International Economic Review最新文献

We analyze a patent race between two firms choosing between an established and an innovative method. The unique Markov-perfect equilibrium coincides with the cartel solution if and only if firms have the same ability of leveraging a good innovative method or there is no patent protection. Otherwise, equilibrium efforts are clustered too much in the innovative method, as compared to the cartel benchmark. The expected time to a breakthrough is minimized at an interior patent strength. Thus, a decrease in R&D productivity can go hand-in-hand with a concentration of research efforts in riskier areas and stronger patent protections.

This article provides a theory of strategic innovation project choice by incumbents and start-ups which serves as a foundation for the analysis of acquisition policy. We show that, in spite of countervailing incentives on incumbents and entrants, prohibiting acquisitions has a weakly negative overall innovation effect. We provide conditions determining the size of the effect and conditions under which it is zero. We further analyze the effects of less restrictive policies, including merger remedies and the tax treatment of acquisitions and initial public offerings. Such interventions tend to prevent acquisitions only if the entrant has sufficiently high stand-alone profits.

Households in emerging markets hold significant amounts of dollar deposits whereas firms have significant amount of dollar debt. Motivated by perceived dangers, policymakers consider regulations to limit dollarization. I draw attention to an important benefit of dollarization: it serves as an insurance arrangement in which firms provide income insurance. Emerging market exchange rates tend to depreciate in recessions so that households prefer holding deposits denominated in dollars. They effectively starve local financial markets of local currency; raising local interest rates over USD rates and causing entrepreneurs to borrow in dollars. This premium is the price paid by households for insurance.

We study trade disruptions at different stages of development in a two-country, three-sector model of Spain and United Kingdom from 1850 to 2000. The impact of trade disruptions depends on trade openness and the productivity gap between countries. A trade collapse today (more openness, less gap) comparable to the Inter-War Trade Collapse (IWTC) decreases the capital stock threefold (12% instead of 4%) and lifetime consumption fourfold (1.58% instead of 0.37%). Capital accumulation amplifies the cost of trade disruptions. The IWTC promoted Spanish industrialization, while the opposite would be true today.

We explore the consequences of higher-order risk in a standard incomplete-markets life-cycle model. We calibrate the model using a canonical income process with persistent and transitory risk, extended to feature cyclical shock distributions with left-skewness and excess kurtosis. We estimate this income process for U.S. household data, and find shocks to be highly leptokurtic, with countercyclical variance and procyclical skewness of persistent shocks. In the model, first, higher-order risk has sizable welfare implications; second, it matters quantitatively for the welfare costs of cyclical idiosyncratic risk; third, it has nontrivial implications for self-insurance against shocks.

We argue that the rate of capital depreciation is a determinant of competition. We show that the rate of capital depreciation has a robust positive relationship with market power in U.S. data. Then, we develop a general equilibrium model of industry competition where industries vary in their rate of capital depreciation. In equilibrium, optimal savings decisions imply that rapid depreciation is related to higher costs of capital, so that industries with rapid depreciation display less competition than industries with slow depreciation. Depending on parameters, the calibrated model can account for much of the observed dispersion in markups across U.S. industries.