International insecurity can severely disrupt trade. This Working Paper studies treaties aimed at preventing such insecurity: military alliances. The author develops a quantitative model of trade with endogenous international insecurity, where alliances affect trade flows by reducing the risk of violent expropriation faced by firms. Taking a structural gravity approach, he shows that alliances increase trade by 66% on average. The effects of military alliances are dynamic and heterogeneous. They depend to a large extent on the type of alliance and the economic size of partners. An instrumental variable strategy and an event study confirm the causal interpretation of the results. Investigating the mechanism behind the impacts of military alliances, the paper demonstrates that alliances increase trade by reducing international insecurity. Moreover, employing the full scope of our theoretical model, a general equilibrium analysis shows that the growth in trade generated by military alliances brings substantial welfare gains for signatories and losses for non-aligned countries. Matteo Neri-Lainé

This recent Working Paper introduces a base-peak load structure to electricity modeling in large-scale CGE models to better capture merit order dispatch, capacity constraints and renewable intermittency. A transparent toy model demonstrates how ignoring peak load constraints systematically underestimates the macroeconomic impacts of energy shocks.The authors argue that second-order approximation are not well-suited for this kind of exercise, due to the large size of the shock compared to the value of the elasticity of substitution. The authors treat base load and peak load electricity as non-substitutable Leontief complements, reflecting operational constraints in electricity systems. Applying the refined model to the 2022 Russian gas shock reveals larger GDP and welfare losses in Germany and the EU than standard electricity representations predict.  Balthazar de Vaulchier, Lionel Fontagné, Yu Zheng