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Profesores Principal
Hernán Vallejo
Publicaciones
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Inferring Agent Behavior and Economic Information, with Free Entry and Exit of Firms

 
This article proposes an identity regarding economic outcomes when producers maximize profits, with free entry and exit of firms. The identity links consumer and producer theory and leads to several results that contribute to understand what should -and should not- be expected under the assumptions made, from the behavior of firms and households, and from the technology of a firm. Given that unit prices are usually known, the identity also allows to infer the value of a range of economic variables, when reasonable information is available on the price elasticity of the residual demand, the marginal revenue associated to the residual demand, the marginal cost or the elasticity of scale.
 
 

Colombia a Country Study: The Economy

 
Chapter on the Colombian economy coauthored with Roberto Steiner and published in Hudson, Rex (2010) Colombia: a country study, Library of Congress
 
 

Representations and Identities for Homogeneous Technologies

 
Using up to nine different ways to represent homogeneous technologies with decreasing returns to scale, this article presents and proves identities between those different representations of such technologies, outlining the homogeneity properties of each representation. These identities, which allow to shift from one representation of a technology to another -- and which are summarized in a matrix of identities -- can be useful since they provide a tool to obtain explicit functional forms for homogeneous technologies. They can also be useful to simplify computational procedures when different representations of a technology are needed. Finally, the article also refers explicitly to some aspects of producer theory that are often neglected or treated in a marginal way in the literature, such as the inverse supply, the non conditional cost and the inverse input demands functions.
 
 

A Generalized Index of Market Power

 
This paper analyses two approaches to measuring market power –the commonly used Lerner index and a range of exploitation measures–. It is argued that the Lerner index is designed to quantify market power from the supply side and the exploitation measures are designed to quantify market power from the demand side, and that the two approaches do not always behave in a symmetric way, since they do not always have the same bounds. To sort out these potentially undesirable properties, this paper proposes a new general index to measure market power, which is symmetrical in the sense that it is bounded between zero and one, regardless of whether the market power comes from the supply or the demand side. The index proposed allows for the presence of more than one firm and for the existence of conjectural variations.
 
 

International trade, Migration and Investment with Horizontal Product Differentiation and Free Entry and Exit of Firms

 
This paper analyses two approaches to measuring market power –the commonly used Lerner index and a range of exploitation measures–. It is argued that the Lerner index is designed to quantify market power from the supply side and the exploitation measures are designed to quantify market power from the demand side, and that the two approaches do not always behave in a symmetric way, since they do not always have the same bounds. To sort out these potentially undesirable properties, this paper proposes a new general index to measure market power, which is symmetrical in the sense that it is bounded between zero and one, regardless of whether the market power comes from the supply or the demand side. The index proposed allows for the presence of more than one firm and for the existence of conjectural variations.
 
 

A Theory of Natural Market Structures: Regulation, R&D, FDI, International Trade and a few Curiosities

 
The theories of natural market structures have been well known in economics for a long time. In this paper, a framework for such natural market structures is developed, where natural monopoly, natural oligopoly, perfect competition and monopolistic competition are special cases. The paper explains why with increasing returns to scale at the level of the firm; a given market size; a continuum of firms; complete information and homogeneous goods, there is usually a margin for regulation –most notably when the number of firms in the market is low. The paper shows that R&D, FDI and trade liberalization can improve welfare, and that they can be complements or imperfect substitutes to the need for market regulation. It is argued that when markets are expected to grow, or technologies to change, avoiding policies that prevent entry of firms –such as licences- can reduce significantly the need for regulation while allowing for a more efficient allocation of resources. It is also argued that the need for market regulation can be better explained by the exploitation of economies of scale, than by the existence of economic rents. Finally, the paper shows that when there is a discrete number of firms, the level of profits and the regulatory margins, can be described by a “saw”
 
 

Integración económica y la atracción de inversión extranjera directa: el caso de América Latina

 
Este documento explora los determinantes de la inversión extranjera directa. En particular, considera el efecto que los acuerdos preferenciales de comercio han tenido sobre los flujos de inversión extranjera directa (IED) en América Latina, después de ser controlados por una serie de variables estructurales, institucionales, políticas y de infraestructura. El trabajo ofrece especial atención a los impactos de los acuerdos preferenciales de comercio sobre la desviación y la creación -tanto interna como externa- de flujos de IED. Para ello, se hace un análisis de data panel y se utiliza un modelo de gravedad con datos sobre IED de la OECD y CEPAL, que cubre el período 1980-1998