This paper extends [R. Mehra, E.C. Prescott, Recursive competitive equilibrium: The case of homogeneous households, Econometrica 48 (1980) 1365-1380] to a production economy with two capital goods. It is an RBC model in which each unit of investment requires a new idea, an 'option.' When options...

We study an economy in which firms use labor and various vintages of capital in a CES production function for the final good. We explicitly solve for the investment in capital of a given vintage as a function of its age, and for the resulting stocks of capital. We show that for reasonable...

The rise in world trade since 1970 has been accompanied by a rise in the geographic span of control of management and, hence, also a rise in the effective international mobility of labor services. We study the effect of such a globalization of the worldʼs labor markets. The worldʼs welfare...