We assess whether "undue optimism" (Pigou) contributes to business cycle fluctuations. In our analysis, optimism (or pessimism) pertains to total factor productivity which determines economic activity in the long run. Optimism shocks are perceived changes in productivity which do not actually...

This paper provides a novel rationale for the regulation of market size when heterogeneous firms compete. A regulator seeks to maximize total welfare by choosing the number of firms allowed to enter the market, e.g. by issuing a certain number of licenses. Opening up the market for more firms...

Using a new administrative dataset, we provide fresh micro-level evidence on firms’ returns to scale (RTS). We employ a new administrative database, iBACH, which contains extensive high-quality annual balance sheet, financial, and demographic information on more than two million non-financial...

Industrial prices of goods and services are a function of costs of production and of the mark-up that firms apply on those costs. If these prices relate to goods that are traded internationally, they will also be influenced by the price at which those goods are exchanged in international...