We analyze the e!ects of trade liberalization on "rms' decisions and pro"ts in a vertical product di!erentiation model with countries which have di!erent characteristics. Firms decide product speci"cations at the beginning of the game, in which autarky is followed by trade liberalization (whose date is anticipated). Our analysis suggests that a "rm located in a large (or rich) country is the li...

This paper evaluates the quantitative impact of capital liberalization on the taxation structure and welfare of the liberalizing countries when governments conduct fiscal policy optimally but without commitment (time-consistent policies). The transition from a regime of capital autarky to a regime of free mobility leads to a decrease in the long-term tax rate on capital of 13 percent and an inc...

This paper studies optimal Ramsey taxation when risk sharing in private insurance markets is imperfect due to limited enforcement. In a limited commitment economy, there are externalities associated with capital and labor because individuals do not take into account that their labor and saving decisions affect aggregate labor and capital supply and wages, and thus the value of autarky. Therefor...

This paper builds a two-country, two-sector (polluting, nonpolluting) trade model with directed technical change, examining whether unilateral environmental policies can ensure sustainable growth. The polluting good generates more or less emissions depending on its relative use of a clean and a dirty input. I show that a unilateral policy combining clean research subsidies and a trade tax can e...

We propose a duality approach to solving contracting models with either one-sided or two-sided limited commitment in continuous time. We establish weak and strong duality theorems and provide a dynamic programming characterization of the dual problem. The dual problem gives a linear Hamilton-Jacobi-Bellman equation with a known state space subject to free-boundary conditions, making analysis mu...

This paper studies the effect of sovereign risk on capital flows from rich to poor nations in the context of a two-country model, where Foreign Direct Investment (FDI) creates positive externalities in domestic production. We show that if externalities are large, a developing country never expropriates foreign assets, and behaves as under perfect enforcement of foreigners’ property rights, jump...

Households in developing countries commonly engage risk sharing to cope with shocks. Despite this, the residual they remain exposed — often due aggregate events such as droughts and floods is considerable. To mitigate these risks, governments, NGOs multilateral organizations have introduced index insurance. appreciate its welfare implications, however, it necessary assess how insurance interact...

We derive a simple equation for the welfare gains from trade when tariffs are liberalized or iceberg trade costs fall. Covering various one-sector trade models that may or may not feature extensive margins and imperfect competition, we generalize the analysis of Arkolakis, Costinot and Rodriguez-Clare (2012) to encompass revenue-generating import tariffs. Our formula permits easy quantification...

A social network in which individuals seek to be early adopters of a popular trend has as its equilibrium structure a (unique) leader and hierarchy of followers. The analysis generating this equilibrium fails to offer a mechanism for the equilibrium to emerge from an initially unstructured social environment. A dynamic model with evolving social links is employed to test for and understand the ...

We build a one-period general equilibrium model with money. Equilibrium exists, and fiat money has positive value, as long as the ratio of outside money to inside money is less than the gains to trade available at autarky. We show that the nominal effects of government fiscal and monetary policy can be completely described by a diagram identical in form to the IS-LM curves introduced by Hicks t...