hedging price volatility using fast transport abstract purchasing goods from distant locations introduces a significant lag between when a product is shipped and when it arrives these transit lags are trade barriers for firms facing volatile demand who must place orders before knowing the resolution of demand uncertainty we provide a model in which airplanes bring producers and consumers together in time fast transport allows firms to respond quickly to favorable demand realizations and to limit the risk of unprofitably large quantities during low demand periods the model predicts that the likelihood and extent to which firms employ air shipments is increasing in the volatility of demand they face decreasing in the air premium they must pay and increasing in the contemporaneous realization of demand we confirm all three conjectures using detailed us import data fast transport thus provides firms with a real option to smooth demand volatility on international markets and we provide simple calculations of that option value this enables us to identify how the option value relates to goods characteristics and to changes in air transport premia associated with technological and policy change including the introduction of jet engines and liberalization of trade in air services

rising trade costs agglomeration and trade with endogenous transaction costs while transport costs have fallen the empirical evidence also points at rising total trade costs in a model of industry location with endogenous transaction costs that seeks to replicate features from the machinery industry we show how and under which conditions a decline in transport costs can lead to an increase in the total cost of trade the subtle relationship between endogenous transport costs and the sensitivity of trade

investigating the impacts of time delays on trade abstract time delays due to inefficient customs and administrative procedures have become a leading non tariff barrier ntb that restrict international trade and impair social welfare this paper investigates how time delays affect product quality product price trade flow and social welfare using data on the days it takes to clear customs in 96 countries we explore the impacts of time delays on product quality and price with different levels of perishability we find that longer time delays at the border would significantly decrease highly perishable agricultural products quality and price we also find that for highly perishable agricultural products improved and simplified customs delays would increase trade flows and social welfare of importing countries

money talks an experimental investigation of cheap talk and burned money we experimentally study the strategic transmission of information in a setting where both cheap talk and money can be used for communication purposes theoretically a large number of equilibria exist side by side in which senders either use costless messages money or a combination of the two we find that senders prefer to communicate through costless messages only when the interest disalignment between sender and receiver increases cheap talk tends to break down and high sender types start burning money to enhance the credibility of their costless messages a behavioral model due to kartik 2009 assuming that sellers bear a cost of lying fits the data best

distance time and specialization lean retailing in general equilibrium transport time increases with distance traveled and time is valuable we show the implications of these facts for global specialization and trade products where timely delivery is important will be produced near the source of final demand where wages will be higher as a result in the model timely delivery is important because it allows retailers to respond to final demand fluctuations without holding costly inventories and timely delivery is possible only from nearby locations using a unique dataset that allows us to measure the retail demand for timely delivery we show that the sources of u s apparel imports have shifted in the way predicted by the model with products for which timeliness matters increasingly imported from nearby countries jel f1 transporting goods and people costs time and money and both transport fees and time in transit generally increase with the distance traveled these facts imply an incentive to economize on distance and the equilibrium effects

timeliness and agglomeration an important element of the cost of distance is time taken in delivering final and intermediate goods we argue that time costs are qualitatively different from direct monetary costs such as freight charges the difference arises because of uncertainty unsynchronised deliveries can disrupt production and delivery time can force producers to order components before demand and cost uncertainties are resolved using several related models we show that this generates a hitherto unexplored mechanism for clustering if final assembly takes place in two locations and component production has increasing returns to scale then component production will tend to cluster around just one of the assembly plants

selection tournaments and dishonesty we conduct a real effort experiment in which performance is not monitored and participants are paid according to their reported performance participants are paid according to a piece rate and a winner take all tournament and then select between the two schemes before performing the task one more time competition increases dishonesty and lowers output when the payment scheme is exogenously determined participants with a higher propensity to be dishonest are more likely to select into competition however after selection we find no output difference between piece rate and tournament this is attributable to a handful of honest individuals who select competition

export sensitivity to time delays and the pattern of international trade a growing body of literature in the field of international trade highlights the increasing importance of the time delays associated with transporting goods over long distances and the differing eff

spiders and snakes offshoring and agglomeration in the global economy abstract global production sharing is determined by international cost differences and frictions related to the costs of unbundling stages spatially the interaction between these forces depends on engineering details of the production process with two extremes being snakes and spiders snakes are processes whose sequencing is dictated by engineering spiders involve the assembly of parts in no particular order this paper studies spatial unbundling as frictions fall showing that outcomes are very different for snakes and spiders even if they share some features both snakes and spiders have in common a property that lower frictions produce discontinuous location changes and overshooting parts may move against their comparative costs because of proximity benefits and further reductions in frictions lead these parts to be reshored predictions for trade volumes and the number of fragmented stages are quite different in the two cases for spiders a part crosses borders at most twice the value of trade increases monotonically as frictions fall except when the assembler relocates and the direction of parts trade is reversed for snakes the volume of trade and number of endogenously determined stages is bounded only by the fragmentation of the underlying engineering process and lower frictions monotonically increase trade volumes

the chilean experience with agricultural price bands abstract while the opening of national economics through the devaluation of the real exchange rate leads to an improvement in agricultural incentives it also exposes producers to the effects of instability in international commodity markets sector specific interventions may be needed to reduce the price fluctuations transmitted from international to domestic markets the chilean price band scheme for wheat discussed in this article represents one possible attempt to achieve this objective

non cooperative bargaining theory an introduction the paper provides an informal introduction to some of the main themes of the recent literature on non cooperative or sequential bargaining models it focuses in particular on the relationship between the new approach and the traditional axiomatic approach exemplified by nash bargaining theory it illustrates the new insights offered by the non cooperative approach by reference to a detailed analysis of the manner in which the presence of an outside option available to one of the parties will affect the negotiated outcome finally the difficulties which arise in extending this analysis to two person bargaining with incomplete information and to n person bargaining are discussed this is a revised version of the fourth review of economic studies lecture presented in april 1985 at the joint meeting of the association of university teachers of economics and the royal economic society held in oxford the choice of lecturer is made by a panel whose members are currently professors hahn mirrlees and nobay and the paper is refereed in the usual way this paper aims to provide an informal and elementary introduction to an approach to bargaining which has received a great deal of attention over the past few years the approach involves writing down some particular sequence of moves offers and replies to be made over time in the course of negotiations and then looking for a non cooperative equilibrium in the game thus specified in practice a perfect equilibrium or in games of incomplete information a sequential equilibrium while the approach appears at first sight to be very different in spirit from the traditional axiomatic approach in which a bargaining solution is specified by appealing to a number of general requirements which are deemed appropriate on the basis of some a priori considerations the two approaches are in fact complementary while the

loss aversion and lying behavior abstract we theoretically show that loss averse agents are more likely to lie to avoid receiving a low payoff after a random draw the lower the ex ante probability of this bad outcome the ex ante expected payoff increases as the bad outcome becomes less likely and hence the greater is the loss avoided by lying we demonstrate robust support for this theory by reanalyzing the results from the extant literature and with a new experiment that varies the outcome probabilities and is run double anonymous

welfare implications on chilean agriculture as a result of collective action abstract chilean governments have simultaneously used a combination of price policies and expenditures on agricultural research in their efforts to enhance the performance of the agricultural sector the welfare implications of agricultural price policies on the funding of agricultural research are explicitly considered in a set of structural equations for a unique path of chilean political history a public choice model includes four blocks of simultaneous equations estimated as an interdependent system the level of price policies and public research investments result from the collective action exerted on the government by pressure groups of producers consumers and taxpayers involved in the production consumption and funding of agriculture

export survival in global production chains in this paper we examine the survival capacity of trade relationships in cross border production chains our main contribution is to show that there are differences in the probability of export interruption between intermediate and final stages along the global value chain finding a lower sensitivity of intermediate goods to the increasing competition from lower income countries in addition the paper also makes a methodological contribution by using time discrete duration models with product country random effects to control for unobservable heterogeneity and by including interactions in the model in order to identify the sources of these differences our estimates show that variables such as eu membership export experience product and market diversification initial trade value destination market size geographical proximity and economic proximity reduce the likelihood of export failure more for intermediate than for final goods being the differential impact particularly higher for the two first variables these results would suggest that factors that reduce uncertainty and search costs and increase trust and reliability among production partners are particularly relevant for intermediate stages fostering the probability of remaining an active member of global production chains

airplanes and comparative advantage abstract airplanes are a fast but expensive means of shipping goods a fact which has implications for comparative advantage the paper develops a ricardian model with a continuum of goods which vary by weight and hence transport cost comparative advantage depends on relative air and surface transport costs across countries and goods as well as stochastic productivity a key testable implication is that the u s should import heavier goods from nearby countries and lighter goods from faraway counties this implication is tested using detailed data on u s imports from 1990 to 2003 looking across goods the u s imports nearby exporters have lower market share in goods that the rest of the world ships by air looking across exporters for individual goods distance from the us is associated with much higher import unit values these effects are large which establish that the model identifies an important influence on specialization and trade

money or friends social identity and deception in networks abstract strategic communication occurs in virtually all committee decision environments theory suggests that small differences in monetary incentives between committee members can leave deception a strategically optimal decision crawford and sobel 1982 galeotti et al 2013 at the same time in natural environments social incentives can also play an important role in determining the way people share or withhold truthful information unfortunately little is known about how monetary and social incentives interact to determine truth telling we investigate this issue by first building a novel model and then testing its equilibrium predictions using laboratory data in the absence of social identity the model s predictions are supported there is more truthful communication between those who share monetary incentives than those who do not we find that the effect of identity is asymmetric sharing the same identity does not promote truth telling but holding different identities reduces truthfulness overall as compared to environments lacking social identity committees with both monetary and social incentives exhibit truthful communication substantially less frequently

if homo economicus could choose his own utility function would he want one with a conscience reply in my model of the evolution of honesty 1 i assumed the existence of a signal a blush perhaps extreme values of which served to identify some individuals as being honest with certainty joseph harrington notes that without this assumption honest individuals have difficulty invading a population initially dominated by defectors for readers who do not wish to work through the algebra in his comment the argument is easily summarized in nontechnical terms suppose two honest mutants a and b arrive in an uncountably large population consisting entirely of dishonest persons and suppose that the probability that an honest person exhibits an intense blush is say 0 999 while the corresponding probability for everyone else is only 0 001 when a sees an intense blush on the face of b what will then be his estimate of the probability that b is honest assuming that a knows the laws of elementary probability and corrects for the base rate of honest persons in the population it will be zero when virtually everyone in the population is dishonest even a person with an intense blush will be pegged as dishonest provided that even the smallest fraction of dishonest persons also shows an intense blush with

how accurate are surveyed preferences for public policies evidence from a unique institutional setup opinion polls and other surveys are used to capture public sentiments on a variety of issues if citizens are unwilling to reveal certain policy preferences to others surveys may fail to characterize population preferences accurately the innovation of this paper is to use unique data to measure survey biases for a broad range of policies i combine data on 184 referenda held in switzerland between 1987 and 2007 with postballot surveys that ask how the citizens voted for each proposal the dierence between stated preferences in the survey and revealed preferences at the ballot box provides a direct measure of survey bias i nd that these biases vary by policy areas with the largest occurring in

agricultural incentives in developing countries measuring the effect of sectoral and economywide policies the impact of sector specific direct and economywide indirect policies on agricultural incentives for 18 developing countries for the period 1975 84 are estimated the direct effect is measured by the proportional difference between the producer price and the border price adjusting for distribution storage transport and other marketing costs the indirect effect has two components 1 the impact of the unsustainable portion of the current account deficit and of industrial protection policies on the real exchange rate and thus on the price of agricultural commodities relative to nonagricultural nontradables and 2 the impact of industrial protection policies on the relative price of agricultural commodities to that of nonagricultural tradable goods the authors found that a in almost all cases the direct effect is equivalent to a tax on exportable goods and to a subsidy for importables b the indirect effect also taxes agriculture and dominates the direct effect and c the direct policies for both importables and exportables stabilize domestic producer prices

spatial linkages and export processing location in china this paper provides empirical evidence that spatial linkages matter for the localisation of global value chain activities relying on processing trade data for chinese provinces during the period 1997 2008 we investigate whether a chinese province s proximity to international suppliers and international buyers within an industry chain affects its attractiveness as an export processing location we find that the upstream and downstream spatial linkages both have a strong and independent explanatory power we also explore what factors explain the influence of these spatial linkages

logistic infrastructure and the international location of fragmented production abstract casual evidence suggests that multinational companies increasingly look for places with adequate transport and logistic infrastructure to locate affiliates that participate in cross border production sharing yet there are no systematic empirical analyses examining how logistic infrastructure interacts with the location decisions made by multinationals most studies on the determinants of fdi address the issue of transportation logistics by examining the impact of distance on the relevant outcome but distance does not capture by itself the quality of the logistic systems in place we overcome this shortcoming in the literature by embedding indicators of infrastructure into an empirical framework that examines whether countries with adequate logistic systems attract more vertical fdi and particularly in industries that are more dependent on logistic services we find that logistic infrastructure positively impacts vertical fdi in addition to the impact typically found on distance a change from the first quartile to the third quartile of the distribution of logistic infrastructure is associated with an average increase in the number of vertically integrated subsidiaries equivalent to 29

selection vs accountability an experimental investigation of campaign promises in a moral hazard environment abstract we examine retrospective and prospective voting considerations in an experiment implementing a simple voting model in each period the official chooses how much rent to appropriate from a social endowment announcement of this choice is followed by an election between the official and a randomly selected challenger with the winner becoming the official in the next period we vary two features of the setting a the discount factor and b whether candidates can make costless non binding campaign promises about their behaviour if elected consistent with the model s predictions both raising the discount factor and introducing campaign promises lead to lower rent appropriation by officials and worse electoral outcomes other things equal for incumbents campaign promises despite being cheap talk have real effects promising less appropriation is rewarded by voters but breaking such promises is punished finally we find a weak positive association between campaign promises and officials subsequent behaviour

towards an economic theory of incentives in just in time manufacturing abstract just in time manufacturing is widely acknowledged as decreasing the costs of production but also as increasing the quality this is surprising we would expect that adding a constraint on the supplier that production be conducted at very specific times would induce a decrease in quality this paper argues that this paradox can be solved by noticing that the incentives of the buyer are changed by jit manufacturing he will be more willing to impose penalties on the supplier

the aversion to lying abstract we experimentally investigate the effect of cheap talk in a bargaining game with one sided asymmetric information a seller has private information about her skill and is provided an opportunity to communicate this information to a buyer through a written message four different treatments are compared one without communication one with free form communication and two treatments with pre specified communication in the form of promises of varying strength our results suggest that individuals have an aversion towards lying about private information and that the aversion to lying increases with the size of the lie and the strength of the promise freely formulated messages lead to the fewest lies and the most efficient outcomes