December 2009
Rui Ota (
"Dynamic Pricing in Declining Demand: A Case of Duopoly"
Review of Development Economics
<rui.ota@cku.ac.jp>
The purpose of this study is to investigate
what theory predicts about price dynamics when firms face a decline in demand
for their product due to an arrival of a new substitutable product. To this end,
this paper constructs a dynamic duopoly model and simulates price paths. The
study demonstrates that the price path is non-monotonic and could be divided
into three stages. The basic mechanism of generating the path is a trade-off
between two counteracting motives to set the price: pricing lower to delay the adoption
of the new product, and pricing higher to exploit price-insensitive consumers.
Tsutomu Harada (
“The division
of labor in innovation between general purpose technology and special purpose
technology”
Journal of Evolutionary
Economics
<tharada@people.kobe-u.ac.jp>
This paper constructs an endogenous growth model that
identifies three patterns in the division of labor in terms of innovation
between GPT and SPT sectors: (1) the SPT stage, (2) the GPT-SPT joint-research
stage, and (3) the autonomous GPT stage. It is shown that the emergence of GPT
only has a temporary level effect, and a negative effect on economic growth.
However, the new phenomenon of the autonomous GPT stage has a positive
influence on both growth and level effects. This result theoretically explains
the emergence and resolution of the IT productivity paradox.
November 2009
Kenji Fujiwara (
“Welfare Effects of Reducing Home-Bias in Government Procurements: A Dynamic
Contest Model”
Review of Development Economics
<kenjifujiwara@kwansei.ac.jp>
<ngo.long@mcgill.ca>
This paper models an
international contest for government procurement as a dynamic game between a
domestic firm and a foreign firm. We show that trade liberalization, in the
form of a reduction in bias against the foreign firm, improves both domestic
and global welfare if (i) either the foreign firm's
profit is sufficiently large or (ii) the initial degree of home bias is
sufficiently small. If the initial home bias is large, a small reduction in the
bias may reduce welfare.
Kenji Fujiwara (
“Losses from competition in a dynamic game model of a renewable resource
oligopoly”
Resource and Energy
Economics
<kenjifujiwara@kwansei.ac.jp>
This paper develops a
dynamic game model of an asymmetric oligopoly with a renewable resource to
reconsider welfare effects of increases in the number of firms. We show that
increasing not only the number of inefficient firms but also that of efficient
firms reduces welfare, which sharply contrasts to a static outcome. It is
discussed that the closed-loop property of feedback strategies plays a decisive
role in this finding.
Kenji Fujiwara (
“Network externalities, transport costs and tariffs”
Journal of International
Trade and Economic Development
<kenjifujiwara@kwansei.ac.jp>
This paper formulates a reciprocal market model of
international duopoly with network externalities to reconsider welfare effects
of reductions in transport costs and tariffs. Depending on the magnitude of
network externalities, we show two possibilities. One of them, which emerges under strong network externalities, illustrates that
freer trade unambiguously improves welfare for any initial level of trade barriers.
This finding provides an affirmative evaluation of freer trade.
October 2009
Makoto Okamura (Hiroshima University), Tatsuhiko
Nariu (Kyoto University), and Takeshi Ikeda (Kobe
International University)
"Direct sale or Indirect sale? Effects of
shareholding"
Manchester School
<ikeda@kobe-kiu.ac.jp>
This paper studies a vertical structure in which a manufacturer holds
stock with its retailer but it allows the retailer to choose the quantity. We
show that in the case when a single wholesale firm operates, it completely owns
its retailing firm in equilibrium and acts as a Stackelberg
leader. We also examine a case where two wholesale firms operate. We observe
that each firm owns its retail firm completely when the direct effect of share
holding dominates the strategic effect among the wholesale and the retail
firms.
Hikari Ban (Kobe Gakuin
University)
“Factor Substitution and Relative Factor Prices”
Review of International
Economics
<ban@eb.kobegakuin.ac.jp>
This paper examines the effects of factor endowments on factor prices in a
three-factor, two-commodity general equilibrium model with endogenous commodity
demand and prices. Unlike the conventional small open economy model that
assumes constant commodity prices, factor substitution influences the direction
of these effects. When a factor endowment increases, complementarity
with the expanding factor benefits an unchanged factor, but substitutability
harms it. If the unchanged factors are complements, there is a possibility of a
rise in the expanding factor’s price. A comparison of this closed economy model
with the small open economy model reveals the role of international trade,
which dampens the effect on the expanding factor’s price.
Ichiroh Daitoh (Tohoku
University)
"Productive Consumption and Population Dynamics in an Endogenous Growth
Model"
Journal of Economic
Dynamics and Control
<idaito@intcul.tohoku.ac.jp>
We find that by endogenizing population growth rate,
a growth model under the productive consumption hypothesis is more tractable
than has been considered and has interesting implications for population
dynamics. In the zero-saving phase, multiple saddle point stable steady states
may exist, and the population growth rate may rise or decline along a
transition path. In the positive-saving phase, such a steady state may exist
uniquely, and the population growth rate may decline. With the phase switching,
the population growth rate may exhibit an inverted U-shaped curve. Human
development aid may help an economy escaping from an underdevelopment trap.
September 2009
Akihiko Yanase (Tohoku University)
"Global Pollution, Dynamic and Strategic Policy Interactions, and
Long-run Effects of Trade"
The International Economy
<yanase@intcul.tohoku.ac.jp>
This paper examines the effects of international
trade in a model with global pollution that accumulates over time because of
production emissions in each country. If countries cooperatively determine the
national environmental policies, the long-run stock of global pollution under
trade may or may not be higher than that under autarky, depending on abatement
technologies and trade costs. If environmental policies are determined noncooperatively, there may be multiple equilibria.
This means that the long-run effect of trade on the global environment may be
indeterminate because it depends on, in addition to trade costs and abatement
technologies, the actually implemented policy. The welfare consequences of
trade are also discussed.
Yushi Yoshida (Kyushu Sangyo University) , Nuno Carlos Leitão (ESGS,
Polytechnic Institute of Santarem) and Horácio C. Faustino (ISEG, Technical University of Lisbon)
"Vertical Intra-Industry Trade and Foreign Direct Investment between Japan
and European Countries "
Atlantic Economic
Journal
<yushi@ip.kyusan-u.ac.jp>
In this paper, we provide an overview of the development of vertical
intra-industry trade (VIIT) between Japan and various European countries,
including both old and new EU members, as well as emerging Central and Eastern
European countries. VIIT indices constructed in this paper cover a much wider
range of margins of unit price ratio than existing studies. Our empirical model
attempts to explain the distributional characteristics of VIIT through foreign
direct investments (FDI), in addition to traditional determinants of IIT, such
as differences in GDP per capita, average GDP, and smaller and larger GDPs. Our
sample covers the period from 1988 to 2004 for bilateral trade between Japan
and 31 European countries. Our econometric methodology for these panel data
uses fixed-effect model estimation with a variable transformation determined by
a Box-Cox approach. We find that intra-industry trade between European
countries and Japan increases with their corresponding Japanese FDIs, especially for new EU member countries. Our results
also indicate that it is important to measure a wider range of quality based on
relative prices rather than the traditional ratio used in the literature.
Yushi Yoshida (Kyushu Sangyo University)
"New evidence for exchange rate pass-through: Disaggregated trade data
from local ports"
International Review of
Economics & Finance
<yushi@ip.kyusan-u.ac.jp>
For the estimation of exchange rate pass-through (henceforth ERPT), except for
some evidence based on firm-level data, even the most disaggregated level of
national export data is still biased with aggregation over sub-regions within
an exporting country. We investigate to what extent this aggregation within
product category is biased by comparing ERPT estimates across local ports. We use
monthly exports at the HS 9-digit level from January 1988 to December 2005 for
five major Japanese ports. Using a panel data regression framework, we control
for exporting industry and importing country. Statistical tests provide strong
evidence that export prices are set at different levels across local ports and
that they correspond differently with respect to fluctuations of exchange
rates.
Takeshi Ikeda (Kobe International University) and Tsuyoshi Toshimitsu (Kwansei Gakuin University)
"Third-degree Price Discrimination, Quality Choice, and Welfare"
Economics Letters
<ikeda@kobe-kiu.ac.jp>
<ttsutomu@kwansei.ac.jp>
As already shown by Schmalensee (1981) and
others, an increase in total output is a necessary condition for third-degree
price discrimination to improve welfare. Employing an endogenous quality choice
model, we reconsider the effect on welfare of monopolistic third-degree price
discrimination in a vertically differentiated product market. We prove that
price discrimination always enhances welfare if a monopolist endogenously
chooses the quality level of the product, even though total output does not
increase. This is mainly because the quality improvement owing to price
discrimination significantly increases consumer surplus and thus improves welfare.
Moreover, we show that third-degree price discrimination benefits all parties,
including consumers in the higher priced market if the preference differences
between markets are sufficiently large.
August 2009
Kenji Fujiwara (
“Strategic environmental policies and the gains from trade liberalization”
Review of Development
Economics
<kenjifujiwara@kwansei.ac.jp>
The literature on strategic environmental policy has
not fully addressed welfare effects of trade liberalization from autarky. In a
reciprocal market model of duopoly with transboundary
pollution, we study how reductions in transport costs and import tariffs affect
the Nash equilibrium welfare of an environmental policy game as compared to any
initial state including autarky. We show three patterns of gainfulness of trade
depending on the interaction between marginal damage from pollution and the
degree of transboundary pollution.
Kenji Fujiwara (
“Trade liberalization in a differentiated duopoly reconsidered”
Research in Economics
<kenjifujiwara@kwansei.ac.jp>
Constructing a model of differentiated Cournot
duopoly, we consider welfare effects of trade liberalization, i.e., reductions
in transport costs. We examine both multilateral trade,
i.e. the firms in both countries export bilaterally, and unilateral trade under
which foreign entry is possible but the home firm can not export. Some new
results on trade gains under differentiated oligopoly are proved and their
implications are discussed.
Kenji Fujiwara (
“A dynamic reciprocal dumping model of international trade”
Asia-Pacific Journal of
Accounting and Economics
<kenjifujiwara@kwansei.ac.jp>
This paper constructs a
differential game model of reciprocal dumping to reconsider welfare effects of
trade liberalization (tariff reductions). We show that welfare in autarky
exceeds welfare in trade for any tariff level, namely any trade is detrimental.
Comparing our result with a static result, we discuss that the closed-loop
property of feedback strategies in differential games plays a significant role
in our argument.
Tsuyoshi Toshimitsu (Kwansei Gakuin University)
"On the paradoxical case of a consumer-based environmental subsidy
policy"
Economic Modelling
<ttsutomu@kwansei.ac.jp>
We apply an environmentally differentiated duopoly model to the analysis of
environmental policy involving consumer subsidies based on the emission levels
of the products consumers purchase. More specifically, we consider the
environmental and welfare effects of subsidizing consumers who purchase
environmentally friendly goods in the case of a partially covered market with a
Cournot duopoly. We show that, paradoxically, the
subsidy policy degrades the environment, and that the optimal policy depends on
the degree of marginal social valuation of environmental damage. That is, if
the marginal social valuation of environmental damage is larger than a certain
value, a consumer-based environmental subsidy policy is not socially optimal.
Takumi Naito (University
of California, San Diego and Tokyo Institute of Technology)
"Aid, nontraded goods, and growth"
Canadian Journal of
Economics
<tanaito@ucsd.edu>
We examine the effects of foreign aid in a small recipient country with two
traded goods, one nontraded good, and two factors.
Learning by doing and intersectoral knowledge
spillovers contribute to endogenous growth. We obtain two main results. First,
a permanent increase in untied aid raises (or lowers) the growth rate if and
only if the nontraded good is more capital-intensive
(or effective-labor-intensive) than the operating traded good. Second, a
permanent increase in untied aid raises welfare if the nontraded
good is more capital-intensive than the operating traded good; otherwise, it
may raise or lower welfare.
July 2009
Seiya Fujisaki (Osaka
University) and Kazuo Mino (Kyoto University)
“Long-Run Impacts of Inflation Tax in the Presence of Multiple Capital
Goods”
Economics
Bulletin
Seiya Fujisaki <ege010fs@mail2.econ.osaka-u.ac.jp>
This paper examines the long-run impact of inflation tax in the context of
a generalized Ak growth
model in which the production technology uses two types of capital stocks under
a constant-returns-to-scale technology. We find that unless investment expenditure
for each type of capital is subject to the same degree of cash-in-advance
constraint, a change in the money growth rate affects the steady-state level of
factor intensity. It is shown that if the balanced-growth path is uniquely
given, we still have a negative longrun relationship between money growth and
the growth rate of real income. However, due to the endogenous determination of
the factor intensity, the negative relation between the velocity of money and
the rate of inflation may not be established.
Shinsuke Ikeda (Osaka University) and Ichiro Gombi (Ritsumeikan University)
"Habit Formation in an Interdependent World Economy"
Macroeconomic Dynamics
<ikeda@iser.osaka-u.ac.jp>, <gombi@ec.ritsumei.ac.jp>
In a two-country world economy, endogenous interest rate adjustment makes one
country's consumption-habit dynamics affected by the other country's habit.
External indebtedness depends crucially on international differences in
habit-adjusted net output less habitual living standard. Interest rate adjustment
enlarges the consumption impact of an income shock. Consistently with the
empirical facts, the habit parameter of a large country would thus be
underestimated, and the current account volatility overestimated, if they are
estimated using a small-country model. An increase in fiscal spending in one
country can benefit the country and harm the neighbor one due to reversed intertemporal terms-of-trade effects.
Shinsuke Ikeda (
"Export- and Import Specific Habit Formation"
Review of Development
Economics
<ikeda@iser.osaka-u.ac.jp>
By incorporating good-specific habit formation into
the consumption of export and import goods, I examine the dynamic adjustment of
a small country to a permanent terms-of-trade deterioration. With differences
in the strength of habit formation between export and import goods, the shock
affects net output through countervailing income and substitution effects.
Unlike in the existing literature, adjacent complementarity
is neither necessary nor sufficient for the shock to reduce net foreign assets.
When consuming export goods is more habit forming than is consuming import
goods, the resulting asymmetric inertia of exports and imports leads the
current account to exhibit a J-curve.
June 2009
Tsuyoshi TOSHIMITSU (
"ENDOGEOUS NETWORK EFFECT, QUALITY CHOICE, AND MONOPOLY: A NOTE"
Keio Economic Studies
<ttsutomu@kwansei.ac.jp>
We internalize network effects, which are
assumed to be exogenously given in prior literature (Lambertini
and Orsini, 2001, 2003; Toshimitsu,
2007). To do so, we propose the argument network function as one of the firm’s
strategies that is accompanied by the properties of goods and services in
network industries. That is, the network function stands for a maneuver of operation
that works on all customers and its improvement equally increases their
utilities. Employing a vertically differentiated product model with endogenous
network effects, we show the implications of a monopolist’s choice of network
function and quality level for social welfare. Compared with the social
optimum, the monopolist has an incentive to undersupply a product attached to a
less efficient network function and to either the over- or under-provision of
quality.
April
2009
Fumio Dei (Kobe University)
“Peripheral Tasks Are Offshored”
Review of International Economics
<dei@kobe-u.ac.jp>
I build a model in which an offshoring firm has
a core task and a peripheral task. This study demonstrates that in a world
composed of the North and the South, the peripheral task is offshored
but the core task is not. The study also demonstrates that offshoring
does not occur if the skill level of the southern workers is too low.
Tsuyoshi TOSHIMITSU (Kwansei Gakuin University)
"On a Consumer-based Emission Tax Policy"
Manchester School
<ttsutomu@kwansei.ac.jp>
Based on a model of environmental quality differentiated products, we explore
how an emission tax charged on consumers who choose an environment-unfriendly
good, i.e., a consumer-based emission tax policy, affects the unit emission
level of the product, the environment, and consumer and producer surplus. Then,
we analyze the conditions for an optimal consumer-based emission tax rate to
exist and the properties of the optimal tax rate. We address these issues in
the case of a partial coverage market with a Bertrand duopoly. Furthermore, we
discuss some of the assumptions of the model.
Kenji Fujiwara (Kwansei Gakuin University)
“Environmental policies
in a differentiated oligopoly revisited”
Resource and Energy Economics
<kenjifujiwara@kwansei.ac.jp>
Constructing a model of polluting oligopoly with product differentiation, we
consider how product differentiation, together with the presence and absence of
free entry, affects optimal pollution tax/subsidy policies. The sign of the
short- and long-run optimal pollution taxes are highly sensitive to the
parameter measuring product differentiation as well as the presence of free
entry. How they are affected by a change in product differentiation, which is
not addressed in the existing literature, is also made clear.
Toru Kikuchi (Kobe
University) and Kazumichi Iwasa
(Kyoto University)
"A Simple Model of Service Trade with Time Zone Differences"
International Review of
Economics and Finance
<kikuchi@econ.kobe-u.ac.jp>
This note proposes a two-country monopolistic competition model of service
trade that captures the role of time zone differences as a determinant of trade
patterns. It is shown that the utilization of time zone differences induces
drastic change in trade patterns: Due to taking advantage of time zone
differences, service firms leave larger countries for smaller countries.
Marcelo Fukushima (Nihon University) and Toru Kikuchi (Kobe University)
"A Simple Model of Trade with Heterogenous Firms
and Trade Policy"
Journal of Economic
Research
<kikuchi@econ.kobe-u.ac.jp>
This paper builds a Ricardian-Chamberlinian
two-country model with heterogeneous firms in a monopolistically competitive
sector in which every new entrant faces increasing fixed costs of production.
There are efficiency gaps between countries in marginal and fixed costs and a
country unilaterally imposes an import tariff. It is shown that an increase in
tariff increases the number of firms of the tariff imposing country while
decreases the number of firms of the tariff-imposed country, possibly reverting
the position of net exporter of varieties. A tariff is detrimental to the
tariff-imposed country. A small tariff may be beneficial to the tariff-imposing
country.
Toru Kikuchi (Kobe University)
"Footloose Capital and the Locational Advanatage of a Hub"
Economics Bulletin
<kikuchi@econ.kobe-u.ac.jp>
The purpose of this study is to illustrate, with a simple three-region (located
on a line), two-good (homogeneous good/differentiated high-tech products),
two-factor (labor/"footloose" capital) model, how falling transport
costs can affect firms' location decisions and trade structure. It is shown
that the locational advantage of a central hub is
magnified via firms' location decisions.
Taro Akiyama (Yokohama
National University) and Yuichi Furukawa (Chukyo University)
"Intellectual Property Rights and Appropriability
of Innovation"
Economics Letters
<you.furukawa@gmail.com>
By incorporating endogenous selection of appropriability
regimes into a North-South product-cycle model, this paper finds that there is
an inverted U-shaped relationship between intellectual property rights
protection in developing countries and innovation in developed countries.
March 2009
Akihiko Yanase (
"Trade, Strategic Environmental Policy, and Global Pollution"
Review of International Economics
<yanase@intcul.tohoku.ac.jp>
This paper examines the effects of international trade
in a model with global pollution that accumulates over time because of production
emissions in each country. If countries cooperatively determine their
environmental policies, autarky and free trade in the absence of trade costs
generate the same optimal solution. By contrast, if environmental policies are
determined noncooperatively, the effects of trade on
global pollution and welfare are ambiguous because policy games can result in
multiple equilibria. Although trade increases both
the lower and upper bounds of the pollution stock, whether trade expands the
range of possible steady-state pollution levels is ambiguous. The analysis then
extends to consider trade costs.
Akihiko Yanase (Tohoku
University)
"Global Environment and Dynamic Games of Environmental Policy in an
International Duopoly"
Journal of Economics
<yanase@intcul.tohoku.ac.jp>
This paper examines a differential game model of international pollution
control in which polluting oligopolists compete in a
third country market. Two alternative policy instruments (emission taxes and
command-and-control regulations) are considered. A tougher emission policy in
the home country enhances the foreign firm's competitiveness because of the
static "rent-shifting" effect. The foreign country also enjoys a
future improvement of the global environmental quality by "free
riding" on the home country's emission reduction effort. Because of these
strategic effects, the levels of environmental policy determined in the noncooperative policy game are distorted away from the
socially optimal level. Moreover, the emission tax game produces a more distortionary outcome than that in the command-and-control
game; it generates more pollution and lower welfare.
February 2009
Takumi Naito (University of California, San
Diego and Tokyo Institute of Technology) and Laixun
Zhao (Kobe University)
"Aging, transitional dynamics, and gains from trade"
Journal of Economic
Dynamics and Control
<tanaito@ucsd.edu>
We formulate a two-country, two-good, two-factor, two-period-lived overlapping
generations model to examine how population aging determines the pattern of and
gains from trade. Two main results are obtained. First, the aging country
endogenously becomes a small country exporting the capital-intensive good,
whereas the younger country endogenously dominates the world economy
determining the world prices, in the free trade steady state. Second, although
uncompensated free trade cannot be Pareto superior to autarky, there exists a
compensation scheme applied within each country such that free trade is Pareto
superior to autarky.
Dao-Zhi Zeng
(Tohoku University) and Laixun Zhao (Kobe University)
“Pollution Havens and Industrial
Agglomeration”
Journal of Environmental Economics and Management
<zhao@rieb.kobe-u.ac.jp>
This paper examines the pollution haven hypothesis using
a spatial-economy model of two countries and two sectors. The manufacturing
sector generates cross-border pollution which reduces production in the
agricultural sector, and lowers local income. We find that this income-reducing
effect discourages firms to move to the country with laxer environmental
regulations. Second, our analysis demonstrates that manufacturing agglomeration
forces can alleviate the pollution haven effect: a pollution haven may not
arise if environmental regulation is slightly more stringent in the larger
country.