Nonuniqueness of solutions in applied general equilibrium models with scale economies and imperfect competition

Applied general equilibrium models with imperfect competition and economies of scale have been extensively used for analyzing international trade and development policy issues. They offer a natural framework for testing the empirical relevance of propositions from the industrial organization and new trade theoretical literature. This paper warns model builders and users that considerable caution is needed in interpreting the results and deriving strong policy conclusions from these models: in this generation of applied general equilibrium models, nonuniqueness of equilibria is not a theoretical curiosum, but a potentially serious problem. Disregarding this may lead to dramatically wrong policy appraisals.Competition ; Economies of scale

On sunk costs and trade liberalization in applied general equilibrium

We argue that the rationalization gains often predicted by static applied general equilibrium models with imperfect competition and scale economies are artificially boosted by an unrealistic treatment of fixed costs. We introduce sunk costs into one such model calibrated with real-world data. We show how this changes the oligopoly game in a way significant enough to affect, both qualitatively and quantitatively, the outcome of a trade liberalization exercise.Free trade

On linking microsimulation and applied GE by exact aggregation of heterogeneous discrete-choice making agents

Our paper contributes to bridge the gap between the microsimulation’s approach and applied GE models, by making use of exact aggregation results from the discrete choice literature: heterogeneous individuals choosing (possibly continuous amounts) within a set of discrete alternatives may be aggregated into a representative agent with CES/CET preferences/technologies. These results therefore provide a natural link between the two policy evaluation approaches. We illustrate the usefulness of these results by evaluating potential effects of population ageing on the dynamics of income distribution and inequalities, using a simple OLG model when individuals have to make leisure/work decisions, and choose a profession among a discrete set of alternatives.Microsimulation; Applied OLG models; Exact aggregation; Discrete choice; Population ageing; Income inequality

On Turkey's European Trade Policy: How Desirable is a Status Quo

International Relations/Trade,

A Simple Model of Offshore Outsourcing,Technology Upgrading and Welfare

We adapt Yeaple's (2005) heterogeneous agents framework to model firms in the North as making explicit offshore outsourcing decisions to cheap-labor economies. Globalization results from a lowering of the set-up costs incurred when engaging in offshore activities. We highlight how firms'technology transformations due to global- ization will induce skill upgrading in the North, increase aggregate productivity, av- erage wages and therefore total welfare at the cost of increased wage inequalities. We analytically derive mild conditions under which all consumers-including lower-skilled workers-will nevertheless gain from the surge of offshore outsourcing. A parameter- ized version of the model roughly calibrated on U.S. data is then numerically explored and confirms our positive welfare predictions.Offshore outsourcing; Globalization; Skill upgrading, Technology upgrading; Firm heterogeneity

Fixing the EU Democratic Deficit: An Instrumental View of Citizenship?

Introduction: One of the main contributions of sociological approaches to the academic debates about the European Union (EU) democratic deficit is to focus on the social acceptance of the EU. Nowadays, EU institutions themselves seem to share the same focus on citizens’ subjective perceptions. Indeed, fostering a sense of belonging to the EU becomes one of the strategies to fix the EU democratic deficit and strengthen its legitimacy. For EU institutions, it is necessary to bring the citizen closer to the EU as this would provide, at least partly, the solution to the democratic deficit. Hence, sociological approaches should now widen their focus, so to include the effects and adequacy of these EU policies among their research objects. Our paper aims at furthering sociological approaches by taking into account at the same time citizens’ perceptions and European institutions’ policies engaging with these representations. We argue that the vision of citizenship promoted by EU institutions through different policies is very often reduced to its instrumental dimension

On Turkey's trade policy: Is a customs union with Europe enough?

Cataloged from PDF version of article.Turkey has decided to harmonize its tarification structure with that of the European Union. For the country's authorities, this move to a Customs Union is only meant to be the first step toward integration in the European Union. There are signs, however, that political opposition to the government's procompetitive stance may be strong enough to block any further move toward fuller trade liberalization. We show, using applied intertemporal GE analysis, that to be welfare improving, the trade reform would have to be pursued further and nontariff barriers on European trade removed. Failure to do so could be more detrimental to domestic welfare than no reform at all. (C) 1997 Elsevier Science B.V

Temporal aggregation in a multi-sector economy with endogenous growth

We provide a theoretical treatment of temporal aggregation in models that exhibit long-term endogenously-generated steady growth; hence generalizing our previous analysis (Econometrica 62, 1994, pp. 635-56). We introduce the property of steady-growth invariance - that the long-term growth of the continuous-time economy not be affected by the discretization - which imposes consistency restrictions on the joint formulation of preferences and stock accumulation of the discrete-time approximation. We establish, under mild conditions, these restrictions in the form of necessary and sufficient conditions on the discretization.Economic development