We study a class of two-sector neoclassical growth models, in which one sector produces consumption goods and the other sector produces the capital goods for both sectors and in which the capital-producing sector has sector-specific externalities. We show analytically that if the capital goods...

The equivalent or compensating variation for a price increase is often calculated using the expenditure function from a statistical (i.e. estimated) demand. If the regression errors are due to unobserved heterogeneity, then the variation from the statistical demand does not generally equal the...

This paper analyzes a model with search frictions, heterogeneous agents, and nontransferable utility, in which each individual observes only a noisy signal of the type of a potential partner. We show that an agent's optimal strategy must take into account not only the realization of the noisy...

One of the most challenging questions in economics is why some countries are so much richer than others. In this paper, we assess the role of cross-country differences in barriers to entry. This is motivated by the recent evidence about both their prevalence in the third world and their harmful...

We analyze a principal-agent model with moral hazard in which the principal has private information about the technology, and the contract offered by her may signal this information to the agent. We characterize Perfect Bayesian Equilibria of the game that possess the following properties that...

In this paper we are concerned with the performance of stock option contracts in the provision of managerial incentives. In our simple framework, we restrict the space of contracts available to the principal to those conformed by a fixed payment and a package of call options on the firm's stock....

We introduce and solve a new class of static portfolio choice problems, where only the best realized alternative matters. A decision maker must simultaneously choose among independent ranked options, and the better alternatives have a lower chance of panning out. Each choice is costly, and just...

This paper analyzes the optimal allocation problem of a small country facing an uncertain technology and trading. It is involved in production of many commodities. Differentiability cannot be guaranteed, hence, the Ramsey-Euler condition of optimality needs to be modified. From the optimality...

This study addresses two questions: where does price discovery occur for internationally-traded firms and how do international stock prices adjust to an exchange rate shock? These questions are answered by analyzing quotes originating in New York and Frankfurt for three large German firms,...

Beginning in late 2001, Argentina experienced a tumultuous economic and social crisis including the end of the decade-long peso peg to the dollar, drastic foreign exchange and capital controls, violent anti-government demonstrations, social unrest, and the largest debt default in history. Yet...