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Dong, 2019, page 898 documented:

We measure firm exposure to international laws in two ways. First, we rely on the industry’s exposure and define the treatment based on a firm’s exposure to the passage of leniency programs in countries to which the firm’s industry sends a significant fraction of its exports. This variable accounts for the fact that the passage of a leniency program in a foreign country that is likely to be a firm’s product market also increases the costs of collusion, because it is more difficult to form international cartels with industry peers in a foreign country where it is easier to apply for leniency

I mainly want to ask about the second quoted sentence, which is italicized, but I quoted three sentences that we can have a better context. I have three questions here:

1> What does industry's exposure mean in the second sentence?

2> Is there any way to simplify the second sentence that is easier for me to understand, I totally get lost when reading this sentence?

My understanding is: We assume "a firm" in this sentence is firm A in industry "Manufacturing" in the US, and"countries to which the firm’s industry sends a significant fraction of its exports" is China. So, whether this sentence can be shortened to "we rely on the industry’s exposure and define the treatment based on how much Manufacturing industry in the US exporting to the Manufacturing industry in China"? I tried to simplify the sentence as much as I can but I failed to do so.

3> What does the relative pronoun"this" in "This variable accounts for" in the third sentence refer to based on this context. In another word, what is the antecedent of "this" in this case?

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    Have you looked up exposure? "The state of having no protection from something harmful" -- "Industry's exposure" means assessing how badly the industry as a whole may be affected by international law.
    – Andrew Leach
    May 8, 2021 at 7:48
  • Hi @AndrewLeach . Thank you for your comment, but exposure here has a neutral rather than a negative meaning May 8, 2021 at 8:14
  • Ok, so substitute much for badly to reduce the negativity. The meaning is the same.
    – Andrew Leach
    May 8, 2021 at 9:17
  • Exposure is also used in the neutral sense of a company's products being "exposed" to some key influence: a market, a regulatory regime, a commercial or political environment, etc. A related sense of exposure is the company's or product's visibility, i.e. exposure to public scrutiny or market interest. :-) May 10, 2021 at 3:47
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    @PhucNguyen exposure is rarely an entirely neutral term, and would usually be interpreted as "subjected to risk". A person can "die of exposure" (e.g. in the snow or a desert), or be convicted of "indecent exposure" (i.e. revealed a proscribed body part). It can also carry a sense of revelation: e.g. a film negative is called an exposure when you open the camera shutter; or "X was exposed as a fraud". :-) May 10, 2021 at 4:14

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The industry's exposure must be its exposure to international laws, as with the firm's exposure.

The word "exposure" here means susceptibility. (I've used 'subject to' below.)

Using your substitutions:

First, we assume firm A's whole industry ('manufacturing') is subject to international laws, then define the treatment based on whether (or to what extent) a firm is subject to leniency programs passed (into law) in 'China'.

I can't tell whether "this variable" means the industry's exposure or the firm's.

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  • So, do you mean industry's exposure and firm's exposure are all about exposing to international laws? May 8, 2021 at 8:17
  • All manufacturing is subject to international laws. May 8, 2021 at 8:27

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