Work in progress
This section presents you my recent, but not yet published or submitted research activities in alphabetic, not chronological order (and in no way in order of relevance). Comments and suggestions are very much appreciated. You find other versions of my papers and publications also on my IDEAS page.
Disentangling frictions across the world: markups versus trade costs
(together with Benedikt Heid, Universitat Jaume I)
Abstract: We develop a structural framework that allows us to quantify the evolution of aggregate bilateral trade costs and markups over time. With minimal assumptions, we can disentangle aggregate markup and trade cost changes from observed changes in trade flows. We apply our method to trade data between 1990 and 2015 for the world's 100 largest economies. We find that across all country pairs, on average, bilateral aggregate markups have increased by 2.7\% per year. Since bilateral aggregate trade costs have fallen, we find a strong negative correlation between observed trade cost and markup changes.
Endogenous multihoming and network effects: Playstation, Xbox, or both?
(together with Hans Kind and Øystein Foros, Norwegian School of Economics)
Abstract: Competition between firms that sell incompatible varieties of network products might be fierce, because it is important for each of them to attract a large number of users. The literature therefore predicts that stronger network effects decrease prices and profits. We show that this prediction hinges critically on an implicit or explicit assumption that each consumer buys only one of the varieties offered in the market (singlehoming consumers). We show that multihoming (some consumers buy more than one variety) may arise endogenously if the number of exclusive features that each variety offers is sufficiently high. In sharp contrast to the conventional prediction under consumer singlehoming, we further show that both prices and profits could increase in the strength of the network effects if (some) consumers multihome. However, this does not necessarily imply that profits are higher under multihoming than under singlehoming. On the contrary, multihoming might constitute a prisoner s dilemma for the firms, in the sense that they could make higher profits if each consumer bought only one of the varieties.
(together with Ngo Van Long, McGill University)
Abstract: This paper considers a principal-agent relationship where the agent chooses the degree of uncertainty. An increase in uncertainty is measured by a mean-preserving spread. Using the family of uniform distributions, we show that the least dispersion maximizes aggregate welfare while the agent prefers some dispersion but not the maximum dispersion. Consequently, a hold-up problem arises as the agent's choice does not maximize expected aggregate welfare.
Inventory, Sourcing, and the Effects of Trade Costs: Theory and Empirical Evidence
(together with Chris Muris, McMaster University, Horst Raff, University of Kiel, and Nicolas Schmitt, Simon Fraser University)
Abstract: We develop a dynamic model of inventory investment and trade to examine how firms adjust to changes in international trade costs when facing a risk of stockouts due to demand uncertainty and order lead times for imports. We study two strategies firms may use to avoid stockouts, namely holding inventories of imports, and engaging in dual sourcing. Both strategies are shown to magnify the protective effects of trade costs. A case study using transaction-level data for a U.S. steel wholesaler experiencing an episode of Section-201 tariffs provides strong preliminary evidence consistent with this magnification effect. We find that higher tariffs significantly reduce both the inventory-sales and the import-sales ratios, as the firm adjusts its stockout avoidance strategies.
(together with Onur Koska, University of Canterbury)
Abstract: This paper discusses the role of reserve prices when bidders' valuations depend positively on the seller's private signal. We distinguish between a public reserve price, announced before the auction starts, and a secret reserve price, disclosed after the highest bid has been reached. The public reserve price regime may warrant a distortion as a good seller type may have to increase the reserve price beyond payoff-maximization in order to be able to credibly signal her type. We introduce and determine a rational signaling equilibrium which adds two domination-based conditions to the belief structure of a weak perfect Bayesian equilibrium. We show that a public reserve price design qualifies as an equilibrium if the distortion is not too large.
Take one or more at a time? Issue linkage versus ringfencing with common shocks
(together with Sophia Vaaßen)
Abstract: This paper scrutinizes the role of common shocks for the \textit{ex ante} payoffs of international cooperation on two issues. Cooperation implies a good outcome with a larger probability than a bad outcome for each issue. Under ringfencing, each issue is subject to a separate agreement, and this agreement is terminated if one country has a bad outcome. Under issue linkage, the agreement is only terminated if one country has a bad realization for both issues. The trade-off is that ringfencing leads to excessive exit while issue linkage may imply continued cooperation although both countries have a bad realization for the same issue. Common shocks make ringfencing relatively more attractive since they increase (decrease) the probabilities for all cases in which ringfencing (issue linkage) is the preferred mode of cooperation.
The Impact of Peer-to-Peer Lending on Small Business Loans
(together with Jin-Hyuk Kim, University of Boulder at Colorado)
Abstract: We investigate the impact of online crowdlending platforms on the small business loans originated by US depository institutions between 2009 and 2017 and disclosed under the Community Reinvestment Act. Using the delayed entries of LendingClub and Prosper into the states, we find that on average the first platform entry substantially reduced the number and the volume of small business loans originated by banks, though there is some evidence to the contrary for distressed middle-income areas. We show that theoretically the effects of the entry on bank loans can be ambiguous. Empirically, however, the difference-in-differences methodology suggests a reduction in aggregate bank lending to small businesses following the first platform entry. Hence, a caution needs to be exercised regarding the banks' reaction to the platform entries, which can affect a large number of borrowers.
(together with Georg Wamser, Valeria Merlo, Martin Ruf, all University of Tübingen, Kristina Strohmaier, University of Duisburg-Essen, Jonathan Eklund, Jaqueline Hansen, both RSIT Tübingen, Tobias Hahn, Nora Hiller, both University of Tübingen, Sabine Laudage, Sean McAuliffe, both RSIT Tübingen, and Georg Thunecke, Max Planck Institute for Tax Law and Public Finance)
Abstract: This article introduces the new International Tax Institutions (ITI) database, a unique attempt to collect the most relevant statutory tax indicators for the whole world. It includes taxes on corporate and personal (earned and capital) income, consumption taxes, as well as antitax avoidance rules (thin-capitalization and earnings-stripping rules, CFC rules and transfer pricing regulations). Our main objective is to provide a broad overview on key features, (time- and cross-sectional) variation, and regularities in the data, with a focus on international tax issues. We present a vast number of new variables – such as effective tax and institutional measures – that allow for a comprehensive description and comparison of countries’ taxes and tax systems.
The (Non-)Neutrality of Value-Added Taxation
(together with Georg Schneider, University of Bonn, and Georg Thunecke, Max Planck Institute for Tax Law and Public Finance)
Abstract: Border adjustment taxes like the value-added tax (VAT) are commonly regarded to promote efficiency and equity due to their de jure trade neutrality. We analyse the effects of the VAT on trade in final goods in the European Union (EU) from 1988 to 2019. We find that the VAT is de facto non-neutral. A one percentage point VAT increase implies a 5.45% reduction of foreign imports relative to internal trade. These effects are not driven by institutional quality, EU accession, or preferential Common Market access.
Upstream competition with non-linear pricing
(together with Ngo Van Long, McGill University)
Abstract: This paper models upstream competition between two firms that sell inputs to a downstream firm whose productivity is private information. We transform the two-dimensional distribution of productivities into a single distribution of privately known parameters in order to develop the optimal non-linear (quadratic) equilibrium pricing schemes. We show that both the linear component prices and the fixed fees increase with the degree of competition among upstream firms while the discount declines with it. Furthermore, we show that the downstream firm's profit increases with an increase in heterogeneity measured by a mean-preserving spread if the distribution is sufficiently compact to begin with.