Osaka Workshop on Economics of Institutions and Organization (#132)

What conditions do make paternalistic distribution of resources and risk-bearing, which are outside the formal market mechanism, palatable to subordinates as well as allow rulers to earn rent? Moritaro Yamada, a Japanese Marxian economist, described the mechanism in this dual structure in his book in 1934, twenty years earlier than Arthur Lewis’s 1954 seminal paper. His focus was on tenancy contracts of farmers and considered the risk sharing there was paternalistic, or “semi-feudalistic.” We first specify characteristics of the tenancy contract in modern Japan bequeathed from the Shogunate regime. Second, we build a two-sector contract model to formalize the essence of Yamada’s argument. We then extend Yamada’s argument, showing that the landlord’s surplus increases in the risk, that the optimal degree of the risk-bearing increases in the tenant farmer’s risk aversion within certain limits, but that the relationships become opposite beyond the thresholds. The paternalistic landlordism is an equilibrium under the thresholds, but the equilibrium collapses beyond them.Abstract: Masaki Nakabayashi

I theoretically and empirically show that the country’s level of trend inflation together with industry’s average level of the nominal rigidity of input prices is a determinant of comparative advantage in the long-run. The model incorporates the standard sticky price model with trend inflation into the classical Ricardian trade model. Input price rigidity reduces an industry’s effective productivity under inflation. Holding other things constant, a high inflation country is relatively more productive in the industry which faces less sticky input prices. Consequently, a low inflation country has a comparative advantage in an industry that has sticky input prices. The world trade data supports this theoretical prediction even after controlling for various other determinants of comparative advantage.Abstract: Hirokazu Ishise