We analyze a model where investors use a credit rating to decide whether to finance a firm. The rating quality depends on unobservable effort exerted by a credit rating agency (CRA). We study optimal compensation schemes for the CRA when a planner, the firm, or investors order the rating. Rating...

This paper aims to examine the productivity change of the Japanese economy using the data pertaining to the 47 prefectures during the period 1981-2000. The decomposition analysis of the Hicks-Moorsteen-Bjurek productivity index is conducted to explore the sources of the productivity change. In...

This paper studies whether agents must agglomerate at a single location in a class of models of two-sided interaction. In these models there is an increasing returns effect that favors agglomeration, but also a crowding or market-impact effect that makes agents prefer to be in a market with...

Should China build mega-cities or a network of linked middle-sized metropolises? Can Europe's mid-sized cities compete with global agglomeration by forging stronger inter-urban links? This paper examines these questions within a model of recombinant growth and endogenous local amenities. Three...

We study optimal merger policy in a dynamic model in which the presence of scale economies implies that firms can reduce costs through either internal investment in building capital or through mergers. The model, which we solve computationally, allows firms to invest or propose mergers according...

This paper quantifies the roles of increases in the demand for skill-intensive output, the efficient scale of service production, and female labor supply in the growth of services. We extend the Buera and Kaboski (2012a,b) model to a two-person household, incorporating a joint decision on home...

A growing literature seeks to understand how the characteristics of firms shape the manner in which they serve foreign markets. We consider an environment in which multiproduct firms can sell their products in multiple countries from multiple locations. We show that there are strong empirical...

We develop a structural gravity model that introduces scale effects in bilateral trade. Scale effects and incomplete passthrough give two channels through which exchange rates have real effects on trade patterns. Estimates from Canadian provincial trade data identify these effects through their...

We argue that active management's popularity is not puzzling despite the industry's poor track record. Our explanation features decreasing returns to scale: As the industry's size increases, every manager's ability to outperform passive benchmarks declines. The poor track record occurred before...