December 2009

 

Rui Ota (Chiba Keizai University)
"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 (Kobe University)

gThe division of labor in innovation between general purpose technology and special purpose technologyh

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 (McGill University and Kwansei Gakuin University) and Ngo Van Long (McGill University)
gWelfare Effects of Reducing Home-Bias in Government Procurements: A Dynamic Contest Modelh

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 (Kwansei Gakuin University)
gLosses from competition in a dynamic game model of a renewable resource oligopolyh
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 (
Kwansei Gakuin University)
gNetwork externalities, transport costs and tariffsh
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)
gFactor Substitution and Relative Factor Pricesh
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 factorfs 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 factorfs 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 (Kwansei Gakuin University)
gStrategic environmental policies and the gains from trade liberalizationh

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 (Kwansei Gakuin University)
gTrade liberalization in a differentiated duopoly reconsideredh
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 (
Kwansei Gakuin University)
gA dynamic reciprocal dumping model of international tradeh
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)

gLong-Run Impacts of Inflation Tax in the Presence of Multiple Capital Goodsh

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 (
Osaka University)
"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 (Kwansei Gakuin University)
"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 firmfs 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 monopolistfs 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)

gPeripheral Tasks Are Offshoredh

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)

gEnvironmental policies in a differentiated oligopoly revisitedh
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 (Tohoku University)
"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)

 gPollution Havens and Industrial Agglomerationh

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.