Voluntary Restraint Agreements Research Articles

Knightian Uncertainty and Capital Structure: Theory and Evidence

I derive the optimal capital structure of a rm when its manager is ambiguity-averse. My model predicts substantially lower leverage for such rms, in comparison to traditional trade-o models. I use the 1982 Voluntary Restraint Agreement (VRA) on steel import quotas between the U.S. government and the European Community as an exogenous reduction in Knightian uncertainty faced by rms in the U.S. steel industry. Using a dierence-in-dier ence methodology, I nd that when uncertainty is resolved, a median rm in the U.S. steel industry increases its market and book leverage by approximately 12% relative to a matched control rm from another industry. The results are not explained away by changes in traditional risk factors or by a change in expected future protability.

Knightian Uncertainty and Capital Structure

My dissertation aims to understand a firm's optimal capital structure decision when it confronts Knightian uncertainty. It contains three chapters. In Chapter One, I derive the optimal capital structure of a firm when its manager is ambiguity-averse. My model predicts substantially lower leverage for such firms, in comparison to traditional static trade-off models. I use the 1982 Voluntary Restraint Agreement (VRA) on steel import quotas between the U.S. government and the European Community as an exogenous reduction in Knightian uncertainty faced by firms in the U.S. steel industry. Using a difference-in-difference methodology, I find that when uncertainty is resolved, a median firm in the U.S. steel industry increases its market and book leverage by approximately 12 percent relative to a matched control firm from another industry. The results are not explained away by changes in traditional risk factors or by a change in expected future profitability. In Chapter Two, I develop a new measure of Knightian uncertainty using a mixture of normal distributions. Using this novel measure, I find that a median firm in the sample decreases its market leverage by approximately 3.6 percent, when the firm's measure of uncertainty increases by one standard deviation. I also find an increase in a firm's uncertainty measure from the minimum to the maximum is associated with a 6.3 percent increase in the firm's propensity to take almost zero leverage. In Chapter Three, I consider a firm's decision to exercise real options, when the firm faces Knightian uncertainty about the evolution of project value. I provide two continuous time applications extended from the discrete time applications in Miao and Wang (2011) that show the value of waiting (which increases with risk) decreases with uncertainty. I incorporate ambiguity-averse investors who are uncertain about the evolution of a firm's assets into the dynamic capital structure model of Leland (1994). I show that even in this dynamic setting, uncertainty provides a more plausible explanation for firms taking on low leverage than risk alone.

Effect of Exchange Rates and Gasoline Prices on US Imports of Japanese Automobiles

We analyze the effects of gasoline prices and exchange rates on Japanese automobile imports to the United States between 1970 and 2004. We test the relationships before, during, and after the Voluntary Restraint Agreement placed on Japanese imports between 1981 and 1988. We also control for general demand for automobiles and domestically manufactured Japanese vehicles. As expected, we found that demand for Japanese imports is positively correlated with the price of gasoline. Before 1988 the demand for Japanese imports contributed to a strengthening of the yen. But after, a positive relationship between the yen-for-dollar exchange rate and imports has prevailed.

The economic effects of withdrawn antidumping investigations: is there evidence of collusive settlements?

This paper analyzes the effects of antidumping cases initiated from 1990 to 1997 that ended in withdrawn petitions without a suspension agreement or voluntary restraint agreement. Monthly import data are used to estimate the price and quantity effects of the withdrawn cases. The estimated effects of the petition being withdrawn do not support the accepted wisdom that withdrawn petitions are a signal of collusion. This is an important issue, since out-of-court settlements of unfair trade cases which restrict quantities or increase prices are not only welfare reducing but are also actionable under the antitrust laws; they are not exempt under the Noerr–Pennington doctrine.

Labour Rents, Adjustment Costs and the Cost of US Steel Trade Restraints in the 1980s

Recent studies have compared labour gains from protection in import-competing industries with the costs of protection and found that those gains are not large enough to justify trade restraints. This study utilizes a new empirical technique for estimating the costs and benefits of protection in a partial equilibrium framework, and provides a complete and consistent accounting of labour benefits including both labour rents and adjustment costs saved. We find that a small steel tariff could have generated net welfare gains for the US in the 1980s, even though actual protection through Voluntary Restraint Agreements generated net welfare losses.

Voluntary Export Restraints and Economic Welfare

In this paper, we explore welfare implications of a voluntary export restraint (VER) agreement within a simple model of duopoly with product differentiation and conjectural variations. We assume that the foreign exporter does not sell its product in its own market and that the imposition of a VER makes the domestic firm into a Stackelberg leader. Under these assumptions, it is shown that a VER introduced at the free-trade equilibrium level of export is welfare-improving for the importing country if and only if the foreign exporter is forced to comply with the restraint involuntarily. In other words, it is impossible to benefit home country and foreign country simultaneously by a VER agreement within the class of models we are envisaging. This result holds irrespective of whether firms compete in terms of quantities or prices.

The effects of protection on a domestic oligopoly: The case of the U.S. auto market

A reduced-form model of U.S. auto prices and sales is estimated using firm-level data for domestic producers, for three size classes of vehicles. The model is used to assess the effects of the U.S.-Japan Voluntary Restraint Agreements (VRAs) and the Corporate Average Fuel Economy (CAFE) standards. We estimate that the VRAs increased total sales of domestic autos by about 6 percent between 1981 and 1986 and increased average prices for all models by less than 4 percent. The CAFE standards reduced total sales by 1.7 percent between 1984 and 1986 and increased average prices by 1.4 percent. General Motors stands out because of its tendency, relative to its rivals, to raise prices and reduce output.

The Innovation impact model: a tool t0 study the impact of technological change

In the spirit of the US Malcolm Baldridge Quality Award, companies try to develop a strategy towards improving their operations. These companies look for assistance in assessing how new technology will help. While literature looks at innovations from different perspectives, the impact of innovations is rarely studied. This article offers the ‘Innovation Impact Model’ as a tool to help companies visualize the effects of innovations on their performance and competitive situation. Three example are provided in which the Innovation Impact Model has been applied. First, the impact of basic oxygen furnaces on the national steel industries of Japan, West Germany, and the USA is examined. Second, the impact of eletric are furnaces on the development of production costs at the Atlantic Steel Plant in Atlanta is studied. Finally, it is shown how ‘voluntary restraint agreements’ in the early 1970s had only a tempoorary impact on improving the trade postion of the US steel industry.

Steel Voluntary Restraint Agreements and Steel-Using Industries

Steel Voluntary Restraint Agreements and Steel-Using Industries

The Effects of the Steel Voluntary Restraint Agreement on U.S. steel-Consuming Industries May 1989

The Effects of the Steel Voluntary Restraint Agreement on U.S. steel-Consuming Industries May 1989

The Demand for LDC Exports of Manufactures: Estimates from Hong Kong

Exports of manufactures from developing countries are generally believed to be sensitive to changes in the level of income in the developed countries, their major market. This belief is grounded on both casual observation, especially from the experience of recent recessions, and on extensive econometric evidence of low price elasticities and high income elasticities of demand for LDC exports in developed countries. This paper argues that both casual observation and previous econometric evidence are misleading. The aim of the paper is to show the order of magnitude of the bias contained in previous econometric estimates of price and income elasticities of demand for LDC exports of manufactures due to neglect of supply side influences.' Previous econometric work has neglected the supply side of LDC exports for the simple reason that it is difficult to model. It is difficult to model properly the supply of aggregate LDC exports since the determinants of export supply differ from country to country. Even for a single country modelling export supply is complicated since, in addition to foreign demand and domestic supply, exports are determined in part by domestic demand for exportables. Furthermore, in most LDCs the incentive to export is strongly influenced by complex and continually changing industrial and trade policy measures. There is one major exception: Hong Kong, one of the developing world's largest and most successful exporters of manufactured goods. The manufacturing sector in Hong Kong is almost completely specialised, exporting 95 % of output. Consequently, domestic demand plays no part in determining the volume of exports. Furthermore, factor markets and the manufacturing sector are almost completely free from government intervention, the main exception being the textile export restraints imposed at the insistence of importing countries. The voluntary restraint agreements (VRAs) to which Hong Kong is subject no doubt affect the composition of exports, but not necessarily the volume of aggregate exports if resources in the restrained sectors can easily be redeployed elsewhere in the economy. Judging from past export growth rates, the VRAs do not appear to have had a significant effect on aggregate export growth in Hong Kong. The results reported below also suggest that Hong Kong has effectively circumvented the trade barriers it faces. The Hong Kong manufacturing sector in many ways resembles a firm in the

Trade vs. national security: Section 232 cases

Abstract The following article analyzes some of the lessons for trade and national security policy presented by the recent trade petitions concerning the effects of imports on the national security. Two recent key Presidential decisions on petitions for restrictions on imports of ferroalloys and machine tools are discussed. This article first summarizes the NSC Stockpile/Industrial Mobilization Planning Study, which the President used to set goals for the nation's stock of critical and strategic materials, as well as to establish industrial mobilization requirements. The administration used this study to develop a general methodology for analyzing petitions for import restrictions on national security grounds. A detailed account of the critical events that led to the decisions to increase U.S. stockpiles of ferroalloys and negotiate a Voluntary Restraint Agreement (VRA) for machine tools is presented. Presidential decisionmaking in general is also discussed.

The Welfare Impacts of U.S. Trade Restrictions against the Canadian Softwood Lumber Industry: A Spatial Equilibrium Analysis

In this paper we estimate the production and welfare impacts of various u.s. trade restrictions on Canadian lumber. After building a model that incorporates the regional character of the North American lumber market, we simulate a variety of tariffs and quotas now advocated by a number of u.s. lawmakers. We find that the tariff losses incurred by Canadian producers could be substantial, depending on the elasticity of their export supply. Voluntary restraint agreements, however, might lead to Canadian gains as high as 40 per cent of their pre-existing profits.

The Effects of U.S. Trade Protection for Autos and Steel

THE ROUGHLY 60 percent appreciation in the real value of the U. S. dollar between 1979 and 1985 created an environment that was increasingly conducive to protectionist politics in the United States. Automobile and steel quotas were imposed. A textile quota bill was passed in the House of Representatives. Motorcycles were subjected to quotas and tariffs. And pressures mounted for protection of the semiconductor and telecommunications equipment markets. The 1981 voluntary export restraint agreement with Japan on automobiles marked the first overt attempt to protect the U.S. automobile industry from imports since World War II. The 1984 steel voluntary restraint agreements, on the other hand, represent the third episode in protection for the U.S. steel industry in two decades. The first steel restraints began in 1969 and lasted until 1974. Triggerprices were imposed in 1978 and extended, erratically, into 1982. The current steel restraints have been implemented with twenty-five major steel exporting countries. ' Each of these exercises in trade restraint has been advanced as temporary, designed to provide the U.S. producers with breathing room to adjust to the changes in world market conditions.2 But have

The effect of voluntary restraint agreements: a case study of the steel industry

(1984). The effect of voluntary restraint agreements: a case study of the steel industry. Applied Economics: Vol. 16, No. 2, pp. 175-186.

Dissenting statement of commissioner pertschdk Gm/toyota joint venture, file no. 821-0159

The largest auto company in the world and the third largest auto company in the world are proposing to join together to limit competition in a critical segment of the U.S. market.Competition in the U.S. has already been choked off by the Japanese Voluntary Restraint Agreement. Since 1981, when the VRA took hold, the average retail selling price for all new cars sold in the U.S. has risen by 18.8 percent or $1741 more than the consumer price index. Consummation of this joint venture will reinforce this upward pressure on new car prices.Battalions of neo-classical economists dancing on the head of a pin cannot obscure the threat that this marriage of competitors poses to the American consumer, nor the fact that this joint venture is a plain and unambiguous violation of the antitrust laws. The Commission's settlement, requiring Toyota and GM to abide by the precise terms of their illegal agreement, hardly qualifies as antitrust enforcement.

The Steel Dumping Issue in Recent U.S.-Japanese Relations

THE PROTECTIONIST MOVEMENT in the United States against steel imports was relatively subdued during the 1969-1974 period of voluntary restraint agreements (VRAs). It began to intensify in 1975 when free trade was resumed, and reached a peak in 1977 following a considerable increase in imports over the 1975 level. Ironically, the first target of the anti-import campaign was the Japanese steel industry, which had been regarded by nearly all American analysts as the lowest-cost industry in the world.' The specific charge was that Japanese producers had engaged in massive steel dumping in the U.S. market, particularly in 1976. By December of 1977, this allegation had become widely accepted in the United States. Panelists at public forums, for example, were then discussing what the U.S. should do to deal with dumping instead of asking whether Japanese steel producers had really practiced dumping. This period of misunderstanding was preceded by several events. In February 1977, the Gilmore Steel Corporation, a relatively unknown steelmaker, filed an antidumping petition involving carbon steel plates from Japan. In May, the American Iron and Steel Institute released a steel report, commonly known as the AISI White Paper, which claimed to have established evidence of Japanese dumping.2 In Septem-

Crisis in U. S. trade policy

SINCE 1962, U.S. trade policy has been moving steadily away from the liberal trade approach which had charac terized it since 1934 and which has been the objective of every administration since that time. In 1962, the Trade Expansion Act passed the Congress with the largest majority in the history of the trade agreements pro gram and led to the Kennedy Round of trade negotiations. Since 1962, however, the number of U.S. industrial imports subject to quantitative restrictions, including by for eign suppliers, has risen from seven to 67?a number which will shortly exceed the total of any other industrialized country, and whose restrictive impact is undoubtedly greater than the lib eralizing effect of our tariff cuts in the Kennedy Round. And Chairman Wilbur Mills of the Ways and Means Committee? who helped pilot the 1962 law to its overwhelming passage? commented last year that the Trade Expansion Act would have been unlikely to attract 50 votes on the House floor in 1970. The shift has come along an accelerating trend line. In 1964, Congress passed the Meat Import Act?the first legislated import restrictions for a major industry in the postwar period. There were attempts in 1964 and 1965 to negotiate voluntary restraint agreements covering U.S. imports of woolen textiles. The modest trade bill submitted by the Johnson Administration in 1968, whose only significant liberalizing feature was its request for repeal of the American Selling Price system of cus toms valuation (ASP), was never even reported out of the Ways and Means Committee ; and the Administration decided that it had to negotiate voluntary restraint agreements on steel and meat to avoid turning the bill into widespread protectionist legislation. And the Nixon Administration sought to negotiate voluntary restraints on synthetic and woolen textiles throughout 1969 and 1970. The most dramatic evidence of the shift in Congressional and public opinion developed in 1970. The so-called Mills bill, which would have levied quotas on all textile and shoe imports and tariff quotas on two minor products, passed the House of Representatives by a vote of 215 to 165. It would also have

Crisis in U.S. Trade Policy

SINCE 1962, U.S. trade policy has been moving steadily away from the liberal trade approach which had charac terized it since 1934 and which has been the objective of every administration since that time. In 1962, the Trade Expansion Act passed the Congress with the largest majority in the history of the trade agreements pro gram and led to the Kennedy Round of trade negotiations. Since 1962, however, the number of U.S. industrial imports subject to quantitative restrictions, including by for eign suppliers, has risen from seven to 67?a number which will shortly exceed the total of any other industrialized country, and whose restrictive impact is undoubtedly greater than the lib eralizing effect of our tariff cuts in the Kennedy Round. And Chairman Wilbur Mills of the Ways and Means Committee? who helped pilot the 1962 law to its overwhelming passage? commented last year that the Trade Expansion Act would have been unlikely to attract 50 votes on the House floor in 1970. The shift has come along an accelerating trend line. In 1964, Congress passed the Meat Import Act?the first legislated import restrictions for a major industry in the postwar period. There were attempts in 1964 and 1965 to negotiate voluntary restraint agreements covering U.S. imports of woolen textiles. The modest trade bill submitted by the Johnson Administration in 1968, whose only significant liberalizing feature was its request for repeal of the American Selling Price system of cus toms valuation (ASP), was never even reported out of the Ways and Means Committee ; and the Administration decided that it had to negotiate voluntary restraint agreements on steel and meat to avoid turning the bill into widespread protectionist legislation. And the Nixon Administration sought to negotiate voluntary restraints on synthetic and woolen textiles throughout 1969 and 1970. The most dramatic evidence of the shift in Congressional and public opinion developed in 1970. The so-called Mills bill, which would have levied quotas on all textile and shoe imports and tariff quotas on two minor products, passed the House of Representatives by a vote of 215 to 165. It would also have