This paper develops and estimates a model of indivisibilities in shipping and economies of scale in consolidation. It uses highly detailed data on imports where it is possible to observe the contents of individual containers. In the model, firms are able to adapt to indivisibility constraints by using consolidation strategies and by making adjustments to shipment size. The firm determines the optimal number of domestic ports to use, taking into account that adding more ports lowers inland freight cost, at the expense of a higher indivisibility cost. The estimated model is able to roughly account for Walmart’s port choice behavior. The model estimates are used to evaluate how mergers or dissolutions of firms or countries, and changes in variety, affect indivisibility costs and inland freight costs.

It is widely believed that an important factor underlying the rapid growth in China is increased foreign direct investment (FDI) and the transfer of foreign technology capital, which is accumulated know-how from investment in research and development (R&D), brands, and organizations that is not specific to a plant. In this paper, we study two channels through which FDI can contribute to upgrading of the stock of technology capital: knowledge spillovers and appropriation. Knowledge spillovers lead to new ideas that do not directly compete or devalue the foreign affiliate's stock. Appropriation, on the other hand, implies a redistribution of property rights over patents and trademarks; the gain to domestic companies comes at a loss to the multinational company (MNC). In this paper we build these sources of technology capital transfer into the framework developed by McGrattan and Prescott (2009, 2010) and introduce an endogenously-chosen intensity margin for operating technology capital in order to capture the trade-offs MNCs face when expanding their markets internationally. We first demonstrate that abstracting from technology capital transfers results in predicted bilateral FDI inflows to China that are grossly at odds with the data. We then use the bilateral inflows to parameterize the model with technology capital transfers and compute the global economic impact of Chinese policies that encouraged greater inflows of FDI and technology capital transfers. Microevidence on automobile patents is used to support our parameter choices and main findings.

We develop a theory of outsourcing in which there is market power in one factor market (labor) and no market power in a second factor market (capital). There are two intermediate goods: one labor-intensive and the other capital-intensive. We show there is always outsourcing in the market allocation when a friction limiting outsourcing is not too big. The key factor underlying the result is that labor demand is more elastic, the greater the labor share. Integrated plants pay higher wages than the specialist producers of labor-intensive intermediates. We derive conditions under which there are multiple equilibria that vary in the degree of outsourcing. Across these equilibria, wages are lower the greater the degree of outsourcing. Wages fall when outsourcing increases in response to a decline in the outsourcing friction.

We estimate the factors determining specialization of crop choice at the level of individual fields, distinguishing between the role of natural advantage (soil characteristics) and economies of density (scale economies achieved when farmers plant neighboring fields with the same crop). Using rich geographic data from North Dakota, including new data on crop choice collected by satellite, we estimate the analog of a social interactions econometric model for the planting decisions on neighboring fields. We find that planting decisions on a field are heavily dependent on the soil characteristics of the neighboring fields. Through this relationship, we back out the structural parameters of economies of density. Setting an Ellison-Glaeser dartboard level of specialization as a benchmark, we find that of the actual level of specialization achieved beyond this benchmark, approximately two-thirds can be attributed to natural advantage and one-third to density economies.

This paper develops a model of small business failure and sale that is motivated by recent evidence concerning how the failure and sale of small businesses vary with the age of the business and the tenure of the manager. This evidence motivates two key features of the model: A match between the manager and the business, and characteristics of businesses that survive beyond the current match. The parameters of the model are estimated, and the properties of this parametric model are studied. This analysis results in a simple characterization of the workings of the small business sector.

As part of compensation, municipal employees typically receive promises of future benefits. Motivated by the recent bankruptcy of Detroit, we develop a model of the equilibrium size of a city and use it to analyze how pay-with-promises schemes interact with city growth. The paper examines the circumstances under which a death spiral arises, where cutbacks of city services and increases in taxes lead to an exodus of residents, compounding financial distress. The model is put to work to analyze issues such as the welfare effects of having cities absorb pension risk and how unions affect the likelihood of a death spiral.

There is wide variation in the sizes of manufacturing plants, even within the most narrowly defined industry classifications used by statistical agencies. Standard theories attribute all such size differences to productivity differences. This paper develops an alternative theory in which industries are made up of large plants producing standardized goods and small plants making custom or specialty goods. It uses confidential Census data to estimate the parameters of the model, including estimates of plant counts in the standardized and specialty segments by industry. The estimated model fits the data relatively well compared with estimates based on standard approaches. In particular, the predictions of the model for the impacts of a surge in imports from China are consistent with what happened to U.S. manufacturing industries that experienced such a surge over the period 1997--2007. Large-scale standardized plants were decimated, while small-scale specialty plants were relatively less impacted.

Does competition spur productivity? And if so, how does it do so? These have long been regarded as central questions in economics. This essay reviews the literature that makes progress toward answering both questions.

Arrow (1962) argued that since a monopoly restricts output relative to a competitive industry, it would be less willing to pay a fixed cost to adopt a new technology. Arrow’s idea has been challenged and critiques have shown that under different assumptions, increases in competition lead to less innovation. We develop a new theory of why a monopolistic industry innovates less than a competitive industry. The key is that firms often face major problems in integrating new technologies. In some cases, upon adoption of technology, firms must temporarily reduce output. We call such problems switchover disruptions. If firms face switchover disruptions, then a cost of adoption is the forgone rents on the sales of lost or delayed production, and these opportunity costs are larger the higher the price on those lost units. In particular, with greater monopoly power, the greater the forgone rents. This idea has significant consequences since if we add switchover disruptions to standard models, then the critiques of Arrow lose their force: competition again leads to greater adoption. In addition, we show that our model helps explain the accumulating evidence that competition leads to greater adoption (whereas the standard models cannot).

Unionism in the United States is contagious; it spills out of coal mines and steel mills into other establishments in the neighborhood, like hospitals and supermarkets. The geographic spillover of unionism is documented here using a newly constructed establishment level data on unionism that is rich in geographic detail. A strong connection is found between unionism of health care establishments today and proximity to unionized coal mines and steel mills from the 1950s.

In this paper we develop a theory of how factors interact at the plant level. The theory has implications for (1) the micro foundations for capital-skill complementarity, (2) the relationship between factor allocation and plant size, and (3) the effects of trade and growth on the skill premium. The theory is consistent with certain facts about factor allocation and factor price changes in the 19th and 20th centuries.

Does national market size matter for industrial structure? Round One (Krugman) answered in the affirmative: Home market effects matter. Round Two (Davis) refuted this, arguing that an assumption of convenience—transport costs only for the differentiated goods—conveniently obtained the result. In Round Three we relax another persistent assumption of convenience—two industry types differentiated only by the degree of scale economies—and find that market size reemerges as a relevant force in determining industrial structure.

What is the force of attraction of cities? Leading explanations include the advantages of a concentrated market and knowledge spillovers. This paper develops a model of firm location decisions in which it is possible to distinguish the importance of the concentrated-market motive from other motives, including knowledge spillovers. A key aspect of the model is that it allows for the firm to choose multiple locations. The theory is applied to study the placement of manufacturing sales offices. The implications of the concentrated-market motive are found to be a salient feature of U.S. Census micro data. The structural parameters of the model are estimated. The concentrated-market motive is found to account for approximately half of the concentration of sales offices in large cities.

By the 1970s, quid pro quo policy, which requires multinational firms to transfer technology in return for market access, had become a common practice in many developing countries. While many countries have subsequently liberalized quid pro quo requirements, China continues to follow the policy. In this paper, we incorporate quid pro quo policy into a multicountry dynamic general equilibrium model, using microevidence from Chinese patents to motivate key assumptions about the terms of the technology transfer deals and macroevidence on China’s inward foreign direct investment (FDI) to estimate key model parameters. We then use the model to quantify the impact of China’s quid pro quo policy and show that it has had a significant impact on global innovation and welfare.

Will an industry with no antitrust policy converge to monopoly, competition or somewhere in between? We analyze this question using a dynamic dominant firm model with rational agents, endogenous mergers and constant returns to scale production. We find that perfect competition and monopoly are always steady states of this model and that there may be other steady states with a dominant firm and a fringe co-existing. Mergers are likely only when supply is inelastic or demand is elastic, suggesting that the ability of a dominant firm to raise price through monopolization is limited. Additionally, as the discount rate increases, it becomes harder to monopolize the industry, because the dominant firm cannot commit to not raising prices in the future.

This paper explores the consequences of new information technologies, such as bar codes and computer-tracking of inventories, for the optimal organization of retail. The first result is that there is a complementarity between the new information technology and frequent deliveries. This is consistent with the recent move in the retail sector toward higher-frequency delivery schedules. The second result is that adoption of the new technology tends to increase store size. This is consistent with recent increases in store size and the success of the superstore model of retail organization.

There is an old wisdom that reductions in tariffs force changes on producers that lead to costless, or nearly so, increases in productivity. We construct a technology-ladder model that captures this wisdom. As in other technology-ladder models, time spent in research helps propel an industry up a technology-ladder. In contrast to the literature, we include another activity that plays a role in determining an industry's position on the technology-ladder: attempts to obstruct the research program of rivals (through regulations, for example). In this world, reductions in tariffs between countries lead producers to spend more time in research and less in obstruction of rivals.

Recent literature suggests that historical accidents can trap economies in inefficient equilibria. In a prototype model in the literature, there are two locations, the productive South and the unproductive North. By accident of history, the industry starts in the North. Because of agglomeration economies, the industry may reside in the North forever—an inefficient outcome. This paper modifies the standard model by assuming there is a continuum of locations between the North and the South. Productivity gradually increases as one moves South. There is a unique long-run equilibrium in this economy where all agents locate at the most productive locations.

The Economics of QWERTY suggests that historical accidents can trap economies in inefficient equilibria. This paper suggests that such accidents do not have the force that proponents claim. The paper presents a mechanism that may unravel a locational advantage caused by an historical accident. In the model, there are agglomeration benefits from concentrating industry in a particular location because it enables a large variety of local suppliers to emerge. Firms differ by the extent to which they purchase from local suppliers. Low-tier firms purchase little; high-tier firms purchase more. When the industry migrates, the lowest-tier products move first.

This paper provides new evidence that state policies play a role in the location of industry. The paper classifies a state as pro-business or anti-business depending upon whether or not the state has a right-to-work law. The paper finds that, on average, there is a large abrupt increase in manufacturing activity when crossing a state border from an anti-business state into a pro-business state.

This paper considers Marshall's argument that geographic concentration of industry facilitates specialization. I use Census data on manufacturing plants to examine the relationship between localization of industry and vertical disintegration. I find that establishments located near other establishments within the same industry tend to make more intensive use of purchased inputs than establishments without own-industry neighbors. This relationship only holds among industries that are geographically concentrated; having neighbors makes no difference in geographically dispersed industries. I argue that this pattern is consistent with a model in which increased opportunity for specialization is the reason some industries localize.

Why are methods of production used in an area when more “efficient” methods are available? This paper explores a “resistance to technology” explanation. In particular, the paper attempts to understand why some industries, like the construction industry, have had continued success in blocking new methods, while others have met failure, like the dairy industry's recent attempt to block bST. We develop a model which shows that how easily goods move between areas determines in part the extent of resistance to new methods in an area.