Essays on Culture and Trade

Abstract: This thesis consists of three self-contained essays. The first two essays address the consumption of culture and are closely related in terms of the theoretical framework used. The third essay is a separate analysis of international trade and competition.The studies of culture are motivated by the special treatment of culture consumption in most modern societies: there are usually large, government-provided subsidies, the aim of which is to stimulate both the production and the consumption of culture. The purpose of the present work is to explore reasons for this special treatment. Using a stylized theoretical framework, the essays contrast culture with another, generic, good or activity. Culture is thus regarded as an "experience good": previous consumption of the good enhances the current appreciation of the good. The generic good is one where experience is assumed not to be at all relevant for the appreciation of the good. For experience goods, decisions made today will influence future utility and future choices. This makes the intertemporal preferences essential. If, in particular, consumers have time-inconsistent preferences of the type that can be characterized as a present-bias---modeled with "multiple selves" using quasi-geometric discounting---as opposed to standard, time-consistent preferences, there will be a case for government subsidies. The first essay explores this possibility in detail in a framework where experience is mainly of importance in the short run. The second essay then studies cases where experience is more potent and can cause persistent diversity in culture consumption across individuals."Culture and Control: Should There Be Large Subsidies to Culture?" studies the circumstances under which public support for culture is warranted. A policy example is designed to illustrate important aspects of public support systems currently in place, and is calibrated to Swedish data. The essay concludes that, given present-biased agents with self-control problems, public support of culture can work as a commitment device and improve long-run welfare. Furthermore, it is demonstrated that welfare-maximizing subsidies to culture can be substantial if the present-bias is profound and the taste-cultivation property of culture consumption is pronounced."Origins of the Diversity of Culture Consumption" analyzes the diversity of culture consumption among individuals. If the culture good and the generic good are sufficiently close substitutes in a static sense, very large and persistent differences in the consumption of highbrow culture across consumers can be explained by differences in initial experience levels alone. Moreover, slight differences in preferences and time endowments can cause significant diversity between individuals, both in the long- and short-run levels of culture consumption. In addition, if consumers have time-inconsistent preferences, further diversity can be rationalized. If there is a present-bias, there may also be Pareto-ranked multiple equilibria with "optimism" and "pessimism": high (low) culture consumption of the current self is rationalized, based on the belief that future culture consumption will be high (low)."Has international competition increased? Estimates of residual demand elasticities in export markets" studies the impact of the last decades of intense economic integration on the competitive conduct of Swedish export industries. The functional relationship between the inverted residual demand elasticity and the Lerner index is used to estimate markups in eight industries. The econometric evidence suggests a deviation from competitive behavior in all industries. Moreover, the results demonstrate a trend of decreasing market power.