In this paper we consider the problem of financing infrastructure when the regulator faces a budget constraint. The optimal budget-constrained mechanism satisfies four properties. The first property is bunching at the top, that is the more efficient firms produce the same quantity. The second...

Collective consumption decisions taken by the members of a household may prove inefficient. The impact of such inefficient household decisions on market performance is investigated. At one extreme, market efficiency can occur even when household decisions are inefficient, namely when household...

The argument that policy risk, i.e. uncertainty about monetary and fiscal policy, has been holding back the economic recovery in the U.S. during the Great Recession has a large popular appeal. We analyze the role of policy risk in explaining business cycle fluctuations by using an estimated New...

I review previous approaches to modelling oligopoly in general equilibrium, and propose a new view which in principle overcomes their deficiencies: modelling firms as large in their own market but small in the economy as a whole. Implementing this approach requires a tractable specification of...

In this paper, we directly test the Modigliani-Miller theorem in the lab. Applying a general equilibrium approach and not allowing for arbitrage among firms with different capital structures, we are able to address this issue without making any assumptions about individuals' risk attitudes and...

This study analyzes the impact of international trade on the diffusion of flexible manufacturing in a general equilibrium framework. Suppliers produce a flexible base product that can be adapted to the specific input requirements of a continuum of downstream industries. The vertical structure is...

Applied general and partial equilibrium models are widely used tools for ex ante analysis of trade policy changes. However, simulation results seem to exhibit significant variation across publications, and the often criticised ‘black box’ character of applied trade models makes meaningful...

In this paper we study the welfare effect of a monopoly innovation. Unlike many partial equilibrium models carried out in previous studies, general equilibrium models are constructed and analyzed in greater detail. We discover that technical innovation carried out by a monopolist could...