Eric W. Bond

The size of trading blocs Market power and world welfare effects

Abstract We construct an n -country n -commodity trade model to analyze the implications of bloc size for (Nash) equilibrium tariffs and welfare. The relationship between the absolute size of (symmetric) trading blocs and their market power is ambiguous, and we illustrate how this relationship varies with model parameters. In contrast, sufficiently large increases in the relative size of a bloc enhance its relative market power and cause the welfare of its country members to rise above the free trade level. We establish the existence of an optimal bloc size, and study the dependence of optimal size on the parameters of the model.

Durable Good Monopolies with Rational Expectations and Replacement Sales

A monopoly producer of a durable good is examined under the (previously uninvoked) assumption that the good depreciates, and hence that replacement sales must occur if a fixed stock of the good is to be maintained. We find two ways in which the no-depreciation result, that the monopoly will always (at least eventually) produce a stock equal to that produced by a competitive market, may not hold. If the length of the trading period is nonzero, the limiting stock produced by the firm will be lower than the competitive stock, to ensure the profitability of future replacement sales. If the firm is able to constrain its production capacity, it may choose a constraint that always binds in the sense that it will be impossible for the firm to achieve a stock equal to the competitive stock.

Strategic Behaviour and the Rules for International Taxation of Capital

This paper examines the welfare of a capital exporting or source country and a capital importing or host country under tax credit and tax deduction systems for the international taxation of capital. Because the two tax systems may create quite different strategic incentives for the countries, the authors compare the equilibria in the tax-setting game played by the two countries under each system. They find that the tax credits system introduces an antitrade bias into the equilibrium, contrary to initial impressions, and that both capital exporting and capital importing countries will prefer the tax-deductions scheme to tax credits. Copyright 1989 by Royal Economic Society.

A Strategic and Welfare Theoretic Analysis of Free Trade Areas

Abstract We construct a three-country model to determine how the formation of free trade areas (FTAs) affects optimal tariffs and welfare. We find that, at constant rest of the world (ROW) tariffs, the adoption of internal free trade induces union members to reduce their external tariffs below the Kemp–Wan [J. Int. Econom. 6 (1976) 95–97] level, and causes ROWs terms of trade to improve and its welfare to rise. When ROW also behaves optimally, its policy response to the formation of the FTA is to raise tariffs. Generally, FTA members prefer to liberalize internal trade partially and find regional integration appealing only if their collective size is sufficiently large. We also demonstrate how FTAs may undermine the attainment of global free trade.

Hardball and the soft touch: The economics of optimal insurance contracts with costly state verification and endogenous monitoring costs

Abstract We examine an environment of costly state verification in which insureds possess private information about the magnitude of an insurable loss. Insurers can verify the actual loss suffered only by incurring a positive resource cost, and insureds may verification and may lead to more generous settlements. Optimal insurance contracts are shown to mitigate the incentives to evade by a combination of incentives, which include the overpayment of easily monitored losses and undercompensation for claims exhibiting higher verification costs.

Deepening of Regional Integration and Multilateral Trade Agreements

We consider a simple three-country, multi-commodity trade model in which two custom union members that have successfully coordinated their external tariff policies are in the process of deepening the integration of their internal markets through the removal of tariffs on intra-union trade. Union and non-union countries cannot sign binding trade agreements. Owing to repeated interactions, however, they can sustain cooperative outcomes with the use of history-dependent strategies. The goal of this paper is to examine how the deepening of integration affects the set of incentive-compatible tariff agreements these parties can support. We derive conditions under which Kemp-Wan (1976) adjustments in the external tariffs of union members are sustainable and we use these adjustments as a frame of reference to evaluate the actual tariff-setting incentives of trading partners. Our analysis reveals that the deepening of integration may enlarge the set of sustainable tariff agreements with the outside country, and that this possibility crucially depends on the degree of substitutability in consumption. We also investigate the effects of integration on sustainable levels of welfare and extend our analysis to consider the effects of political economy factors.

Gradualism in Trade Agreements with Asymmetric Countries

This paper uses recursive methods to characterize the payoff frontier of self-enforcing trade agreements between countries of asymmetric size. We show that at points on the frontier where only one countrys incentive constraint binds, the efficient agreement will be a non-stationary one that starts with a positive trade distortion but eventually reaches free trade. Our analysis illustrates how (i) relative country size, (ii) consumption smoothing incentives, and (iii) sunk investments affect the form of efficient trade agreements. In contrast to previous work on gradualism, our results are obtained from a model in which the economic environment is stationary. Copyright 2002, Wiley-Blackwell.

Regulation of multinational firms with two active governments: A common agency approach

Abstract When a government agency imposes cost-based taxes/ regulations on a multinational with private cost information, it may initiate countervailing regulations by another of the governments with which the multinational interacts. We analyze the problem of optimal regulation of a multinational under incomplete cost information (via trade taxes) by multiple governments as a problem of common agency with adverse selection. By focusing on the game played by the competing governments we characterize the equilibrium trade taxes and show that the non-cooperative behavior of the governments not only reduces aggregate national welfare but also reduces firm profits.

A Hedonic Approach To Residential Succession

A model of neighborhood turnover drawn from Bond and Coulson (1989) is proposed. The type of turnover process that is obtained is shown to depend mainly on the hedonic bid functions for housing and neighborhood quality. A demand system of four hedonic attributes is estimated. The main results are that the traditional model of filtering by age of unit does not occur and that filtering by housing size does. Tipping due to changes in median neighborhood income is also quite possible. Tipping through changes in racial composition appears less likely. Copyright 1990 by MIT Press.

Tax Holidays and Industry Behavior

effects of the tax holiday program in Puerto Rico on the behavior of firms locating there. The tax holiday program in Puerto Rico was initiated in 1949, and is often cited as the most successful example of the use of incentives to encourage the location of industry. Discussions of the costs and benefits of this type of program generally focus