ERC FUNDED PROJECTS

China s economy has expanded at breakneck speed to become the 3rd largest trading country in the world and the largest recipient of foreign direct investment (FDI). Entry into the WTO in 2001 was a landmark event in this ongoing process and I propose to study several channels through which it spurred China s industrial development. Crucially, I will take an integrated view of the different ways in which Chinese and Western firms interact: through trade flows, as suppliers or competitors, FDI, or knowledge transfers. First, I investigate the existence and magnitude of a causal link from the trade reforms to productivity growth. Second, I look for evidence of capability upgrading, such as increased production efficiency, an ability to produce higher quality products, or introduce new products by innovating. Third, I study the mechanisms for the impact of trade and FDI on local firms, in particular assessing the relative importance of increased market competition and the transfer of know-how from foreign firms. For this analysis, I draw heavily on a unique data set. Information on the universe of Chinese manufacturing firms is being linked to the universe of Chinese trade transactions. These are unique research tools on their own, but as a linked data set, the only comparable one in the world is for the U.S. economy. The Chinese data has the advantage to contain detailed information on FDI, distinguishes between ordinary and processing trade, and contains information on innovation, such as R&D and sales of new goods. Answering the above questions is important for other developing countries wanting to learn from China s experience and for Western firms assessing how quickly Chinese firms will become viable suppliers of sophisticated inputs or direct competitors. By estimating models that are explicitly derived from new theories, I advance the literature at the interaction of international and development economics, industrial organization, economic geography.

944 940 €

Start date: 2010-02-01, End date: 2016-01-31

The main objective of this project is to research the economic implications of default and collateral in financial markets. It is motivated from the observation that much of the lending in modern economies is secured by some form of collateral and by the empirical fact that modern economies experience a substantial amount of default and bankruptcy. From a theoretical perspective, the research aims to explore new ways of modelling default and collateral and employ them to evaluate the impact of default and collateral on market outcomes. From a policy recommendation perspective, the research aims to develop models with testable implications that can be used by practitioners to discuss the consequences of a wide range of policies. In particular, to explore which kind of regulation procedures should be implemented in order to lower the risk of default and at the same time not to reduce too much risk-sharing. The agenda includes two research directions. The first research direction will focus on the implications of default and collateral in economies with bounded rational agents. Our aim is to understand how default and collateral affect market outcomes in environments where agents are allowed to have very divergent and therefore possibly incorrect beliefs about endogenous economic variables like future prices and delivery rates. The second research direction will focus on the implications of default and collateral in economies with an open ended horizon. Our aim is to investigate endogenous debt constraints that are compatible with equilibrium and simultaneously allow for as much risk sharing as possible.

156 538 €

Start date: 2010-06-01, End date: 2012-06-30

A recent psychological and experimental literature on human behavior suggests that standard preferences assumed in economic models are inadequate to explain human choice behaviors in numerous environments. The primary objective of this project is to establish evolutionary foundations for non-standard preferences. Most models in economics take preferences as given and derive the choices induced by these preferences. We intend to do just the opposite. We characterize the choice behavior that would survive evolution and then represent this choice behavior with preferences. That is, we identify the preferences that induce evolutionarily stable choice behavior. We identify each choice behavior with a gene. Hence, the choices an individual makes during her lifetime are determined by her genes, where these are inherited from her parents. A population can be defined as a group of individuals having the same genes. Populations with different genes may grow at different rates. Only those genes that induce the highest possible population growth rate given the physical environment survive evolution. We wish to apply the principle described above to derive implications for time preferences, preference for similarities, preferences for discrimination, preferences for conformity, and other important socio-economic behaviors. The goal of the project is to provide a theoretical guidance for which preferences are admissible and which are not likely to arise.

600 000 €

Start date: 2010-01-01, End date: 2015-12-31

The advent of the Internet and the increased power of modern day computing have dramatically changed the economic landscape. Billions of dollars worth of goods are being auctioned among geographically dispersed buyers; online brokerages are used to find jobs, trade stocks, make travel arrangements, etc. The architecture of these online (trading) platforms is typically rooted in their pre-Internet counterparts, and advances in the theory of market design combined with increased computing capabilities prompt a careful re-evaluation. This proposal concerns the creation of novel, more flexible institutions using an approach that combines theory, laboratory experiments, and practical policy. The first project enhances our understanding of newly designed package auctions by developing equilibrium models of competitive bidding and measuring the efficacy of alternative formats in controlled experiments. The next project studies novel market forms that allow for all-or-nothing trades to alleviate inefficiencies and enhance dynamic stability when complementarities exist. The third project concerns the design of market regulation and procurement contests to create better incentives for research and development. The fourth project addresses information aggregation properties of alternative voting institutions, suggesting improvements for referenda and jury/committee voting. The Internet has also dramatically altered the nature of social interactions. Emerging institutions such as online social networking tools, rating systems, and web-community Q&A services reduce social distances and catalyze opportunities for social learning. The final project focuses on social learning in a variety of settings and on the impact of social networks on behavior. Combined these projects generate insights that apply to a broad array of social and economic environments and that will guide practitioners to the use of better designed institutions.

1 797 525 €

Start date: 2010-01-01, End date: 2015-12-31