In an economy with imperfect labor contracts, differences in the distribution of talent can be an independent source of comparative advantage. I study a world economy with two activities, one in which an individual's contribution to production can be measured accurately and another in which...

The authors develop a framework for studying trade in horizontally and vertically differentiated products. In their model, consumers with heterogeneous incomes and tastes purchase a homogeneous good and make a discrete choice of quality and variety of a differentiated product. The distribution...