This is an invited chapter for the forthcoming Volume 4 of the Handbook of Industrial Organization. We focus on markets with frictions, such as transaction costs, asymmetric information, search and matching frictions. We discuss how such frictions affect allocations, favor the emergence of...

The empirical evidence on rational inattention lags far behind the theoretical developments: micro evidence on the most immediate consequence of observation costs − the infrequent observation of state variables − is not available in standard datasets. We contribute to filling the gap with...

Recurrent intervals of inattention to the stock market are optimal if consumers incur a utility cost to observe asset values. When consumers observe the value of their wealth, they decide whether to transfer funds between a transactions account from which consumption must be financed and an...

This paper surveys the measurement of trade costs --- what we know, and what we don't know but may usefully attempt to find out. Partial and incomplete data on direct measures of costs go together with inference on implicit costs from trade flows and prices. Total trade costs in rich countries...

Home bias is a perennial feature of international capital markets. We review various explanations of this puzzling phenomenon highlighting recent developments in macroeconomic modelling that incorporate international portfolio choices in standard two-country general equilibrium models. We refer...

Motivated by a characteristic way in which firms in developed countries make their decisions regarding cooperation with potential partners from less developed countries, we design a simple model of a DC firm's search for an LDC partner/supplier and the subsequent relationship between the two...

This paper compares the responses of intra- and extra-firm trade to exchange rate changes. It does so both to inform the debate on whether these responses are qualitatively different and to improve understanding of the microfoundations of features of trade behavior such as long adjustment lags,...