From: Rielly, Richard W. Jr. [mailto:[log in to unmask]]
Sent: Wednesday, November 20, 2013 1:05 PM
To: Karen M. Pelletier
Subject: REMINDER and Updated Time: 2-3:30pm tomorrow, 11/21 -- International Economics Seminar with David Hummels (Purdue and NBER)

International Economics Seminar Series

David Hummels
Professor of Economics
Purdue University and NBER


David Hummels will be presenting his paper, "Estimating the Gains from Liberalizing Services Trade:  The Case of Passenger Aviation" at 2pm tomorrow, Thursday, November 21, 2013, in the Volanakis Faculty Lounge (Buchanan 051).  Light refreshments will be served. A copy of his paper is attached; paper copies will be available at the seminar.

Abstract

Little is known about the effects of liberalizing services trade. Detailed data on services flows are rare and identifying changes in regulatory regimes can be difficult. This paper overcomes these difficulties by exploiting detailed transactions data from an important service sector - passenger aviation - and the signing of 87 bilateral "Open Skies Agreements" over a 16 year period. We use a price-setting game with free entry and imperfect information about rival's costs to model how restrictions on route offerings and their subsequent liberalization affects entry, costs and the distribution of markups, and predict differential effects across city types. We then empirically examine particular channels through which liberalization reshapes aviation services trade using difference-in-difference estimators. Liberalizing countries see expansions in route offerings, reductions in prices, and large increases in quantities traded conditional on prices. However, these effects are not uniform. Carriers previously constrained by regulations re-orient capacity away from highly contested routes and toward routes with little competition; entry leads to price reductions and exit leads to price increases. We estimate that the combined effect of these changes yields a 31 percent reduction in quality- and variety-adjusted prices for liberalized markets relative to those who remain regulated.

Please let me know if you have any questions.
Rick Rielly, 646-0163


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