The 2008 Financial Crisis and the Lack of Retaliatory Trade Intervention

The 2008 financial crisis did not precipitate global retaliatory trade intervention, in seeming contrast to the Great Depression in 1930s. This article discusses the influence of model structure in optimal tariff (OT) calculations in explaining this puzzle. We emphasize how earlier literature reports high OTs in numerical calculation (of a hundred percent) but only uses simple trade models. We use numerical general equilibrium (GE) calibration and simulation methodology to calculate OTs both with and without retaliation in a series of observationally equivalent models and explore the influence of model structures on OT levels. We gradually add more realistic features into the basic GE model, and show sharply declined OTs, which suggests that trade retaliation incentives effectively disappear with the deepening of globalization in 2008 compared to 1930. (JEL codes: F11, C63, F13).

OPTIMAL TRADE POLICIES UNDER PRODUCT DIFFERENTIATIONS

This article focuses on the optimal international trade policy considered product differentiations. A duopoly model with a home firm in a developing country and a foreign firm in a developed country is established. The findings indicate that, the optimal tariff relies on the product differentiations significantly. On one hand, higher marginal cost of home firms have opposite effects on optimal tariff compared to higher marginal cost of foreign firms. On the other hand, the optimal tariff is monotonically decreasing in the amount of consumers caring about brands and increasing in the scale of consumers not caring about brands. Moreover, an increase in the marginal cost and transportation cost of imported goods triggers price rising in domestic market as the market power of home firms is consolidated. In addition, a foreign firm may withdraw from domestic market if its competitive advantages vanishes under high tariffs.

Regulatory Schemes on Public Transport

Regulatory schemes have remained an open question about the implementation of an urban bus system. Because of the introduction of a higher private initiative within these systems, the expectation of increased patronage has not been met. Hence, studying the effect of regulation on innovation becomes the first objective of this research because innovative solutions may help to attract users. To fulfill that objective, an analysis of innovative capabilities was carried out. The aim was to understand the gap between potential and practical innovation on the authorities and operators. The second objective was to use theoretical modeling to find the effect of payment schemes on frequency and bus size. Both analyses used as a case study the experience of Transantiago in Santiago, Chile. Innovation proved to be dependent on the regulatory scheme in which an operation was framed. Both authorities and operators showed the existence of innovative capabilities dependent on the perceived incentives. Trusting cooperation was an aspect that might have encouraged some types of innovation, such as route design. Analytical solutions showed that as in the experience of Transantiago, supply-based payments provided higher frequency and smaller bus size than fixed payments. Finally, an optimal tariff gave incentives to the operators to provide socially optimal levels of frequency and bus size for a certain demand level.