct investment

industrial groupings and foreign direct investment we explore worldwide foreign direct investment location decisions by japanese manufacturing firms from 1985 through 1991 our conditional logit estimates provide evidence that firms location decisions are affected by membership in either vertical or horizontal keiretsu consistent with previous studies that stress agglomeration effects on firms location decisions we find that the stock of investment in a region by a firm s vertical keiretsu partners increases the probability of location further we find that the recent flow of investment into a region by a firm s horizontal keiretsu partners increases the probability of investment to the region providing evidence of networking effects

capital accumulation and annuities in an adverse selection economy this paper suggests that adverse selection problems in competitive annuity markets can generate quantity constrained equilibria in which some agents whose length of lifetime is uncertain find it advantageous to accumulate capital privately this occurs despite the higher rates of return on annuities the welfare properties of these allocations are analyzed it is shown that the level of capital accumulation is excessive in a paretian sense policies that eliminate this inefficiency are discussed copyright 1987 by university of chicago press

brain drain in globalization a general equilibrium analysis from the sending countries perspective according to the economic literature high skilled emigration may either harm or bene t developing economies recent research highlighted several positive and negative channels through which the brain drain operates this paper aims at evaluating the relative magnitudes of various brain drain channels and quantifying their global impact on migrants sending countries for this purpose we develop a 10 region general equilibrium model of the world economy characterized by overlapping generations dynamics our ndings suggest that the short run impact of brain drain on resident human capital is extremely crucial as it affects not only the number of high skilled workers available to domestic production but also the sending economy s capacity to innovate adopt modern technologies this latter effect is particularly important in globalization where capital investments are made in places with high production ef ciencies hence despite positive feedback effects those countries facing prevalent high skilled emigration are the most candid victims to brain drain

capital accumulation and uncertain lifetimes with adverse selection this paper examines the implications of adverse selection in the private annuity market for the pricing of private annuities and the consequent effects on constrption and bequest behavior with privately known heterogeneous mortality probabilities adverse selection causes the rate of return on private annuities to be less than the actuarially fair rate based on population average mortality however a fully funded social security system with compulsory participation can offer an implied rate of return equal to the actuarially fair rate based on population average mortality thus since social security offers a higher rate of return than private annuities consumers cannot completely offset the effects of social security by transacting in the private annuity market using an overlapping generations model with uncertain lifetimes we demonstrate that the introduction of actuarially fair social security reduces the steady state rate of return on annuities and raises the steady state levels of average bequests and average consumption of the young the steady state national capital stock rises or falls according to the strength of the bequest motive this abstract was borrowed from another version of this item

health spending and public pension evidence from panel data abstractthis article empirically investigates the determinants of aggregate health expenditure in a panel of oecd countries from 1980 to 2005 we differ from most existing studies by testing some new determinants motivated by recent theoretical advances in the literature we find that a one percentage increase in public pension payments per elderly person leads to approximately a one third percentage increase in aggregate health spending and this effect is significant and robust across a variety of model specifications a back of the envelope calculation based on this estimate suggests that the expansion of the public pension programme on average accounts for approximately over one fifth of the rise in aggregate health expenditure as a share of gdp in the set of oecd countries during 1980 2005 in addition we find that the estimated effect of gdp per capita in our model ranges from 0 66 to 0 80 which is consistent with the results from some recent studies and thus further reinforces the finding in the

precautionary saving and accidental bequests this paper presents a simple general equilibrium model of precautionary saving and accidental bequests this model is used to analyze the implications of individual lifetime uncertainty for aggregate consumption and capital accumulation a precautionary demand for saving arises because an individual consumer does not know in advance the date at which he will die and he wants to avoid low levels of consumption in the event that he lives longer than expected an implication of this precautionary saving is that when death does occur the consumer is generally holding some wealth which is then passed on to his heirs in the form of an accidental bequest even if all consumers have the same ex ante mortality probabilities there will be some intracohort variation in the date of death consequently there will be a nondegenerate distribution of bequests left by consumers in a cohort this nondegenerate distribution of bequests left by one generation induces variation in the distributions of wealth consumption and bequests of subsequent generations the importance of bequests in aggregate saving has been established by laurence kotlikoff and lawrence summers 1981 who reported that 80 percent of u s household wealth is inherited wealth one interpretation of this finding is that the simple life cycle model without bequest motives is an inadequate description of saving behavior in the united states but the model i present demonstrates that accidental bequests by selfish consumers can account for a potentially sizeable fraction of aggregate wealth although some part of bequests especially by the wealthy undoubtedly results from an explicit bequest motive accidental bequests also play a role in the intergenerational transfer of wealth as well as in the intragenerational variation in wealth in order to focus on the role of accidental bequests i purposely exclude a bequest motive from the specification of the utility function the effects of lifetime uncertainty on individual consumption behavior were first examined formally in a seminal paper by menachem yaari 1965 yaari s model provided the basic framework for virtually all subsequent work on uncertain lifetimes including well known papers by nils hakansson 1969 stanley fischer 1973 robert barro and james friedman 1977 david levhari and leonard mirman 1977 and kotlikoff and avia spivak 1981 however all of these papers focused on the consumption decision of an individual and ignored the effect of accidental bequests on the behavior of the recipients of these accidental bequests 2 as will be shown at various points in this paper changes in the economic environment can have effects on aggregate behavior which differ sharply from the effects on individual behavior because of the endogenous adjustment of bequests the effects of department of economics harvard university cambridge ma 02138 this paper is a revised version of bequests and social security with uncertain lifetimes nber working paper no 1372 june 1984 i thank olivier blanchard john burbidge christopher cavanagh robert clower stanley fischer benjamin friedman elhanan helpman mervyn king nobuhiro kiyotaki laurence kotlikoff robert mcdonald james pesando julio rotemberg lawrence summers lars svensson mark watson and jeffrey wolcowitz for valuable conversations and correspondence i also thank the participants in seminars at boston university columbia university cornell university federal reserve board harvard university university of iowa mit university of minnesota university of montreal national bureau of economic research north carolina state university the wharton school and yale university and two anonymous referees for their helpful comments i also thank the national science foundation for financial support 1 in the presence of perfect annuity and life insurance markets there may or may not be bequests depending on the presence or absence of a bequest motive but there would be no accidental bequests 2 kotlikoff and spivak focus on the role of the family in providing an incomplete annuities market but stop short of a full scale overlapping generations model in which the distribution of bequests is determined endogenously

international r d rivalry and industrial strategy this paper presents a theory of government intervention which provides an explanation for industrial strategy policies such as r d or export subsidies in imperfectly competitive international markets domestic net welfare is improved by the capture of a greater share of the output of rent earning industries although the subsidy ridden noncooperative international equilibrium is jointly suboptimal behaviour of governments and firms is modelled as a three stage subgame perfect nash equilibrium the assumption that the government is the first player in this game allows it to influence equilibrium outcomes by altering the set of credible actions open to firms

cost reduction competition and industry performance in many markets firms compete over time by expending resources with the purpose of reducing their costs sometimes the cost reducing investments operate directly on costs in many instances they take the form of developing new products that deliver what customers need more cheaply therefore product development can have the same ultimate effect as direct cost reduction in fact if one thinks of the product as the services it delivers to the customer in the way that lancaster pioneered then product development often is just cost reduction

cooperative and noncooperative r d in duopoly with spillovers contrary to the usual assumption made in most oligopoly models relations among firms are seldom of a wholly cooperative or noncooperative type in many situations they compete in some fields while they cooperate in others an important example is the case of cooperative research efforts bringing fierce competitors together two types of agreement are observed first r d cooperation can take place at the so called precompetitive stage companies share basic information and efforts in the r d stage but remain rivals in the market place 1 a second type of agreement involves an extended collusion between partners creating common policies at the product level the usual justifications of this extension are the difficulties of protecting intellectual property the idea is then to allow partners who have achieved inventions together to also control together the processes and products which embody the results of their collaboration in order to recuperate jointly their r d investments 2 what could be expected from these types of agreement is a reduction in r d expenditures because of less wasteful duplication and a reduction of total production because of more reprinted from the american economic review 78 5 1133 1137 1988 center for operations research econometrics 1348 louvain la neuve belgium we are grateful to jean

reverse importing and asymmetric trade and fdi a networks explanation abstract this paper considers the impact of business and social networks on international trade and fdi i propose that differences in the strength of network effects across countries can produce asymmetric trade and investment flows that may lead to trade friction a firm from a country with strong network effects has a cost advantage in selling to buyers from its own country this advantage results in lower inward fdi lower total imports but larger volumes of reverse imports into the country with strong network effects the model s predictions match observed asymmetric trade and investment flows that sometimes lead to us japan trade friction

immigrant specificity and the relationship between trade and immigration theory and evidence studies routinely document that immigrant employment concentrates in non traded goods sectors and that many immigrants have low inter sectoral mobility we consider these observed characteristics of immigrant employment with regard to the question of how immigration affects a nation s pattern of production and trade we model an economy producing three goods one is non traded domestic labor and capital are domestically mobile but internationally immobile allowing that some new immigrants will become specific to the non traded goods sector the model indicates that the effects of immigration on output and trade depend importantly on the sectoral pattern of employment of both new and existing immigrants empirical investigation in a panel data set of oecd countries supports the model s prediction that immigration raises the output of non traded goods consistent with the model we also find that immigration and trade are complements given its empirical support the model s implications for immigration policy are then discussed

do state borders matter for u s intranational trade the role of history and internal migration empirical evidence of the impact of borders on international trade flows using the gravity equation approach abounds this paper examines the empirical relevance of state borders in u s interstate trade for various specifications of the gravity equation we find a large and economically significant subnational border effect for some specifications however two model specifications drastically reduce if not eliminate the border effect i dynamic panel specifications controlling for past levels of trade and ii models conditioning on internal migration les resultats empiriques de l analyse des impacts des frontieres sur les flux de commerce international en utilisant les modeles de gravite sont devenus monnaie courante ce texte examine l impact des frontieres entre etats a l aide de cette technique il s avere que les effets de frontieres infranationales sont grands et significatifs pour certaines specifications du modele cependant deux specifications du modele reduisent dramatiquement s ils n eliminent pas l effet de frontiere i des specifications qui prennent en compte les niveaux anterieurs de commerce et ii des specifications qui dependent de la migration interne

consumer demand for nutrition versus taste in four major food categories this study addresses the trade off between nutrition and taste in expenditure on breakfast cereal milk bread and soft drinks within each category products have similar cost and convenience but have markedly different flavor and nutritional content using annual expenditure data for a large sample of households participating in the acnielsen homescan system we regress a measure of healthiness on household demographics and market prices and find that households with college educated heads and higher incomes made significantly healthier choices in all four categories these effects are puzzling in that the nutritional differences between products were well known to consumers and there are no cost or convenience differences between them the presence of children was associated with less healthy choices especially for cereal and bread while older households made healthier choices in all categories except milk

out of sight not out of mind education networks and international trade summary university students typically develop between them long lasting ties of friendship and trust as well as an attachment to their university if they are foreign students they also form a bond to their country of study this paper investigates the impact of university ties on the uk s trade with 167 countries during 1999 2009 i find robust evidence that education network ties boost the uk s bilateral trade flows specifically the impact of networks is stronger on trade between the united kingdom and countries with dissimilar institutions and culture and particularly with post communist economies results are robust to different econometric specifications and regressors

the optimal stock of health with endogenous wages application to partial disability compensation the optimal quantity of health is examined in the framework of a model which posits that health capital will influence earning capacity in addition to the supply of labor utilizing data from the survey of disabled and nondisabled adults eight health capital variables are tested in models of hourly wages labor supply and yearly earnings the results for three of the health capital variables are then compared to their evaluation by the american medical association and by the new york state workers compensation program

the family as an incomplete annuities market families can self insure against uncertain dates of death through implicit or explicit agreements with respect to consumption and interfamily transfers interfamily transfers need have nothing to do with altruistic feelings they may simply reflect risk sharing behavior of completely selfish family members although family annuity markets are incomplete even small families can substitute by more than 70 percent for perfect market annuities given adverse selection and transaction costs family risk pooling may be preferred to public market annuities in the absence of public annuities these risk sharing arrangements provide powerful incentives for marriage and family formation

export subsidies and high productivity cause or effect according to the emerging strategic theory of trade policy countries selling in imperfectly competitive world markets may benefit from export subsidies this paper demonstrates that the theory predicts that it is the countries with the lowest production costs that offer the highest subsidies it is argued that this result diminishes the attraction of the theory as a positive explanation of trade policy

immigration and the diffusion of technology the huguenot diaspora in prussia abstract this paper analyzes long term effects of skilled worker immigration on productivity for the huguenot migration to prussia in 1685 religiously persecuted french huguenots settled in brandenburg prussia and compensated for population losses due to plagues during the thirty years war we combine huguenot immigration lists from 1700 with prussian firm level data on the value of inputs and outputs in 1802 in a unique database to analyze the effects of skilled immigration to places with underused economic potential exploiting this settlement pattern in an instrumental variable approach we find substantial long term effects of huguenot settlement on the productivity of textile manufactories jel j24 j61 l67 n33 n63 o33 o47

strategic export promotion in the absence of government precommitment arguments in favor of a strategic trade policy are based on the assumption that the government can credibly precommit to a policy that will not be altered even if it is suboptimal ex post this paper examines the implications of relaxing this assumption to this end a three stage game is considered that accounts for the sunk costs associated with capacity installment it is found that contrary to common belief the time consistent optimal subsidy level is positive though generally lower than the optimal level with precommitment this somewhat counterintuitive result is driven by the commitment value of capacity copyright 1995 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

optimal choice of health and retirement in a life cycle model abstract we examine within a life cycle model the simultaneous choice of health care and retirement together with consumption health tends to have an impact on retirement through morbidity determining earnings and the disutility of work and through longevity determining the need to accumulate retirement wealth conversely the age of retirement drives the demand for health care through the value of survival and the value of morbidity reductions we characterise the optimal relationship between health expenditure and retirement and apply our model to analyse the effects of moral hazard in the annuity market while moral hazard always induces excessive health investments and an excessive duration of working life it also triggers an excessive level of consumption if the impact of health on the disutility of work is sufficiently large we examine a transfer scheme and mandatory retirement as policies towards curtailing moral hazard numerical analysis illustrates the role of moral hazard in shaping the life cycle allocation

linguistic distance as a determinant of bilateral trade we introduce a measure of language difficulty called linguistic distance into a modified gravity model to determine whether a language being further away from english affects the level of trade our sample of 36 non english speaking countries includes japan and south korea which we argue are special cases because of world war ii the korean war and subsequent close political and economic ties with the united states presence of a stock of immigrants in the home country has been shown to enhance trade with the country of origin controlling for immigrant network and information attributes the special relationship with japan and korea and the standard gravity model variables we find that trade will be less between the united states and a country the further that country s language is from english these results hold for aggregate exports and imports and for exports and imports of consumer and producer manufactures

moral hazard and optimal commodity taxation abstract this paper demonstrates that in an economy with moral hazard and more than one commodity competitive equilibrium is not constrained efficient to correct the market failure differential commodity taxation is necessary a general optimal tax formula is derived and special cases of is discussed

does the chinese diaspora speed up growth in host countries summary we compiled a new enhanced data set on the population share of overseas chinese covering 147 countries over the period 1970 2010 linking the migration and economic growth literature this article attempts to estimate the impact of the chinese diaspora on economic growth in host countries regression results from both barro type and dynamic panel data models suggest that a country s initial relative endowment with overseas chinese is positively related to subsequent growth results are robust to a number of sensitivity tests the effect is transmitted via increased trade openness enhanced investment and general tfp effects

revenue constrained strategic trade and industrial policy we characterise optimal revenue constrained trade and industrial policy towards dynamic oligopolies prove that total net subsidy payments at the optimum are decreasing in the social cost of funds and illustrate the implications in cournot and bertrand special cases

factor movements and commodity trade as complements abstract several models are presented in which factor mobility leads to an increase in the volume of world trade the models share the common characteristic that the basis for trade is something other than differences in relative factor endowments these alternative bases for trade include returns to scale imperfect competition production and factor taxes and differences in production technology taken together the models suggest a more general idea the widely held notion that trade in goods and factors are substitutes is in fact a rather special result which is a general characteristic only of factor proportions models

managerial ability and capital flows abstract capital flows with low intensity and flows to middle income countries physical and human capital alone cannot explain this pattern i present a model to show how managerial ability the ability to run risky projects can increase total factor productivity and explain the pattern of capital flows the model implies that countries with more high ability managers use more risky projects and have higher productivity i define proxies for managerial ability with data on physical and human capital schooling and entrepreneurship consistent with the pattern of capital flows the model predicts similar returns to capital across countries and higher returns in middle income countries

uncertain lifetimes and the welfare enhancing properties of annuity markets and social security this paper explores the implications of social security programs and annuity markets through which agents who are characterized by different distributions of length of lifetime share deathrelated risks when annuity markets operate a non discriminatory social security program affects only the intragenerational allocation of resources in the absence of private information regarding individual survival probabilities such a program will lead to a non optimal intragenerational allocation of resources however the presence of adverse selection considerations gives rise to a pareto improving role for a mandatory non discriminatory social security program

pareto optima and competitive equilibria with adverse selection and moral hazard this paper explores the extent to which standard general equilibrium analysis of pareto optima and of competitive equilibria can be applied to environments with moral hazard and adverse selection problems allowing for lotteries contracts with random components we first establish that an adverse selection insurance economy a moral hazard insurance economy a signaling economy and a private information labor market economy are all special cases of a simple general structure we then show that techniques for characterizing pareto optimal contracts as solutions to concave programming problems are useful and nice and appear to be broadly applicable allowing for lotteries we show how to characterize the optimal allocations for the adverse selection insurance and labor market economies we then show that standard existence and optimality theorems for competitive equilibria apply in the linear space containing lotteries if agents with characteristics which are distinct and privately observed at the time of initial trading enter the economy wide resource constraints in a homogeneous way other kinds of diversity are not critical for economies with moral hazard which satisfy the homogeneity condition competitive contract markets single out a subset of the optima and thus can be consistent with apparent unemployment and with a random allocation of labor supplied though all households are averse to risk the adverse selection insurance and signaling economies however do not satisfy the homogeneity condition and are difficult to decentralize efficiently with a price system

beat em or join em export subsidies versus international research joint ventures in oligopolistic markets this paper compares adversarial with cooperative industrial and trade policies in a dynamic oligopoly game in which a home and foreign firm compete in r d and output and because of spillovers each firm benefits from the other s r d when the government can commit to an export subsidy such a policy raises welfare relative to cooperation except when r d is highly effective and spillovers are near complete without commitment however subsidisation may yield welfare levels much lower than cooperation and lower even than free trade though qualifications to the dangers from no commitment are noted

efficiency gains from liberalizing labor mobility in this paper we quantify the effect of a complete liberalization of cross border migration on the world gdp and its distribution across regions we build a general equilibrium model endogenizing bilateral migration and income disparities between and within countries our calibration strategy uses data on effective and potential migration to identify total migration costs and visa costs by education level data on potential migration reveal that the number of people in the world who have a desire to migrate is around 400 million this number is much smaller than that predicted in previous studies and reflects the existence of high incompressible migration costs in our benchmark framework liberalizing migration increases the world gdp by 11 5 12 5 percent in the medium term our robustness analysis reveals that the gains are always limited in the range of 7 0 percent with schooling externalities to 17 9 percent if network effects are accounted for

decentralized international exchange traditional models of international trade take place within trading environments in which trade is coordinated by a walrasian auctioneer who instantly matches buyers and sellers in world markets this assertion seems inconsistent with evidence suggesting that trading arrangements seem to economize on transactions costs associated with international trade recognizing these insights we depart from standard models of international trade by incorporating the difficulties in the coordination of exchange within a two country random matching model of international trade we capture a motivation for trade through comparative advantage and interpret trade across economies to be associated with an agent s endogenous choice to participate in foreign markets although an individual may decide to search abroad to obtain additional gains from trade resulting from comparative advantage she is less likely to meet trading partners abroad as search frictions are higher in the foreign country than in the domestic market using this framework we show that international trade is associated with convergence in relative prices across countries we also show that the extent of market frictions in the foreign country affects relative prices the volume of international trade and welfare levels due to market participation externalities associated with international trade we show that a movement from autarky to free trade may actually lower welfare levels we conclude by examining the possible inefficiencies associated with international trade due to the decentralized nature of exchange and the policy implications of our model

the impact of mandated employment verification systems on state level employment by foreign affiliates faced with diminishing prospects for a comprehensive immigration reform at the federal level states have started to take immigration matters into their own hands for example many states have been mandating the use of employment verification e verify systems to confirm work eligibility some of the consequences of these e verify mandates remain unclear in this article we focus on the effect of anti illegal immigrant laws on foreign investment specifically we exploit the state level and time variation in the enactment and implementation of e verify mandates to explore if punitive measures against the firm impact states ability to attract foreign direct investment fdi we quantify fdi through the employment by u s affiliates owned by foreign firms our results suggest that e verify mandates adversely affect employment among these majority owned u s affiliates and therefore work against states trying to attract fdi

are international trade and factor mobility substitutes abstract this paper analyzes whether factor flows and commodity trade are substitutes or complements i e whether increasing the level of one impacts adversely or favorably on the volume of the other it derives with the aid of a new general equilibrium framework of the world which allows possible differences in factor endowments tastes and technologies across the two trading countries the necessary and sufficient condition for substitutability and complementarity the results are then further examined in two special cases a survey of different concepts of substitutability and complementarity which have appeared in the literature is also given

tariffs licensing and market structure this paper challenges the conventional wisdom that exclusive owners of an advanced technology are always better off when producing as a monopolist than when competing against another firm competition against a less efficient firm weakens the power that a host country can exert on the incumbent in the form of its tariff policy we show that this gives a motive for a monopolist to license its technology to another foreign firm a host country gains more from increased competition if it can induce the foreign incumbent to transfer technology to the host country firm we show that the host country can do so by tariff commitment we also discuss the implications of bargaining under licensing and bertrand competition in the product market hence this paper qualifies and extends the recent work of kabiraj and marjit protecting consumers through protection the role of tariff induced technology transfer european economic review 47 113 124

reconciling the pattern of trade with the pattern of migration aspects of the brain drain are considered in a theoretical context the emphasis is on the migration of those with managerial skills between countries with abundant skilled labor and those with abundant unskilled labor the results indicate that countries with abundant skilled labor therefore export managers e g through multinational subsidiaries and skilled labor intensive goods yet import skilled employees the brain drain excerpt

micro foundations of external economies the first purpose of this paper is to specify certain microeconomic determinants of external economies and then analyze the consequences of these economies for production and welfare in a simple general equilibrium model the second purpose is to explore the circumstances under which the implied industry production functions are consistent with the ad hoc specifications used in trade theory and growth theory the motivation for the latter exercise is that despite progress in general equilibrium analysis of internal economies these industry production functions allow the author to capture the very powerful analytical advantages of competitive general equilibrium and duality theory

demand for health a generalised grossman model the demand for health and medical care is analysed within a generalised grossman type health investment model its underlying assumptions are shown to differ from those employed earlier in a manner which avoids some of the criticisms levelled at grossman s model the comparative static predictions of the generalised model are examined and it is demonstrated that most previous health investment models are derivable from it also the present model is applicable to a new wider range of problems thus increasing the scope of economic explanations of health behaviour

the trick is to live is the estate tax social security for the rich because estate tax liability usually depends on how long one lives it implicitly provides annuity income in the absence of annuity markets lump sum estate taxation may be used to achieve the first best solution for individuals with a sufficiently strong bequest motive calculations of the annuity embedded in the u s estate tax show that people with 10 million of assets may be effectively receiving more than 100 000 a year financed at actuarially fair rates by their tax payments according to my calibrations the insurance effect reduces the marginal cost of funds mcf for the estate tax by as much as 30 percent and the resulting mcf is within the range of estimates for the mcf for the income tax

trade migration and integration evidence and policy implications this paper takes as its point of departure the unique position recently adopted by swedish policymakers emphasizing migration as a tool to increase trade we attempt to empirically scrutinize this

public policy towards r d in oligopolistic industries the importance of determining optimal policy towards r d cannot be exaggerated given the worldwide interest in fostering r d and given the significant differences between european and u s policies towards interfirm cooperation on r d moreover the problem is an inherently difficult one because of the complex nature of the r d process since r d is a component of fixed costs industries where it is important tend to be concentrated hence r d policy must go hand in hand with competition policy at the same time r d is like any form of investment in that it precedes the production stage hence issues of time consistency and strategic commitment inevitably arise in considering the choice of r d policy finally r d by one firm typically leads to spillovers wbich benefit other firms so that r d exhibits many of the character department of economics university college dublin belfield dublin 4 ireiatid for helpful discussions and comments we are grateful to two anonymous referees to pedro bartos steve martin massimo motta and damien neven and to participants at seminars in birmingham st andrew s and warwick at a cepr workshop on r d spillovers in lausanne at erwit 94 in caslel gandolfo eea 95 in prague the 1996 conference on industrial economics at universidad carlos iii de madrid and a meeting of the dublin economics workshop this paper was produced as part of the international economic performance programme of the centre for economic performance london school of economics supported by the u k esrc an earlier version was circulated as cepr discussion paper no 1243 see alexis jacquemin 1988 and stephen martin 1996 istics of a public good albeit one that is mostly privately produced tbe degree to which such spillovers occur and can be internalized is another crucial influence on the desirable pattem of intervention

health investment saving and public policy this paper develops an overlapping generations model in which agents invest in health to prolong life in both working and retirement periods it explores how unfunded social security with or without health subsidies affects life expectancy economic growth and welfare in particular by extending life at a possible cost of capital accumulation health subsidies and a pay as you go pension can improve welfare especially in the short run

foreign know how firm control and the income of developing countries nber working paper seriesforeign know how firm control and the income of developingcountriesariel bursteinalexander monge naranjoworking paper 13073http www nber org papers w13073national bureau of economic research1050 massachusetts avenuecambridge ma 02138may 2007we thank manuel amador pol antras andy atkeson wilbur john coleman pete klenow eva nagypal giorgio primiceri andres rodriguez clare esteban rossi hansberg martin schneider aleh tsyvinski and seminar participants in various places for useful comments and suggestions gilberto arce providedsuperb research assistance the views expressed herein are those of the author s and do not necessarilyreflect the views of the national bureau of economic research 2007 by ariel burstein and alexander monge naranjo all rights reserved short sections of text not to exceed two paragraphs may be quoted without explicit permission provided that full credit including notice is given to the source

the potential for using excise taxes to reduce smoking we examine the potential for reducing cigarette smoking through increases in cigarette excise taxes by estimating the price elasticity of demand for cigarettes using information on individual smoking behavior from the 1976 health interview survey we estimate the adult price elasticity of demand for cigarettes to be 0 42 we find that price has its greatest effect on the smoking behavior of young males and that it operates primarily on the decision to smoke rather than via adjustments in the quantity of cigarettes smoked an excise tax increase would discourage smoking by successive cohorts of young adults and those reduced smoking levels would be reflected in aggregate smoking as these cohorts mature

international trade agreements and international migration despite large potential economic gains bilateral and multilateral negotiations focusing on liberalisation of migration have not shared the high profile of international trade negotiations and agreements migration and trade have been traditionally viewed rather separately and the relevance of the many and complex interdependencies has been given remarkably little attention in the literature to date in this article we focus on the two way interaction between international migration and agreements designed to enhance cross border trade and investment liberalisation of international trade in services and in the movement of people potentially offers much greater economic gains than liberalisation of remaining barriers to goods trade however progress within multilateral frameworks is fraught with difficulty the world trade organization s general agreement on trade in services gats has yielded little real progress so far and negotiations within more flexible unilateral and bilateral frameworks are likely to be more successful in liberalising the movement of labour we discuss a range of specific examples focusing particularly on the interesting case of new zealand we find that trade agreements are increasingly including agreements on migration though typically favouring temporary migration and involving numerically modest quotas we conclude that migration regulatory frameworks are likely to be further and more strongly linked to trade and investment agreements in the future particularly given changing economic and demographic forces the primary focus of migration policies may nonetheless remain different from that of trade policies while further migration liberalisation is likely to be through bilateral and regional agreements it will be important to try to lock in the gains of such agreements while simultaneously working to consolidating these in a way that will help to facilitate future multilateral agreement

trade factor prices and the gains from trade with increasing returns to scale existing analyses seem to suggest that national increasing returns to scale are not a very useful tool for analysing trade owing to problems such as multiple equilibria and the tendency towards complete specialization the purpose of this paper is to construct a model in which there are in fact determinant relationships among country size the direction of trade the gains from trade and international factor price differences in the model differences in country size determine the direction of trade which in turn determines factor price differences and limits the possible distribution of the gains from trade commerce international prix des facteurs de production et les gains de l change dans un contexte de rendements croissants a l echelle les analyses conventionnelles semblent suggerer que les rendements croissants h l 6chelle au niveau national ne constituent pas une avenue prometteuse dans l analyse du commerce international parce que de tels rendements creent une presomption en faveur de la specialisation complete et conduisent a des situations d 6quilibres multiples le but de ce m6moire est de construire un mod le dans lequel il existe des rapports determinants entre la dimension du pays la direction des 6changes les gains de l echange et les differentiels internationaux entre les prix des facteurs de production dans ce mod le les differences entre les pays en termes de dimension d6terminent la direction du commerce international laquelle d6termine le differentiel entre les prix des facteurs de production et limite l eventail des r6partitions possibles des gains de l echange

determinants of state aid to firms the case of the european automotive industry using an original database for the 1992 2008 period we investigate the determinants of state aid to the automotive industry in the european union eu we find evidence that eu policies have been effective in reducing state aid and re orienting it toward horizontal objectives however national politics still have considerable relevance during election years governments are more generous and this is particularly true in eu countries with proportional representation finally a strategic game between countries seems to take place whereby a country s decision to grant aid seems to be responsive to aid previously granted by other member states

brain drain and ldcs growth winners and losers we present an empirical evaluation of the growth e ects of the brain drain for the source countries of migrants using recent us data on migration rates by education levels carrington and detragiache 1998 we nd empirical support for the bene cial brain drain hypothesis in a sample of 50 developing countries at the country level we distinguish between winners and losers among source countries while the number of winners is smaller these include nearly 80 of the total population of developing countries jel classi cation f22 j24 o15

an economic analysis of life expectancy by gender with application to the united states this paper presents an economic model to explain the behavior of life expectancy of both sexes it explicitly examines the relationship between the gender gap in life expectancy and the gender gap in pay it shows that as the latter narrows over the course of economic development the former may initially expand but will eventually shrink simulation results from our model accord with the behavior of life expectancy for both sexes since the 1940s in the united states

social security longevity and moral hazard abstract recently several authors have argued that social security can have positive effects on savings and welfare when individuals possess hidden information about their longevity that is when there is adverse selection in annuity markets this paper considers the related problem of the effects of social security when individuals can take hidden actions to affect their longevity that is when there is moral hazard in annuity markets in contrast to the adverse selection models we show that social security never raises welfare in a pure moral hazard economy as well social security may either increase or reduce longevity depending on the characteristics of the health related goods consumed it is suggested that a complete analysis of social security needs to consider both adverse selection and moral hazard

the trade facilitation impact of the chinese diaspora using an enhanced data set on the population share of overseas chinese in 1970 and 1990 this paper analyses the impact of the chinese diaspora on facilitating china s bilateral trade during the period 1973 2013 our findings suggest substantial trade creation effects resulting from the presence of ethnic chinese in the trade partner population diaspora impacts on chinese bilateral imports are in general higher than those found for exports coethnic networks play a larger role as long as the partner country does not have an rta with china in place among export sectors effects found were strongest for food as well as for machinery and transport equipment in regard to imports coethnic networks matter mostly for raw materials machinery and transport equipment and chemicals

the sensitivity of strategic and corrective r d policy in oligopolistic industries abstract we evaluate the case for r d subsidies in export sectors when the outcome of r d is uncertain and the product market is oligopolistic when r d reduces expected costs in the particular sense of first order stochastic dominance a national strategic basis for r d subsidies exists whether firms choose prices or quantities this must be balanced against a corrective incentive to tax r d whenever the number of domestic firms exceeds one however when r d increases the riskiness of the cost distribution as well the results may switch there emerges a strategic incentive to tax and a corrective incentive to subsidize r d

disadvantageous oil tariffs and dynamic consistency a large importer who places relatively greater weight on future than current oil consumption will import less oil in the future than if it were able to commit itself in advance to future tariffs and may find itself worse off than if it were unable to impose tariffs at all futures markets and storage modify these adverse effects and may avoid the problem of dynamic inconsistency copyright 1990 by american economic association

familiarity breeds investment diaspora networks and international investment what explains cross national patterns of international portfolio and foreign direct investment fdi while existing explanations focus on the credibility of a policy maker s commitment we emphasize the role of diaspora networks we hypothesize that diaspora networks connections between migrants residing in investing countries and their home country influence global investment by reducing transaction and information costs this hypothesis is tested using dyadic cross sectional data for both portfolio and fdi the findings indicate that even after controlling for a multitude of factors disapora networks have both a substantively significant effect and a statistically significant effect on cross border investment

optimal social security in a dynastic model with human capital externalities fertility and endogenous growth abstract in this paper we investigate the optimal scale of pay as you go social security in a dynastic family model with human capital externalities fertility and endogenous growth human capital externalities reduce the return to human capital investment and hence lead to under investment in human capital and over reproduction of the population if the taste for the number of children is sufficiently weak relative to the taste for the welfare of children social security can be welfare enhancing by reducing fertility and raising human capital investment per child

immigrant remittances and the venture investment environment of developing countries despite the increasing importance of financial and social remittances to developing countries their impact on home country venture investing environments has been largely overlooked i develop a framework grounded in transaction costs economics and social knowledge theories to investigate relationships between remittances and home country 1 capital availability 2 new business creation and 3 economic internationalization my framework also accounts for individual and collective immigrant attributes that may moderate the impact of remittances on these alternative indicators of the venture investment environment analyses of immigrant remittances to 61 developing countries from 2002 2007 indicate that they increase general and more narrowly defined venture capital availability as well as broader openness to international trade remittances also increase new business start up rates when the developing country s public sector is sufficiently small positive venture funding effects of remittances are magnified when coming from immigrants living in highly concentrated communities but are diminished when coming from highly educated immigrants overall results suggest that developing country immigrants of varying backgrounds play an important role in venture funding founding and integration with the world economy