Working Papers

• A Tractable Model of Trade with Flexible Cost

with Konstantin Kucheryavyy

We introduce variable marginal costs of exporting in a heterogeneous firms trade model à la Melitz (2003). In our setup, the marginal costs of exporting depend on the quantity shipped in addition to the standard iceberg trade costs. Under the Pareto distribution of firms’ productivities, our model implies a tractable gravity equation and an expression for welfare gains from trade, for which the Arkolakis et al. (2012) formula for gains from trade is a special case. This costs structure can be micro-found through a firm’s inventory management problem, and the key parameter can be estimated using the frequency of shipment of exporters. Under the log-normal distribution of firms’ productivities, we calibrate all trade costs using Chinese transactionlevel data. The ad-valorem equivalent rate for logistics costs is minor for productive firms, but it is substantial for less productive firms.

• Multi-Product Firms and Gravity

Using data on the universe of Chinese export transactions in 2006, we document that, conditional on the number of products each firm exports, lower-ranking products are more sensitive to distance. This fact is inconsistent with standard models but can be explained in a model with increasing marginal cost of production. This assumption implies that the market share of productive firms is lower, and more unproductive firms enter. Moderate variable trade costs consistent with the observed level of tariffs generate a much larger and non-constant trade elasticity, even when productivity is distributed according to an untruncated Pareto distribution. We find that if expanding the production scale by one log point increases marginal cost by 25%, then welfare gains from trade are 2%, compared to 12% under the constant marginal cost assumption.

• How Good Managers Steer Their Projects: Using Value-Added Measures of Manager Quality

with Hideo Owan

Using detailed project management records from the design department in a large Japanese architectural & engineering consultancy firm, we estimate the manager effects on the project profitability. One standard deviation increase in unobserved manager ability increases the profitability by 6 percentage points. Based on interviews with seven project managers, we hypothesize that managers improve team performance by better planning, better communication with both client and project members and better understanding of the client's needs and decision-making style, which all help to front-load design work, reduce waiting time, and avoid wasteful redesigning. We provide supporting evidence from the analyses of labor input data, and three-hundred-sixty-degree evaluation records. Especially, we find that the speed of project execution, quality of communication with subordinates, and degree centrality in the internal network could be important mediating factors.