NewGlobal Value Chains and Trade Policy 3 March 2025 Emily J. Blanchard, Chad P. Bown, and Robert C. JohnsonHow do global value chain (GVC) linkages modify countries’ incentives to impose import protection? Are these linkages important determinants of trade policy in practice? We develop a new approach to modeling tariff setting with GVCs, in which optimal policy depends on the nationality of value-added content embedded in home and foreign final goods.
NewIdentification and Inference in First-Price Auctions with Risk Averse Bidders and Selective Entry 3 March 2025 Xiaohong Chen, Matthew Gentry, Tong Li, and Jingfeng LuWe study identification and inference in first-price auctions with risk averse bidders and selective entry, building on a flexible framework we call the Affiliated Signal with Risk Aversion (AS-RA) model. Assuming exogenous variation in either the number of potential bidders (N) or a continuous instrument (z) shifting opportunity costs of entry, we provide a sharp characterization of the nonparametric restrictions implied by equilibrium bidding. This characterization implies that risk neutrality is nonparametrically testable.
NewInstitutions, Comparative Advantage, and the Environment 21 February 2025 Joseph S. ShapiroThis paper proposes that strong institutions provide comparative advantage in clean industries, and thereby improve a country’s environmental quality. I study financial, judicial, and labor market institutions. Five complementary tests evaluate and assess implications of this hypothesis. First, industries that depend on institutions are clean. Second, strong institutions increase relative exports in clean industries. Third, an industry’s complexity helps explain the link between institutions and clean goods.
NewA Network Formation Model Based on Subgraphs 21 February 2025 Arun G. Chandrasekhar and Matthew O. JacksonWe develop a new class of random graph models for the statistical estimation of network formation—subgraph generated models (SUGMs). Various subgraphs—e.g., links, triangles, cliques, stars—are generated and their union results in a network. We show that SUGMs are identified and establish the consistency and asymptotic distribution of parameter estimators in empirically relevant cases. We show that a simple four-parameter SUGM matches basic patterns in empirical networks more closely than four standard models (with many more dimensions).
NewSimultaneous Search and Adverse Selection 21 February 2025 Sarah Auster, Piero Gottardi, and Ronald WolthoffWe study the effect of diminishing search frictions in markets with adverse selection by presenting a model in which agents with private information can simultaneously contact multiple trading partners. We highlight a new trade-off: facilitating contacts reduces coordination frictions but also the ability to screen agents’ types. We find that, when agents can contact sufficiently many trading partners, fully separating equilibria obtain only if adverse selection is sufficiently severe. When this condition fails, equilibria feature partial pooling and multiple equilibria co-exist.
NewAffiliated Common Value Auctions with Costly Entry 21 February 2025 Pauli Murto and Juuso VälimäkiMany auctions and procurement contests entail nontrivial bidding costs, which makes the bidders’ participation decisions endogenous to the auction design. We analyze the effect of different auction rules on potential bidders’ incentives to participate. We focus on first-price auctions with affiliated common values and a large pool of potential bidders. Our main interest is on auctions where the realized number of bidders is unknown at the bidding stage.
NewIndustrial Policy Implementation: Empirical Evidence from China’s Shipbuilding Industry 18 February 2025 Panle Jia Barwick, Myrto Kalouptsidi, and Nahim Bin ZahurIndustrial policies are widely used across the world. In practice, designing and implementing these policies is a complicated task. In this paper, we assess the long-term performance of different industrial policy instruments, which include production subsidies, investment subsidies, entry subsidies, and consolidation policies. To do so, we examine a recent industrial policy in China aiming to propel the country’s shipbuilding industry to the largest globally.
NewArbitration with Uninformed Consumers 9 February 2025 Mark Egan, Gregor Matvos, and Amit SeruThis paper studies the impact of the arbitrator selection process on consumer outcomes. Using data from consumer arbitration cases in the securities industry over the past two decades, where we observe detailed information on case characteristics, the randomly generated list of potential arbitrators presented to both parties, the selected arbitrator, and case outcomes, we establish several motivating facts. These facts suggest that firms hold an informational advantage over consumers in selecting arbitrators, resulting in industry-friendly arbitration outcomes.
