Takashi Onoda

Production Costs, Not Transport Cost Savings, Drive Trade Patterns: Revisiting Theories of Market Size  [PDF (July 2024)] 

I reconsider the notion that industries with high transport costs concentrate in large markets to save on transport costs. A restudy of the standard model reveals that the literature misinterprets the model result, overlooking the incentive to locate in smaller markets, in which trade barriers lessen competition. Higher transport costs reinforce this incentive, offsetting transport cost savings. Instead, firms with lower transport costs focus on reducing production costs to compete in international markets. Thus, they are concentrated in lower-wage countries, creating a base for exports. In simple models, the lower-wage country coincides with the smaller-market country, causing conflation.

Cities’ Demand-driven Industrial Compositions and Refined Market-Size Effects  [PDF (June 2024)]      [Japanese article]

Large cities specialize in income-elastic sectors. I develop a model of cities with sector-specific trade costs and income elasticities of demand to explain this finding and derive potential implications. Higher productivity and better amenities make cities larger, command agglomeration economy and higher income, and, consequently, spend more on income-elastic sectors. This demand pattern translates into a more pronounced production pattern, explaining the observed employment distribution. The model refines the market-size effect on factor prices, showing that wages rise with city (or country) size and expenditure shares in high-tradability sectors. When sectors are gross complements or high-tradability sectors are income-elastic, it suggests that large cities spend more on high-tradability sectors, raising the city-size wage premium.

Gradual Development and Rough Transition of Cooperation with Reference Dependence  [PDF (August 2023)] 

I study cooperation among reference-dependent and loss-averse players in a dynamic game with complete information. Every period, players choose their cooperation levels that determine their intrinsic payoffs and update their reference points in a backward-looking way. I characterize the subgame-perfect equilibrium that maximizes the utility with Nash reversion and show that the development of cooperation exhibits gradualism. After initiating cooperation, players experience higher payoffs than their initial reference points. Consequently, the reference points rise, making a penalty more severe for a deviation and enabling further cooperation. This paper additionally illustrates how the developed cooperation responds to a structural shock. When a steady-state cooperation level shifts down, transitioning to the new level entails a loss. This loss generates an additional deviation incentive, and the players undergo cooperation lower than the new steady-state level.

Work in Progress