The Welfare Cost of a Current Account Imbalance: A "Clean" Effect

Lee, Jung-Ho; Wei, Shang‐Jin; Xu, Jianhuan

doi:10.3386/w27276

“…Third, since our empirical application involves oceanic transportation, we relate to a literature studying transportation in the context of international trade; e.g. Koopmans (1949), Hummels and Skiba (2004), Fajgelbaum and Schaal (2019), Asturias (2018), Brooks et al (2018), Cosar and Demir (2018), Holmes and Singer (2018), Wong (2018), Allen and Arkolakis (2019), Ducruet et al (2019), Lee et al (2020) and BKP. We also relate to a literature in international trade studying the role of frictions, such as Eaton et al (2016), and Krolikowski and McCallum (2018) who consider search frictions between importers and exporters and Allen (2014) who investigates information frictions.…”

Section: Related Literaturementioning

confidence: 99%

Search Frictions and Efficiency in Decentralized Transport Markets

Brancaccio

¹

,

Kalouptsidi

²

,

Papageorgiou

³

et al. 2023

The Quarterly Journal of Economics

6

0

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We explore efficiency and optimal policy in decentralized transport markets, such as taxis, trucks, and bulk shipping. We show that in these markets, search frictions distort the transportation network and the dynamic allocation of carriers over space. We derive explicit and intuitive conditions for efficiency, and show how they translate into efficient pricing rules, or optimal taxes and subsidies for the planner who cannot set prices directly. The results imply that destination-based pricing is essential to attain efficiency. Then, using data from dry bulk shipping, we demonstrate that search frictions lead to a sizeable social loss and substantial misallocation of ships over space. Optimal policy can eliminate about half of the welfare loss. Can a centralizing platform, often arising as a market-based solution to search frictions, do better? Interestingly, the answer is no; although the platform eradicates frictions, it exerts market power thus eroding the welfare gains. Finally, we use two recent interventions in the industry (China’s Belt and Road Initiative and the environmental initiative IMO 2020) to demonstrate that taking into account the efficiency properties of transport markets is germane to any proposed policy.

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“…Third, since our empirical application involves oceanic transportation, we relate to a literature studying transportation in the context of international trade; e.g. Koopmans (1949), Hummels and Skiba (2004), Fajgelbaum and Schaal (2019), Asturias (2018), Brooks et al (2018), Cosar and Demir (2018), Holmes and Singer (2018), Wong (2018), Allen and Arkolakis (2019), Ducruet et al (2019), Lee et al (2020) and BKP. We also relate to a literature in international trade studying the role of frictions, such as Eaton et al (2016), and Krolikowski and McCallum (2018) who consider search frictions between importers and exporters and Allen (2014) who investigates information frictions.…”

Section: Related Literaturementioning

confidence: 99%