Trade and Protection with Multistage Production

This paper analyzes trade in manufactured goods that are produced via a vertical production structure with many stages, where some value is added at each to an intermediate product to yield a good-in-process ready for the next stage. We consider the stage at which a good is traded to be an economically endogenous variable, with comparative advantage determining the pattern of production specialization by stages across countries. We study how endowment changes and policy shifts move the margin of comparative advantage, which thus provides a channel for resource allocation adjustment that is additional to the usual ones of factor substitution and changes in the quantity of output.

The Making of Policy: Institutionalized or Not?

This paper develops a framework for analyzing different policymaking styles, their causes and their consequences in Latin America, finding that lower institutionalization and greater use of alternative political technologies (APTs) are more likely the lower the cost of using these technologies, the higher the potential damage they can cause, the lower the wealth of the economy, and the more asymmetric the distribution of de jure political power. Moreover, strategic complementarity exists in the use of alternative political technologies; for instance "bribes by the rich" and "protests by the poor" are likely to be countervailing forces, and will both occur in polities with weaker political institutions.Political institutions, Public policies, Institutional strength, Protests, Alternative Political Technologies, Development, Judicial independence, Party institutionalization, Congress capabilities, Cabinet stability, Corruption

Step-by-step migration to efficient agglomerations

Recent literature suggests that historical accidents can trap economies in inefficient equilibria. In a prototype model in the literature, there are two locations, the productive South and the unproductive North. By accident of history, the industry starts in the North. Because of agglomeration economies, the industry may reside in the North forever, an inefficient outcome. This paper modifies the standard model by assuming there is a continuum of locations between the North and the South. Productivity gradually increases as one moves South. There is a unique long-run equilibrium in this economy where all agents locate at the most productive locations.Industrial location

Optimal Control of Broadcasting Spectrum with a Variety-Reception Tradeoff and Consumers’ Income Sensitivity

A socially desirable number of royalties-paying users of a state-owned broadcasting spectrum is derived within an optimal control framework where the adjustment of the number of users to above-normal profits is adversely affected by sunk costs. The optimal control takes into account the tradeoff between the benefits from higher variety and royalties’ revenues and the costs of the intensified interferences associated with entry. It also considers the positive information-dissemination effect and the negative effort-diversion effect of broadcasts on aggregate income. The broadcasting industry’s optimal steady state is identified and its stability is analyzed.Economics; Optimal Control; Spectrum; OTA Broadcasts; Variety;Interferences; Royalties

Capital Regulation and Bank Risk Taking: Completing Blum’s Picture

This paper studies the intertemporal effects that capital regulation has on curbing bank risk taking, using the seminal model proposed in Blum (1999). Threshold values of the requirement in each period, for which capital regulation start affecting bank risk taking decisions, are calculated. One main lesson from this exercise is that constant capital requirements (as considered in Basel I) are indeed capable of reducing risk taking below the unregulated solution, and can even achieve the zero bankruptcy cost, socially efficient level of risk. However, that might happen for very high levels of the requirement, and at the cost of reducing financial intermediation. A second important lesson is that as the dynamic of risk depends on these thresholds, and they in turn depend upon the initial equity of the bank; knowing the latter is essential for the regulator to determine the effectiveness of capital regulation. Additional market instruments and effective monitoring and supervision (as proposed in Basel II) could be helpful on this task.

Human Capital, Financial Innovations and Growth: A Theoretical Approach.

This paper examines the symbiosis between financial development and human capital accumulation in generating endogenous growth. We develop a theoretical model where human capital is a key factor in the creation of financial innovations, resulting in financial development which in turns facilitates the acquisition of new human capital.HUMAN CAPITAL ; ECONOMIC GROWTH ; FINANCIAL ASPECTS

The Standard Deviation of Life-Length, Retirement Incentives, and Optimal Pension Design

In this paper, we consider how the retirement age as well as a tax financed pension system ought to respond to a change in the standard deviation of the length of life. In a first best framework, where a benevolent government exercises perfect control over the individuals’ labor supply and retirement-decisions, the results show that a decrease in the standard deviation of life-length leads to an increase in the optimal retirement age and vice versa, if the preferences for “the number of years spent in retirement” are characterized by constant or decreasing absolute risk aversion. A similar result follows in a second best setting, where the government raises revenue via a proportional tax (or pension fee) to finance a lump-sum benefit per year spent in retirement. We consider two versions of this model, one with a mandatory retirement age decided upon by the government and the other where the retirement age is a private decision-variable.uncertain lifetime, retirement, pension system