Aggregate cost uncertainty, arising from real shocks or unanticipated inflation, reduces the informativeness of prices by scrambling relative and aggregate variations. But when agents can acquire additional information, such increased noise may in fact lea d them to become better informed and...

A general model of community formation and human capital accumulation with social spillovers and decentralized school funding is used to analyze the causes of economic segregation and its consequences for equity and efficiency. Significant polarization arises from minor differences in...

A central tenet of economics is that individuals respond to incentives. For psychologists and sociologists, in contrast, rewards and punishments are often counterproductive, because they undermine "intrinsic motivation". We reconcile these two views, showing how performance incentives offered by...

A model of monopolistic competition in an inflationary environment is devel oped that embodies optimal sequential search, price dynamics, and ent ry on the part of consumers and firms, respectively. Equilibrium pric e strat-egies are (S,s); these bounds increase continu-ously with con sumer...

This paper examines how inflation affects efficiency and output in monopolistically competitive search markets. It formalizes the conventional wisdom linking higher inflation, price dispersion, and increased resources devoted to search. It also brings to light the induced exit of firms, which...

A central tenet of economics is that individuals respond to incentives. For psychologists and sociologists, in contrast, rewards and punishments are often counterproductive, because they undermine "intrinsic motivation". We reconcile these two views, showing how performance incentives offered by...

This article investigates collective denial and willful blindness in groups, organizations, and markets. Agents with anticipatory preferences, linked through an interaction structure, choose how to interpret and recall public signals about future prospects. Wishful thinking (denial of bad news)...