The hypothesis that financial markets punish traders who make relatively inaccurate forecasts and eventually eliminate the effect of their beliefs on prices is of fundamental importance to the standard modeling paradigm in asset pricing. We establish necessary and sufficient conditions for...

We question a deep-ingrained doctrine in asset pricing: If an empirical characteristic-return relation is consistent with investor "rationality," the relation must be "explained" by a risk factor model. The investment approach changes the big picture of asset pricing. Factors formed on...

The distribution of the population of cities has attracted a great deal of attention, in part because it sharply constrains models of local growth. However, to this day, there is no consensus on the distribution below the very upper tail, because available data need to rely on the "legal" rather...

We present an infinite horizon model with capital in which fiat money and barter are two competing means of payment. Fiat money has value because barter is limited by the extent of a double coincidence of wants. The pattern of exchange generally involves both money and barter. We find that the...

In this article we define a Recursive Competitive Equilibrium, provide an example and review the related literature. The article is an entry prepared for The New Palgrave: A Dictionary of Economics, 2nd Edition (Palgrave Macmillan: New York).

We model equilibrium spot and futures oil prices in a general equilibrium production economy. In our model production of the consumption good requires two inputs: the consumption good and a commodity, e.g., Oil. Oil is produced by wells whose flow rate is costly to adjust. Investment in new Oil...

In an economy with imperfect labor contracts, differences in the distribution of human capital are an independent source of comparative advantage. I study a world economy with two sectors, one where output is produced by teams and another where individuals can work alone. When workers' abilities...

In the standard analysis of an overlapping generations economy with gifts from children to parents, each generation takes the actions of all other generations as given. The resulting "simultaneous moves" equilibrium is dynamically inefficient. In reality, however, parents precede children in...

We develop a competitive model of trade between countries with similar aggregate factor endowments. The trade pattern reflects differences in the distribution of talent across the labor forces of the two countries. The country with a relatively homogenous population exports the good produced by...

We investigate a neoclassical economy with heterogeneous agents, convex technologies and idiosyncratic production risk. Combined with precautionary savings, investment risk generates rich effects that do not arise in the presence of pure endowment risk. Under a finite horizon, multiple growth...