State-Owned Enterprises, Shirking and Trade Liberalization

We explore the implications of trade liberalization in economies with State Owned enterprises (SOEs) and shirking. SOEs are modelled as controlled by the members of the enterprise who determine output and effort levels, while facing output prices and wage rates set by government. Enterprise members must collectively meet a budget constraint that the value of sales equals the enterprise wage bill plus an exogenous enterprise commitment to the state budget. Labour can shirk either through low on the job effort (leisure), or through moonlighting to second jobs in the private sector. Three alternative formulations of equilibria in SOE economies are explored, and in these trade liberalization can produce effects opposite from conventional competitive models. In particular, the output of import competing SOEs increases rather than falls, and negative effects on imports can also occur. These models when calibrated to 1995 data for Vietnam also suggest quantitatively much larger impacts from trade liberalization than is the case for comparable conventional competitive models. This is because departures from Pareto optimality in SOE economies can be large and trade liberalization acts to discipline shirking associated with these inefficiencies. The implication we draw from our analysis is that to evaluate policy initiatives, such as trade liberalization, in developing and transition economies without explicitly recognizing the role that SOE's can play may be misleading. This is especially the case where SOEs account for a significant fraction of economic activity and shirking is involved.

State-Owned Enterprises, Shirking and Trade Liberalization

We explore the implications of trade liberalization in economies with State Owned enterprises (SOEs) and shirking. SOEs are modelled as controlled by the members of the enterprise who determine output and effort levels, while facing output prices and wage rates set by government. Enterprise members must collectively meet a budget constraint that the value of sales equals the enterprise wage bill plus an exogenous enterprise commitment to the state budget. Labour can shirk either through low on the job effort (leisure), or through moonlighting to second jobs in the private sector. Three alternative formulations of equilibria in SOE economies are explored, and in these trade liberalization can produce effects opposite from conventional competitive models. In particular, the output of competing SOEs increases rather than falls, and negative effects on imports can also occur. These models when calibrated to 1995 data for Vietnam also suggest quantitatively much larger impacts from trade liberalization than is the case for comparable conventional competitive models. This is because departures from Pareto optimality in SOE economies can be large and trade liberalization acts to discipline shirking associated with these inefficiencies. The implication we draw from our analysis is that to evaluate policy initiatives, such as trade liberalization, in developing and transistion economies without explicitly recognizing the role that SOEs can play may be misleading. This is especially the case where SOEs account for a significant fraction of economic activity and shirking is involved.Shirking, state owned enterprises, trade liberalization

Endogenous Effort and Intersectoral Labour Transfers Under Industrialization

This paper discusses the welfare and one time growth effects from the intersectoral labour transfers that typically accompany early industrialization in the developing countries, suggesting that endogenous determination of effort is key to evaluating their significance. The significance of these transfers for growth performance has been discussed in recent literature, which focuses on capital accumulation as the engine of growth. We begin with traditional Lewis models, where an efficiency gain results from transferring labour from the traditional (family based) agricultural sector, in which labour receives its average product, to the modern (industrial) sector in which labourers are paid their marginal product. We show that as one moves closer to Pareto Optimality in this system (say by taxing the traditional sector's output), there is a gain but this is typically small. We then formulate Lewis type models in which the product of effort and labour enters each sector's production functi..

State-owned enterprises, shirking and trade liberalization

We explore the implications of trade liberalization in economies with State Owned enterprises (SOEs) and shirking. SOEs are modelled as controlled by the members of the enterprise who determine output and effort levels, while facing output prices and wage rates set by government. Enterprise members must collectively meet a budget constraint that the value of sales equals the enterprise wage bill plus an exogenous enterprise commitment to the state budget. Labour can shirk either through low on the job effort (leisure), or through moonlighting to second jobs in the private sector. Three alternative formulations of equilibria in SOE economies are explored, and in these trade liberalization can produce effects opposite from conventional competitive models. In particular, the output of import competing SOEs increases rather than falls, and negative effects on imports can also occur. These models when calibrated to 1995 data for Vietnam also suggest quantitatively much larger impacts from trade liberalization than is the case for comparable conventional competitive models. This is because departures from Pareto optimality in SOE economies can be large and trade liberalization acts to discipline shirking associated with these inefficiencies. The implication we draw from our analysis is that to evaluate policy initiatives, such as trade liberalization, in developing and transition economies without explicitly recognizing the role that SOE’s can play may be misleading. This is especially the case where SOEs account for a significant fraction of economic activity and shirking is involved

Evaluating Tax Reform in Vietnam Using General Equilibrium Methods

In this paper we use a general equilibrium model of Vietnam, calibrated to 1995 data, to analyze tax reform options for Vietnam. We focus on aggregate welfare impacts as well as welfare of household groups ranked by income. The main focus is on indirect tax reform (VAT), but we also examine reforms in the external sector given both the revenue importance of the tariff and the role of tariffs in protecting domestic industry. Our numerical general equilibrium model is used to perform a series of counterfactual experiments around the 1995 base data, and we use a small country assumption with Armington differentiation between imports and domestic products. Results indicate that there are gains to Vietnam from indirect tax reform, but the redistributive effects associated with these reforms are large and tend to swamp the aggregate effects. There is a sharp redistribution against those with lower income and who spend a significant fraction of their income on previously non-taxed products, and redistribution in favour of those spending larger fractions of their income on earlier high taxed products; especially the richer households. This theme of regressivity of indirect tax reform comes through even more strongly in the case of international trade based reforms involving the tariff than is the case for domestic sales tax reform

Adaptive Strategies of Firms in High-Velocity Environments: The Case of B2B Electronic Marketplaces

Electronic marketplaces operate in highly dynamic environments. B2B (Business-to-business) e-Commerce (Electronic Commerce) is expanding rapidly, but Independent Internet based Electronic Marketplaces (IBEM) have passed through periods of boom and bust. In start-up entrepreneurial ventures such as IBEMs, adaptation is critical than at any other stage in the life cycle and hence the ability to learn and adapt becomes a key competency. The research uses the resource-based theory as a means of analyzing the evolution and adaptation of the resources and capabilities of IBEMs and the sustainability of competitive advantage. We use four case studies to trace the pattern of adaptation as well as identify the variables. Based on the inputs from this, we use a comprehensive sample of 135 IBEMs across various geographic regions covering 15 industry segments. The findings of this study provide key managerial insights into various issues that are important to IBEMs in particular and start-up entrepreneurial firms operating in highly dynamic environments in general. These include the stages of evolution and the sources or the lack of competitive advantage at each stage, the type of resources and capabilities, which need to be built, the type of complementary assets, which needs to be leveraged and the degrees of adaptation at various stages

The Value of MFN Treatment

We discuss most favoured nation (MFN) treatment in trade agreements, suggesting that its value to individual countries depends critically on the relevant model solution concept used to evaluate it. We analyze both rights to MFN treatment in foreign markets, and the obligation to grant MFN treatment in home markets; the heart of the post-war GATT/WTO multilateral trading system. In a traditional competitive equilibrium framework, MFN gives benefits to small countries in being able to free ride on bilateral tariff concessions exchanged between larger countries in GATT/WTO negotiating rounds. In a non-cooperative Nash equilibrium framework, MFN restrains retaliatory actions to be non-discriminatory. In a co-operative bargaining framework in which trade policies are jointly set, MFN changes the threat point and hence affects the bargaining solution. We use a calibrated numerical model of global trade in which we compute all three solution concepts and compare MFN and non MFN equilibria for each. We use the GTAP (1992) data base, concluding that quantitatively the most significant effect of MFN seems to be in its impact on bargaining rather than on competitive and Nash equilibrium solutions; being beneficial to smaller countries.