Calibrating a CGE model with NTBs that Incorporates Standard Models of Modern Trade Theory

We propose a way to incorporate NTBs for the four workhorse models of the modern trade literature in computable general equilibrium models (CGEs). CGE models feature intermediate linkages and thus allow us to study global value chains (GVCs). We show that the Ethier-Krugman monopolistic competition model, the Melitz firm heterogeneity model and the Eaton and Kortum model can be defined as an Armington model with generalized marginal costs, generalized trade costs and a demand externality. As already known in the literature in both the Ethier-Krugman model and the Melitz model generalized marginal costs are a function of the amount of factor input bundles. In the Melitz model generalized marginal costs are also a function of the price of the factor input bundles. Lower factor prices raise the number of firms that can enter the market profitably (extensive margin), reducing generalized marginal costs of a representative firm. For the same reason the Melitz model features a demand externality: in a larger market more firms can enter. We implement the different models in a CGE setting with multiple sectors, intermediate linkages, non-homothetic preferences and detailed data on trade costs. We find the largest welfare effects from trade cost reductions in the Melitz model. We also employ the Melitz model to mimic changes in Non tariff Barriers (NTBs) with a fixed cost-character by analysing the effect of changes in fixed trade costs. While we work here with a model calibrated to the GTAP database, the methods developed can also be applied to CGE models based on the WIOD database.

Non-tariff barriers, integration and the transatlantic economy

We examine the potential impact of TTIP through trade-cost reductions, applying a mix of econometric and computational methods to develop estimates of the benefits (and costs) for the EU, United States, and third countries. Econometric results point to an approximate 80% growth in bilateral trade with an ambitious trade agreement. However, at the same time, computable general equilibrium (CGE) estimates highlight distributional impacts across countries and factors not evident from econometrics alone. Translated through our CGE framework, while bilateral trade increases roughly 80%, there is a fall of about 2.5% in trade with the rest of the world in our central case. The estimated gains in annual consumption range between 1% and 2.25% for the United States and EU, respectively. A purely discriminatory agreement would harm most countries outside the agreement, while the direction of third-country effects hinges critically on whether NTB reductions end up being discriminatory or not. Within the United States and EU, while labour gains across skill categories, the impact on farmers is mixed.

Treatment of hyperactive children: increased efficiency through modifications of homeopathic diagnostic procedure

BACKGROUND: The rigorous test to which homeopathy was subject in our recent double-blind clinical trail of homeopathic treatment of attention deficit hyperactivity disorder (ADHD) necessitated optimized treatment meeting the highest standards. METHODS: Optimization was performed in three steps: (1) In successfully treated children, prescriptions leading to an insufficient response were analysed by a general questionnaire to identify unreliable symptoms. (2) Polarity analysis, a further development of Bönninghausen's concept of contraindications, was introduced in response to the frequently one-sided symptoms. This enabled us to use few but specific symptoms to identify the medicine whose genius symptoms exhibit the closest match to the patient's characteristic symptoms. (3) We investigated the influence of the primary perception symptoms on the result of the repertorization. Perception symptoms are not normally recorded during a patient interview even though they are among the most reliable facts related by the patients. At the same time we were able to improve the continuity of improvement of ADHD symptoms using liquid Q-potencies. RESULTS: Introducing the questionnaire, polarity analysis, and including perception symptoms, lead to an improvement in the success rate of the first prescription from 21% to 54%, of the fifth prescription from 68% to 84%.

Younger Dryas and Allerød summer temperatures at Gerzensee (Switzerland) inferred from fossil pollen and cladoceran assemblages

Linear- and unimodal-based inference models for mean summer temperatures (partial least squares, weighted averaging, and weighted averaging partial least squares models) were applied to a high-resolution pollen and cladoceran stratigraphy from Gerzensee, Switzerland. The time-window of investigation included the Allerød, the Younger Dryas, and the Preboreal. Characteristic major and minor oscillations in the oxygen-isotope stratigraphy, such as the Gerzensee oscillation, the onset and end of the Younger Dryas stadial, and the Preboreal oscillation, were identified by isotope analysis of bulk-sediment carbonates of the same core and were used as independent indicators for hemispheric or global scale climatic change. In general, the pollen-inferred mean summer temperature reconstruction using all three inference models follows the oxygen-isotope curve more closely than the cladoceran curve. The cladoceran-inferred reconstruction suggests generally warmer summers than the pollen-based reconstructions, which may be an effect of terrestrial vegetation not being in equilibrium with climate due to migrational lags during the Late Glacial and early Holocene. Allerød summer temperatures range between 11 and 12°C based on pollen, whereas the cladoceran-inferred temperatures lie between 11 and 13°C. Pollen and cladocera-inferred reconstructions both suggest a drop to 9–10°C at the beginning of the Younger Dryas. Although the Allerød–Younger Dryas transition lasted 150–160 years in the oxygen-isotope stratigraphy, the pollen-inferred cooling took 180–190 years and the cladoceran-inferred cooling lasted 250–260 years. The pollen-inferred summer temperature rise to 11.5–12°C at the transition from the Younger Dryas to the Preboreal preceded the oxygen-isotope signal by several decades, whereas the cladoceran-inferred warming lagged. Major discrepancies between the pollen- and cladoceran-inference models are observed for the Preboreal, where the cladoceran-inference model suggests mean summer temperatures of up to 14–15°C. Both pollen- and cladoceran-inferred reconstructions suggest a cooling that may be related to the Gerzensee oscillation, but there is no evidence for a cooling synchronous with the Preboreal oscillation as recorded in the oxygen-isotope record. For the Gerzensee oscillation the inferred cooling was ca. 1 and 0.5°C based on pollen and cladocera, respectively, which lies well within the inherent prediction errors of the inference models.

Bargaining for power and information : an experimental and theoretical analysis of the interaction between institutions, externalities and adverse selection

Bargaining is the building block of many economic interactions, ranging from bilateral to multilateral encounters and from situations in which the actors are individuals to negotiations between firms or countries. In all these settings, economists have been intrigued for a long time by the fact that some projects, trades or agreements are not realized even though they are mutually beneficial. On the one hand, this has been explained by incomplete information. A firm may not be willing to offer a wage that is acceptable to a qualified worker, because it knows that there are also unqualified workers and cannot distinguish between the two types. This phenomenon is known as adverse selection. On the other hand, it has been argued that even with complete information, the presence of externalities may impede efficient outcomes. To see this, consider the example of climate change. If a subset of countries agrees to curb emissions, non-participant regions benefit from the signatories’ efforts without incurring costs. These free riding opportunities give rise to incentives to strategically improve ones bargaining power that work against the formation of a global agreement. This thesis is concerned with extending our understanding of both factors, adverse selection and externalities. The findings are based on empirical evidence from original laboratory experiments as well as game theoretic modeling. On a very general note, it is demonstrated that the institutions through which agents interact matter to a large extent. Insights are provided about which institutions we should expect to perform better than others, at least in terms of aggregate welfare. Chapters 1 and 2 focus on the problem of adverse selection. Effective operation of markets and other institutions often depends on good information transmission properties. In terms of the example introduced above, a firm is only willing to offer high wages if it receives enough positive signals about the worker’s quality during the application and wage bargaining process. In Chapter 1, it will be shown that repeated interaction coupled with time costs facilitates information transmission. By making the wage bargaining process costly for the worker, the firm is able to obtain more accurate information about the worker’s type. The cost could be pure time cost from delaying agreement or cost of effort arising from a multi-step interviewing process. In Chapter 2, I abstract from time cost and show that communication can play a similar role. The simple fact that a worker states to be of high quality may be informative. In Chapter 3, the focus is on a different source of inefficiency. Agents strive for bargaining power and thus may be motivated by incentives that are at odds with the socially efficient outcome. I have already mentioned the example of climate change. Other examples are coalitions within committees that are formed to secure voting power to block outcomes or groups that commit to different technological standards although a single standard would be optimal (e.g. the format war between HD and BlueRay). It will be shown that such inefficiencies are directly linked to the presence of externalities and a certain degree of irreversibility in actions. I now discuss the three articles in more detail. In Chapter 1, Olivier Bochet and I study a simple bilateral bargaining institution that eliminates trade failures arising from incomplete information. In this setting, a buyer makes offers to a seller in order to acquire a good. Whenever an offer is rejected by the seller, the buyer may submit a further offer. Bargaining is costly, because both parties suffer a (small) time cost after any rejection. The difficulties arise, because the good can be of low or high quality and the quality of the good is only known to the seller. Indeed, without the possibility to make repeated offers, it is too risky for the buyer to offer prices that allow for trade of high quality goods. When allowing for repeated offers, however, at equilibrium both types of goods trade with probability one. We provide an experimental test of these predictions. Buyers gather information about sellers using specific price offers and rates of trade are high, much as the model’s qualitative predictions. We also observe a persistent over-delay before trade occurs, and this mitigates efficiency substantially. Possible channels for over-delay are identified in the form of two behavioral assumptions missing from the standard model, loss aversion (buyers) and haggling (sellers), which reconcile the data with the theoretical predictions. Chapter 2 also studies adverse selection, but interaction between buyers and sellers now takes place within a market rather than isolated pairs. Remarkably, in a market it suffices to let agents communicate in a very simple manner to mitigate trade failures. The key insight is that better informed agents (sellers) are willing to truthfully reveal their private information, because by doing so they are able to reduce search frictions and attract more buyers. Behavior observed in the experimental sessions closely follows the theoretical predictions. As a consequence, costless and non-binding communication (cheap talk) significantly raises rates of trade and welfare. Previous experiments have documented that cheap talk alleviates inefficiencies due to asymmetric information. These findings are explained by pro-social preferences and lie aversion. I use appropriate control treatments to show that such consideration play only a minor role in our market. Instead, the experiment highlights the ability to organize markets as a new channel through which communication can facilitate trade in the presence of private information. In Chapter 3, I theoretically explore coalition formation via multilateral bargaining under complete information. The environment studied is extremely rich in the sense that the model allows for all kinds of externalities. This is achieved by using so-called partition functions, which pin down a coalitional worth for each possible coalition in each possible coalition structure. It is found that although binding agreements can be written, efficiency is not guaranteed, because the negotiation process is inherently non-cooperative. The prospects of cooperation are shown to crucially depend on i) the degree to which players can renegotiate and gradually build up agreements and ii) the absence of a certain type of externalities that can loosely be described as incentives to free ride. Moreover, the willingness to concede bargaining power is identified as a novel reason for gradualism. Another key contribution of the study is that it identifies a strong connection between the Core, one of the most important concepts in cooperative game theory, and the set of environments for which efficiency is attained even without renegotiation.

A new, fast and flexible radiative transfer method for Venus general circulation models

We present a new radiation scheme for the Oxford Planetary Unified Model System for Venus, suitable for the solar and thermal bands. This new and fast radiative parameterization uses a different approach in the two main radiative wavelength bands: solar radiation (0.1-5.5 mu m) and thermal radiation (1.7-260 mu m). The solar radiation calculation is based on the delta-Eddington approximation (two-stream-type) with an adding layer method. For the thermal radiation case, a code based on an absorptivity/emissivity formulation is used. The new radiative transfer formulation implemented is intended to be computationally light, to allow its incorporation in 3D global circulation models, but still allowing for the calculation of the effect of atmospheric conditions on radiative fluxes. This will allow us to investigate the dynamical-radiative-microphysical feedbacks. The model flexibility can be also used to explore the uncertainties in the Venus atmosphere such as the optical properties in the deep atmosphere or cloud amount. The results of radiative cooling and heating rates and the global-mean radiative-convective equilibrium temperature profiles for different atmospheric conditions are presented and discussed. This new scheme works in an atmospheric column and can be easily implemented in 3D Venus global circulation models. (C) 2014 Elsevier Ltd. All rights reserved.