why voluntary export restraints are voluntary the paper presents an analysis of the effect upon an oligopolistic equilibrium of introducing a voluntary export restraint ver upon an importing firm a ver set at the free trade level of imports is shown to raise the profits of all firms within the industry the result follows as the imposition of a ver upon a free trade nash price competition forces the domestic firm to become an industry price leader the ver raises industry prices by facilitating collusion and lowers consumer welfare pourquoi les restrictions volontaires d 1 exportation sont volontaires ce memoire presente une analyse des effets de l introduction de restrictions volontaires a l exportation rve sur une entreprise qui importe dans un monde en equilibre oligopolistique on montre que l introduction de rve approximant le niveau des importations en regime de libre echange devrait augmenter les profits de toutes les entreprises dans l industrie cela decoule du fait que l imposition de rve sur un univers de concurrence par les prix a la nash en regime de libre echange force l entreprise domestique a devenir le leader en prix l introduction de rve augmente le niveau des prix de l industrie en facilitant la collusion et de ce fait reduit le niveau de bien etre des consomrnateurs

the zero lower bound the dual mandate and unconventional dynamics abstract this paper examines monetary policy when it is constrained by the zero lower bound zlb on the nominal interest rate our analysis uses a nonlinear new keynesian model with technology and discount factor shocks specifically we investigate why technology shocks may have unconventional effects at the zlb what factors affect the likelihood of hitting the zlb and the implications of alternative monetary policy rules we initially focus on a new keynesian model without capital model 1 and then study that model with capital model 2 the advantage of including capital is that it introduces another mechanism for intertemporal substitution that strengthens the expectational effects of the zlb four main findings emerge 1 in model 1 the choice of output target in the taylor rule may reverse the effects of technology shocks when the zlb binds 2 when the central bank targets steady state output in model 2 a positive technology shock at the zlb leads to more pronounced unconventional dynamics than in model 1 3 the presence of capital changes the qualitative effects of demand shocks and alters the impact of a monetary policy rule that emphasizes output stability and 4 in model 1 the constrained linear solution is a decent approximation of the nonlinear solution but meaningful differences exist between the solutions in model 2

international evidence on investment and fundamentals abstract if a firm s costs of installing capital are not quadratic then its optimal investment is not a linear function of fundamentals such as the returns and costs of capital this study specifies a model in which a firm may face fixed linear and convex costs of investing and estimates the resulting investment function using firm level data from 11 countries the evidence suggests important nonlinearities consistent with the presence of fixed or other non quadratic costs in the relationship between investment and fundamentals for most countries these findings are statistically signficant at the level of the firm and economically significant when aggregated by country

can enforcement constraints explain the patterns of capital flows after financial liberalizations abstract a standard small open economy model would have problems accounting for the pattern of capital flows into capital poor economies that open to the rest of the world such types of models would predict extremely large and very sudden capital flows putting these predictions at odds with the data while the bulk of the literature has focused on the role of inputs frictions to produce slower capital flows this article presents an exploration into the role of financial frictions in particular enforcement constraints to produce endogenously slow capital flows we are left with three main findings first enforcement constraints are helpful frictions for producing slow capital flows however these flows do not exhibit the degree of persistence observed in the data finally when we extend our model to mimic declining values of financial autarky the model is able to produce more persistent capital inflows that are more in line with the data although these deficits revert into surpluses more quickly than in the data we are left with a finding that leads to a promising line of research models that include endogenously increasing costs of defaulting are better suited to reproduce the patterns of capital flows into opening economies

voluntary export restraints and expectations an analysis of export quotas in oligopolistic markets the frequency of export quotas imposed as voluntary export restraints has been increasing this tends to create the expectation that similar export quotas will be imposed in the future even if free trade is allowed now the author analyzes the effect of such an expectation he demonstrates that if a quota is expected to be imposed on foreign exporting firms it intensifies the exporting firms competition in the prequota period this offsets the protection which the export quota as a voluntary export restraint will provide for domestic import competing firms in the future quota period copyright 1989 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

the taylor principle fights back part ii abstract the existing literature holds that the taylor principle often leads to indeterminacy in new keynesian models that allow for capital accumulation and limited asset market participation this conclusion is special however to the case of continuous full employment when the assumption of perfect wage flexibility is relaxed very slightly so that the labor market clears quickly but not instantaneously determinacy is the norm the threat of indeterminacy is limited to a tiny irrelevant corner of the parameter space where the elasticity of labor supply is unusually high and real wage adjustment is unbelievably fast everywhere else the taylor principle guarantees a unique rational expectations equilibrium the dramatic difference in results reflects the sensitivity of the monetary transmission mechanism to the speed of adjustment in the labor market

market equilibrium under the threat of a ver abstract this paper characterizes market equilibrium under oligopoly when a ver has introduced both asymmetry amongst exporters and uncertainty a restrained and an unrestrained exporter choose price strategically under the threat of a ver on the latter a pure strategy equilibrium is shown to result only when the probability of the ver is high otherwise a unique mixed strategy equilibrium results as the probability of the ver rises the expected domestic price rises even if the ver is not imposed

endogenous trade policy under foreign direct investment abstract using bernheim and whinston 1986 common agency game we endogenize trade policy in a duopoly composed of a domestic firm and a foreign firm where both firms influence the domestic government s trade policy via their contributions the foreign firm can jump over trade restrictions by undertaking foreign direct investment fdi in the domestic market the government prefers a voluntary export restraint ver to a tariff for two reasons first a ver leads to higher contributions from the foreign firm than a tariff second a ver provides a higher level of protection to the domestic firm without generating fdi by the foreign firm

trade policy subtleties with multinational firms abstract regional trade blocks must specify domestic content rules that define the conditions under which a good qualifies as domestic and so may be freely traded within the block this paper analyzes such rules focussing on oligopolistic industries in which foreign multinationals rely much more on imported intermediate inputs that do domestic firms in such a situation we argue that domestic content provisions are anti competitive reducing overall final output of the industry and shifting rents to domestic firms these ideas are examined analytically and then numerically using an applied general equilibrium model of the north american auto industry

price leadership and discrimination in the european car market this paper explains differences in the price of the same good in different markets in the authors model n producers each play the role of stackelberg leader on their own market and there is one market with no domestic producer the authors show that even without demand differences between markets pretax prices will be higher on markets where there are high cost domestic producers and where taxes are low evidence from the european car market based on time series for individual models supports these results furthermore as the model suggests exchange rate changes are not passed through to car prices copyright 1990 by blackwell publishing ltd

tariffs versus quotas with strategic investment the relative efficiency of tariffs versus quotas is analyzed in a cournot oligopoly with strategic investment introducing quota licence fees to neutralize the international distributional effect when such licence fees remove quota rents from foreign firms then for the case of constrained entry with a sufficiently large number of firms quotas frequently hold a welfare advantage since tariffs relatively aggravate the inefficiency from overinvestment in the case of free entry and exit however tariffs hold a welfare advantage since there is greater benefit of increasing returns to scale to the economy by avoidance of excessive entry of firms

endogenous probability of protection and firm behavior abstract this paper studies the strategic reactions of firms to protectionist policies that are enforced with endogenous probability this probability is a function of firms actions firms in the country that may adopt the protectionist measures try to increase the probability of sanctions while foreign firms try to reduce this probability a simple framework is used to derive general results for uncertain protection this framework is used to analyze the responses to specific protectionist policies such as antidumping legislation and restrictions on the import market share finally the paper studies the welfare implications of the model

imperfect competition and pareto improving strategic trade policy abstract this paper addresses the concern that strategic trade policy will inevitably invite retaliation by presenting examples in which tariffs and export taxes subsidies can improve the welfare of importing and exporting nations at the same time we argue that retaliation is less likely in such cases the conditions required for these results depend upon the relative sizes of the markets in the trading countries the number of firms in each and the shape of market demand and cost functions

the economics of voluntary export restraint agreements the three substantive sections of this survey deal with the economic consequences of voluntary export restraint agreements vers e g the multi fibre arrangement and vers on japanese auto exports section 2 focuses on the disposition of quota rents under the assumptions of perfectly competitive markets and the absence of substitute suppliers section 3 considers imperfect competition and the role of vers as cartelization instruments facilitating collusion section 4 analyzes the discriminatory effects of vers when there are third country suppliers a broad conclusion is that the economic consequences of vers are more complex than the standard trade policy analysis based on tariffs because of the issues discussed in sections 3 and 4 copyright 1989 by blackwell publishers ltd

the hump shaped behavior of inflation and a dynamic externality we propose a general equilibrium model that explains the empirical evidence of the hump shaped response of inflation to a monetary policy shock the model replaces backward looking indexation a la christiano et al 2005 nominal rigidities and the dynamic effect of a shock to monetary policy journal of political economy 113 1 1 45 with a dynamic externality into the production function of firms the model armed with sticky wages and variable capital utilization has two offsetting effects on real marginal cost over the business cycle first increasing factor prices raise real marginal cost in response to an expansionary monetary policy shock in the intermediate run second a dynamic externality reduces real marginal cost in the short run because it raises productivity in response to an increase in output following the shock overall the resulting short run decrease and intermediate run increase in marginal cost replicate the hump shaped behavior of inflation under purely forward looking price and wage phillips curves

trade and trade policy with imperfect competition the case of identical products and free entry abstract this paper analyses intra industry trade between economies containing an imperfectly competitive industry in which firms produce a homogeneous output production is subject to increasing returns to scale and there is free entry and exit of firms trade is shown to unambiguously increase welfare by reducing the degree of monopoly in each market and increasing firm size the effects of differences in technology and endowments on the pattern of trade and welfare are examined import tariffs are shown to raise welfare in the country employing the tariff and the welfare implications of various types of industry subsidy are examined

endogenous timing in duopoly games stackelberg or cournot equilibria abstract simultaneous versus sequential play is studied in an extended game in a preplay stage players decide whether to select actions in the basic game at the first opportunity or to wait until observing their rivals first period actions in one extended game players first decide when to select actions without committing to actions in the basic game the equilibrium has a simultaneous play subgame unless payoffs in a sequential play subgame pareto dominate those payoffs in another extended game deciding to select at the first turn requires committing to an action both sequential play outcomes are the equilibria only in undominated strategies

non convexities in the adjustment of different capital inputs a firm level investigation recent developments in investment research have highlighted the importance of non convexities and irreversibilities in firms adjustment of quasi fixed inputs aggregation across capital goods may smooth out the discontinuities associated with the adjustment of individual assets lack of suitable data is one of the reasons why empirical work has typically relied on the assumption of capital homogeneity in this paper we exploit a data set of 1539 italian firms which allows us to disaggregate capital into equipment and structures and purchases and sales of assets we construct measures of fundamental q to capture investment opportunities associated with each asset we uncover the pattern of dynamic adjustment by using non parametric techniques to relate each individual investment to its own fundamental q

negative uncertainty sensitivity of investment and market structure this paper examines how industry competition changes the sensitivity of investment to uncertainty using japanese firm data a switching regression model is employed to test the predictions of the real options theory regarding the uncertainty investment relationship under different industry competition attributes we find that the negative uncertainty sensitivity of investment is increased by industry concentration but decreased by market share the latter finding supports the view of strategic investment behavior of rival firms under uncertainty rather than the erosion of option values by competition

another look at the linear q model an empirical analysis of aggregate business capital spending with maintenance expenditures the paper revisits the empirical investment literature which has established that aggregate business fixed investment is not found to be related linearly to marginal or average tobin s q the theoretical background is extended here by developing a supply side model where the depreciation rate of private capital is determined endogenously the firm can either invest in new capital which adds directly to the existing capital stock at the presence of convex adjustment costs or extend the durability of installed capital through maintenance expenditure which affects its depreciation rate the model shows that tobin s q is then a positively related sufficient statistic for both components of aggregate capital expenditures this central implication is tested empirically using aggregate time series survey data from canada on new investment and maintenance expenditures covering the period 1956 93 the estimated relationships produce significant and plausible parameter estimates for the structural parameters of the q model le texte examine la litterature empirique sur l investissement qui a etabli que le niveau d investissement agrege des entreprises en capital fixe n est pas relie de facon lineaire au coefficient moyen ou marginal q de tobin on enrichit l arriere plan theorique en developpant un modele d offre dans lequel le taux de depreciation du capital prive est determine de facon endogene l entreprise peut soit investir dans du capital nouveau ce qui ajoute directement au stock de capital existant soit allonger la vie du capital en place par des depenses de maintenance qui modifient le taux de depreciation le modele montre que le coefficient q de tobin est alors positivement relie aux deux composantes des depenses agregees en capital cette implication importante est mise au test empiriquement en utilisant les series chronologiques en provenance des enquetes de statistiques canada sur les nouveaux investissements et les depenses de maintenance pour la periode 1956 93 les relations estimees produisent des parametres plausibles et significatifs pour les parametres structurels du modele q

convergence capital accumulation and the nominal exchange rate this paper develops a exible price two sector growth model with a nominal side in order to study the role of the exchange rate regime in transition dynamics capital and nancial wealth accumulation we adopt a standard model of a small open economy with traded and nontraded goods and enrich its structure with costly investment and a preference for real money holdings we show analytically that i the choice of the exchange rate regime in uences the transition dynamics of a small open economy ii a one sector model does not adequately capture the channels through which the nominal side interacts with real variables

government policies market imperfections and foreign direct investment the internalization eclectic theory of foreign direct investment includes the important insight that government policies create market imperfections which make foreign direct investment an economically rational strategic alternative for firms this paper reexamines the effects of government policies on market imperfections and foreign direct investment fdi it broadens and refines the analysis of the impact of government policies by developing the following arguments 1 there is a wide range of government policies that affect firms fdi decisions via their effects on market imperfections 2 there are numerous dimensions of variability in government policies that need to be identified in order to understand fully the effects of government policies on market imperfections and hence fdi flows 3 some of the effects of government policies on market imperfections and fdi are the opposite of those previously noted in the fdi literature 4 the effects of government policies vary across the several individual components of fdi flows the paper thus examines the following variables and relationships more extensively and precisely than has the previous literature government policy variables as causal factors affecting fdi market imperfection variables as intervening factors in the causal connections between government policies and fdi and the multiple indicators of the various dimensions of fdi as dependent variables

tfp growth in british and german manufacturing 1950 1996 the paper considers the accuracy of traditional tfp growth estimates using an econometric methodology which takes account of scale economies fixed factors of production and adjustment costs to reveal underlying pure technological change the results suggest that these biases vary substantially over time but do not impact heavily on anglo german comparisons in both countries the early post war years are a period when adjustment costs from a rising supply price of capital goods hold down tfp growth below that which could have accrued from pure technological progress as might be expected this problem largely disappeared in the later globalization period

alternative quota and ver allocation schemes a welfare comparison the authors employ a three country equilibrium framework to compare the welfare effects of alternative methods of allocating import quotas or voluntary export restraints among sources of supply they compare a scheme of allocating the quota or the voluntary expor t restraint in proportion to the preexisting free trade market shares with a tariff equivalent quota or voluntary export restraint allocat ion a complete welfare ranking of alternative allocation schemes for eac h of the three countries is obtained copyright 1992 by the london school of economics and political science

protectionist policies as the regulation of international industry the political feasibility of protectionist policies that regulate international industry derives from the absence of overt collusion among domestic import competing producers the regulation of international industry cannot be explicit since governments would thereby be perceived to be approving or instigating international collusion hence voluntary export restraints have been popularly presented with a focus on the difficulties confronted by domestic import competing producers and a de emphasis on the mutual gains to domestic and foreign producers from monitoring by a foreign government of a restrictive export cartel arrangement similarly trigger price mechanisms have popularly been explained in terms of the need for anti dumping measures to preserve fair competition likewise the involuntary export tax derived in the first instance from an administratively validated but as demonstrated by kalt s econometric analysis contentious complaint of unfair foreign competition voluntary export restraints trigger price mechanisms and involuntary export taxes are however protectionist devices the beneficiaries of which can transcend national jurisdictions and which have in common the characteristic that the gains to domestic industry interests derive from the regulation of foreign competitors

on pareto improving voluntary export restraints abstract this paper develops the argument that binding voluntary export restraints vers may raise the profits of all firms and the welfare of all trading partners this possibility is shown to arise in a model of cournot oligopoly and is consistent with the theory of the second best vers benefit unconstrained firms if the favorable effect due to the increase in domestic import price outweighs the adverse effect due to a loss in market share then vers will also benefit constrained firms vers will improve the importing country s welfare if they raise the profits of domestic firms more than they reduce domestic consumer surplus the paper synthesizes these findings and derives conditions for vers to be pareto improving

quota induced cycles we present a new framework to compare the dynamic effect of tariffs and quotas in the presence of oligopoly suppose that the domestic and the foreign firm play a quantity setting game over time in a perfectly stationary economy a markov perfect equilibrium has the foreign firm exporting at the constant rate under a tariff in contrast under the quota the rate of exports changes monotonically over the course of each year causing seasonal fluctuations in domestic production quota induced cycles can make dynamic market segmentation possible and raise profits for both the firms above what they earn under the equal import tariff

domestic politics foreign interests and international trade policy reply this paper incorporates the foreign interest in the determination of a country s international trade policy into a model of political competition between candidates contesting elective office we envisage foreign and domestic producer interests as expressing political support for a candidate via campaign contributions and candidates as making trade policy pronouncements to maximize political support from producer interests tariffs are divisive but vers are consistent with conciliatory policy positions yielding mutual gain to foreign and domestic interests no candidate has an interest in formulating a trade policy position using a tariff if a ver is a policy option protection in the developed countries has in recent years often taken the form of bilaterally negotiated voluntary export restraints vers rather than the more traditional unilaterally imposed import restrictions the use of voluntary export restraints has been paralleled by interest in the theoretical literature the effects of vers have been compared with tariffs and quotas and vers have been examined in a political economy framework with a view to identifying the gainers and losers from this form of restric

quantifying uk capital adjustment costs this paper estimates uk capital adjustment costs using manufacturing and service industry data for 19702000 there is evidence of significant adjustment costs with a 1 increase in investment reducing value added by 0 05 this implies an elasticity of investment with respect to tobin s q of 2 5 and a convergence time for capital of 12 years the results suggest that adjustment costs may have caused half of the slowdown in uk total factor productivity tfp growth during the second half of the 1990s the impact is larger than that reported for the united states reflecting larger adjustment costs and higher investment growth

quantitative restrictions and tariffs with endogenous firm behavior abstract this paper considers a foreign oligopoly which dominates an importing country s market with its exports of differentiated products it constructs a model where firm behavior is endogenously determined in an infinitely repeated game and it analyzes the impact of trade policies on market conduct and welfare optimal tariffs optimal quotas and optimal tariff quotas are characterized and compared one result is that quotas can enhance competition and increase welfare another result is that quotas can be superior to tariffs finally optimal tariff quotas are welfare superior to either tariffs or quotas alone

extent and intensity of investment with multiple capital goods overall investment is the product of the number of capital goods for which triggering has occurred the extensive or reductive margin and the depth of investment per capital good intensive margin based on a longitudinal plant level data and using dynamic panel techniques we investigated the validity of the hypothesis that the intensity of investment increases as its extent increases our results indicate a strong linkage between the extent and intensity of investment decisions finding which holds both for positive and negative investment decisions this linkage suggests that the decision on how many capital types to initiate investment is closely connected to the decision regarding the depth of investment expenditures moreover the intensity extent derivative remains positive but its magnitude decreases with plant size providing indirect evidence for higher complementarity between capital types for smaller plants

trade restrictions as facilitating practices abstract the effect of quantitative restrictions in oligopolistic markets is shown to depend on whether imports are substitutes or complements for domestic products in the former case they have profound effects even when set at free trade levels because they impede the ability of the foreign firm to compete in the domestic market thereby acting to facilitate collusion and raise prices and profits for this reason tariffs and quotas are fundamentally non equivalent with substitute goods when goods are complements a voluntary export restriction ver at the free trade level has no effect and tariffs and quotas are equivalent

on the dynamics of trade reform abstract empirical studies of trade reforms suggest that these reforms have a surprisingly small impact on a country s industrial configuration this industrial structure inertia is difficult to rationalize in standard trade models this paper develops a two sector industry dynamics model in which industrial composition inertia arises naturally the model is then used to study the consequences of different types of trade reforms e g permanent temporary gradual pre announced on investment employment composition and income distribution

vers and expectations extensions and evidence this paper analyses the effects of an expected future voluntary export restraint on the level of firms current exports to a market the traditional result that current exports increase is shown to depend on the degree of collusion in the exporting industry and the anticipated restrictiveness of the ver the former relationship is tested by reference to the effect of ec import surveillance on its imports surveillance is argued to indicate an increased probability of a ver in the future and it is found that while competitive industries respond to it by increasing exports to the ec less competitive ones curtail exports this constitutes one of the few empirical tests of the strategic part of strategic trade policy

ec members fighting about surplus vers fdi and japanese cars the distribution of consumer and producer surplus among ec members of three different trade regimes free trade a voluntary export restraint ver and a ver in conjunction with foreign direct inv

strategic second sourcing by multinationals multinationals often serve foreign markets by exporting as well as by investing directly in foreign production facilities we argue that if the multinational competes in an oligopolistic market characterized by strategic complements then there are strategic reasons to use two production facilities committing to a second source allows the firm to keep average cost low while increasing its marginal cost the increase in marginal cost softens product market competition resulting in higher profits we argue that this theory also has implications for the make or buy literature in production management and the literature on second sourcing in industrial organization

von stackelberg and cournot duopoly choosing roles under what circumstances will firms agree on the choice of roles of leader and follower in the von stackelberg duopoly model a key determinant is the slope of the firms reaction function in either price or quantity space the duopolists will disagree over the choice of roles if they have downward sloping reaction functions each will prefer to be the leader they will also disagree if they have upward sloping reaction functions and similar profit functions each will prefer that the other be the leader preferences between von stackelberg and cournot outcomes are also considered

testing uncertainty s effect in real options with multiple capital goods the irreversible investment theory with heterogeneous capital predicts a negative relationship between uncertainty and the investment extensive margin we empirically explore this prediction using plant level data for investment across multiple fixed assets and employ a discrete ordered choice model our results indicate that uncertainty even after controlling for financial constraints induces a negative effect on the extensive margin thereby decreasing the likelihood of investment triggering in more types of capital this effect takes the form of both a higher probability of investment inactivity but also a lower probability of investment triggering in a higher number of capital types

structural identification of high and low investment regimes abstract we propose a structural model to investigate the existence and possible differences between low and high regimes of investment expenditures in equipment at the firm level the existence of such differences is predicted by recent theoretical studies of investment behavior stressing the role of asymmetries and non convexities in the adjustment cost technology the structural spike model is estimated for a balanced panel of dutch firms operating in 13 different industrial sectors the flexibility of the structural approach explains why the proposed method outperforms models applying ad hoc spike definitions often encountered in the empirical literature of lumpy investments

refinements on macroeconomic modeling the role of non separability and heterogeneous labor supply abstract this paper proposes a dynamic stochastic general equilibrium model characterized by heterogenous labor schedules and non separability between consumption and labor in the utility function the model successfully describes output consumption investment and interest rates after a monetary expansion the proposed formulation improves on standard models by using preferences favored by the data and by requiring investment adjustment costs and habit formation parameters more in line with the micro based evidence

post injury work outcomes revisited we use data for ontario workers with permanent impairments resulting from work related injuries to investigate the complex relationships among post injury work outcomes wages accommodations returning to the same or different employer and duration of work absence we argue the different aspects of post injury work experience may be jointly determined making post injury job characteristics endogenous in a duration model to explore the endogeneity issues we instrument post injury job variables from first stage equations and compare results from this informed model to a naive model that treats the variables as exogenous we find that returning to one s pre injury employer is associated with more favorable post injury work outcomes including higher wages greater likelihood of job accommodations and shorter durations of work absence relative to workers who change employers we also find substantial differences between the naive and informed models with accommodations having the predicted negative effect on duration only after we control for endogeneity

windfall profits and vertical relationships who gained in the japanese auto industry from vers this paper employs an event study to analyze the effect of the 1981 voluntary export restraint agreements on profits in the japanese automobile industry stock price movements of seven japanese automakers and sixty nine of their suppliers are examined the results indicate that the profits of japan s producers of passenger cars rose as a result of the voluntary export restraints while only some suppliers large ones and those producing specialized parts or services appear to have shared the benefits voluntary export restraints increased profits for some firms in the japanese auto industry but many suppliers did not share the windfall copyright 1993 by blackwell publishing ltd

research and development voluntary export restriction and tariffs abstract the effect of trade policy on domestic research development r d in oligopolistic markets is shown to depend on the nature of policy instruments tariffs or non tariff barriers when the r d investment has uncertain consequences on marginal cost a voluntary export restriction ver decreases innovation by the domestic firm as compared to the free trade level this result holds both under cournot and bertrand competition a tariff increases r d investment it is a new rationale for southern firms to prefer ver as a policy instrument besides the well known argument that it facilitates collusion

import now an analysis of market share voluntary import expansions vies abstract proponents claim that voluntary import expansions vies increase foreign access to a domestic market while increasing competition and reducing prices using a bertrand model i show that a vie produces exactly the opposite results a vie that increases the market share of imports above the prevailing level results in higher prices in the domestic market this result holds even when the domestic market is assumed to be protected by a tariff type barrier prior to the imposition of a vie a vie and an equivalent import subsidy are shown to have opposite effects on prices

voluntary export restraints as protection policy the u s beef case there are several well known implications of international trade theory which are relevant to our study with a tariff an importing country s welfare can improve only if the excess supply curve is upward sloping under the large country assumption bhagwati has shown that a quota used by an importer can be equivalent to a tariff and mintz has contrasted features of tariffs quotas and vers empirical work has focused largely on the effects of tariffs and equivalent quotas generally exporting countries lose from such trade barriers in contrast we find that exporting countries gain and importing countries lose with a ver we also contrast the gains and losses of vers in the case of frozen boneless beef to an optimal tariff and optimal export tax the theoretical implications of vers for beef exporters were first recognized by freebairn and gruen

the ambiguous consequences of anti dumping laws the anti dumping law is most often applied in oligopolistic industries while most analyses focus on the monopoly model i analyze a duopoly model where a foreign firm engages in price based dumping under cournot behavior the anti dumping law has ambiguous price and welfare effects when the home firm is a stackleberg leader two disquieting effects emerge first the home firm can use the anti dumping law to curtail competition even when the foreign firm does not initially engage in dumping second the anti dumping law can increase profits of both firms at the expense of domestic consumers

investment in greek manufacturing under irreversibility and uncertainty the message in used capital expenditures this article contributes to the existing literature by showing that uncertainty produces a nonuniform impact to the extent that different types of capital goods exhibit heterogeneous irreversibility which we define as asset specific irreversibility hence asset specific irreversibility is responsible for asymmetries in responses across types of capital goods to uncertainty we also show that for a given type of capital good uncertainty produces a variety of responses across sectors which we define sector specific irreversibility in other words sectoral differences in terms of the ability to substitute a given type of capital with labour introduce a second order effect of uncertainty on investment

the closed loop motive for voluntary export restraints this paper examines the effects of voluntary export restraints in a dynamic game model of duopolistic competition it is shown that the imposition of a voluntary export restraint at the free trade level of imports increases the market price and the profits of all firms in the industry if free trade is identified as the closed loop subgame perfect cournot equilibrium of the game hence the authors conclude that the predictions of static cournot competition do not carry over to the dynamic case

anti dumping and countervailing duties under oligopoly abstract this paper constructs a conjectural variations model of international oligopoly in which the home country s optimal policy responses to the foreign government s subsidies and foreign firms dumping can be calculated some theoretical support is found for tariffs that countervail part of the foreign export subsidy the optimal fraction depends on the size of own and cross effects in demand and on the extent of market competition however no normative case is found for anti dumping duties

imperfect credibility and inflation persistence in this paper we formulate a dynamic general equilibrium model with staggered nominal contracts in which households and rms use optimal ltering to disentangle persistent and transitory shifts in the monetary policy rule the calibrated model accounts quite well for the dynamics of output and insation during the volcker disinsation and implies a sacri ce ratio very close to the estimated value our approach indicates that insation persistence and substantial costs of disinsation can be generated in an optimizing agent framework without relaxing the assumption of rational expectations or relying on arbitrary modi cations to the aggregate supply relation jel classi cation e31 e32 e52

growth effects of shifting from a graduated rate tax system to a flat tax i introduction recently the debate concerning fundamental u s tax reform has led to a number of proposals that involve a shift toward a consumption based system 1 one such proposal is the so called flat tax of hall and rabushka 1995 the flat tax would apply a single tax rate to all labor income above a given threshold and to all capital income after fully expensing investment expenditures hall and rabushka 1995 argue that the adoption of their proposal would provide an enormous boost to the u s economy by dramatically improving incentives to engage in productive activities and would save taxpayers hundreds of billions of dollars in compliance and administration costs 2 in this article we develop a quantitative general equilibrium model to assess the growth effects of adopting a flat tax plan similar to the one proposed by hall and rabushka 1995 the model captures many of the features of the current u s tax code such as graduated personal tax rates a standard personal deduction separate tax rates applied to personal and business income double taxation of business income and differential tax treatment of physical and human capital under appropriate parameter settings the model can exhibit either endogenous or exogenous long run growth our choice of functional forms facilitates a closed form solution to the model this allows us to characterize explicitly the economy s transition path following the reform a central issue in the debate over fundamental tax reform is the effect that such a reform would have on economic growth the present analysis builds on the work of stokey and rebelo 1995 who use an endogenous growth framework to identify the key model features and parameters that are important for determining the quantitative impacts of distortionary taxes on long run growth 3 our study differs from theirs and the bulk of the dynamic tax literature in one fundamental respect here we evaluate the growth effects of shifting from a graduatedrate tax system to a flat rate system stokey and rebelo 1995 consider only flat rate systems in which the marginal tax rate is equal to the average tax rate we approximate the graduated rate tax system in the u s economy by an empirical tax rate function that allows the personal tax rate to depend positively on household taxable income in equilibrium household decisions are influenced by both the level and slope of the tax schedule to implement the flat tax reform we shift the parameters of the tax rate function to flatten the marginal tax schedule while maintaining revenue neutrality our methodology treats the hall rabushka proposal as one that in effect moves a representative household from one tax rate schedule to another we view this setup as a reasonable approximation to gauge the growth effects of tax reform at the macro level a more elaborate setup would of course allow for household heterogeneity at a given point in time in this regard we note that caucutt et al 2003 have recently examined the growth effects of graduated rate taxes in a two period overlapping generations model that includes both skilled and unskilled agents in their model a flatter tax schedule increases the fraction of skilled agents in the economy the share of total output devoted to education rises accordingly and the economy s long run growth rate is observed to increase the quantitative implications of their model are difficult to compare to ours however because their two period framework implies a very long time horizon between household decisions about 30 years moreover their model abstracts from many of the features of the u s tax code that we include here in addition to examining the consequences of flattening the marginal tax schedule we investigate the growth effects attributable to other parts of the flat tax proposal such as allowing full investment expensing eliminating the double taxation of business income and increasing the standard personal deduction

compositional standards import permits and market structure the case of canadian cheese imports the imposition of cheese compositional standards by the canadian authorities has created divisions within the canadian dairy industry and has motivated criticisms from several of canada s trade partners the standards impose minimum limits on the percentage of casein coming from fluid milk we develop a theoretical model to investigate the implications of canada s compositional cheese standards while accounting for canada s trade policy we illustrate why a type of cheese that is not directly impacted by the standards might be the most affected we show that the standards can decrease the domestic demand for milk or the value of imports our empirical investigation identified breaks in the processes determining import unit values shortly before or shortly after the beginning of the implementation of the standards

international competitiveness and industry pricing in canadian manufacturing this paper examines the effect of the international competitiveness of home producers on their pricing evidence based on the 1970 75 period supports the claim that in the canadian manufacturing sector domestic prices are set in accordance with a mixture of two pricing hypotheses the eastman stykolt pricing hypothesis esph and the monopolistic pricing hypothesis mph however in the 1975 80 period when their competitiveness increased prices were set solely according to the mph for the purposes of assessing the impact of free trade this paper shows the circumstances under which each or a mixture of these pricing hypotheses employed in the harris cox model on the gains from freer trade would be appropriate

nonlinear response of firm investment to q abstract abel and eberly 1994 study optimal investment behavior in the presence of flow fixed costs proportional costs and convex costs a clear prediction is that investment will alternate between regimes of insensitivity and responsiveness to q separated by unknown threshold levels of q at the firm level we find evidence for different regimes of sensitivity to q but not for a regime of zero sensitivity our finding that investment has a nonlinear relationship to q is important because it implies an elasticity of aggregate investment to q and fundamentals that is high and variable over time

zeros and lumps in investment empirical evidence on irreversibilities and nonconvexities the objective of this paper is to investigate if and how capital adjustment departs from the smooth pattern implied by standard model based on convex adjustment costs using norwegian micro data we start by documenting the intermittent and lumpy nature of investment rates we then present two pieces of econometric evidence on these issues first we estimate a discrete hazard model to determine the probability of having an episode of high investment conditional on the length of the interval from the last high investment episode second we estimate a switching regression model that allows for the response of the investment rate to fundamentals to differ across regimes in both cases we investigate the aggregate implications of our results

oligopoly and welfare a unified presentation with applications to trade and development abstract we develop a unified sequence of models to examine the determinants of price output profitability and concentration for different kinds of oligopolistic market we relate various magnitudes of significance to judges of welfare and to policy makers such as consumer surplus profit or added benefits of employment or trade surplus to observable magnitudes such as the size and concentration of the market it emerges that various appropriately formulated herfindahl indices are useful in several of these relations we attempt to present results in a way that is useful for empirical investigations and pay particular attention to applications in trade and development

costly distribution and the non equivalence of tariffs and quotas when governments impose a quota or tariff on imports it is well known that the resulting rents and revenues trigger costly rent seeking and revenue seeking activities which are welfare reducing and may be economically more significant than the efficiency losses resulting from the protectionist induced resource misallocation repeated interaction among firms can eliminate wasteful rent and revenue seeking expenditures through cooperation we show that while aggregate outcomes are equivalent under tariffs and quotas if cooperation arises the conditions under which cooperation arises differ by policy this difference arises because a firm must incur additional cost to physically import and distribute the goods associated with additional quota licenses whereas there is no such cost when it comes to consuming additional tariff revenue thus quotas and tariffs are non equivalent we provide a simple sufficient condition under which cooperative elimination of rent seeking under quotas is easier than cooperative elimination of revenue seeking under tariffs and therefore a quota is the preferred policy whenever the policy admits cooperation

nontariff trade controls and leader follower relations in international competition a simple duopoly model is constructed in which leader follower relations arise as part of a subgame perfect equilibrium in a game of endogenous timing the author shows that in the absence of policy intervention cost asymmetries between firms can help sustain collusive hierarchical organization of markets on the basis of this model he then analyzes the effects of voluntary export restraints and import quotas in the presence of foreign and international duopolies the author s analysis reveals that in contrast to the existing literature these nontariff trade controls can break the stability of leader follower relations and thereby raise an importing country s welfare copyright 1996 by the london school of economics and political science

impact of the 2014 suspension agreement on sugar between the united states and mexico in december 2014 the u s and mexico agreed to a suspension agreement that set a 22 25 cwt import price floor on u s sugar imports from mexico a partial equilibrium trade model was developed to estimate the economic impact the agreement would have had if it had been in effect from 2008 to 2014 in years when the price floor would have been binding on average u s producers would have gained 138 million and mexican producers would have lost 218 million however total mexican welfare would have actually increased by 11 5 million furthermore the average price floor that would have maximized total mexican welfare over that period is 22 76 cwt also under certain supply and demand elasticity conditions the average price floor that would have maximized joint u s and mexican producer welfare over that period is 21 91 cwt the latter two estimates are both close to the actual price floor agreed to in the 2014 suspension agreement

asset pricing with limited risk sharing and heterogeneous agents we develop a model with incomplete markets and heterogeneous agents that generates a large equity premium while simultaneously matching stock market participation and individual asset holdings the high risk premium is driven by incomplete risk sharing among stockholders which results from the combination of aggregate uncertainty borrowing constraints and a realistically calibrated life cycle earnings profile subject to idiosyncratic shocks we show that it is challenging to simultaneously match asset pricing moments and individual portfolio decisions while limited participation has a negligible impact on the risk premium contrary to the results of models where it is imposed exogenously

quantity restrictions and endogenous quality choice abstract in a vertical product differentiation model under cournot competition both foreign and domestic firms respond by lowering their investment in long run quality for a quantity restriction at and in the neighborhood of the free trade import level average quality increases only when the low quality foreign firm faces a substantially restrictive quota voluntary export restraint the change in quality depends on whether the foreign firm is of high or low quality and upon the restrictiveness of the quota the imposition of quantity restrictions has important strategic effects on the long run choice of quality

tariffs quotas and voluntary export restraints with and without internationally mobile capital this paper presents a general framework for comparing the effects of tariffs quotas and vers voluntary export restraints both with and without international capital mobility expressions for the shadow price of foreign exchange and the shadow price of capital under each type of trade restriction are derived and it is shown that although international capital mobility raises the welfare cost of tariff protection it lowers the welfare cost of quantitative restrictions in most cases the effects of exogenous shocks in the presence of quotas are intermediate between those in the presence of tariffs and those in the presence of vers tarifs douaniers contingentements et restrictions volontaires d l exportation quand le capital est ou n est pas mobile internationalement l auteur presente un cadre general d analyse qu il utilise pour comparer les effets de tarifs douaniers de contingentements et de restrictions volontaires a l exportation dans des contextes ofu le capital est ou n est pas mobile internationalement l auteur derive le prix fictif du change etranger et le prix fictif du capital sous l un et l autre types de restrictions au commerce et montre que meme si la mobilite internationale du capital augmente le cofut en terme de bien etre de la protection tarifaire elle reduit le cofut en terme de bien etre des restrictions sur les quantites echangees dans tous les cas les effets de chocs exogenes quand des contingentements existent sont toujours dans la fourchette entre ceux qu on observe quand des tarifs douaniers existent et ceux qui prevalent quand des restrictions volontaires i l exportation existent

more on the non equivalence of voluntary export restraints abstract this note demonstrates that vers limiting exporters to a percentage of the domestic market are not equivalent to other trade restrictions and that they can be inferior to equivalent import quotas even when the quota rents accrue to foreign exporters

voluntary export restraints and strategic technology transfers abstract this paper investigates the effects of voluntary export restraints vers in the presence of potential entrants and technology transfers it builds a model of a licensing game in a cournot oligopoly market and examines conditions under which vers induce restrained foreign firms to transfer technologies to potential suppliers i show that a ver can decrease the profit and output of the domestic incumbent by perturbing the no licensing equilibrium reached under free trade and inducing the market to move to a licensing equilibrium

a welfare comparison between vers and tariffs under the gatt economic theory suggests that tariffs are welfare superior to voluntary export re straints vers in the presence of perfect competition however with imperfectly competitive markets some authors have found that vers may be welfare superior to tariffs we reconsider the comparison between a ver and a tariff in the context of gatt based constraints using a model of perfect competition we show that a ver can welfare dominate a tariff increase that is accompanied by a compensatory reduction in the tariff on another good or if the tariff is matched with a retaliatory tariff on domestic exports une comparaison des effets de bien e tre des restrictions volontaires a 1 exportation et des tarifs douaniers dans le cadre du regime du gatt la theorie economique suggere que

combining rent seeking and public choice theory in the analysis of tariffs versus quotas economists continuing criticisms of protectionism make a valuable contribution to the general interest element of the forces which operate to keep propensities to protect somewhat in check mckenzie rightly warns however that proposals by economists for giving protection in more efficient forms run the danger of increasing the total supply of protection thus we agree that serious consideration should be given to the political economy responses which may be induced before one advocates ways of doing more efficiently what one believes should not be done in the first place it does not follow however that all such policies will have net negative unanticipated consequences in the case of tariffs versus quotas we do not believe that we have yet sufficient knowledge of all of the relevant political economy considerations to predict about the full effects of legislation which allowed trade protection to only take the form of tariffs we are doubtful however that such a measure would increase the total quantity of protection through the channels outlined by mckenzie we believe that the same type of basic public choice analysis of the individual incentives to lobby which suggests that consumer taxpayers will not force the political process to operate so as to maximize aggregate economic efficiency with respect to the level of protection also suggests that the net lobbying for quotas is likely to be higher on average than the net lobbying for tariffs political effectiveness and ability to overcome free riding on the part of tariff revenue seekers is likely to be low at the margin furthermore issues of visibility and institutional structure are likely to lessen the ability of anti protection forces to lobby against quotas placed within a broader framework public choice and rent seeking theory is consistent with the empirical evidence that where quotas are used protection is high

optimal investment with lumpy costs abstract in this paper we analyze a continuous time model of investment with uncertainty irreversibility and a broad class of lumpy adjustment costs we show that the two components of the optimal investment strategy the investment trigger and the investment increment can be found sequentially and that the optimal investment increment maximizes a closed form function solving the model numerically we find that adding a relatively small amount of variable adjustment costs often leads firms to invest in much smaller increments we derive a measure of user cost that incorporates lumpy investment and use it to show that as firms invest in bigger increments the investment trigger increases as well

work disincentives of workers compensation permanent partial disability benefits evidence for canada this paper examines the impact of workers compensation benefits and expected labour market earnings on the post injury employment status of permanently injured workers permanent partial disability benefits in ontario at the time the data were collected were not related to post injury labour market earnings and can therefore be characterized as having a pure income effect on post injury employment behaviour the estimation results indicate an elasticity of post injury employment to workers compensation permanent disability ben efits of 0 15 evaluated for the mean worker the elasticity of post injury employment to expected post injury labour market earnings is about 0 94 per cent les desincitations au travail des prestations d indemnisation permanente des travailleurs pour incapacite partielle ce memoire examine l impact des prestations d indemnisation des travailleurs et des gains anticipes sur le marche du travail sur le statut d emploi des travailleurs incapacites de maniere permanente les prestations permanentes pour compenser une incapacite partielle n etaient pas reliees aux gains apres l accident en ontario au moment out les donnees ont ete recueillies on peut donc parler d un effet de revenu pur sur le comportement de travail apres l accident les resultats montrent que pour le travailleur moyen l elasticite de l emploi apres l accident par rapport a la prestation d incapacite est de 0 15 d autre part l elasticite de 1 emploi apres l accident par rapport aux gains anticipes sur le marche du travail apres l accident est a peu pres 0 94 pour cent

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

the cost of business cycles under endogenous growth robert e lucas jr argued that the welfare gains from reducing aggregate consumption volatility are negligible subsequent work that revisited his calculation continued to find small welfare benefits further reinforcing the perception that business cycles do not matter this paper argues instead that fluctuations can affect welfare by affecting the growth rate of consumption i show that fluctuations can reduce growth starting from a given initial consumption which can imply substantial welfare effects as lucas himself observed empirical evidence suggests the welfare effects are likely to be substantial about two orders of magnitude greater than lucas original estimates

cleaning up while cleaning up pollution abatement interest groups and contingent trade policies this paper analyzes the political economy of environmental policy formation in a trading economy with established rules for administered protection we argue that the social costs associated with the adoption of an inefficient environmental regime are likely to be compounded by induced restrictions on trade when the effected industries are import competing the preferences of interest groups for alternative environmental regimes tend to be linked to the legal institutional setting in which trade policy is conducted under existing rules and practices in the area of administered protection there is reason to believe that interest group preferences for an inefficient approach to pollution control will be strengthened because the adoption of such a regime is more likely to lead to a concomitant increase in trade barriers

voluntary export restraints profits and quality adjustment this paper develops a model of vertical differentiation to assess the impact of output constraints on the profits and quality choices of firms subject to them a competitive environment is developed with the automobile industry in mind multiproduct oligopolists producing differentiated goods who behave as coumot competitors the results show that an output constraint will not induce constrained firms to upgrade their product line when their unconstrained competitors produce higher quality models it is also shown that an output constraint can raise the profits of constrained firms despite output increases by unconstrained firms