This paper examines marginal deviations from free trade in an asymmetric Cournot world. We provide necessary and sufficient conditions under which: (i) small import tariffs, (ii) export subsidies, (iii) production subsidies and (iv) consumption taxes increase country-level as well as world social welfare and consumer surplus. We find that free trade is generally not optimal: some countries' tariffs or subsidies can always improve world welfare. Every country's export subsidy raises the average of world social welfare and consumer surplus. Finally, we rank the different policies and show that production subsidies are most likely to raise world social welfare, followed by export subsidies and then import tariffs, whereas consumption taxes never do.
{"title":"On the limits of free trade in a Cournot world: When are restrictions on trade beneficial?","authors":"Rabah Amir, Jim Y. Jin, Michael Troege","doi":"10.1111/caje.12619","DOIUrl":"10.1111/caje.12619","url":null,"abstract":"<p>This paper examines marginal deviations from free trade in an asymmetric Cournot world. We provide necessary and sufficient conditions under which: (i) small import tariffs, (ii) export subsidies, (iii) production subsidies and (iv) consumption taxes increase country-level as well as world social welfare and consumer surplus. We find that free trade is generally not optimal: some countries' tariffs or subsidies can always improve world welfare. Every country's export subsidy raises the average of world social welfare and consumer surplus. Finally, we rank the different policies and show that production subsidies are most likely to raise world social welfare, followed by export subsidies and then import tariffs, whereas consumption taxes never do.</p>","PeriodicalId":47941,"journal":{"name":"Canadian Journal of Economics-Revue Canadienne D Economique","volume":"55 4","pages":"2036-2057"},"PeriodicalIF":1.6,"publicationDate":"2022-10-20","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"129284400","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":4,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
In a small country's industries, it is common that both small and large firms export a significant share of their total production. How does better export access affect the domestic market when this occurs? Incorporating investments in quality that require fixed outlays and increase a variety's appeal in all countries, we show that an export shock entails two opposing mechanisms. On the one hand, it induces quality upgrades that raise the domestic market share of large firms. On the other hand, it fosters entry of small firms, making large firms lose domestic market share and downgrade quality. Using Danish data, we show that small firms in some industries are so heavily export-oriented that better export opportunities reallocate domestic market share towards the least productive domestic firms. And while competition by small firms reduces some large firms' domestic markups, it also leads some to downgrade quality and suffer a substantial fall in profits.
{"title":"Export conditions in small countries and their effects on domestic markets","authors":"Martin Alfaro, Frederic Warzynski","doi":"10.1111/caje.12621","DOIUrl":"10.1111/caje.12621","url":null,"abstract":"<p>In a small country's industries, it is common that both small and large firms export a significant share of their total production. How does better export access affect the domestic market when this occurs? Incorporating investments in quality that require fixed outlays and increase a variety's appeal in all countries, we show that an export shock entails two opposing mechanisms. On the one hand, it induces quality upgrades that raise the domestic market share of large firms. On the other hand, it fosters entry of small firms, making large firms lose domestic market share and downgrade quality. Using Danish data, we show that small firms in some industries are so heavily export-oriented that better export opportunities reallocate domestic market share towards the least productive domestic firms. And while competition by small firms reduces some large firms' domestic markups, it also leads some to downgrade quality and suffer a substantial fall in profits.</p>","PeriodicalId":47941,"journal":{"name":"Canadian Journal of Economics-Revue Canadienne D Economique","volume":"55 4","pages":"1894-1928"},"PeriodicalIF":1.6,"publicationDate":"2022-10-20","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"114173958","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":4,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Daniela Balutel, Christopher Henry, Jorge Vásquez, Marcel Voia
We develop a tractable model of Bitcoin adoption with network effects and social learning, which we then connect to unique data from the Bank of Canada's Bitcoin Omnibus Survey for the years 2017 and 2018. The model determines how the probability of Bitcoin adoption depends on: (i) network effects, (ii) individual learning effects and (iii) social learning effects. After accounting for the endogeneity of beliefs, we find that both network effects and individual learning effects have a positive and significant direct impact on Bitcoin adoption, whereas the role of social learning is to ameliorate the marginal effect of the network size on the likelihood of adoption. In particular, in 2017 and 2018, a one percentage point increase in the network size increased the probability of adoption by 0.45 and 0.32 percentage points, respectively. Similarly, a one percentage point increase in Bitcoin beliefs increased the probability of adoption by 0.43 and 0.72 percentage points. Our results suggest that network effects, individual learning and social learning were important drivers of Bitcoin adoption in 2017 and 2018 in Canada.
{"title":"Bitcoin adoption and beliefs in Canada","authors":"Daniela Balutel, Christopher Henry, Jorge Vásquez, Marcel Voia","doi":"10.1111/caje.12620","DOIUrl":"https://doi.org/10.1111/caje.12620","url":null,"abstract":"<p>We develop a tractable model of Bitcoin adoption with network effects and social learning, which we then connect to unique data from the Bank of Canada's Bitcoin Omnibus Survey for the years 2017 and 2018. The model determines how the probability of Bitcoin adoption depends on: (i) network effects, (ii) individual learning effects and (iii) social learning effects. After accounting for the endogeneity of beliefs, we find that both network effects and individual learning effects have a positive and significant direct impact on Bitcoin adoption, whereas the role of social learning is to ameliorate the marginal effect of the network size on the likelihood of adoption. In particular, in 2017 and 2018, a one percentage point increase in the network size increased the probability of adoption by 0.45 and 0.32 percentage points, respectively. Similarly, a one percentage point increase in Bitcoin beliefs increased the probability of adoption by 0.43 and 0.72 percentage points. Our results suggest that network effects, individual learning and social learning were important drivers of Bitcoin adoption in 2017 and 2018 in Canada.</p>","PeriodicalId":47941,"journal":{"name":"Canadian Journal of Economics-Revue Canadienne D Economique","volume":"55 4","pages":"1729-1761"},"PeriodicalIF":1.6,"publicationDate":"2022-10-10","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"137665489","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":4,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
This paper studies the cost of limited commitment when a central bank commits to a price-level target path but retains the discretion to re-optimize it whenever the cost of honouring its commitment exceeds a tolerance threshold. Such discretion undermines the credibility of the price-level target path and weakens its effectiveness to stabilize the economy. Endogenous target resets are more costly than exogenous target re-optimizations and can give rise to multiple equilibria, including a low credibility equilibrium with frequent target resets and high volatility. Canadian data suggest that price-level target resets could be quite frequent in practice.
{"title":"Limited commitment, endogenous credibility and the challenges of price-level targeting","authors":"Gino Cateau, Malik Shukayev","doi":"10.1111/caje.12617","DOIUrl":"10.1111/caje.12617","url":null,"abstract":"<p>This paper studies the cost of limited commitment when a central bank commits to a price-level target path but retains the discretion to re-optimize it whenever the cost of honouring its commitment exceeds a tolerance threshold. Such discretion undermines the credibility of the price-level target path and weakens its effectiveness to stabilize the economy. Endogenous target resets are more costly than exogenous target re-optimizations and can give rise to multiple equilibria, including a low credibility equilibrium with frequent target resets and high volatility. Canadian data suggest that price-level target resets could be quite frequent in practice.</p>","PeriodicalId":47941,"journal":{"name":"Canadian Journal of Economics-Revue Canadienne D Economique","volume":"55 4","pages":"1834-1861"},"PeriodicalIF":1.6,"publicationDate":"2022-10-02","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"114007236","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":4,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Labour mobility is an important mechanism to equilibrate regional differences in labour market conditions. Yet, little is known about underlying differences between individuals that explain why some stay in place during times of economic hardship while others in objectively similar situations choose to leave. Using a novel dataset comprising 59,974 respondents of a national community health survey from Canada linked to their administrative tax records, this paper provides new insights into this important issue. Specifically, I investigate the extent to which individuals' objective and subjective ties to their local communities mitigate or exacerbate the decision to relocate following an exogenous job separation. To credibly identify this effect, I exploit variation in regional employment conditions over time caused by construction industry shocks during the Great Recession, based on an instrumental variables approach. The results indicate that job loss increases the likelihood of migrating within the same province by approximately 1.4 to 2.3 percentage points among men. Moreover, this effect is driven primarily by individuals with low sense of community belonging, which indicates “push and pull” between the need to relocate for work and the desire to stay near family and friends.
{"title":"Community attachment, job loss and regional labour mobility in Canada: Evidence from the Great Recession","authors":"Derek Messacar","doi":"10.1111/caje.12616","DOIUrl":"10.1111/caje.12616","url":null,"abstract":"<p>Labour mobility is an important mechanism to equilibrate regional differences in labour market conditions. Yet, little is known about underlying differences between individuals that explain why some stay in place during times of economic hardship while others in objectively similar situations choose to leave. Using a novel dataset comprising 59,974 respondents of a national community health survey from Canada linked to their administrative tax records, this paper provides new insights into this important issue. Specifically, I investigate the extent to which individuals' objective and subjective ties to their local communities mitigate or exacerbate the decision to relocate following an exogenous job separation. To credibly identify this effect, I exploit variation in regional employment conditions over time caused by construction industry shocks during the Great Recession, based on an instrumental variables approach. The results indicate that job loss increases the likelihood of migrating within the same province by approximately 1.4 to 2.3 percentage points among men. Moreover, this effect is driven primarily by individuals with low sense of community belonging, which indicates “push and pull” between the need to relocate for work and the desire to stay near family and friends.</p>","PeriodicalId":47941,"journal":{"name":"Canadian Journal of Economics-Revue Canadienne D Economique","volume":"55 3","pages":"1404-1430"},"PeriodicalIF":1.6,"publicationDate":"2022-08-23","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"134504148","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":4,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Preferential trade agreements have boomed in recent years and extended their reach well beyond tariff reduction, to cover policy areas such as investment, services, competition and intellectual property rights. This paper uses new information on the content of preferential trade agreements to examine the trade effects of deep agreements and revisit the classic Vinerian question of trade creation and trade diversion. Our results indicate that deep agreements lead to more trade creation and less trade diversion than shallow agreements. Furthermore, some provisions of deep agreements have a public good aspect and increase trade also with non-members.
{"title":"Trade creation and trade diversion in deep agreements","authors":"Aaditya Mattoo, Alen Mulabdic, Michele Ruta","doi":"10.1111/caje.12611","DOIUrl":"https://doi.org/10.1111/caje.12611","url":null,"abstract":"<p>Preferential trade agreements have boomed in recent years and extended their reach well beyond tariff reduction, to cover policy areas such as investment, services, competition and intellectual property rights. This paper uses new information on the content of preferential trade agreements to examine the trade effects of deep agreements and revisit the classic Vinerian question of trade creation and trade diversion. Our results indicate that deep agreements lead to more trade creation and less trade diversion than shallow agreements. Furthermore, some provisions of deep agreements have a public good aspect and increase trade also with non-members.</p>","PeriodicalId":47941,"journal":{"name":"Canadian Journal of Economics-Revue Canadienne D Economique","volume":"55 3","pages":"1598-1637"},"PeriodicalIF":1.6,"publicationDate":"2022-08-15","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"137686037","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":4,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
This paper reviews and extends the recent empirical literature on the impact of climate change on mortality and adaptation in the United States. The analysis produces several new facts. First, the reductions in the impact of extreme heat on mortality risk previously documented up to 2004 have continued up to 2019, consistent with continued investments in health-protecting adaptations to high temperatures. The second part of the paper examines the private and external costs of electricity generation and consumption related to high temperatures, a commonly used proxy for measuring the consumption of adaptation services. Extreme temperatures increase electricity demand in the residential sector (relative to moderate temperatures), but not in the commercial, industrial and transportation end-use sectors. The additional electricity demand in response to high temperatures results in significant external costs due to the release of local and global pollutants caused by the combustion of fossil fuels in order to produce electricity. These external costs, documented for the first time in this paper, are one order of magnitude larger than the private cost of adaptation associated with electricity consumption.
{"title":"The impact of climate change on mortality in the United States: Benefits and costs of adaptation","authors":"Olivier Deschenes","doi":"10.1111/caje.12609","DOIUrl":"https://doi.org/10.1111/caje.12609","url":null,"abstract":"<p>This paper reviews and extends the recent empirical literature on the impact of climate change on mortality and adaptation in the United States. The analysis produces several new facts. First, the reductions in the impact of extreme heat on mortality risk previously documented up to 2004 have continued up to 2019, consistent with continued investments in health-protecting adaptations to high temperatures. The second part of the paper examines the private and external costs of electricity generation and consumption related to high temperatures, a commonly used proxy for measuring the consumption of adaptation services. Extreme temperatures increase electricity demand in the residential sector (relative to moderate temperatures), but not in the commercial, industrial and transportation end-use sectors. The additional electricity demand in response to high temperatures results in significant external costs due to the release of local and global pollutants caused by the combustion of fossil fuels in order to produce electricity. These external costs, documented for the first time in this paper, are one order of magnitude larger than the private cost of adaptation associated with electricity consumption.</p>","PeriodicalId":47941,"journal":{"name":"Canadian Journal of Economics-Revue Canadienne D Economique","volume":"55 3","pages":"1227-1249"},"PeriodicalIF":1.6,"publicationDate":"2022-08-10","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"137506331","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":4,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
I use a quasi experiment, conducted in the field, to evaluate how the workers of an economic firm responded to threats to cut their piece rates. During the study, the piece rate paid to workers was initially set above the regular rate, given working conditions. In a commitment treatment this high rate was paid without any threat of revision. During a non-commitment trial, the high rate was accompanied by a threat from management to reduce the rate if, after two days of work, average earnings were too high. The empirical results display strong ratchet effects. Workers withheld output by 16% under non-commitment relative to commitment. The firm eventually reduced the piece rate from the initial high rate, but left it above the regular rate, giving workers the possibility to extract rents. Workers showed no tendency to restrict output during this phase of the study.
{"title":"Piece-rate cuts and ratchet effects","authors":"Bruce S. Shearer","doi":"10.1111/caje.12607","DOIUrl":"10.1111/caje.12607","url":null,"abstract":"<p>I use a quasi experiment, conducted in the field, to evaluate how the workers of an economic firm responded to threats to cut their piece rates. During the study, the piece rate paid to workers was initially set above the regular rate, given working conditions. In a commitment treatment this high rate was paid without any threat of revision. During a non-commitment trial, the high rate was accompanied by a threat from management to reduce the rate if, after two days of work, average earnings were too high. The empirical results display strong ratchet effects. Workers withheld output by 16% under non-commitment relative to commitment. The firm eventually reduced the piece rate from the initial high rate, but left it above the regular rate, giving workers the possibility to extract rents. Workers showed no tendency to restrict output during this phase of the study.</p>","PeriodicalId":47941,"journal":{"name":"Canadian Journal of Economics-Revue Canadienne D Economique","volume":"55 3","pages":"1371-1403"},"PeriodicalIF":1.6,"publicationDate":"2022-08-09","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"133669999","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":4,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
We report on a laboratory experiment designed to assess risk preferences in a decision environment where real losses can occur. Specifically, we utilize an asset integration protocol designed to ensure that cash provided to treatment group participants by the experimenter is fully integrated into each individual's wealth. This cash is placed at stake in an incentivized risk-preference elicitation task based on the well-known Holt and Laury (2002, 2005) methodology. Our experimental design allows us to distinguish between the predictions of expected utility and prospect theory. We find that features consistent with expected utility theory, constant relative risk aversion and rank dependent expected utility functions, are insufficient to explain our experimental results. However, preference functions based on prospect theory, accounting specifically for loss aversion, capture the observed behaviour of participants in the experiment.
{"title":"Asset integration and risk-taking in the laboratory","authors":"William G. Morrison, Robert J. Oxoby","doi":"10.1111/caje.12615","DOIUrl":"10.1111/caje.12615","url":null,"abstract":"<p>We report on a laboratory experiment designed to assess risk preferences in a decision environment where real losses can occur. Specifically, we utilize an asset integration protocol designed to ensure that cash provided to treatment group participants by the experimenter is fully integrated into each individual's wealth. This cash is placed at stake in an incentivized risk-preference elicitation task based on the well-known Holt and Laury (2002, 2005) methodology. Our experimental design allows us to distinguish between the predictions of expected utility and prospect theory. We find that features consistent with expected utility theory, constant relative risk aversion and rank dependent expected utility functions, are insufficient to explain our experimental results. However, preference functions based on prospect theory, accounting specifically for loss aversion, capture the observed behaviour of participants in the experiment.</p>","PeriodicalId":47941,"journal":{"name":"Canadian Journal of Economics-Revue Canadienne D Economique","volume":"55 3","pages":"1460-1479"},"PeriodicalIF":1.6,"publicationDate":"2022-08-08","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"115487361","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":4,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
When misrepresenting private information is costly and each type has a different “natural” least-cost signal or message, the availability of multiple signals has a significant effect on signalling equilibria and on the set of implementable outcomes in a screening context. In particular, welfare losses associated with costly signalling disappear as the number of available signals increases, yet at the same time each type is identified with a high degree of precision in every equilibrium satisfying a dominance criterion. In the screening context, we establish conditions under which the principal can implement an arbitrary allocation profile at a small communication cost. This result helps to explain why employers often prefer to screen applicants via multiple interviews rather than via menus of contracts. We also derive an optimal screening mechanism in such a setting. A surprising property of this mechanism is the absence of exclusion.
{"title":"Signalling, screening and costly misrepresentation","authors":"Raymond Deneckere, Sergei Severinov","doi":"10.1111/caje.12614","DOIUrl":"10.1111/caje.12614","url":null,"abstract":"<p>When misrepresenting private information is costly and each type has a different “natural” least-cost signal or message, the availability of multiple signals has a significant effect on signalling equilibria and on the set of implementable outcomes in a screening context. In particular, welfare losses associated with costly signalling disappear as the number of available signals increases, yet at the same time each type is identified with a high degree of precision in every equilibrium satisfying a dominance criterion. In the screening context, we establish conditions under which the principal can implement an arbitrary allocation profile at a small communication cost. This result helps to explain why employers often prefer to screen applicants via multiple interviews rather than via menus of contracts. We also derive an optimal screening mechanism in such a setting. A surprising property of this mechanism is the absence of exclusion.</p>","PeriodicalId":47941,"journal":{"name":"Canadian Journal of Economics-Revue Canadienne D Economique","volume":"55 3","pages":"1334-1370"},"PeriodicalIF":1.6,"publicationDate":"2022-08-06","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"125308528","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":4,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}