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Combinatorial Discrete Choice: Theory and Application to Multinational Production

Author

Listed:
  • Costas Arkolakis
  • Fabian Eckert
  • Rowan Shi

Abstract

Discrete choice problems with complementarities among options quickly grow infeasible to solve, since they generically require evaluating all combinations of choices. We develop a solution method that applies whenever choices are weakly complementary or substitutable, using the implied choice monotonicity to discard suboptimal combinations without computing their payoff. It is orders of magnitude faster than existing approaches, finds the global solution, and extends to heterogeneous-agent settings. Using our method, we calibrate a general equilibrium model of multinational firms selecting global production locations to show that complementarities among locations can amplify, dampen, or even reverse the welfare gains from multinational production.

Suggested Citation

  • Costas Arkolakis & Fabian Eckert & Rowan Shi, 2023. "Combinatorial Discrete Choice: Theory and Application to Multinational Production," NBER Working Papers 31877, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:31877
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    Cited by:

    1. Huang, Hanwei & Manova, Kalina & Perello, Oscar & Pisch, Frank, 2024. "Firm heterogeneity and imperfect competition in global production networks," LSE Research Online Documents on Economics 126808, London School of Economics and Political Science, LSE Library.
    2. Xavier Giroud & Simone Lenzu & Quinn Maingi & Holger Mueller, 2024. "Propagation and Amplification of Local Productivity Spillovers," Econometrica, Econometric Society, vol. 92(5), pages 1589-1619, September.
    3. Leone, Fabrizio, 2024. "Global robots," LSE Research Online Documents on Economics 126784, London School of Economics and Political Science, LSE Library.
    4. Bao, Alex & Bontems, Philippe & Cardebat, Jean-Marie & Chiappini, Raphael, 2024. "Exporters’ behaviour in the face of climate volatility," TSE Working Papers 24-1552, Toulouse School of Economics (TSE).
    5. Bartelme, Dominick & Ziv, Oren, 2024. "The internal geography of firms," Journal of International Economics, Elsevier, vol. 148(C).

    More about this item

    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F6 - International Economics - - Economic Impacts of Globalization

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