Technology, Trade, and Quality Slopes

Abstract

We investigate the factors that, in addition to preferences, aect the extent to which richer households pay more for a given durable good with respect to their expenditures on nondurables, dened as the quality slope. We show theoretically and conrm empirically that the quality slope decreases in the cost elasticity of quality. Given that this elasticity varies across countries, the quality slope also depends on taris. Specically, it increases in the tari on middle-income exporters (higher elasticity) and decreases in the tari on imports from high-income OECD exporters (lower elasticity) to the U.S.