analyzing nutritional impacts of policies an empirical study for malawi summary widespread malnutrition in developing countries calls for appropriate strategies presupposing good knowledge about nutritional impacts of policies little previous work has been carried out in this direction especially with respect to micronutrients we use representative household data from malawi and develop a demand systems approach to estimate income and price elasticities of food demand and nutrient consumption these estimates are applied for policy simulations given multiple nutritional deficiencies income related policies are better suited than price policies to improve nutrition while consumer price subsidies for maize improve calorie and mineral consumption they can worsen vitamin consumption in urban areas

household demand in rural china a two stage les aids model a complete demand system of chinese rural households is estimated using a two stage les aids model and pooled provincial and time series data from 1982 to 1990 for commodity groups food clothing fuel housing and other commodities demand is price inelastic housing and other commodities are luxury goods while clothing and food are necessities within the food group price elasticities range from 0 005 to 0 63 expenditure elasticities are lower for grains and higher for meat tobacco and alcohol the results imply a gap between food demand and supply growth therefore china will face pressure to import food

institutional competition versus centralization quo vadis europe lots of steep and sometimes blind bends with harsh speed limits and frequent detours but still it has been one that has attracted more and more traffic after a successful period of shaping a customs union and a free trade area following the treaty of rome 1957 europe became infected with euro sclerosis in the seventies owing to an increased intensity of national regulation especially in the labour market the constructionist approach to harmonization from above slowed down the speed of integration almost to a halt only the change of two fundamental rules revitalized the european integration process namely the introduction of majority voting in the ec council and the mutual recognition of national regulations brought about by the 1979 ruling of the european court with the single european act and the launch of the internal market programme europhoria blossomed finally leading to the maastricht treaty which aimed to be the masterpiece of european integration only very recently the danish no and the unconvincing approval by the french voters cooled off hopes for a united states of europe signalling that european integration is at the crossroads once again

the effect of concealed weapons laws an extreme bound analysis i introduction in a recent paper lott and mustard 1997 provide evidence on the relationship between concealed handgun laws often called right to carry or shall issue laws and crime they examine 16 years 1977 1992 of county level crime data from the fbi s uniform crime reports ucr and compare crime rates before and after the introduction of right to carry laws controlling for demographic factors and county level arrest rates they find that introducing right to carry laws resulted in significant reductions in the violent crimes of murder rape aggravated assault and robbery and increases in some property crimes such as burglary larceny and auto theft the latter increase is attributed to a substitution effect suggesting that potential criminals will at the margin switch from violent crimes that have now become more risky to them to property crimes where the probability of encountering an armed victim is much lower comparing these two effects coupled with a slight increase in accidental gunshots from individuals owning concealed handguns lott and mustard conclude that the social benefits of these laws exceed their costs economists who present one set of empirical results are always vulnerable to criticism that they could have selected another group of right hand side variables or modeled them in a different way lott and mustard s analysis has been criticized by black and nagin 1998 who re examine the data set choosing a different set of controls and a different model and reach different conclusions about the effects of the right to carry laws uncertainty about what to control for and how to do it has been called model uncertainty by leamer 1983 who suggests estimating the size of model uncertainty by testing the sensitivity of the particular results to many different possible model specifications this methodology is called extreme bound analysis in this paper we report extreme bounds from nearly 20 000 estimated regressions that vary the modeling choices made by lott and mustard we find support for the deterrence result from a broad set of specifications in particular we find strong support for the hypothesis that the right to carry laws are associated with a decrease in the trend in violent crime rates we do not find much support for a substitution effect into property crimes in what follows we first describe some econometric issues related to the problem of estimating the effect of the right to carry laws on crime rates we then report our extreme bound analysis and offer concluding remarks ii extreme bound analysis although behavioral theories can provide general guidance about the kinds of factors that should influence the crime rate they do not specifically determine which variables should be included in a regression analysis in addition conflicting theories typically suggest alternate model specifications in the context of crime rates for example we might expect higher crime rates in counties with higher unemployment and a larger percentage of young men age 18 30 following convention we call this a supply effect nagin 1978 however it is also possible that higher unemployment leads to the passage of right to carry laws or that right to carry laws are less likely to be enacted in areas with high percentages of young men age 18 30 we call this a demand effect omitted or unobserved demand or supply variables may induce a spurious correlation between the adoption of the right to carry laws and crime rates that has nothing to do with the supply of crime leamer 1983 suggests a formal specification search or extreme bound analysis to estimate the size of such model uncertainty surrounding certain regression results for example by including different right hand side variables in a supply of crime equation for murder leamer estimates an extreme bound interval for the deterrent effect of capital punishment that ranges from 29 to 12 murders prevented for every execution

the starfish effect can market entry by one firm encourage further entry by others abstract this paper examines the impact of entry decisions into oligopolistic markets upon the entry and exit decisions of rival producers when learning economies are important entry by one firm may paradoxically make entry more attractive to others by weakening the ability of a dominant incumbent to produce at low cost the likelihood of this outcome depends upon the extent to which variable costs of production decline as output increases and is enhanced by scope economies in the presence of multi market contact as well as by the degree of cost asymmetry between firms it is suggested that entry inducing entry may actually have occurred in part of the market for large civilian passenger aircraft whether or not this is so a more general conclusion is robust in industries where scale and scope effects are large the impact of entry is not just upon competition but on costs and these effects work in opposite directions to influence the entry decisions of other firms

measuring positive externalities from unobservable victim precaution an empirical analysis of lojack lojack is a hidden radio transmitter device used for retrieving stolen vehicles because there is no external indication that lojack has been installed it does not directly affect the likelihood that a protected car will be stolen there may however be positive externalities due to general deterrence we find that the availability of lojack is associated with a sharp fall in auto theft rates of other crime do not change appreciably at least historically the marginal social benefit of an additional unit of lojack has been fifteen times greater than the marginal social cost in high crime areas those who install lojack however obtain less than 10 percent of the total social benefits leading to underprovision by the market

airbus versus boeing revisited international competition in the aircraft market this paper examines international competition in the commercial aircraft industry we estimate a discrete choice differentiated products demand system for wide body aircraft and examine the airbus boeing rivalry under various assumptions on firm conduct we then use this structure to evaluate two trade disputes between the united states and european union our results suggest that aircraft prices increased by about 3 7 percent after the 1992 u s e u agreement on trade in civil aircraft that limits subsidies this price hike is consistent with a 5 percent increase in firms marginal costs after the subsidy cuts we also simulate the impact of the future entry of the airbus a 380 super jumbo aircraft on the demand for other wide bodied aircraft notably the boeing 747 we find that the a 380 could reduce the market share of the 747 by up to 14 8 percentage points in the long range wide body market segment depending upon the discounts offered on the a 380 but would reduce the market for airbus s existing wide bodies by an even greater margin

entry into the market for large transport aircraft abstract european governments have been accused of unfair trading practices in providing subsidies for market entry in the large commercial aircraft industry a capacity game is calibrated for 1987 to 2006 showing that the disadvantage of late entry is overcome only after a long time hence market entry is unlikely without government subsidies the scale and scope effects of production outweigh the output reducing effects of a monopoly government supported market entry as an anti monopoly policy yields higher consumer welfare overall welfare is lower due to large losses in producer surplus

on equivalence between cournot competition and the kreps scheinkman game abstract the existing literature dealing with the equivalence between the kreps scheinkman ks game and cournot competition has focused on the case of a concave demand function this paper analyzes the equivalence possibilities under the much extended circumstances of strictly decreasing marginal industrial revenue a twice differentiable demand function and convex costs it proves that in the extended context the outcomes in the subgame perfect nash equilibrium spne of the ks game are those of cournot equilibrium ce and that a ce is on the path of the spne of the ks game if the marginal cost of each firm in some special borderline cases is not too high it further proves that for decreasing continuous demand and strictly increasing costs the outcome in the spne of the ks game if the spne exists is that of ce based on these results we argue that the ks game can serve as the basic form for studying quantity competition and for developing a t stage game theoretical framework to make competition form and timing endogenous

household food demand in rural china this article explores rural household food consumption behaviour in china using a large household data set from jilin province data are classified into four main food groups grain vegetable products animal products and other foods a household food demand system incorporating four household characteristics is estimated using an la aids model assuming a three stage budgeting procedure expenditure elasticities for a range of food groups are estimated with a particular focus on animal products the inclusion of household characteristics did not have a big impact on the elasticity values in any of the three stages of the budgeting process the total expenditure elasticity for grain stage ii was 0 64 suggesting substantial future growth in household demand for fine grains such as rice and wheat as per capita incomes continue to grow in rural areas the highest conditional and total expenditure elasticity values were for the animal products stage ii group 1 22 and 0 76 respectively within this

spatial structure of agricultural production in china the spatial structure of county level agricultural production in china in 1999 is analysed a convenient simple method that corrects for both spatial autocorrelation and spatial heterogeneity in the input output relationships using spatial lag models and an allowance for the response coefficients to vary across relatively homogeneous regions are described empirical results suggest an abundant labour supply and extensive use of agricultural machinery reflected in its declining price although mechanization is relatively new machines have replaced fertilizer in agricultural production in the north northeast northwest and east regions while irrigation and fertilizer are the significantly important inputs in the central and southwest regions

testing for the effects of concealed weapons laws specification errors and robustness abstract in 1997 john lott and david mustard published an important paper in which they found that right to carry concealed weapons laws reduce violent crime although lott and mustard appear to do all possible variations of the analysis a closer reading reveals that the study might suffer from several possibly important errors i reestimate the model and check for incorrect functional form omitted variables and possible second order bias in the t ratios lott and mustard s basic conclusions are generally robust with respect to these potential econometric problems overall right to carry concealed weapons laws tend to reduce violent crime the effect on property crime is more uncertain i find evidence that these laws also reduce burglary

model uncertainty and the effect of shall issue right to carry laws on crime in this paper we explore the role of model uncertainty in explaining the different findings in the literature regarding the effect of shall issue right to carry concealed weapons laws on crime in particular we systematically examine how different modeling assumptions affect the results we find little support for some widely used assumptions in the literature e g population weights but find that allowing for the effect of the law to be heterogeneous across both counties and over time is important for explaining the observed patterns of crime in terms of model uncertainty we find that there is substantial variation in the estimated effects for each model across all dimensions of the model space this suggests that one should be cautious in using the results from any particular model to inform policy decisions

more guns more crime this paper examines the relationship between gun ownership and crime previous research has suffered from a lack of reliable data on gun ownership i exploit a unique data set to reliably estimate annual rates of gun ownership at both the state and the county levels during the past two decades my findings demonstrate that changes in gun ownership are significantly positively related to changes in the homicide rate with this relationship driven almost entirely by an impact of gun ownership on murders in which a gun is used the effect of gun ownership on all other crime categories is much less marked recent reductions in the fraction of households owning a gun can explain one third of the differential decline in gun homicides relative to nongun homicides since 1993

effects of income distribution in an inverse demand system evidence from chinese household survey data this study provides an empirical analysis of the impact of changes in income distribution on food demand in china using data from china health and nutrition survey a new parametric form of an inve

testing for unit roots in panel data are wages on different bargaining levels cointegrated theoritical considerations suggest that spillover forces equalize wages for similar jobs thus it is expected that firm wages are cointegrated with the corresponding wage rates on an industrial level in this paper we apply various unit root tests to a panel of wage data we show that the familiar techniques can be adopted to this type of data allowing for unobserved heterogeneity and common time effects our results suggest that firm and industry wages both possess a unit root in the autoregressive representation however ther is only weak evidence for a cointegration realtionship

from the econometrics of capital punishment to the capital punishment of econometrics on the use and abuse of sensitivity analysis the academic debate over the deterrent effect of capital punishment has intensified again with a major policy outcome at stake about two dozen empirical studies have recently emerged that explore the issue donohue and wolfers 2005 claim to have examined the recent studies and shown the evidence not to be robust to specification changes we argue that the narrow scope of their study does not warrant this claim moreover focusing on our two studies that they have examined we show the deterrence findings to be robust while their work has serious flaws and their reporting appears to be selective the selectivity is biased towards showing no deterrence

lithuania s food demand during economic transition the linear approximate version of the almost ideal demand system la aids model is estimated using data from the lithuanian household budget survey hbs covering the period from july 1992 to december 1994 price and real expenditure elasticities for 12 food groups were estimated based on the estimated coefficients of the model very little or nothing is known about the demand parameters of lithuania and other former socialist countries so the results are of intrinsic interest estimated expenditure elasticities were positive and statistically significant for all food groups while all own price elasticities were negative and statistically significant except for that of eggs which was insignificant results suggest that lithuanian household consumption did respond to price and real income changes during their transition to a market oriented economy

guns laws and public shootings in the united states abstractsince the late 1990s there have been increasing numbers of public shootings carried out with firearms in the united states these tragedies continually renew the regulatory debate concerning public safety while considering civil liberties using a unique data set we investigate whether laws correspond to whether an event occurs and the effects of event specific characteristics on public shooting outcomes in particular we analyse how state specific gun laws the types of firearms the shooting venues and the mental health of the gunman impact the outcomes of public shootings results show that most gun laws are unrelated to whether an event occurs in addition common state and federal gun laws that outlaw assault weapons are unrelated to the likelihood of an assault weapon being used during a public shooting event moreover results show that the use of assault weapons is not related to more victims or fatalities than other types of guns however the use of hand guns shot guns and high capac

public provision of sales contingent claims backed finance to smes a policy alternative abstract in europe and elsewhere governments intervene to stimulate innovation in the sme sector and because smes face financial constraints in particular governments encourage the provision of debt and equity venture capital finance to such firms this paper discusses sales contingent claim scc backed finance funding secured only on a claim written on sales that offers a different repayment profile to debt and equity the attractiveness of such finance to firms as well as the behaviour of firms financed in this way are analysed for various reasons scc backed financial instruments are generally not available to smes on the market but it is argued that wider availability could further stimulate the growth and innovative activity of smes the correction of this market incompleteness by the introduction of government schemes providing scc backed corporate finance for smes in higher risk higher tech sectors is recommended the workability of such a scheme is explored by looking at existing examples aimed largely at project finance for larger firms

a two stage rural household demand analysis microdata evidence from jiangsu province china in this paper we evaluate economic and demographic effects on china s rural household demand for nine food commodities vegetables pork beef and lamb poultry eggs fish sugar fruit and grain and five nonfood commodity groups clothing fuel stimulants housing and durables a two stage budgeting allocation procedure is used to obtain an empirically tractable amalgamative demand system for food commodities which combine an upper level aids model and a lower level gles as a modeling framework the results indicate that the slow growth of food consumption in china during the latter half of the 1980s is a result of income stagnation rather than consumption saturation growth in the demand for better food and shelter by chinese rural households will continue to be a major concern

crime and social interactions the high variance of crime rates across time and space is one of the oldest puzzles in the social sciences this variance appears too high to be explained by changes in the exogenous costs and benefits of crime we present a model where social interactions create enough covariance across individuals to explain the high cross city variance of crime rates this model provides an index of social interactions which suggests that the amount of social interactions is highest in petty crimes moderate in more serious crimes and almost negligible in murder and rape

privately produced general deterrence in this study we use county data on private security establishments and employment for 1977 92 to test two hypotheses first we test whether private security deters crime second we test whether john lott and david mustard s estimates of the impact of shall issue laws on crime are biased because of a lack of controls for private security we find little evidence that private security reduces the crime rates for assault or larceny some estimates suggest murder robbery and or auto theft may be deterred by private security although these results are not robust of all the index crime categories only rape is estimated to have a consistent negative relationship with private security in addition we find little evidence that the lott and mustard results are biased because of a lack of controls for the private security measures employed in this study

the demand for food quality in rural china many studies of food demand do not use actual prices but unit values obtained by dividing expenditures by the quantity consumed this can bias empirical analyses because unit values are not exogenous market prices they reflect household food quality choices within each food category this article develops a framework for assessing the resulting bias in income and price elasticities of demand and applies the framework to data for rural china empirical results indicate that households in rural china tend to consume higher quality food as income increases with a greater sensitivity to income for basic foods than for luxury foods copyright 2009 oxford university press

the effect of prison population size on crime rates evidence from prison overcrowding litigation simultaneity between prisoner populations and crime rates makes it difficult to isolate the causal effect of changes in prison populations on crime to break that simultaneity this paper uses prison overcrowding litigation in a state as an instrument for changes in the prison population the resulting elasticities are two to three times greater than those of previous studies a one prisoner reduction is associated with an increase of fifteen index i crimes per year while calculations of the costs of crime are inherently uncertain it appears that the social benefits associated with crime reduction equal or exceed the social costs of incarceration for the marginal prisoner

food consumption in urban china an empirical analysis this paper examines consumption patterns of urban households in china using aggregated household consumption data a demand system comprising six commodities rice pork vegetables fish eggs and fruits is estimated using a two stage budgeting procedure which incorporates an almost ideal deamnd system aids in each stage elasticity estimates from the system are plausible and consistent with other relevant studies results from this study strengthen the evidence of the emergence of a large chinese market for non stable food the study provides rationale and basis for additional research into chinese food consumption especially processed food

a dynamic analysis of the market for wide bodied commercial aircraft this paper uses an empirical dynamic oligopoly model of the commercial aircraft industry to analyse industry pricing industry performance and optimal industry policy a novel feature of the model with respect to the previous literature is that entry exit prices and quantities are endogenously determined in markov perfect equilibrium mpe we find that many unusual aspects of the aircraft data such as high concentration and persistent pricing below static marginal cost are explained by this model we also find that the unconstrained mpe is quite efficient from a social perspective providing only 10 less welfare on average than a social planner would obtain finally we provide simulation evidence that an anti trust policy in the form of a concentration restriction would be welfare reducing

the effects of state and federal background checks on state level gun related murder rates the purpose of the present study was to determine whether firearm background checks are significantly related to gun related murder rates the present study differs from prior research in several ways first a large longitudinal data set is used data for 50 states for the period 1980 2011 are examined second the effects of both federal and state background checks including state mandated private sales background checks are estimated finally a fixed effects model that controls for both state level and year specific effects is used results suggest that states that require dealer background checks have lower gun related murder rates than other states in addition after implementation of the brady act gun related murder rates fell however the results also suggest that for the entire period in question states with private sales background checks had higher gun related murder rates than states with no such background checks if one only looks the brady act period however then the private sales

does the right to carry concealed handguns deter countable crimes only a count analysis can say abstract an analysis of the effects of right to carry laws on crime requires particular distributional and structural considerations first because of the count nature of crime data and the low number of expected instances per observation in the most appropriate data least squares methods yield unreliable estimates second use of a single dummy variable as a measure of the nationwide effect of right to carry laws is likely to introduce geographical and intertemporal aggregation biases into the analysis in this paper we use a generalized poisson process to examine the geographical and dynamic effects of right to carry laws on reported homicides rapes and robberies we find that the effects of such laws vary across crime categories u s states and time and that such laws appear to have statistically significant deterrent effects on the numbers of reported murders rapes and robberies

will rationing guns reduce crime abstract reducing the supply of guns does not necessarily decrease crime as many economists support this article explores hazards of gun control and offers an alternative solution for reducing crime that of enacting laws to permit the carrying of concealed handguns

sensitivity analyses of the deterrence hypothesis let s keep the econ in econometrics abstract leamer and mcmanus applied extreme bound analysis eba in an empirical study of the deterrent effects of capital punishment and other penalties their analysis has questioned the validity of the deterrence hypothesis the thrust of our paper is twofold first by applying eba to well known econometric models of demand production and human capital investment our analysis exposes and illustrates the inherent flaws of eba as a method of deriving valid inferences about model specification second since the analysis shows leamer and mcmanus s inferences about deterrence to be based on a flawed methodology we offer an alternative theory based sensitivity analysis of estimated deterrent effects using similar data our analysis supports the deterrence hypothesis more generally it emphasizes the indispensable role of theory in guiding sensitivity analyses of model specification

food demand in rural china evidence from rural household survey abstract the recent rural reforms in china have had great effects on agricultural production and productivity as well as rural household consumption while much has been written on production and productivity effects of these reforms very few chinese studies have attempted to analyze the changes in rural consumption patterns this paper uses a dynamic aids model to estimate various food demand parameters for chinese rural households using rural household survey data recently released by the china state statistical bureau the results show that all important food commodities including rice wheat coarse grains vegetables meat tobacco and alcohol have positive expenditure elasticities rice wheat and coarse grains are necessities while meat vegetables alcohol and tobacco are luxuries the expenditure elasticities for rice coarse grains and tobacco are declining but those for wheat meat vegetables and alcohol are increasing as per capita income rises and population increases the demand for these items will continue to increase therefore china must continue to increase its food production by a greater rate in the future in order to avoid food shortages

the effects of price on household demand for food and calories in poor countries are our databases giving reliable estimates food price policy relies heavily on estimated price elasticities of food demand to help balance the nutritional and economic objectives in poor countries economists use either unit values ratios of household expenditure to quantity purchased or community prices enumerated from vendors in local markets as proxies for market prices when estimating price elasticities with household survey data biases are believed to result from using unit values due to measurement error and quality effects but evidence on this issue is lacking and even less is known about community prices this article provides an empirical evidence from vietnam which suggests that economists should exercise caution when estimating price elasticities from household surveys a 14 food demand system is estimated alternatively with unit values or community prices and the elasticity of calories with respect to rice prices is calculated this elasticity is more than twice as large 0 54 versus 0 22 when community prices are used rath

rural chinese food consumption the case of guangdong chinese consumer behavior is analyzed based on rural guangdong household survey data for most food items own price elasticities estimated with an aids model are inelastic commodity substitution due to relative price changes is small except in the case of grain commodities most responsive to expenditure changes are meats poultry fruits sweets and durable goods

trade policy issues and empirical analysis interest in u s trade policy has been stimulated in recent years by the massive american trade deficit by the belief that intervention by foreign governments in international markets has given other countries a competitive edge over the united states and by concern about the increase in protectionism among industrial countries in turn major analytical developments in international economics have revolutionized trade theory broadening its scope both by introducing in a more formal manner such concepts as imperfect competition increasing returns product differentiation and learning effects and by including the study of political and economic factors that shape trade policy decisions this collection of papers the result of a conference held by the nber applies these new trade theories to existing world cases and also presents complementary empirical studies that are grounded in more traditional trade theories the volume is divided into four parts the papers in part 1 consider the problem of imperfect competition empirically assessing the economic effect of various trade policies introduced in industries in which the new trade theory seems to apply those in part 2 isolate the effects of protection from the influences of the many economic changes that accompany actual periods of protection and also examine how the effects from exogenous changes in economic conditions vary with the form of protection part 3 provides new empirical evidence on the effect of foreign production by a country s firms on the home country s exports finally in part 4 two key bilateral issues are analyzed recent u s japanese trade tensions and the incident involving the threat of the imposition of countervailing duties by the united states on canadian softwood lumber

is free trade passe abstract if there were an economist s creed it would surely contain the affirmations i understand the principle of comparative advantage and i advocate free trade yet the case for free trade is currently more in doubt than at any time since the 1817 publication of ricardo s principles of political economy and this is due to changes that have recently taken place in the theory of international trade while new developments in international trade theory may not yet be familiar to the profession at large they have been substantial and radical in the last ten years the traditional constant returns perfect competition models of international trade have been supplemented and to some extent supplanted by a new breed of models that emphasizes increasing returns and imperfect competition these new models call into doubt the extent to which actual trade can be explained by comparative advantage they also open the possibility that government intervention in trade via import restrictions export subsidies

estimation of complete demand systems from household budget data the linear and quadratic expenditure systems in this paper we explore two issues in empirical demand analysis the estimation of complete systems of demand equations using household budget data section i and the incorporation of demographic characteristics into such systems section ii although there are numerous studies which use time series data to estimate complete demand systems and many which estimate engel curves from household budget data there are virtually none which combine budget data from different periods to estimate complete systems since each budget study corresponds to a single price situation one might conjecture that estimation of complete systems would not be possible unless budget studies were available from a large number of periods this is incorrect in section i we argue that interesting complete demand systems can be estimated from a small number of budget studies despite the limited price variability represented in such data to demonstrate this we use budget study data for two periods to estimate a pair of related demand systems the familiar linear expenditure system les and a quadratic expenditure system qes a generalization of les in which the demand equations are quadratic in total expenditure the inclusion of demographic variables in the analysis of household consumption patterns is desirable because there are likely to be systematic differences in the consumption behavior of households with different demographic characteristics but the effects of demographic characteristics have seldom been studied within the framework of complete demand systems in section ii we propose translating as a general method for incorporating demographic variables into complete systems of demand equations this method has not previously been discussed as a general technique for bringing demographic variables into demand systems although it has been employed in several studies to improve the estimates of the les and the qes presented in section i we reestimate these two systems using translating to incorporate family size

exchange rate misalignments in duopoly the case of airbus and boeing we examine the effect of exchange rate misalignments on competition in the market for large commercial aircraft this market is a duopoly where players compete in dollar denominated prices while one of them airbus incurs costs mostly in euros we construct and calibrate a simulation model to investigate how companies adjust their prices to deal with the effects of a temporary misalignment and how this affects profit margins and volumes we also explore the effects on the long run dynamics of competition we conclude that due to the duopolistic nature of the aircraft market airbus will pass only a small part of the exchange rate fluctuations on to customers through higher prices moreover due to features specific to the aircraft industry such as customer switching costs and learning by doing even a temporary departure of the exchange rate from its long run equilibrium level may have permanent effects on the industry