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Working Paper
Very Simple Markov-Perfect Industry Dynamics
This paper develops an econometric model of industry dynamics for concentrated markets that can be estimated very quickly from market-level panel data on the number of producers and consumers using a nested fixed-point algorithm. We show that the model has an essentially unique symmetric Markov-perfect equilibrium that can be calculated from the fixed points of a finite sequence of low-dimensional contraction mappings. Our nested fixed point procedure extends Rust's (1987) to account for the observable implications of mixed strategies on survival. We illustrate the model's empirical ...
Working Paper
Trade Policy is Real News: Theory and Evidence
We evaluate the aggregate effects of changes in trade barriers when these changes can be implemented slowly over time and trade responds gradually to changes in trade barriers because firm-level trade costs make exporting a dynamic decision. Our model shows how expectations of changes in trade barriers affect the economy. We find that while decreases in trade barriers increase economic activity, expectations of lower future trade barriers temporarily decrease investment, hours worked, and output. Further- more, canceling an expected decline in future trade barriers raises investment and ...
Working Paper
The Dynamics of Global Sourcing
This paper studies an import model that incorporates both static crosscountry interdependence and dynamic dependence in firm-level decisions. I find that the benefit of sourcing from one country increases as a firm imports from more countries. Furthermore, using a partial identification approach under the revealed preferences assumption, I provide evidence for the sunk costs of importing, which make establishing relationships with new sellers costlier than maintaining existing ones. The coexistence of cross-country interdependence and sunk costs implies that temporary trade policy changes can ...
Working Paper
Very Simple Markov-Perfect Industry Dynamics: Empirics
This paper develops an econometric model of firm entry, competition, and exit in oligopolistic markets. The model has an essentially unique symmetric Markov-perfect equilibrium, which can be computed very quickly. We show that its primitives are identified from market-level data on the number of active firms and demand shifters, and we implement a nested fixed point procedure for its estimation. Estimates from County Business Patterns data on U.S. local cinema markets point to tough local competition. Sunk costs make the industry's transition following a permanent demand shock last 10 to 15 ...