Narrow Results

We derive a method to econometrically estimate the tariff equivalent and forgone trade effects of a prohibitive technical barrier to trade (TBT) based on Wales and Woodland’s Kuhn-Thcker approach to corner solutions in consumer choice. The method overcomes the lack of observed data on bilateral trade flows and accounts for differentiated goods by place of origin. We apply the derived random utility model to international trade in apples to identify the tariff equivalent of prohibitive phytosanitary barriers imposed by Australia on potential imports of New Zealand apples. We estimate the forgone apple trade between the two countries, the implied trade injury imposed by Australia on New Zealand, and the welfare loss to Australia. The removal of the Australian policy would induce net welfare gains around US$50 million annually for Australia.

In a non-recourse collateralized loan agreement, the lender's recovery is only limited to the market value of the asset as a collateral. In practice, a loan lender can protect himself against any loss by introducing either a margin requirement or a callable feature in the loan contract. In this respect, it is natural to ask: (1) which one of the two mentioned features should be more preferable to the loan manager; (2) how the borrower reacts towards either one of these two features. In the present work, we address these issues by solving explicitly the respective valuation problems of collateralized lending with margin requirement and callable feature under the Black-Scholes model. For the callable feature, we also provide systematic discussions on (1) how to identify whether the smooth-fit condition holds or fails at the optimal stopping boundaries of the associated Dynkin game, and (2) how to solve it when the smooth-fit condition fails at one or both boundaries. We finally utilize these explicit solutions to conduct detailed comparative analysis.