How preferences shape the welfare and employment effects of trade

We set up a trade model with two countries, two sectors, and one production factor, which features a home-market effect due to the existence of trade costs. We consider search frictions and firm-level wage bargaining in the sector producing differentiated goods and a perfectly competitive labor market in the sector producing a homogeneous good. Consumers have price-independent generalized-linear preferences over the two types of goods, covering homothetic and quasi-homothetic preferences as two limiting cases. Due to the specific functional forms of indirect utility, homothetic preferences lead to risk aversion, while quasi-homothetic preferences lead to risk neutrality in our model. We show that trade between two countries that differ in their population size leads to an expansion of the differentiated goods sector and a contraction of the homogeneous good sector in the larger economy. This induces the larger country to net-export differentiated goods at the cost of a higher economy-wide rate of unemployment in the open economy (with the effects reversed for the smaller country). The welfare effects of trade depend on the preference structure. Looking at the two limiting cases, we show that the larger country is likely to benefit from trade if preferences are homothetic, whereas losses from trade are possible if preferences are quasi-homothetic. The opposite is true in the smaller country. This reveals an important role of preferences for the welfare effects of trade in the presence of labor market imperfection, a result we further elaborate on by considering more general preferences as well as differences of countries in their per-capita income levels.

Economic preferences and trade outcomes

Integrating the Global Preference Survey (GPS) and its data of unique scope on national preference structures in patience, risk attitude and reciprocity into a gravity framework, this paper is the first to explore a potential influence on international trade outcomes of economic and social preferences in a unified setting. Adding to the evidence on preferences’ importance for aggregate outcomes, the authors find marked differences in trade flows and relationships, both on the country-level and between bilateral partners. Their main results suggest that countries differing in their willingness to behave negatively reciprocal tend to trade significantly less amongst each other due to the destabilizing effect of unexpected punishments. On the other hand, countries that are patient or risk-averse tend to shift towards exporting more differentiated goods as opposed to homogeneous goods and vice versa. We propose term and risk transformation considerations as the driving mechanisms for this relationship.

The Role of Trust Indicators in a Digital Platform: A Differentiated Goods Approach in an Airbnb Market

We employed a differentiated goods market analysis where we utilized, in addition to the prevailing goods’ attributes, different types of the sellers’ attributes including trust indicators. We incorporated both sets of attributes into a structural model of the whole market including demand and pricing equations with the hotels as an outside good. Applying the model to Stockholm’s Airbnb market reveals that hosts’ attributes significantly affect market performance. Simulations of market scenarios show that the very high review scores and the Superhost certification help Airbnb compete with hotels and increase profitability. We also show that the “Airbnb plus” luxury program, which makes the apartments a closer substitute for hotels, leads to an increase in Airbnb’s market welfare. Our analysis provides a framework for understanding the full impact of the different attributes of the products, their providers, and their management in the sharing-economy accommodation market.

Using betweenness metrics to investigate the geographical distribution of retailers

In retailing, a location’s accessibility and attractiveness depends on the spatial distribution of other stores and consumers. In particular, the literature shows that a place is more attractive for retailers if the generic routes taken by consumers often cross it. However, previous studies failed to consider that there are at least two possible consumer routes: job commutes from residential to workplaces and shopping trips among stores. In this paper, we analyze the impact of both consumer routes on the commercial patterns in Turin. The paper demonstrates that daily commutes to workplaces do not benefit a retailer along the trip, as much as journeys for shopping purposes do. In particular, we show that the benefits that a store can have when localized on the routes depend on the kind of goods it sells. Finally, the paper shows that stores selling homogeneous products and stores selling differentiated goods subject to comparison can differently benefit from being located in population hotspots and in commercial areas.

The impact of ethnic diversity on the quality of exports: evidence from China

PurposeThe quality of exports is an important indicator of the economic development of a country. It is, therefore, important to understand its determinants. Existing literature reveals a number of determinants such as the position of a country, the distance to the trading partner, the size of the firm and the productivity or the quality of inputs. In this study, the author proposes a new determinant, namely ethnic diversity.Design/methodology/approachIn the first stage of this research, the author estimates the quality of exports following Berry (1994) approach. The author also addresses the endogeneity problem as suggested by Khandelwal (2010). The author’s measure of ethnic diversity follows Easterly and Levine (1997). In the second stage, the author regresses the estimated quality on the measure of ethnic diversity, interacted by the degree of differentiation of the goods.FindingsFirst, the author finds that ethnic diversity in general reduces the quality of exports. Second, the author finds that the impact varies with the degree of differentiation. In particular, while ethnic diversity decreases the quality of differentiated goods, it increases the quality of homogeneous goods.Research limitations/implicationsBecause of data limitations, the research cannot investigate the impact of migration.Practical implicationsThe findings of this paper show how one can improve the quality of products based on the characteristics of the population and of the products.Originality/valueIn the last decade, there has been growing attention paid to the impact of ethnic diversity on economic performance. As industrial powerhouses such as China continue to urbanize, stitching together once-disparate ethnic groups, the role ethnic diversity plays in the economic life of a country must be examined from a variety of angles. This paper is the first to investigate the specific impact of that diversity on product quality and on how diversity interacts with the characteristics of products.