Research
Working Papers
Long-term Contracts and Efficiency in the Liquefied Natural Gas Industry
Working Paper, 2025 (newly updated!) Supplementary Appendix
Abstract:
In many capital-intensive markets, sellers sign long-term contracts with buyers before committing to sunk cost investments. Ex-ante contracts mitigate the risk of under-investment arising from ex-post bargaining. However, contractual rigidities reduce the ability of firms to respond flexibly to demand shocks. This paper provides an empirical analysis of this trade-off, focusing on the liquefied natural gas (LNG) industry, where long-term contracts account for over 70% of trade. I develop a model of contracting, investment, and spot trade that incorporates bargaining frictions and contractual rigidities. I structurally estimate this model using a rich dataset of the LNG industry, employing a novel estimation strategy that utilizes the timing of contracting and investment decisions to infer bargaining power. I find that without long-term contracts, sellers would significantly decrease investment, but allocative efficiency would improve. Policies aimed at eliminating contractual rigidities reduce investment by 30%, but raise welfare by 21%, with the industry becoming more nimble in responding to demand fluctuations.Endogenous Rigidities and Capital Misallocation: Evidence from Containerships
with Maria Garcia-Osipenko and Nicholas Vreugdenhil, 2025. R&R at Journal of Political Economy.
Abstract:
We investigate how endogenous rigidities inhibit efficient physical capital reallocation. We focus on the role of contract duration - a classic example of an adjustment rigidity. We argue that when agents choose to sign longer contracts in booms when asset markets are thin, they generate a contracting externality which further reduces available capacity and amplifies market thinness. This causes equilibrium contracts to be inefficiently long in booms and impedes the adjustment of these markets to shocks. We develop an equilibrium dynamic matching framework with booms and busts, where agents search and choose for how long to match. We apply the framework to the market for containership leasing contracts, an important part of the supply chain. We quantify misallocation in the decentralized equilibrium and find it is particularly substantial in the transition after an aggregate shock. We also quantify implications for the significant resources devoted to industrial policy in this setting.Drive Down the Cost: Learning by Doing and Government Policy in the Electric Vehicle Battery Industry
with Panle Jia Barwick, Hyuk-soo Kwon and Shanjun Li, 2025
Abstract:
Electric vehicle (EV) battery costs have declined by over 90% in the past decade. This study investigates the role of learning-by-doing (LBD) in driving this reduction and its interaction with two major government policies – consumer EV subsidies and local content requirements. Leveraging rich data on EV models and battery suppliers, we develop and estimate a structural model of the global EV industry that incorporates heterogeneous consumer choices and strategic pricing behaviors of EV producers and battery suppliers. The model allows us to recover battery costs for each EV model and quantify the extent of LBD in battery production. The learning rate is estimated to be 7.5% during our sample period after controlling for industry technological progress, economies of scale, input costs, and EV assembly experience. LBD magnified the effectiveness of consumer EV subsidies by several folds and generated complementarity among subsidies across countries. Upstream battery suppliers capture a small fraction of the benefits brought by LBD to downstream EV producers and consumers, and consumer EV subsidies improved social welfare by accelerating LBD and reducing battery costs. China’s local content requirement helped domestic suppliers gain a competitive advantage at the expense of consumers and foreign suppliers, but its domestic welfare implications would shift from positive to negative if implemented five years later.Industrial Policies and Innovation: Evidence from the Global Automobile Industry
with Panle Jia Barwick, Hyuk-soo Kwon, Shanjun Li, and Yucheng Wang, 2024. Conditionally accepted at International Journal of Industrial Organization.
Abstract:
This paper examines the impact of industrial policies (IPs) on innovation in the global automobile industry. We compile the first comprehensive dataset linking global IPs with patent data related to the auto industry from 2008 to 2023. We document a major shift in policy focus: by 2022, nearly half of all IPs targeted electric vehicles (EV)-related sectors, up from almost none in 2008. In the meantime, there has been a clear technological transition from internal combustion engine (GV) technologies to EV innovations. Our analysis finds a positive relationship between policy support and innovation activity. At the country level, a one-standard-deviation increase in five-year cumulative EV-targeted IPs is associated with a four-percent rise in new EV patent applications. Firm-level analyses (using OLS, IV, and PPML) indicate that a ten-percent increase in EV financial incentives received by automakers and EV battery producers leads to a similar four-percent increase in EV innovations. We confirm the importance of path dependence in the direction of technology change in the automobile industry but find no evidence that EV-targeted IPs stimulate innovation in GV technologies.Market Power and Spatial Price Discrimination in the Liquefied Natural Gas Industry
Working Paper, 2023.
Abstract:
The liquefied natural gas (LNG) industry is characterized by systematic inter-regional price differentials, raising the question of whether sellers price discriminate. This paper measures market power in the LNG spot market and studies how market power influences pricing, trade and welfare. I develop a method for inferring market conduct that utilizes information on sellers’ pricing and quantity decisions across multiple geographically segmented markets. My test for market conduct is based on the observation that sellers exercising market power engage in third-degree price discrimination, whereas sellers behaving competitively do not. Using data from 2006 to 2017 on spot market trade flows, spot prices, shipping costs and seller capacities, I estimate a structural model of LNG trade and pricing that incorporates spatial differentiation, capacity constraints and trade frictions and flexibly nests different models of seller market power. I find that seller decisions are consistent with a Cournot model and unlikely to be generated by a competitive model. The total deadweight loss from market power is estimated to be USD 12 billion, or about 4.5% of total revenue. I find that market power plays a key role in exacerbating inter-regional price differentials.Publications
Industrial Policy Implementation: Empirical Evidence from China’s Shipbuilding Industry
with Panle Jia Barwick and Myrto Kalouptsidi, 2025. Review of Economic Studies. Link.
Procurement Institutions and Essential Drug Supply in Low and Middle-Income Countries
with Lucy Xiaolu Wang, 2025. Journal of Health Economics 101: 102996. Link.
The Healthcare Cost of Air Pollution: Evidence from the World’s Largest Payment Network
with Panle Jia Barwick, Shanjun Li and Deyu Rao, 2024. Review of Economics and Statistics. Link.
Industrial Policy: Lessons from Shipbuilding
with Myrto Kalouptsidi and Panle Jia Barwick, 2024. Journal of Economic Perspectives 38(4): 55 - 80. Link
Analysis of the optimal policy for managing strategic petroleum reserves under long-term uncertainty: The ASEAN case
with Fernando S. Oliveira and Fulan Wu, 2023. Computers & Industrial Engineering 175: 108834. Link.
Pass-Through of Electric Vehicle Subsidies: A Global Analysis
with Panle Barwick, Hyuk-soo Kwon, Binglin Wang, 2023. American Economic Association: Papers & Proceedings 113: 323-28. Link.
Works in Progress
Traffic Congestion and Consumer Spending
with Deyu Rao
Abstract:
The cost of congestion is a key input in the design of transportation policy. Existing estimates of the social cost of traffic congestion account for the value of travel time, increased air pollution and accidents, and the impact on subjective well-being. We highlight an important additional cost: congestion disrupts economic activities. Consumers who cancel or postpone their spending plans on congested days incur a cost from not being able to engage in consumption at their preferred time. This paper investigates how traffic congestion affects consumption, focusing on Beijing in 2014. Using high-frequency credit and debit card consumption and traffic congestion data, we show that a 10% increase in travel time leads to a 2.4% decrease in consumption on the same day. We find little evidence to suggest that consumers substitute consumption over time.Other Research
“Singapore’s Energy Sustainability Policies: Balance Between Market and Government,” with Tilak K. Doshi. In Quah, Euston, and Renate Schubert, eds. Sustainability and Environmental Decision Making, 2021: 311-375.
“Assessing Singapore’s Electric Vehicle Policies”, with Tilak K. Doshi. IAEE Energy Forum, Fourth Quarter 2020.
“Climate Change and Buildings: an Asia-Pacific Primer.” with Abhishek Rohatgi and Tian Sheng Allan Loi. In van Calster, Geert, Vandenberghe, Wim and Reins, Leonie (eds.): Research Handbook on Climate Change Mitigation Law. Edward Elgar 2015, pp. 212-241.
“The Economics of Solar PV in Singapore” with Tilak K. Doshi, Neil S. D’Souza, Nguyen Phuong Linh, and Teo Han Guan. GSTF Journal of Engineering Technology, 2(1), 2013.
“Comparing Energy Efficiency Across Countries and Over Time: A Decomposition Approach.” Proceedings of the 36th Annual IAEE (International Association for Energy Economics) International Conference, Daegu, Korea, 2013.
“Impact of Climate Change on Electricity Demand of Singapore” with Tilak K. Doshi, Abhishek Rohatgi and Yuen Kah Hung. Proceedings of the Singapore Economic Review Conference 2013, August 2013.
“Energy Efficiency Policies in the Asia-Pacific: Can We Do Better?” with Tilak K. Doshi. Working Paper, Pacific Energy Summit, National Bureau of Asian Research, March 2013.
“Regulatory Reform – Case Studies on Green Investments.” with Tilak K. Doshi, Neil S. D’Souza, Belinda Salim, Rachel Wong, Tim Ogden, Salim Mazouz. APEC Policy Support Unit, March 2013.