Job Market Paper
Quantifying the gains from international trade is an area of research that has been widely studied using a variety of trade models. At the same time, it has been shown that non-homotheticities are useful for matching the systematic patterns of trade present in disaggregated trade data. We bring these two literatures together to ask how non-homotheticities affect our predictions for gains from trade. To do so, we develop a N-country trade model that exactly matches bilateral trade, population, GDP per capita and within country income inequality for many countries. We include non-homotheticities to match patterns of trade between rich and poor countries that we observe in highly disaggregated trade data. We then make use of the results from Arkolakis, Costinot, and Rodriguez-Clare (2012), which gives a simple formula for gains from trade in a large class of homothetic models, including a version of our model with the non-homotheticity removed. Our main finding is that homothetic models overestimate gains from trade in countries with small populations and low productivities, and underestimate gains in countries with large populations and high productivities. The homothetic model overestimates the gains from being open to trade in the U.S. and Japan by 14% and 22%, and underestimates them in Spain and Italy by 24% and 14%.
∙ Policy Distortions and Aggregate Productivity: The Role of Idiosyncratic Shocks (with J.M. Da-Rocha), The B.E. Journal of Macroeconomics: Vol. 11: Iss. 1 (Topics), Article 35, 2011
We consider policy distortions in a model where plants face idiosyncratic productivity shocks that evolve following a Brownian motion. Introducing idiosyncratic shocks into the model implies that plants have non-constant operating profits and as a result there is an endogenous exit margin and incumbent plants must decide in each period whether or not to remain in the industry. By using the forward Kolmogorov equation, we analytically characterize the Stationary Equilibrium. Our main contribution is to show that if a model is being calibrated/estimated without idiosyncratic shocks, where plants face constant productivity over time and the exit rate is exogenous to fit data generated from a model with shocks and endogenous entry, TFP distortions will be overestimated.
∙ Resources Rent Collection and Tradable Permit Programs: Market Efficiency and Firm Dynamics (with J.M. Da-Rocha)
We develop a general equilibrium model of fi rm dynamics in a regulated natural resource industry where the total production is given by the authority and in which there is a system of Individual Transferable Quotas. Although there is uncertainty regarding productivity at fi rm level, we are able to develop a highly tractable model. Then, we introduce taxes on output trading permits to show that these taxes are distortionary, opposed to previous results in the literature, and there is no simple mechanism to offset this distortion. We then show how taxes on profi ts are also distortionary, but with the appropriate policy on redeemable investment, an efficiency-neutral system of rent collection can be implemented in such industry.
∙ Vessel Dynamics, ITQ’s and Endogenous Fleet Distributions (with J.M. Da-Rocha and J. Touza)
Working Document for STECF- EWG1107. Hamburg, June 2011. Submitted
There is a large consensus on the fact that property rights regimes improve fisheries profitability. Although empirical literature tries to identify these improvements by estimating efficiency gains and cost reductions it was found that profitability rises after the introduction of ITQs due to a raise in price of species subject to quota. We use option theory for estimating the economic benefits of adopting a property right-based in a restricted access multi species fishery. Our paper shows that property right regimes can induce large improvements in fisheries profitability by raising prices. We build an analytically tractable fleet distribution model in which vessels value per unit evolves according to a standard Brownian motion. An analytical solution for the vessels stationary distribution is obtained by using the Kolmogorov forward equation subject to the boundary conditions determined by the optimal exit/entry decision. Constraints on the maximum number of days affect operating profits and vessel entry and delay-exit decisions. Therefore, we show that when fleet distribution is endogenous, property institutions have a big selection effect: fishermen with the skills for fishing more valuable fish will be selected and observed profitability will rise.
∙ Private Decisions to Enforce Property Rights and Endogenous Productivity (with J.M. Da-Rocha and J. Sempere)
We characterize the stationary competitive equilibrium in a model in which private decisions have to be made to define effective property rights on land. We show that there is an interior competitive equilibrium in which there will be some agents producing in free access lands and others in private property land. This equilibrium is inefficient because too few polots of land are enclosed.
Work in progress
∙ Growth-Led Exports (with W. Brooks)