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Abstract:
Recent empirical evidences show negative relationship between outsourcing and profitability. This paper provides a theoretical explanation for this phenomenon. In an oligopoly model, we show that firms earn lower profits in the outsourcing equilibrium compared to the situation where neither firm does outsourcing, and it holds irrespective of the intensity of competition. So, outsourcing creates prisoner's dilemma. We show that whether outsourcing is likely to reduce profit under more intense competition (measured by the degree of product differentiation, number of firm and the type of product market competition, viz., Cournot and Bertrand competition) is ambiguous. We further show that outsourcing may be "excessive" and will hurt overall welfare

Outsourcing, Profit, R&D

Abstract:
This paper considers the effect of outsourcing on R&D of the contracting firm. We show that outsourcing increases (decreases) R&D investment in a declining (booming) industry. If outsourcing reduces potential R&D investment, it may also make the consumers worse off. We show that outsourcing raises R&D effort in more competitive product markets. If outsourcing takes place in unskilled activities, it is likely to increase R&D if proportion of skilled employment is higher and skill wage is relatively high. If outsourcing positively affects the productivity of the skilled workers, it provides further disincentive for R&D.

R&D, Skilled and unskilled labors

Abstract:
In this note economic integration is viewed as a situation where countries within a union coordinate their industrial policies. We demonstrate that greater regional policy coordination between countries may induce more specialization instead of the intended diversification in interregional allocations of foreign investment. Thus international capital flows tend to become more concentrated in an integrated economy. This is in contrast to the objectives of regional policy of the European union.

Economic integration, foreign investment, regional policy, specialization, diversification

Abstract:
This paper is an analytical attempt to isolate and differentiate the concepts of "redistributive politics" and "corruption". Such analytical distinction helps us in understanding how redistributive politics can adversely affect the quality of public investment in a poor region. We highlight the possibility that better quality of public investment can be associated with a higher degree of corruption but somewhat lower magnitude of "redistributive politics". We build up a political choice model where corruption and redistribution are treated as substitutes in the political strategy space. Our paper is possibly the first attempt to model the interaction corruption and redistributive politics in a poor developing economy.

Redistributive politics, corruption, infrastructure

Abstract:
When entry of the relatively inefficient firms is deterred due to fixed costs, leading to a monopoly of the relatively efficient firm, guaranteed production quota for the less efficient ones can increase consumers' surplus. In other words, restricting the output of more efficient firm helps to reduce the price compared to the monopoly level. If the emergence of monopoly is independent of the level of fixed costs of the inefficient competitors, monopoly is the more efficient outcome. This has relevance for the recent entry of China in WTO and the abolition of export quotas in textiles. This also qualifies the conventional wisdom in the trade policy literature that quantitative restrictions are necessarily anti-competitive. The optimal policy can be to keep in place a quota but allow it to be licensed to the more efficient exporter.

Consumer surplus, Entry, Quota

Abstract:
Following the huge Enron scandal that rocked the financial system of the United States, many firms were asked to restate their accounts by the regulatory authorities. We provide a theoretical model of overstatement in which managers inflate actual profits to attract share capital and shareholders find it too costly to monitor such action. We completely characterize such equilibrium and argue that more competitive industries are likely to discourage such earning manipulations. We also show that in case only some firms in an industry engage in such malpractice, the margin of manipulation will be greater. However, greater entry will reduce the extent of overstatement.

Restatements, Competition, Corporate Governance

Abstract:
We develop a wage differential model with a unionized and a non-unionized informal sector for a small open economy. The unionized wage rate adjusts to a cost of living index and the informal wage is market-determined. In this structure, a Stolper-Samuelson type result holds without any assumption regarding factor-intensity ranking.

Abstract:
We use the HOSV model of trade to find out a link between corruption and the pattern of trade, not just its effect on the volume of trade. We prove that greater corruption in labor-abundant countries will restrict the volume of world trade while corrupt capital-abundant countries promote trade. This is caused by intermediaries who are engaged in mitigating the transaction cost of corruption. Relatively corrupt economy will export capital-intensive goods. However, relatively capital-abundant country will be worse off with increasing degree of corruption at home and abroad, whereas the labor-abundant country may gain from further corruption.

Corruption, International Trade, Factor - intensity, General equilibrium

Abstract:
In this paper, we review and explore the strategic mechanisms that deter entry in banking. The literature relies on externality between banks to generate entry deterrence. Typically, the externality generated is caused by differential adverse selection faced by incumbents and entrants. In this paper it is shown that adverse selection problem between a bank and its borrowers is neither a necessary nor a sufficient condition for entry deterrence. We show that cost asymmetry between different types of incumbents and private information about costs can generate conditional entry deterrence. This source of externality can cause entry deterrence just as other types of externalities created by differential adverse selection. Forward contracts can act as signaling device for incumbent costs. Incorporating adverse selection problem in the credit market in fact relaxes entry conditions: entry can take place even if the incumbent is of strong type and can signal credibly.

Entry Deterrence, Cost Asymmetry, Adverse Selection, Signaling

Abstract:
We show that international outsourcing and R&D by the outsourced firm may be either substitutes or complements. Outsourcing increases the R&D investment in small markets and in highly competitive product markets, whereas it decreases the R&D investment in large markets. If the outsourced firm can be technologically very efficient under exporting, outsourcing can make the consumers worse off by reducing the R&D investment. If there is skill differential in the production process and outsourcing occurs only in the unskilled activities, R&D-reducing outsourcing occurs in a relatively low-skilled industry. If outsourcing of the unskilled jobs reduces the effective cost of the skilled workers by increasing the productivities of the skilled workers, outsourcing provides further disincentive for R&D compared to the situation where outsourcing of the unskilled jobs does not affect the effective cost of the skilled workers.

Abstract:
We present models that allow the use of unskilled and skilled labor as well as capital and land. Thus agriculture, important in developing countries, can be included as well as two types of labor and a single (or two) type(s) of physical capital. The models are related to the simple 3 x 2 specific factors structure by means of what is called the linear neighborhood structure, wherein no activity uses more than two factors, and the two types of labor work in separated sectors, using in common a type of physical capital. We discuss how wage rate changes are related when endowments change, when agriculture becomes traded and prices rise, and when unskilled labor becomes educated and joins the ranks of skilled workers.

Abstract:
This paper introduces "harassment" in a model of bribery and corruption. We characterize the harassment equilibrium and show that taxpayers with all possible levels of income participate in such an equilibrium. Harassment has a regressive bias. Harassment cost as such may not affect tax revenue. However, when the decision to file tax-returns is endogenized, harassment cost can affect the filing pattern and hence the revenue collection. We study the nature of the equilibrium under imperfect information when different types of taxpayers and different types of auditors are introduced in the system.

Corruption, Harassment, Filing

Abstract:
Technology transfer to the developing nations has been predominantly characterized by technology collaborations between the multinationals and the local firms of the developing countries. When a multinational offers a new technology to a local firm, both firms may have different perceptions regarding the success rate of the technology in the local conditions. We discuss different types of contractual arrangements with equity participation by the multinational which dominates pure technology collaboration type agreements.