Falling Trade Costs, Heterogeneous Firms, and Industry Dynamics

Approach to Dynamic Analysis in Industrial Organization This chapter offers a basic agent-based computational model of industry dynamics that allows us to study the evolving industry structure through entry and exit of heterogeneous firms. The field of modern industrial economics focuses on the structure and performance of the industry in equilibrium when firms make decisions in an optimizing way, typically with perfect foresight. The patterns that arise in the process of adjustment, induced by persistent external shocks, are often ignored for lack of a proper tool for analysis. The model introduced here induces turbulence in market structure through unpredictable shocks to the firms' technological environment. The base model presented here enables the analysis of interactive dynamics between firms as they compete in a changing environment with limited rationality and foresight. A possible extension of the base model, allowing for R&D by firms, is also discussed.

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Natural disasters and trade: the mitigating impact of port substitution

Journal of Economic Geography ◽

10.1093/jeg/lbz020 ◽

2019 ◽

Vol 20 (3) ◽

pp. 809-856 ◽

Cited By ~ 1

Author(s):

Masashige Hamano ◽

Wessel N Vermeulen

Keyword(s):

Natural Disasters ◽

Bilateral Trade ◽

Firm Heterogeneity ◽

Heterogeneous Firms ◽

Substitution Effect ◽

Trade Costs ◽

Product Categories ◽

Trade Model ◽

Domestic Trade ◽

The Cost

Abstract We study the effect of natural disasters on port-level exports. We model the interaction between firms and ports to study how strongly exports from one port are affected by changes in the cost of exporting at neighboring ports. We extend the standard trade model with heterogeneous firms to a multiple port structure where exporting is subject to port specific local transportation costs, port specific fixed export costs and international bilateral trade costs. We show that gravity distortion due to firm heterogeneity is conditional on the comparative advantage at the port level and resulting substitution of exports across ports. We present evidence of the substitution effect using the 2011 Great East Japan Earthquake, indicating that at least 40% of exports was substituted to other ports following the disaster. The substitution effect is the strongest in technology intensive product categories, which suggests an interaction between supply chains and domestic trade costs.

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Insurance Industry Dynamics

AIMR Conference Proceedings ◽

10.2469/cp.v1992.n4.13 ◽

1992 ◽

Vol 1992 (4) ◽

pp. 108-113

Author(s):

Wilson H. Taylor

Keyword(s):

Insurance Industry ◽

Industry Dynamics

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Changes in the Industry Dynamics

AIMR Conference Proceedings ◽

10.2469/cp.v1996.n6.7 ◽

1996 ◽

Vol 1996 (6) ◽

pp. 59-71

Author(s):

Christopher P. Dixon

Keyword(s):

Industry Dynamics

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Policy reforms and the reduction of trade costs

Trade Costs and Inclusive Growth: Case Studies Presented by WTO Chair-Holders ◽

10.30875/f9cd5cf1-en ◽

2018 ◽

Keyword(s):

Trade Costs ◽

Policy Reforms

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The Micro and Macro of Managerial Beliefs

10.31235/osf.io/fctsb ◽

2020 ◽

Cited By ~ 1

Author(s):

Jose Maria Barrero

Keyword(s):

Rational Expectations ◽

Asset Price ◽

Heterogeneous Firms ◽

Adjustment Costs ◽

Consumer Welfare ◽

Sales Growth ◽

Firm Level ◽

Managerial Decisions ◽

Managerial Beliefs ◽

Growth Volatility

This paper studies how biases in managerial beliefs affect managerial decisions, firm performance, and the macroeconomy. Using a new survey of US managers I establish three facts. (1) Managers are not over-optimistic: sales growth forecasts on average do not exceed realizations. (2) Managers are overprecise (overconfident): they underestimate future sales growth volatility. (3) Managers overextrapolate: their forecasts are too optimistic after positive shocks and too pessimistic after negative shocks. To quantify the implications of these facts, I estimate a dynamic general equilibrium model in which managers of heterogeneous firms use a subjective beliefs process to make forward-looking hiring decisions. Overprecision and overextrapolation lead managers to overreact to firm-level shocks and overspend on adjustment costs, destroying 2.1 percent of the typical firm’s value. Pervasive overreaction leads to excess volatility and reallocation, lowering consumer welfare by 0.5 to 2.3 percent relative to the rational expectations equilibrium. These findings suggest overreaction may amplify asset-price and business cycle fluctuations.

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