Task Trade Between Similar Countries

We propose a theory of task trade between countries that have similar relative factor endowments and technological capabilities, but may differ in size. Firms produce differentiated goods by performing a continuum of tasks, each of which generates local spillovers. Tasks can be performed at home or abroad, but offshoring entails costs that vary by task. In equilibrium, the tasks with the highest offshoring costs may not be traded. Among the remainder, those with the relatively higher offshoring costs are performed in the country that has the higher wage and the higher aggregate output. We discuss the relationship between equilibrium wages, equilibrium outputs, and relative country size.     

Constrained Efficiency in the Neoclassical Growth Model With Uninsurable Idiosyncratic Shocks

We investigate the welfare properties of the one‐sector neoclassical growth model with uninsurable idiosyncratic shocks. We focus on the notion of constrained efficiency used in the general equilibrium literature. Our characterization of constrained efficiency uses the first‐order condition of a constrained planner's problem. This condition highlights the margins of relevance for whether capital is too high or too low: the factor composition of income of the (consumption‐)poor. Using three calibrations commonly considered in the literature, we illustrate that there can be either over‐ or underaccumulation of capital in steady state and that the constrained optimum may or may not be consistent with a nondegenerate long‐run distribution of wealth. For the calibration that roughly matches the income and wealth distribution, the constrained inefficiency of the market outcome is rather striking: it has much too low a steady‐state capital stock.     

Supply Disruptions,Heterogeneous Beliefs,and Production Efficiencies

Recent years have witnessed the pervasive supply disruptions and their impacts on supply chain performance. In this study, we investigate the optimal procurement design with supply disruptions and heterogeneous beliefs between the buyer and the supplier. We examine the impact of information asymmetry on the supplier's belief, the control right of the backup production, and the verifiability of supply disruption. The belief heterogeneity creates speculative gains and losses because the buyer and the supplier hold different estimates of the disruption probability. We demonstrate that the buyer's incentive to exploit this belief heterogeneity leads to real production inefficiencies in different scenarios. The production efficiency is not necessarily improved with more transparent information. Moreover, a very pessimistic supplier may have no incentive to invest in improving the reliability even if this is costless, and the supplier may produce more when the expected production cost becomes higher. When the buyer sees some value in using the supplier's estimate to update his own belief, we find that the main results hold unless the buyer completely abandons his belief.     

Strategic Motive for Introducing Internet Channels in a Supply Chain

Rapid advances of information technology in recent years have enabled both the manufacturers and the retailers to operate their own Internet channels. In this study, we investigate the interaction between the capabilities of introducing the Internet channels, the pricing strategies, and the channel structure. We classify consumers into two segments: grocery shoppers attach a higher utility from purchasing through the physical channel, whereas a priori Internet shoppers prefer purchasing online. We find that when the Internet shoppers are either highly profitable or fairly unimportant, the manufacturer prefers to facilitate the channel separation either through his own Internet channel or the retailer's. In the intermediate region, however, the manufacturer encroaches the grocery shoppers and steals the demand from the retailer's physical channel. With horizontal competition between retailers, a priori symmetric retailers may adopt different channel strategies as a stable market equilibrium. The manufacturer may willingly give up his Internet channel and leverage on the retailer competition. When the manufacturer sells through an online e‐tailer, Internet shoppers may be induced to purchase through the physical channel. This reverse encroachment strategy emerges because selling through the e‐tailer leads to a more severe double marginalization problem.     

Incentives in a Stage‐Gate Process

Many large organizations use a stage‐gate process to manage new product development projects. In a typical stage‐gate process project managers learn about potential ideas from research and exert effort in development while senior executives make intervening go/no‐go decisions. This decentralized decision making results in an agency problem because the idea quality in early stages is unknown to the executive and the project manager must exert unobservable development effort in later stages. In light of these challenges, how should the firm structure incentives to ensure that project managers reveal relevant information and invest the appropriate effort to create value? In this study, we develop a model of adverse selection in research and moral hazard in development with a go/no‐go decision at the intervening gate. Our results show that the principal's uncertainty regarding early‐stage idea quality—a term we refer to as idea risk—alters the effect of late‐stage development risk. The presence of idea risk can alter the incentives offered to the agent and may lead the principal to reject projects that otherwise seem favorable in terms of positive net present value. A simulation of early‐stage ideas, found through search on a complex landscape, shows that the firm can mitigate the negative effects of idea risk by encouraging breadth of search and high tolerance for failure.     

Partner + Children = Happiness? The Effects of Partnerships and Fertility on Well‐Being

Economic and rational‐choice theories suggest that individuals form unions or have children because these decisions increase their subjective well‐being or “happiness.” We investigate this relation using within‐MZ (identical) twin pair estimates to control for unobserved factors, such as optimistic preferences, that may simultaneously affect happiness, partnerships, and fertility. Our findings, based on Danish twins aged 25–45 and 50–70 years old, include the following. (1) Currently being in a partnership has large positive effects on happiness. (2) A first child substantially increases well‐being, in analyses without controls for partnerships, and males enjoy an almost 75 percent larger happiness gain from a first‐born son than from a first‐born daughter; however, only females enjoy a happiness gain from the first‐born child with controls for partnerships. (3) Additional children beyond the first child have a negative effect on subjective well‐being for females, while there is no effect for males. (4) Ever having had children does not significantly affect the subjective well‐being of males or females aged 50–70 years.     

Family Demography,Social Theory,and Investment in Social Capital

The analytic models used by family demographers would be strengthened by the concept of social capital, placed in the context of social exchange theory. Using that concept to designate resources that emerge from social ties, the authors advance five propositions: 1) social capital is a multidimensional attribute of an individual; 2) the dimensions of social capital are the number of relationships a person has, their quality (strength), and the resources available through those relationships; 3) group membership and interaction facilitate the development of social capital; 4) the structural properties of groups influence the development of social capital; and 5) the acquisition and maintenance of social capital is a major motivator of human behavior. The formation of sexual partnerships, the birth and rearing of children, and both intragenerational and intergenerational transfers constitute major forms of investment in social capital in virtually all societies.