Working Papers
Quality Heterogeneity and Misallocation: The Welfare Benefits of Raising your Standards. May, 2020 (under review) (with Ariel Weinberger)
The Planner's Allocation The CES case Other VES Preferences
Inefficient allocation of production across heterogeneous firms is a major source of welfare loss, but frameworks generally ignore policies that reduce the misallocation. We study the welfare effects of policies that target the selection of surviving firms. As an example of such policies, we focus on product standards that force the small, low-quality firms to exit the market. Using data from Chile, we find that more restrictive standards are associated with a reallocation of domestic sales from small to large firms. Guided by this evidence, we study the welfare effects of standards in a model with monopolistically competitive, heterogeneous firms, and a general demand system. The standard improves welfare if low-quality firms over-produce in the market allocation relative to the efficient allocation. We estimate our model across Chilean industries and find that in several instances the imposed standard is too restrictive relative to a theoretical upper bound. Economy-wide, there are substantial possible welfare gains from moving to the optimal policy.
Inefficient allocation of production across heterogeneous firms is a major source of welfare loss, but frameworks generally ignore policies that reduce the misallocation. We study the welfare effects of policies that target the selection of surviving firms. As an example of such policies, we focus on product standards that force the small, low-quality firms to exit the market. Using data from Chile, we find that more restrictive standards are associated with a reallocation of domestic sales from small to large firms. Guided by this evidence, we study the welfare effects of standards in a model with monopolistically competitive, heterogeneous firms, and a general demand system. The standard improves welfare if low-quality firms over-produce in the market allocation relative to the efficient allocation. We estimate our model across Chilean industries and find that in several instances the imposed standard is too restrictive relative to a theoretical upper bound. Economy-wide, there are substantial possible welfare gains from moving to the optimal policy.
Flexibility and Productivity: Towards the Understanding of Firm Heterogeneity. May, 2020 (under review) (with Mingzhi Xu)
Online Appendix
We study the heterogeneity in scope and sales across multi-product firms. Guided by new firm-level evidence using China's customs data, we build a general-equilibrium model featuring firm heterogeneity in productivity and in flexibility, namely the ability to introduce new varieties in a destination at low costs. We estimate our model, finding suggestive evidence of a trade-off between productivity and flexibility: more productive firms are likely to be less flexible, as they pay higher fixed costs to introduce new varieties. The properties of such trade-off between productivity and flexibility are heterogeneous across industries. Our quantitative analysis shows that flexibility is the main determinant of a firm's scope, and ignoring it causes a large underestimation of the effects of changes in trade costs.
We study the heterogeneity in scope and sales across multi-product firms. Guided by new firm-level evidence using China's customs data, we build a general-equilibrium model featuring firm heterogeneity in productivity and in flexibility, namely the ability to introduce new varieties in a destination at low costs. We estimate our model, finding suggestive evidence of a trade-off between productivity and flexibility: more productive firms are likely to be less flexible, as they pay higher fixed costs to introduce new varieties. The properties of such trade-off between productivity and flexibility are heterogeneous across industries. Our quantitative analysis shows that flexibility is the main determinant of a firm's scope, and ignoring it causes a large underestimation of the effects of changes in trade costs.
Oligopoly and Oligopsony in International Trade. March, 2020 (under review) (with Vladimir Tyazhelnikov)
We study the effects of international trade on firms' oligopsony power in inputs markets. Combining international trade data with measures of market concentration, we find that higher oligopsony power is associated with higher unit prices of export goods, and this effect is much larger than the effect of oligopoly power in final goods markets. We build a theoretical model of international trade in which firms are oligopolists in the market for final goods and oligopsonists in the market for inputs. Trade liberalization in one market reduces firms' market power in such market, but it has the opposite effect in the other market. In particular, international trade between oligopolists in final goods markets causes oligopsony power to increase. Calibrating our model for the US, we find that the reduction in domestic markups generated by international trade are 30-50% lower due to the presence of oligopsony power.
Quality Misallocation, Trade, and Regulations. February 2020 (under review) (with Ariel Weinberger) (video presentation)
Domestic regulations on product standards are a key point of contention in modern trade agreements. We study the effects of international trade on the optimal level of restrictiveness of regulations in a multi-country model of monopolistically competitive firms that are heterogeneous in quality. We model regulations as a fixed cost that any firm selling to an economy must pay, consistent with stylized facts that we present. The fixed cost improves allocative efficiency, by forcing the exit of low-quality firms and reallocating production towards high-quality firms. Furthermore, the fixed cost generates a positive externality on the rest of the world. Our main finding is that international trade and regulations are complements: a reduction in trade costs reduces the optimal restrictiveness of regulations. We estimate our model and quantify the welfare consequences of imposing the optimal regulation, the extent of the positive externalities across countries, and the reduction in trade costs required to achieve equivalent welfare gains.
Large Multiproduct Exporters Across Rich and Poor Countries: Theory and Evidence.
December, 2019 (under review)
Online Appendix
I study the welfare effects of trade in the presence of large firms producing multiple varieties. Large multiproduct exporters dominate trade flows and their scope decisions have new implications for the welfare gains from trade. Using data from the Exporter Dynamics Database, I document two stylized facts for large multiproduct exporters: 1) the product scope increases with the level of development of the destination proxied by per capita income, and 2) as evidence of cannibalization effects, there exists a non-monotone, hump-shaped relationship between the product scope and market share of a firm. Guided by the evidence, I build a model in which income and cannibalization effects drive the scope decisions of large firms, and derive a new formula for the welfare gains from trade. Ignoring income or cannibalization effects causes mismeasurement of the US welfare gains. The sign and size of the mismeasurement is highly heterogeneous across industries.
I study the welfare effects of trade in the presence of large firms producing multiple varieties. Large multiproduct exporters dominate trade flows and their scope decisions have new implications for the welfare gains from trade. Using data from the Exporter Dynamics Database, I document two stylized facts for large multiproduct exporters: 1) the product scope increases with the level of development of the destination proxied by per capita income, and 2) as evidence of cannibalization effects, there exists a non-monotone, hump-shaped relationship between the product scope and market share of a firm. Guided by the evidence, I build a model in which income and cannibalization effects drive the scope decisions of large firms, and derive a new formula for the welfare gains from trade. Ignoring income or cannibalization effects causes mismeasurement of the US welfare gains. The sign and size of the mismeasurement is highly heterogeneous across industries.
Large Firms in Retail Markets: Multiple Products for Heterogeneous Consumers. October 2019 (with Mingzhi Xu and Robert C. Feenstra)
We study the ability of firms of various sizes to cater to the tastes of different consumer niches. In the presence of consumer niches with heterogeneous tastes, firm performance depends on the appeal of each product in each niche. The selection of products to cater to the taste of one or many niches allows firms to influence their product appeal. Using data on purchases at the household-barcode level from Nielsen, we cluster consumers into niches according to their consumption purchases within the product category of toothpaste. We model product appeal as a demand shifter, which we decompose into a common component and a niche specific component that captures the taste of the niche for a given product. Our main finding is that large firms exploit their greater scope to cater to the tastes of several niches. Furthermore, large firms have mainstream products that are highly valued across niches. In contrast, small firms exploit the taste heterogeneity of niches by offering highly personalized products focused for a few profitable niches.
Publications
Has the Euro Shrunk the Band? Relative PPP Convergence in a Currency Union. January 2020, accepted at Scandinavian Journal of Economics
Online Appendix
I study the effects of entry to the European Monetary Union (EMU) on relative PPP convergence using monthly disaggregated price indexes from 32 European countries from 1999 to 2016. I apply Heckscher's insight that transaction costs create bands of inaction in which price differences are not arbitraged away. I examine the entry of Cyprus, Malta, Slovakia, and Slovenia to the EMU, and estimate the bands of inaction before and after entry using a threshold autoregressive model. I find a positive effect of the EMU on relative PPP convergence: after entry the bands of inaction with EMU members fell by 17%. Cross sectional evidence further confirms the result and supports the theoretical prediction that bands of inaction are related to transaction costs.
I study the effects of entry to the European Monetary Union (EMU) on relative PPP convergence using monthly disaggregated price indexes from 32 European countries from 1999 to 2016. I apply Heckscher's insight that transaction costs create bands of inaction in which price differences are not arbitraged away. I examine the entry of Cyprus, Malta, Slovakia, and Slovenia to the EMU, and estimate the bands of inaction before and after entry using a threshold autoregressive model. I find a positive effect of the EMU on relative PPP convergence: after entry the bands of inaction with EMU members fell by 17%. Cross sectional evidence further confirms the result and supports the theoretical prediction that bands of inaction are related to transaction costs.
Work in Progress
Multiproduct Firms, Market Size, and Competition (with Frederic Warzynski)
Publications - Pre Ph.D.
Exchange Rate Devaluation and Reshuffling of Global Jobs (with F. Sdogati). Journal of Economic Integration, 2013; 28(2):241-268. Awarded the Dae-Yang Prize for best article in 2013.
Other work
Published on ISPI (Italian Institute For International Political Studies)
Midterm elections: economia in ripresa eppure... October, 2014 (in Italian)
Le chances di Obama appese al filo della ripresa economica October, 2012 (in Italian)
Usa, cercasi stimolo fiscale per una rielezione June, 2012 (in Italian)
Midterm elections: economia in ripresa eppure... October, 2014 (in Italian)
Le chances di Obama appese al filo della ripresa economica October, 2012 (in Italian)
Usa, cercasi stimolo fiscale per una rielezione June, 2012 (in Italian)