Garcia-Alonso, M., Levine, P. and Smith, R. (2016). Military aid, direct intervention and counterterrorism. European Journal of Political Economy [Online]. Available at: http://dx.doi.org/10.1016/j.ejpoleco.2016.06.006.
We analyze the choice often faced by countries of whether to directly intervene to counter an external terrorist threat or to subsidize a foreign government to do it. We present a model which analyzes this policy choice where two countries, home and foreign, face a terrorist threat based in the foreign country. The home country chooses how much to invest in defending itself and in reducing terrorist resources either indirectly by subsidising the foreign country or by directly by intervening itself and risking destabilizing the foreign country. Using a calibrated model, we are able to show that direct intervention is only an equilibrium if foreign and home efforts are not good substitutes in the technology used to reduce the resources of the terrorist group. A higher relative military efficiency by the home country makes intervention more likely.
Acharyya, R. and Garcia-Alonso, M. (2014). Universal access, parallel trade and incentives to innovate. Bulletin of Economic Research [Online] 66:S74-S91. Available at: https://onlinelibrary.wiley.com/doi/abs/10.1111/boer.12013.
Governments often subsidize poorer groups in society to ensure their access to new drugs. We analyze the optimal income-based price subsidies in a strategic environment. We show that universal access is less likely to arise when price arbitrage prevents international price discrimination. When this is not the case, under some income ranges, bilateral universal coverage can be supported by equilibrium subsidies together with bilateral partial provision. In such a case, international health policy coordination becomes relevant. We also show that asymmetric universal access to medicines across countries can arise, even when countries are ex-ante symmetric, when international price discrimination is possible and governments cannot design subsidies proportional to either income or quality.
Acharyya, R. and Garcia-Alonso, M. (2012). Income based price subsidies and parallel imports. International Review of Economics and Finance [Online] 22:25-41. Available at: http://dx.doi.org/10.1016/j.iref.2011.08.001.
We present a policy game where a Rich country has a higher ability than a Poor country to commit to certain elements of health policy such as providing income related price subsidies and allowing parallel imports (PI). When allowing PI is not a choice for the Poor country, the Rich country allows PI and both countries provide a subsidy to their poorer buyers as the subgame perfect equilibrium policies. However, when the Poor is able to PI a different equilibrium may arise. We show that the ability of the Poor to allow PI might increase welfare in this country even if it is never implemented. We also prove that as the Poor country gets richer, it will not be in their best interest to sign an agreement with the Rich to commit to not allowing PI.
Garcia-Alonso, M. and Acharyya, R. (2011). Parallel imports, drug innovation and international patent protection: a policy game. Journal of International Trade and Economic Development [Online] 21:865-894. Available at: http://dx.doi.org/10.1080/09638199.2010.541273.
We consider a policy game between a high-income country hosting a drug innovator and a low-income country hosting a drug imitator. The low-income country chooses whether to enforce an International Patent Regime (strict IPR) or not (weak IPR), and the high-income country chooses whether to allow parallel imports (PI) of on-patent drugs or market-based discrimination (MBD). We show that, for a moderately high imitation cost, both (strict IPR, PI) and (weak IPR, MBD) emerge as the subgame prfect Nash equilibrium (SPNE) policy choices. For relatively smaller imitation costs, (weak IPR, MBD) is the unique SPNE policy choice. The welfare properties reveal that although innovation may be higher at the (strict IPR, PI) policy regime, the market coverage and national welfare of the low-income country, and the total welfare are all lower. This opens up the efficiency issue of implementing TRIPS and at the same time allowing international exhaustion of patent rights.
Garcia-Alonso, M. and Levine, P. (2008). Strategic procurement, openness and market structure. International Journal of Industrial Organization [Online] 26:1180-1190. Available at: http://www.sciencedirect.com/science?_ob=ArticleURL&_udi=B6V8P-4RDS1H5-1&_user=125871&_rdoc=1&_fmt=&_orig=search&_sort=d&view=c&_acct=C000010239&_version=1&_urlVersion=0&_userid=125871&md5=2fc6d72450aa7c6ef9f47f55b207fa99.
We examine strategic procurement behaviour by governments and its effect on market structure in sectors, such as defence and
pharmaceuticals, where the government is the dominant consumer. In a world economy with trade between producer countries, and
between producers and non-producers, we use a modified Dixit–Stiglitz utility function with an independent taste for variety. There
is free entry and exit by firms, but by anticipating their participation constraint governments can indirectly choose the number of
domestic firms and their size through its choice of procurement price. Unlike the standard model with no independent taste for
variety and no external sector of non-producer countries, there are incentives for subsidies, openness impacts on industrial structure
and procurement coordination between producer countries affects firm numbers.
Acharyya, R. and Garcia-Alonso, M. (2008). Parallel imports, innovations and national welfare: The role of the sizes of the income classes and national markets for health care. Singapore Economic Review 53 No.:57-79.
This paper shows that regardless of any intra-country income differences, parallel imports result in a lower level of health-care innovation but, contrary to popular as well as conventional theoretical wisdom, a lower price in the Third World compared to market-based discrimination. Despite such a lower price, however, parallel imports unambiguously make all buyers in the Third World worse off when intra-country income disparity exists. On the other hand, even discarding the MNC's profit, there will be cases in which the richer country prefers price discrimination as well. That is, in those cases, no countries will have any incentive under the welfare criterion to undo price discrimination, contrary to Richardson
Garcia-Alonso, M. and Garcia-Marinoso, B. (2008). The strategic interaction between firms and formulary committees: effects on the prices of new drugs. Journal of Health Economics [Online] 27 Iss:377-404. Available at: http://dx.doi.org/10.1016/j.jhealeco.2007.06.003.
We study the strategic interaction between the pricing decisions of a pharmaceutical firm and the reimbursement decisions of a government agency which grants reimbursement rights to patients for whom new drugs are most cost-effective. If the reimbursement decision precedes pricing, the agency only reimburses some patients if the drug’s private and public health benefits diverge. This is, there are consumption externalities and the variable cost of the drug exceeds the alternative’s. Contrarily, if the firm can commit to a price before reimbursement, a strategic effect implies that by setting a sufficiently high price, the firm can make the agency more willing to reimburse than without commitment.
Garcia-Alonso, M., Levine, P., Dunne, P. and Smith, R. (2007). Determining the defence industrial base. Defence and Peace Economics [Online] 18:199-221. Available at: http://dx.doi.org/10.1080/10242690600924273.
This paper models the determination of the defence industrial base - the number of different military systems a country decides to maintain. High R&D costs means that few countries can afford to produce major weapons systems and the producers also import systems. Non-producers rely on imports and we assume their demand is driven by regional arms races. Military capability is determined by the number of systems and the quantity and quality of each. We examine how the defence industrial base is influenced by military expenditures, R&D costs, export controls, the nature of regional arms races and a variety of other factors.
Garcia-Alonso, M. and Acharyya, R. (2006). Self-interested international income redistribution and access to health care innovation. European Journal of Political Economy [Online] 22:322-336. Available at: http://dx.doi.org/10.1016/j.ejpoleco.2005.08.002.
We study how income redistribution affects decisions of a health care innovator and the utility of individuals. We find that income redistribution from rich to poor can increase the quality of medical innovation and the utility of some consumers whose income is reduced through the redistribution. We therefore find a non-altruistic motive for international income transfers that would increase access to health innovations.
Dunne, J., Garcia-Alonso, M., Levine, P. and Smith, R. (2006). Managing asymmetric conflict. Oxford Economic Papers [Online] 58:183-208. Available at: https://doi.org/10.1093/oep/gpi056.
This paper considers a simple model of asymmetric conflict, between an incumbent, e.g. government or dominant firm, and potential challengers, e.g. guerrillas or entrants. It is not uncommon for challengers to win such conflicts despite their lack of resources. One way they can do this by exploiting a second mover advantage: choosing to attack the incumbent in ways that it had not prepared for, because it was locked in by past investments. To model such asymmetric conflict we use a three stage game. In the first stage the incumbent chooses effort; in the second stage the challengers choose the degree of differentiation from the incumbent and in the third stage each decide whether to attack or defend and collect their payoffs. Although the game is simple, the calculations required from the players are difficult and shed light on the complexities of many conflicts.
Garcia-Alonso, M. and Levine, P. (2005). Arms export controls, subsidies and the WTO exemption. Scottish Journal of Political Economy [Online] 52:305-322. Available at: http://www3.interscience.wiley.com/journal/118689970/abstract?CRETRY=1&SRETRY=0.
Owing to the World Trade Organization (WTO) exemption that allows governments to subsidize arms exports, the arms trade is one of the few remaining areas of trade where we observe export subsidies. This paper examines the effect of arms controls, in the form of licensing delays, on the incentives to subsidize arms exports and conversely the effect of the WTO arms trade exemption on the incentives to break arms control agreements. Our main result is that arms controls and free trade commitments re-enforce each other. Licensing delays reduce the incentive to subsidise and free trade without subsidies reduces the benefits of a unilateral abrogation of arms controls. Transparency actually worsens the Nash inefficiencies at play in that incomplete information leads to lower subsidies and lower arms exports.
Garcia-Alonso, M., Levine, P. and Morga, A. (2004). Export credit guarantees, moral hazard and exports quality. Bulletin of Economic Research [Online] 56:311-327. Available at: https://doi.org/10.1111/j.1467-8586.2004.00206.x.
We analyze the role played by Export Credit Guarantees (ECGs) to encourage exports to developing countries. The existence of moral hazard on the side of the …rm is introduced. We show that the inability of the exporter’s government to verify the actual quality of the product will limit its ability to encourage trade through ECGs, once the coverage provided goes beyond a certain threshold. This result provides a rationale behind the limited coverage on ECGs.
Garcia-Alonso, M. (2003). National-security export quality restrictions in segmented and non-segmented markets. European Journal of Political Economy [Online] 19:377-390. Available at: http://dx.doi.org/10.1016/S0176-2680(02)00175-1.
We examine the effect of international price arbitrage on the willingness to set unilateral export controls. The restriction on the quality of exports of security sensitive products limits the outside option of domestic customers: if the product available on the international market is of low quality the firm can charge a high price to domestic customers for its latest technology. This effect leads the government to be less willing to introduce export controls on security sensitive products.
Garcia-Alonso, M. and Hartley, K. (2000). Export controls, market structure and international coordination. Defence and Peace Economics [Online] 11:481-503. Available at: http://dx.doi.org/10.1080/10430710008404962.
We look at the different ways of aggregating the exports of dual use products to give the security perception of exporter countries and their consistency with the relevant export control regimes. Also, we analyze different models of export controls highlighting the role of the perception of security, market structure and competition between exporting firms in determining the existence of multiple equilibria and therefore, the need for coordination between countries in setting export controls.
Garcia-Alonso, M. (2000). The role of technology security in a model of horizontal differentiation. International Journal of Industrial Organization 18:747-773.
The security concerns of exporters of products which might be used for military purposes have motivated different security regimes that limit the quality of the products exported by home firms. At the same time however, home governments want to ensure the competitiveness of their home companies. We analyze the optimal policy of a government facing such a trade off. We present a multistage model in which the government has the ability to commit to R&D subsidies but cannot credibly set its quality restrictions until the outcome of the R&D process is known. We show that, depending on whether some or all governments want to restrict the quality exported by the home firms, the optimal policy involves R&D subsidies or taxes together with ex post security restrictions.
Garcia-Alonso, M. (1999). Price competition in a model of arms trade. Defence and Peace Economics 10:273-303.
This paper presents a model of subsidized military production that examines the relationship between domestic procurement and the arms exports. Weapon producers satisfy the defence procurement in their own country and compete in prices in the international market where weapons are imperfect substitutes for each other. Importers are involved in an arms race situation and do not have domestic military production. The model makes explicit the strategic interaction between governments and firms in the export market. We then analyze the effect of a change in the most significant parameters on the equilibrium. The paper suggests an explanation for the evolution of the arms market in the past few years and highlights the important role of the demand and cost structures