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 2.8% per year. As bilateral trade costs have fallen by 3.1% per year on average, we find a strong negative correlation between observed trade cost and markup changes. Markups have increased less in high-income countries than in other countries.
(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.
Foreign market entry and merger policies with economies of scale
(together with Jaeyeon Kim, Cape Treton University, and Halis Murat Yildiz, Toronto Metropolitan University)
Abstract: This paper investigates the equilibrium entry mode of a foreign firm into a domestic market that can export, do a greenfield investment or acquire one or two domestic firms. We also scrutinize the optimal merger policy of the host country and whether it can induce the most preferred entry mode. We find that acquisitions are more likely with sufficiently large economies of scale, and this is also the endogenous outcome of optimal merger policies. Furthermore, the host government can induce the most preferred market structure if and only if the foreign firm always wants to acquire at least one domestic firm. Our findings suggest that a strict merger policy is more likely to be optimal as the greenfield investment cost rises. Finally, the national merger policy can be excessive as monopolization may raise aggregate world welfare if the benefits from economies of scale are substantial.
On the Design of a Carbon Border Adjustment Mechanism
(together with Martin Richardson, Australian National University, and Halis Murat Yildiz, Toronto Metropolitan University)
Abstract: We identify a condition in a general equilibrium model of trade with tariff bindings under which a customs union (CU) can design a carbon border adjustment mechanism (CBAM) that induces other countries to adopt the CU's carbon tax. Trade liberalization makes this easier and so would help the CU `export' its climate policies. We then show that, in an inter-industry, perfectly competitive framework with competing exporters, the optimal carbon tax is lower when the CU maximizes CU welfare than if it were to maximize global welfare. Furthermore, the CU optimally raises its tariff threat via CBAM by less than the difference in member and non-member environmental taxes. By contrast, in an intra-industry oligopoly model of trade with profit shifting incentives, we find the opposite result, with a ``penalty'' tariff threat that exceeds the difference in carbon taxes.
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.
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.