Endogenous Vertical Differentiation, Variety, and the Unequal Gains from Trade

How unequal are the gains from trade? This paper develops a structural framework to quantify the consequences of international trade on welfare of consumers across the income distribution, allowing for non-homothetic demand and endogenous quality choices by firms. Using random coefficients demand estimation techniques, I infer demand and supply parameters, as well as household-specific price indexes for more than 3,000 distinct industries and find the gains from trade to be moderately unequal except in wealthier and small economies. Further, not accounting for endogenous vertical differentiation would overstate the impact of trade on cost-of-living inequality by close to 50%.

Legal Environment and Contractual Choice

This paper considers contractual choice under imperfect legal systems, in particular, contracts with different timing of payment. Ex-ante payment contracts are risky for the buyer, because the seller may shirk. Ex-post payment contracts are risky for the seller, as the buyer may default. Optimal contract is solved for any given legal environment. Exchanges with lower gains from trade tend to adopt ex-post payment contracts. The seller is a better proposer than the buyer in terms of the efficiency of the proposed contract. Surprisingly, offering ex-ante payment contracts is not strictly better for the seller under any legal environment. Moreover, mixed payment contracts are also analyzed and shown to never be optimal.

Bioethics, Rent-Seeking, and Death: Examining the Opposition to Kidney Markets

The market for kidneys offers a case study of Baptists and Bootleggers. In almost every country, sales are currently illegal and donated organs are allocated by a central planner. Thousands of people die every year, because of the shortage caused by the absence of markets. This paper starts by examining the free-market alternative, and shows that a market would solve the shortage (and thus unnecessary deaths). It then uses gains-from-trade analysis to explain why current vested interests oppose a move to a market, despite the immense potential for saved lives. In a shift to a market, gains from trade would be distributed away from lucky patients (who receive a zero-price kidney) and various industries that benefit from the shortage (dialysis, medical equipment, etc.); these “Bootleggers” form an alliance with “Baptists” (altruistic donors, large segments of the bioethics community, and organ allocation central planners).

The Transactional Asset Pricing Approach(TAPA): Incorporation of Leverage and Derivation of Extended Ellwood Formula with Fixed Leverage Benefits

The Paper discusses the derivation of the Ellwood formula on the basis of the Transactional Asset Pricing approach to valuation (TAPA) and proceeding from the dynamic principle of transactional equity-in-exchange. Discussing the notion of leverage, it introduces a formulation, in capitalized value terms, and measurement, for leverage benefits to a property purchaser. It is found that such a measure for the Ellwood formula is always zero, essentially obviating any-gains-from-trade to the purchasers of property to be had on account of leveraged transactions. To address this weakness in the Ellwood formula, a modified formula is proposed, which accounts for the requirement of positivity of leverage benefits to the purchaser of property.