the dispute settlement mechanism of the wto a brief history and an evaluation from economic contractarian and legal perspectives rule based system has to include a mechanism for the enforcement of its rules and a means for settlement of disputes about alleged violation of rules

optimal nonparametric estimation of first price auctions this paper proposes a general approach and a computationally convenient estimation procedure for the structural analysis of auctioni data considering first price sealed bid auction models within the independent private value paradigm we show that the underlying distribution of bidders private values is identified from observed bids and the number of actual bidders without any parametric assumptions using the theoiy of minimax we establish the best rate of uniform convergence at which the latent density of private values can be estimated nonparametrically from available data we then propose a two step kernel based estimator that converges at the optimal rate

the role of multilateral institutions in international trade cooperation the world trade organization wfo lacks the power to directly enforce agreements it is therefore important to understand what role the wto can play to facilitate international cooperation and whether a multilateral institution can offer distinct advantages over a web of bilateral agreements this paper examines two potential benefits of a multilateral trade institution first verifying violations of the agreements and informing third parties thus facilitating multilateral reputation mechanisms second promoting multilateral trade negotiations rather than a web of bilateral negotiations the model suggests that a multilateral approach is particularly important when there are strong imbalances in bilateral trading relationships

does competition for capital discipline governments decentralization globalization and public policy competition among countries or regions within them to attract mobile capital is often thought to discipline their governments motivating them to invest more in infrastructure reduce waste and corruption and spend less on non productive public goods the result should be convergence on business friendly policies we argue that this requires an assumption units start out very similar that is often unrealistic if units are heterogeneous in natural resources geographical location inherited human capital or infrastructure capital mobility often weakens discipline on the poorlyendowed units this may help explain disappointing results of liberalizing capital flows within russia and sub saharan africa jel f36 h73 h87

tariff retaliation versus financial compensation in the enforcement of international trade agreements the authors analyze whether financial compensation is preferable to the current system of dispute settlement in the world trade organization that permits member countries to impose retaliatory tariffs in response to trade violations committed by other members they show that monetary fines are more efficient than tariffs in terms of granting compensation to injured parties when there are violations in equilibrium however fines suffer from an enforcement problem since they must be paid by the violating country if fines must ultimately be supported by the threat of retaliatory tariffs they fail to yield a more cooperative outcome than the current system the authors also consider the use of bonds as a means of settling disputes if bonds can be posted with a third party they do not have to be supported by retaliatory tariffs and can improve the negotiating position of countries that are too small to threaten tariff retaliation

structural estimation of the affiliated private value auction model we consider the structural estimation of the affiliated private value apv model in first price sealed bid auctions the model allows for bidders individual efficiencies and opportunity costs while permitting dependence among bidders private values through affiliation we establish the nonparametric identification of the apv model characterize its theoretical restrictions and propose a computationally convenient and consistent two step nonparametric estimation procedure for estimating the joint private value distribution from observed bids using simulated bid data we provide a step by step guide on how to implement our procedure and show the good behavior of our estimator in small samples

equilibrium in auctions with entry the authors model entry incentives in auctions with risk neutral bidders and characterize a symmetric equilibrium in which the number of entrants is stochastic the presence of too many potential bidders raises coordination costs that detract from welfare the authors show that the seller and society can benefit from policies that reduce market thickness i e the relative abundance of buyers their analysis extends well known revenue equivalence and ranking theorems but also demonstrates that variations in the auction environment affect optimal policies e g reservation prices in ways not anticipated by models that ignore entry copyright 1994 by american economic association

quantifying the cost of excess market thickness in timber sale auctions abstract in auctions with endogenous entry theory predicts that too many potential bidders or the excess market thickness may actually decrease the seller s expected revenue and the social welfare generated by the auction this paper proposes a computationally easy method for estimating the optimal number of potential bidders in timber sale auctions with endogenous entry and an uncertain number of active bidders and then quantifies the cost of excess market thickness it is found that the welfare loss due to the excess market thickness is moderate in this market

voluntary export restraints antidumping procedure and domestic politics a voluntary export restraint ver is preferred to a tariff by a government concerned about electoral returns when the influence of industry profits is large relative to the losses to consumers from higher prices if the foreign firm is uncertain of these pressures the antidumping code facilitates the complete transfer of the relevant information and generates a ver rather than a tariff in equilibrium the choice across instruments is determined by the political attributes domestic and foreign profits rise with the antidumping generated ver and the ver lowers the volume of trade by more than the expected duty copyright 1996 by american economic association

when does it take a nixon to go to china substantial policy changes like market oriented reforms by populist parties and steps towards peace by hawks are sometimes implemented by unlikely parties to account for such episodes this paper develops a framework in which incumbent politicians have better information about the state of the world than voters the incumbent is unable to credibly transmit all this information since voters are also imperfectly informed about his ideology the paper identifies conditions under which an incumbent party s electoral prospects increase the more atypical the policy it proposes popular support for a policy or its credibility depends on the policymaker policy pair copyright 1998 by american economic association

is the wto passe the wto has delivered policy outcomes that are very different from those likely to emerge out of the recent wave of preferential trade agreements ptas should economists see this as an efficient institutional hand off where the wto has carried trade liberalization as far as it can manage and is now passing the baton to ptas to finish the job this paper surveys a growing economics literature on international trade agreements and argues on this basis that the wto is not passe rather and subject to some caveats this survey of research to date suggests that the wto warrants strong support while a more cautious view of ptas seems appropriate

timber sale auctions with random reserve prices this paper analyzes first price sealed bid auctions of standing timber organized by the french forest service office national des forets onf a feature of these auctions is that they are held wi

unique equilibrium in a model of self fulfilling currency attacks even though self fulfilling currency attacks lead to multiple equilibria when fundamentals are common knowledge we demonstrate the uniqueness of equilibrium when speculators face a small amount of noise in their signals about the fundamentals this unique equilibrium depends not only on the fundamentals but also on financial variables such as the quantity of hot money in circulation and the costs of speculative trading in contrast to multiple equilibrium models our model allows analysis of policy proposals directed at curtailing currency attacks

monetary accommodation in transition economies econometric evidence from yugoslavia s high inflation in the 1980s abstract a conjecture advanced by some ad hoc evidence and the theory that money accommodates wage inflation in transition economies is tested and accepted for yugoslavia s high inflation of the 1980s within a cointegration framework an overidentified long run structure is estimated and accepted where money is cointegrated with wages while not with prices furthermore two independent common stochastic trends emerge suggesting that aggregate supply shocks i e those to wages and prices and exchange rate shocks were driving yugoslavia s high inflation while the impact of money supply shocks was transitory these results are due to the presence of soft budget constraint where money passively validated wage and price decisions and to the yugoslav debt and balance of payments crises in the 1980s which triggered exchange rate shocks the results on the role of aggregate supply shocks might bear general relevance for transition economies

the burden of proof in trade disputes and the environment the wto leaves discretion over environmental policies to its members but requests that a fundamental non discrimination principle is respected national treatment nt the provision seeks to prevent protectionist use of domestic policy instruments requesting that when an imported product is sufficiently similar to a domestic product they are treated identically wto adjudicators will often face severe informational problems in environmental disputes important for the practical implementation of nt is therefore the allocation of the burden of proof bop this paper highlights basic implications of the bop for the occurrence of judicial errors for the environment and for welfare using a setting where nt serves its intended role of supporting negotiated tariff liberalization the paper suggests that nt may indeed constrain environmental policies but that this may be desirable from an efficiency point of view also bop rules that benefit the environment may not benefit global welfare and conversely

international financial crises causes prevention and cures dale jorgenson has bestowed a great honor and no small challenge by inviting me to give this lecture a great honor because of the distinguished list of economists who have preceded me a challenge because of the standard they have set and because there is no greater challenge for any economist than providing a coherent account of significant events to his scientific peers i am sometimes asked by friends about the differences between academic life and life as a public official there are many two stand out first as an academic the gravest sin one can commit is to sign one s name to something one did not write as a public official it is a mark of effectiveness to do so as often as possible second as an academic if a problem is too hard and does not admit of a satisfactory solution there is an obvious response work on a different problem that is not a luxury that one has in government i have been reminded of this often in recent years as we have grappled with financial crises in a number of what had previously been considered emerging markets with unrestrained futures anyone who doubts the social importance of what economists do should consider the debates surrounding these crises hundreds of millions of people who expected rapidly rising standards of living have seen their living standards fall hundreds of thousands if not millions of children have been forced to drop out of school and go to work hundreds of billions of dollars of apparent wealth has been lost the stability of large nations as nations has been called into question and the united states has made its largest nonmilitary foreign policyrelated financial commitments since the marshall plan almost all the issues involved in understanding preventing and mitigating these crises are the stuff of economics courses and research fixed versus flexible exchange rates moral hazard and multiple equilibria speculation and liquidity fiscal and monetary policies regulation and competition what economists think say and do has profound implications for the lives of literally billions of their fellow citizens whether it is discussing the role of derivatives in signaling exchange rate commitments with chinese premier zhu rongji or discussing an nber working paper on inflation targeting with the brazilian central bank governor arminio fraga or discussing alternative approaches to bankruptcy law with indonesia s economic team or optimal debt durations with the mexican authorities i am consistently struck by the impact of the kind of research discussed at the aea meetings the future well being of the world s people in large part will depend on how the ongoing process of global integration works out this is a strong statement but one that is supported by the global economy s post world war i failure and its post world war ii success central to global integration is financial integration the flow of funds and of capital across international borders and as the events of the late 1920 s and early 1930 s remind us central to global disintegration can be international financial breakdowns today i want to reflect on the issue of global financial integration in light of the dramatic and largely unpredicted events of recent years it is perhaps a good time for reflection there has been enough repair that priority can shift from u s department of the treasury 1500 pennsylvania avenue washington dc 20005 this lecture reflects many things i have learned from experiences i have shared with colleagues in the united states government and governments around the world i thank brad delong marty feldstein stephanie flanders ken rogoff andrei shleifer and ted truman for useful comments and suggestions i am especially grateful to nouriel roubini and stephanie flanders for valuable discussions and assistance in the preparation of this lecture the usual disclaimer applies

dancing to the donors tune policy choice in aid dependent countries current aid rhetoric emphasizes the selective allocation of otherwise unconditional funds in support of the recipients own plans in contrast to the old donor practice of bundling money and policies i show that when recipients have private information policies reflecting their preferences and knowledge might result in such a regime however generous transfers can also induce them to conform to the outcome oriented expectations of donors at the expense of lower aid impact such behaviour is consistent with an abundance of case study evidence moderate disagreements over what the optimal policy is could actually produce better results certain forms of both donor competition and coordination might also eliminate this distortion while a donor concern for need only removes incentives for aid seeking in the least needy countries in summary optimal aid policies are highly context specific and donors should thus concentrate their efforts to practise more informed selectivity

entry in monopoly market this paper develops new empirical models of market concentration from game theoretic models of entry we construct our models from inequality conditions that describe entrants equilibrium strategies in simultaneous move and sequential move games and use them to study the effects of entry in isolated monopoly markets for new automobiles from estimates of the market size necessary to support one and two dealers we conclude that monopoly dealers do not block the entry of a second dealer we also find that entry does not cause price cost margins to fall by much

circumstance and choice the role of initial conditions and policies in transition economies the experience of countries in transition from a planned to a market oriented economy has varied greatly the clearest differences are between the east asian countries china and vietnam and the countries of central and eastern europe cee and the former soviet union fsu china and vietnam have contained inflation and benefited from continued high growth in gdp since the beginning of their reforms while all cee and fsu countries have experienced large declines in output and most have experienced hyperinflation but even in cee and the fsu differences are marked some countries have lost over half of their gdp and growth performance in a number of countries is still poor while others are growing strongly some are still suffering from high inflation while others have successfully reduced annual inflation what determines this divergence of outcomes across transition countries no study so far has analyzed the interaction of all factors including initial conditions political change and reforms in a unified framework including cee the fsu china and vietnam the authors examine these broader interactions but focus first on the role of initial conditions such as initial macroeconomic distortions and differences in economic structure and institutions which have been emphasized less in the literature they find that initial conditions and economic policy jointly determine the large differences in economic performance among the 28 transition economies in the sample initial conditions dominate in explaining inflation but economic liberalization is the most important factor determining differences in growth but reform policy choices are not exogenous they depend in turn on both initial conditions and political reform with political reform the most important determinant of the speed and comprehensiveness of economic liberalization other findings provide additional insight into these relationships results show that liberalization has a negative contemporaneous impact but a stronger positive effect on performance over time the results also show that macroeconomic and structural distortions are negatively related to both policy and performance regarding the former unfavorable initial conditions discourage policy reforms but do not diminish their effectiveness once they are implemented the authors find some evidence that the influence of initial conditions diminishes over time this is in part because many of the initial conditions are themselves modified in the course of transition monetary overhangs are dissipated through inflation industrial overhang is eroded as plants shut down and market memory returns through experience

on the role of retaliation in trade agreements this paper analyzes the role of retaliation in trade agreements it shows that in the presence of private information retaliation can always be used to increase the welfare derived from such agreements by the participating governments in particular it is shown that retaliation is a necessary feature of any efficient equilibrium we argue that retaliation would not be necessary if governments could resort to international transfers or export subsidies to compensate for terms of trade externalities within the current world trading system though in which transfers are seldom observed whereas export subsidies are prohibited the use of the remaining trade instruments in a retaliatory fashion might be optimal the model is used to interpret the retaliatory use of antidumping observed in the last decades and the proliferation of these measures relative to other trade remedies

a theory of managed trade this paper proposes a theory that predicts low levels of protection during periods of normal trade volume coupled with episodes of special protection when trade volumes surge this dynamic pattern of protection emerges from a model in which countries choose levels of protection in a repeated game facing volatile trade swings high trade volume leads to a greater incentive to defect unilaterally from cooperative tariff levels therefore as the volume of trade expands the level of protection must rise in a cooperative equilibrium to mitigate the rising trade volume and hold the incentive to defect in check copyright 1990 by american economic association

entry and competition effects in first price auctions theory and evidence from procurement auctions motivated by several interesting features of the highway mowing auction data from the texas department of transportation tdot we study three competing procurement auction models with endogenous entry our entry and bidding models provide several interesting implications for the first time we show that even within an independent private value paradigm as the number of potential bidders increases bidders equilibrium bidding behaviour can become less aggressive and the expected procurement cost may rise because the entry effect is always positive and may dominate the negative competition effect we then develop structural models of entry and bidding corresponding to the three models under consideration controlling for unobserved auction heterogeneity and use the recently developed semi parametric bayesian estimation method to analyse the data we select the model that best fits the data and use the corresponding structural estimates to quantify the entry effect and the competition effect with regard to the individual bids and the procurement cost copyright 2009 wiley blackwell

politically realistic objective functions and trade policy profs and tariffs abstract this paper demonstrates a mathematical correspondence between the deus ex machina tariff formation approach and political economy approach the correspondence implies that the tariff chosen by lobbying influenced policy makers will be equivalent to a tariff chosen by a deus ex machina government that gives too much weight to profits this result allows many political economy issues to be addressed in the simple framework of a deus ex machina government which faces a politically realistic objective function prof

globalization and the confidence game abstract we show that governments in developing countries have an incentive to play the confidence game wherein the need to win the confidence of the international capital market can actually prevent a country from following otherwise sensible policies and force it to follow policies that it would normally consider perverse this incentive arises because of a combination of a conformity bias and good news bias in governmental decision making in an open economy which results in inefficient outcomes which increases rather than decreases the threat of devaluation while institutions that encourage greater transparency and the public revelation of information may often mitigate this inefficiency on some occasions increased transparency may even exacerbate the inefficiency

circumstance and choice this article takes an integrated approach to evaluating the interaction of initial conditions political change reforms and economic performance in a unified framework covering 28 transition economies in east asia central and eastern europe and the fsu initial conditions and economic policy jointly determine the large differences in economic performance among transition economies initial conditions dominate in explaining inflation but economic liberalization is the most important factor determining differences in growth political reform emerges as the most important determinant of the speed and comprehensiveness of economic liberalization raising the important question of what determines political liberalization results suggest the importance of the level of development in determining the decision to expand political freedoms

economic interests and regional trading arrangements the case of nafta this article examines lobbying in the united states on the north american free trade agreement nafta i argue that economies of scale and production sharing across borders create incentives for firms to seek regional trade liberalization statistical analysis demonstrates that sectors with these characteristics were more likely to lobby for free trade in north america these sectors were also exposed to free trade more rapidly under the tariff phasing schedule in the nafta treaty however corporate restructuring to rescale production for the regional market and to increase offshore assembly presented adjustment costs for u s workers which created divisions between labor unions and their employers i conclude that regional arrangements are an attractive mechanism to liberalize trade for firms in need of larger than national markets to take advantage of economies of scale or to develop production sharing networks

food safety issues trade and wto rules a developing country perspective the sps agreement and the related wto dispute settlement mechanism are an important first step in strengthening the global trade architecture bringing in greater transparency and orderly conditions to world food trade however implementation of the new trade rules has turned out to be a more complex task than the traditional market access issues handled by the wto several factors including inadequate financial and technical resources have constrained devel oping countries from becoming effective participants in the implementation process and there is widespread suspicion that sps regulations are being used as hidden protectionist devices by developed countries however despite all the problems some developing countries have been quite successful in penetrating developed country food markets they have done so by accepting the consumer preferences and standards in quality sensitive high income markets and implementing domestic supply side measures while making full use of available international assistance initiatives developing countries should view the task of complying with sps standards not just as a barrier but also as an opportunity to upgrade quality standards and market sophistication in the food export sector

trade skirmishes and safeguards a theory of the wto dispute settlement process i propose a framework within which to interpret and evaluate the major reforms introduced to the gatt system in its transition to the wto in particular i examine the wto agreement on safeguards that has replaced the gatt escape clause article xix and the dispute settlement process dsp that resembles a court of law under the wto using this framework i interpret the weakening of the reciprocity principle under the agreement on safeguards as an attempt to reduce e ciency reducing trade skirmishes the dsp is interpreted as an impartial arbitrator that announces its opinion about the state of the world when a dispute arises among member countries i demonstrate that the reforms in the gatt escape clause should be bundled with the

does limited punishment limit the scope for cross retaliation this paper analyzes two prominent institutional rules in the international trading system a limited cross retaliation rule characterized by the understanding on rules and procedures governing the settlement of disputes dsu article 22 3 and a limited punishment rule characterized by the general agreement on tariffs and trade gatt article xxviii in general both rules are designed to limit the countermeasures upon a violation however the former rule specifies the limits of composition in retaliation whereas the latter one designates the limits of retaliation magnitude we show that albeit seemingly unrelated the limited cross retaliation rule complements the limited punishment rule in permitting greater trade liberalization specifically we show how the limited cross retaliation rule also helps limit the incentives to violate the trade agreement when the limited punishment rule prevails jel f13 k33 c73

econometrics of first price auctions in this paper we propose an estimation method for the empirical study of theoretical auction models we focus on first price sealed bid and descending auctions and we adopt the private value paradigm where each bidder is assumed to have a different private value only known to him for the object that is auctioned following mcfadden 1989 and pakes and pollard 1989 our proposed method is based on simulations specifically the method relies on a simulated nonlinear least squares objective function appropriately adjusted so as to obtain consistent estimates of the parameters of interest we illustrate the proposed method by studying a market of agricultural products where descending auctions are used our analysis takes into account heterogeneity of the auctioned objects and the fact that only the winning bid is observed we estimate the parameters that characterize the distribution of the unobserved private values for each auctioned object

understanding economic policy reform one of the eventual consequences of the global debt crisis was a wave of market oriented economic reforms this paper discusses the state of our knowledge on the political economy of this process why were inefficient and often unsustainable policies maintained for so long why are so many governments reforming now after decades of adherence to policies of an opposite kind have the reformers internalized the correct lessons from the east asian experience finally are there any helpful rules for reformers to follow in guiding their policies through complicated political terrain

in search of the holy grail policy convergence experimentation and economic performance we consider a model of policy choice in which appropriate policies depend on a country s own circumstances but the presence of a successful leader generates an informational externality and results in too little policy experimentation corrupt governments are reined in while honest governments are disciplined inefficiently our model yields distinct predictions about the patterns of policy imitation corruption and economic performance as a function of a country s location vis aa vis successful leaders in particular it predicts a u shaped pattern in economic performance as we move away from the leader in the relevant space of characteristics close neighbors should do very well distant countries moderately well on average with considerable variance and intermediate countries worst of all an empirical test with the experience of post socialist countries provides supportive results

recurrent trade agreements and the value of external enforcement abstract this paper presents a theory of dynamic trade agreements in which external institutions such as the wto play a central role in supporting credible enforcement in our model countries engage in ongoing negotiations and as a consequence cooperative agreements become unsustainable in the absence of external enforcement institutions by using mechanisms such as delays in dispute resolution and direct penalties enforcement institutions can restore incentives for cooperation despite the lack of coercive power the occurrence of costly trade disputes and the feasibility of mechanisms such as escape clauses depend on the degree to which enforcement institutions can verify and condition on events that may lead to trade disputes

an empirical model of firm entry with endogenous product type choices i describe a model of entry with endogenous product type choices these choices are formalized as the outcomes of a game of incomplete information in which rivals differentiated products have nonuniform competitive effects on profits i estimate the model for location choices in the video retail industry using a nested fixed point algorithm solution the results imply significant returns to product differentiation simulations illustrate the tradeoff between demand and intensified competition and the extent to which markets with more scope for differentiation support greater entry

dynamic tariffs with asymmetric information recent developments in dynamic game theory are applied to determine when two countries can sustain freer trade given that they determine trade policies non cooperatively countries know their own level of protection but not the other country s level of protection using import trigger strategies cooperation in the form of low tariffs can be supported although there are periodic reversionary high tariff episodes however if terms of trade trigger strategies are used cooperation does not occur

multilateral trade cooperation what next this paper first briefly describes the role of the wto and its history it then lays out a simple bargaining model of international negotiations which can be used for understanding the doha round of talks this simple framework is used to distil and discuss a number of potential explanations for the difficulties that have arisen in concluding these talks as well as a number of systemic questions that confront wto members a key question is whether the wto should concentrate primarily on market access or on further expanding its coverage to deal with regulatory issues or with other domestic policies that may have an impact on trade given the difficulties that arise in agreeing on behind the border disciplines we argue that a continued focus on market access and enforcement of market access commitments is likely to prove most fruitful

the olympic effect why should countries offer to host costly mega events such as the olympic games we show that hosting a mega event increases exports this effect is statistically robust permanent and large trade is over 20 higher for host countries interestingly unsuccessful bids to host the olympics have a similar impact on exports we conclude that the olympic effect on trade is attributable to the signal a country sends when bidding to host the games rather than the act of actually holding a mega event we develop an appropriate formal model and derive conditions under which liberalising countries will signal through a mega event bid

macroeconomic determinants of the world trade disputes this article is whether and how the world macroeconomic environments influence the world trade disputes we use two pronged approach first we try to answer the question whether and how global macroeconomic environments are attached to the count of the world trade disputes even if the traditional literature captures it at the national level global picture needs to be completed the second question we address is that given the set of trade dispute initiating countries whether and how differently high middle and low income countries respond to their macroeconomic environments in their decision makings of trade disputes initiations the universe in the second question is a selected set of the filing countries only not all countries on this planet one can capture the behaviours of the countries involved in the trade disputes under certain macroeconomic circumstances the period is from 1995 to 2008 covering all records of trade disputes since the birth of the world trade organization wto

tariff binding and overhang theory and evidence abstract most market access commitments under the wto are in the form of bindings on applied tariff rates we observe two important regularities in the data first applied tariffs are often lower than the bound tariffs providing governments with substantial policy flexibility second the extent of flexibility varies substantially across sectors and countries in a sharp contrast to the prediction of standard trade agreement models we observe a strong negative correlation between tariff commitments and measures of import market power we model the trade off between discipline and flexibility in the design of trade agreements and argue that recognizing this trade off is the key to explain the observed patterns in the tariff binding commitments and applied tariffs under the wto

optimal remedies in international trade agreements abstract this paper takes a mechanism design approach to characterize a politically optimal trade agreement under the assumption that governments have private information about the fluctuating political pressure they face from domestic interest groups to restrict trade the optimal mechanism under these changing circumstances involves a remedy system for breach of trade agreements that specifies less than proportional retaliations against deviating parties this result is in contrast to the conventional wisdom in the literature regarding the efficiency of the reciprocity principle as a rule of renegotiation in trade agreements i also consider an institutional structure in which only commensurate retaliations are practical but governments can employ a public randomizing device to authorize retaliations i show that it is optimal to authorize retaliations only randomly this suggests a role for the wto dispute settlement process as a public randomizing device

the winner s curse reserve prices and endogenous entry empirical insights from ebay auctions internet auctions have recently gained widespread popularity and are one of the most successful forms of electronic commerce we examine a unique data set of ebay coin auctions to explore the determinants of bidder and seller behavior we begin by documenting a number of empirical regularities in our data set of ebay auctions next we specify and estimate a structural econometric model of bidding on ebay using our parameter estimates from this model we measure the extent of the winner s curse and simulate seller revenue under different reserve prices

using all bids in parametric estimation of first price auctions abstract recently laffont et al 1995 have proposed an snlls estimator using winning bids only here we derive a relationship between the means of observed bids and private values to propose an snlls estimator using all bids in first price auctions

when managers cover their posteriors making the decisions the market wants to see the stock market has opinions as to what choices firms should make we show that concern for current share prices may lead managers to make these choices rather than those suggested by their own superior information even when arbitrarily many privately informed firms have to make a similar decision the market s prejudices may still prevail we compare the distortions that arise from share price maximization with those due to herd behavior among profit maximizing firms and show that the former results in strictly less efficient use of information

auctioning and bargaining an econometric study of timber auctions with secret reservation prices this article considers a first price sealed bid auction at which the seller s reservation price is not announced in advance we allow for a second round of bargaining and consider the nash bargaining outcome when the object is unsold after the auctioning round we characterize the bidders and seller s bayesian nash equilibrium strategies the distributions of the buyers and seller s private values are estimated by nonlinear least squares from auction data on standing timber while solving numerically the differential equations characterizing the seller s and buyers equilibrium strategies the performance of the estimated model is then compared to a model in which the players behave myopically

optimal trade policy with trade imbalances abstract optimal trade and capital control policies are characterized under a dynamic model with endogenous trade imbalances in the absence of capital controls optimal trade protection is counter cyclical optimal use of capital controls however dampens the time variation of optimal trade taxes generally trade imbalances are not predictive of optimal policy however optimal trade policy and equilibrium trade imbalances move together when a country grows consistently faster or slower than the rest of the world quantifying the model for the u s economy shows that welfare gains from optimal policy are largely due to static terms of trade effects implying that gains from time varying tariffs or capital controls are small

auctions with resale markets an application to u s forest service timber sales when bidders anticipate an opportunity for resale trade the value of winning an auction is determined in part by the option values of buying and selling in the secondary market one implication is that a bidder s willingness to pay at an auction increases with the expected level of competition between resale buyers empirical evidence from auctions of timber contracts supports this prediction and rejects standard models that ignore resale the estimated effect is smaller after policy changes expected to diminish the prevalence of resale additional evidence supports the predicted presence of a common value element introduced by the resale opportunity

trade disputes and settlement we develop a model of trade agreements with renegotiation and imperfectly verifiable information in equilibrium trade disputes can occur and can be resolved in a variety of ways governments may settle early or trigger a court ruling and in the latter case they may implement the ruling or reach a post ruling settlement the model yields predictions on how the dispute outcome depends on the contracting environment and how it correlates with the optimal contract form we find support for a key prediction of our model using data on the outcomes of actual trade disputes in the general agreement on tariffs and trade world trade organization

market structure and multiple equilibria in airline markets we provide a practical method to estimate the payoff functions of players in complete information static discrete games with respect to the empirical literature on entry games originated by bresnahan and reiss 1990 and berry 1992 the main novelty of our framework is to allow for general forms of heterogeneity across players without making equilibrium selection assumptions we allow the effects that the entry of each individual airline has on the profits of its competitors its competitive effects to differ across airlines the identified features of the model are sets of parameters partial identification such that the choice probabilities predicted by the econometric model are consistent with the empirical choice probabilities estimated from the data we apply this methodology to investigate the empirical importance of firm heterogeneity as a determinant of market structure in the u s airline industry we find evidence of heterogeneity across airlines in their profit functions the competitive effects of large airlines american delta united are different from those of low cost carriers and southwest also the competitive effect of an airline is increasing in its airport presence which is an important measure of observable heterogeneity in the airline industry then we develop a policy experiment to estimate the effect of repealing the wright amendment on competition in markets out of the dallas airports we find that repealing thewright amendment would increase the number of markets served out of dallas love

fiscal policies and the choice of exchange rate regime a common argument against either a monetary union or a regime or a fixed exchange rates is that they preclude flexible use of the inflation tax the authors address this point of view by comparing three alternative exchange rate regimes a pure float an ems regime in which the exchange rate is fixed but can be realigned and a monetary union the authors model the three regimes as alternative commitments on future seigniorage policies this approac h suggests that it is not possible to pareto rank the three regimes o n the other hand the authors provide intuitive conditions under which each of the systems is superior to the others copyright 1993 by royal economic society

the collapse of the mexican peso what have we learned the collapse of the mexican peso what have we learned in the first quarter of 1995 mexico found itself in the grip of an intense financial panic foreign investors fled the country despite very high interest rates an undervalued currency and financial indicators that pointed to long term solvency the fundamental conditions of the mexican economy cannot account for the extent of the crisis the crisis was not the result of irresponsible fiscal behaviour the crisis was due to unexpected shocks that occurred in 1994 the inadequate policy response to those shocks the increased vulnerability to panic and finally panic itself in the aftermath of the march assassination the exchange rate experienced a nominal devaluation of around 10 and interest rates increased by 7 percentage points however capital outflows continued the policy response was to maintain the exchange rate rule and to prevent further increases in interest rates interest rates were held down by expanding domestic credit and by converting short term peso denominated government liabilities cetes falling due into dollar denominated bonds tesobonos a fall in international reserves and an increase in short term dollar denominated debt resulted the government simply ended up illiquid and therefore financially vulnerable illiquidity exposed mexico to a self fulfilling panic jeffrey sachs aaron tornell and andres velasco

identification of standard auction models this paper presents new identification results for models of first price second price ascending english and descending dutch auctions we consider a general specification of the latent demand and information structure nesting both private values and common values models and allowing correlated types as well as ex ante asymmetry we address identification of a series of nested models and derive testable restrictions enabling discrimination between models on the basis of observed data the simplest model symmetric independent private values is nonparametrically identified even if only the transaction price from each auction is observed for richer models identification and testable restrictions may be obtained when additional information of one or more of the following types is available i the identity of the winning bidder or other bidders ii one or more bids in addition to the transaction price iii exogenous variation in the number of bidders iv bidder specific covariates while many private values pv models are nonparametrically identified and testable with commonly available data identification of common values cv models requires stringent assumptions nonetheless the pv model can be tested against the cv alternative even when neither model is identified

negotiated trade restrictions with private political pressure we consider a home government with political pressure to restrict trade the foreign country is compensated with a portion of the tariff revenues or quota rents but cannot directly observe the political pressure abroad in this setting the two countries negotiate over the volume of trade and transfer of rents depending on the level of political pressure we determine globally optimal incentive compatible trade policies in which the home government has no incentive to overstate or understate the pressure for protection

do announcements of wto dispute resolution cases matter evidence from the rare earth elements market abstract rare earth elements rees have gained increasing attention recently for several key reasons 1 they are vital to many strategic industries 2 they are relatively scarce 3 they frequently exhibit high price fluctuations 4 china holds a quasi monopoly on their mining and 5 china s ree policy which was overly restrictive and led to a formal complaint from the u s japan and the eu at the world trade organization wto in 2012 this paper investigates whether the announcement of a wto dispute resolution case has the power to fundamentally change market dynamics we find empirical support for this notion because ree prices exhibit a structural break around the announcement of the wto dispute and show lower variance ratios for all tested rees afterward this indicates a tendency toward efficiency although ree prices still do not follow a random walk similarly we find that stock price informativeness of companies in the ree industry increases after the announcement reflecting more firm specific than marketwide information and less governmental influence finally we show that model uncertainty for option pricing models decreases which we measure by the lower pricing differences among them

politics and the effectiveness of foreign aid abstract critics of foreign aid programs have long argued that poverty reflects government failure in this paper i test predictions for aid effectiveness based on an analytical framework that relates aid effectiveness to political regimes i find that aid does not significantly increase investment nor benefit the poor as measured by improvements in human development indicators but it does increase the size of government the impact of aid does not vary according to whether recipient governments are liberal democratic or highly repressive but liberal political regimes and democracies ceteris paribus have on average 30 lower infant mortality than the least free regimes this may be due to greater empowerment of the poor under liberal regimes even though the political elite continues to receive the benefits of aid programs an implication is that short term aid targeted to support new liberal regimes may be a more successful means of reducing poverty than current programs

russian retrospectives on reforms from yeltsin to putin the kamikaze crew of liberal reformers picked by former president boris yeltsin in the early 1990s succeeded in overturning the planned economy and the authoritarian political arrangements of seven decades of soviet communism however the resulting breakdown of political cohesion and the urgency of restoring stability prompted yeltsin to select vladimir putin as his successor the consolidating impetus under putin who was elected president in early 2000 has raised concerns about the continuation of economic and political reforms under his leadership in this essay nine russian interviewees look back on the reform issues under yeltsin and look ahead on the unfolding political economy scenario under putin they include three principle economic reformers under yeltsin three economic policy analysts and three banking professionals

the bidder exclusion effect we introduce a new simple to compute test of independence of valuations and the number of bidders for ascending button auctions with symmetric conditionally independent private values the test involves estimating the expected revenue drop from excluding a bidder at random which can be computed as a scaled sample average of a difference of order statistics this object also provides a bound on counterfactual revenue changes from optimal reserve pricing or bidder mergers we illustrate the approach using data from timber auctions where we find some evidence that bidder valuations and the number of participants are not independent

policy measures to avoid a currency crisis this paper considers a number of policy measures that may be used to preserve a fixed exchange rate these are analyzed in a model where a switch of exchange rate regime is triggered by an optimizing policymaker in response to extreme economic conditions it is shown how a number of policy measures can be used to alter the balance between the costs and benefits of switching between regimes these policy measures have both a direct effect on the policymaker s choice of regime switching point and an indirect effect through private sector expectations of a regime switch copyright 1995 by royal economic society

debts and deficits with fragmented fiscal policymaking abstract this paper develops a political economic model of fiscal policy one in which government resources are a common property out of which interest groups can finance expenditures on their preferred items this setup has striking macroeconomic implications transfers are higher than a benevolent planner would choose them to be fiscal deficits emerge even when there are no reasons for intertemporal smoothing and in the long run government debt tends to be excessively high peculiar time profiles for transfers can emerge with high net transfers early on giving rise to high taxes later on

crises and prices information aggregation multiplicity and volatility crises are volatile times when endogenous sources of information are closely monitored we study the role of information in crises by introducing a financial market in a coordination game with imperfect information the asset price aggregates dispersed private information acting as a public noisy signal in contrast to the case with exogenous information our main result is that uniqueness may not obtain as a perturbation from perfect information multiplicity is ensured with small noise in addition we show that a multiplicity may emerge in the financial price itself b less noise may contribute toward nonfundamental volatility even when the equilibrium is unique and c similar results obtain for a model where individuals observe one another s actions highlighting the importance of endogenous information more generally

capital account liberalization as a signal the authors present a model in which a government s current capital control policy signals future policies controls on capital outflows evolve in response to news on technology conditional on government attitudes toward taxation of capital when there is uncertainty over governmental types a policy of liberal capital outflows sends a favorable signal that may trigger a capital inflow this prediction is consistent with the experience of several countries that have liberalized their capital accounts copyright 1997 by american economic association

gradualism in trade agreements with asymmetric countries this paper uses recursive methods to characterize the payoff frontier of self enforcing trade agreements between countries of asymmetric size we show that at points on the frontier where only one country s incentive constraint binds the efficient agreement will be a non stationary one that starts with a positive trade distortion but eventually reaches free trade our analysis illustrates how i relative country size ii consumption smoothing incentives and iii sunk investments affect the form of efficient trade agreements in contrast to previous work on gradualism our results are obtained from a model in which the economic environment is stationary