We present general recursive methods to handle environments where privately observed variables are linked over time. We show that incentive compatible contracts are implemented recursively with a threat keeping constraint in addition to the usual temporary incentive compatibility and promise keeping conditions.

In this paper, we test whether lower job insecurity of parents and higher job insecurity of children delay youth emancipation. Macroeconomic estimates for 13 European countries spanning the period show that the coresidence rate increases by about 1.7 percentage points following a 10 percentage-point rise in the percentage of youths perceiving their job to be insecure and declines by about 1.1 points following the same increment in insecurity for workers aged 50-59. In the mid-1990s in Italy, 75% of youth aged 18-35 lived at home and had only a 4% probability of emancipation in the 3 subsequent years. Microeconometric evidence for this country shows that the probability of emancipation increases by about half a percentage point for a one-standard-deviation increase in paternal insecurity and by one-third of a percentage point for a one-standard-deviation decrease in children's insecurity.

This paper studies how learning from neighboring …rms a¤ects new exporters'performance. We develop a statistical decision model in which a …rm updates its prior belief about demand in a foreign market based on several factors, including the number of neighbors currently selling there, the level and heterogeneity of their export sales, and the …rm's own prior knowledge about the market. A positive signal about demand inferred from neighbors'export performance raises the …rm's probability of entry and initial sales in the market but, conditional on survival, lowers its post-entry growth. These learning e¤ects are stronger when there are more neighbors to learn from or when the …rm is less familiar with the market. We …nd supporting evidence for the main predictions of the model from transaction-level data for all Chinese exporters from 2000 to 2006. Our …ndings are robust to controlling for …rms'supply shocks, countries'demand shocks, and city-country …xed e¤ects.

This paper examines the determinants of vertical integration versus outsourcing in export processing, by exploiting the coexistence of two export processing regimes in China, which designate by law who owns and controls the imported components. Based on a variant of the Antràs-Helpman (2004) model, we show theoretically that control over imported components for assembly can affect firm integration decisions. Our empirical results show that when Chinese plants control the use of components, the export share of foreign-owned plants is positively correlated with the intensity of inputs provided by the headquarter (capital, skill, and R&D). These results are consistent with the property-rights theory of intra-firm trade. However, when foreign firms own and control the components, there is no evidence of a positive relationship between the intensity of headquarters' inputs and the prevalence of vertical integration. The results are consistent with our model that considers control over imported components as an alternative to asset ownership to alleviate hold-up by export-processing plants.

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We present general recursive methods to handle environments where privately observed variables are linked over time. We show that incentive compatible contracts are implemented recursively with a threat keeping constraint in addition to the usual temporary incentive compatibility and promise keeping conditions.

This paper examines the impact of the Severe Acute Respiratory Syndrome (SARS) epidemic on China's trade. Using quarterly transaction-level trade data of all Chinese firms, we find that firms in regions with local transmission of SARS experienced lower import and export growth at both the intensive and extensive margins, compared to those in the unaffected regions. The affected firms' trade growth remained lower two years after SARS. Products that are more capitalintensive, skill-intensive, upstream in the supply chains, and differentiated experienced a smaller export decline but a stronger recovery. Small exporters were more likely to exit, slowing down trade recovery. JEL-Codes: F120, F140.

In this paper, we propose a theoretical model to study the effect of income insecurity of parents and offspring on the child's residential choice. Parents are partially altruistic toward their children and will provide financial help to an independent child when her income is low relative to the parents'. We find that children of more altruistic parents are more likely to become independent. However, first-order stochastic dominance (FOSD) shifts in the distribution of the child's future income (or her parents') have ambiguous effects on the child's residential choice. Parental altruism is the very source of ambiguity in the results. If parents are selfish or the joint income distribution of parents and child places no mass on the region where transfers are provided, a FOSD shift in the distribution of the child's (parents') future income will reduce (raise) the child's current income threshold for independence.