Principal-agent models take outside options, determining participation and incentive constraints, as given. We construct a general equilibrium model where workers' reservation wages and the maximum punishment acceptable before workers quit are instead determined endogenously. We simultaneously...

We extend an analytical general equilibrium model of environmental policy with pre-existing labor tax distortions to include pre-existing monopoly power as well. We show that the existence of monopoly power has two offsetting effects on welfare. First, the environmental policy reduces monopoly...