Abstract: We highlight the fact that offshoring firms and local firms that do not offshore coexist in the North. Adopting Dei's (2010) approach to offshoring, we demonstrate that a fall in offshoring costs in any sector makes the South better off and that if offshoring costs in a high-technology sector fall at a faster rate, the North is worse off, and vice versa.

Abstract：This paper assesses optimality of the ex post rescue or soft budget constraint (SBC) against hard budget constraint (HBC) from ex ante standpoint in federations. The commitment problem is then re-examined with focus being placed upon the initial cost ex ante, the additional cost ex post and the additional benefit ex post. We also introduce self-refinance for the investment ex post but with the advantage of the tax collection at the federal level and examine optimality of self-refinance compared with simple hard budget or simple soft budget. Finally we investigate the optimal softness of budget in the sense of the degree of support for the additional cost ex post.

Key Words: soft budget, Time inconsistency
JEL:H71,H72,H73,H77