This paper is an attempt to enrich the characterization of the sluggish behavior of the aggregate price level. Our contribution to this vast literature is to explicitly consider microeconomic heterogeneity and its interaction with nonlinear microeconomic price adjustment policies. The model we...

Public-private partnerships (PPPs) cannot be justified because they free public funds. When PPPs are justified on efficiency grounds, the contract that optimally balances demand risk, user-fee distortions and the opportunity cost of public funds, features a minimum revenue guarantee and a...

When firms face menu costs, the relation between their output and money is highly nonlinear. At the aggregate level, however, this needs not be so. In this paper we study the dynamic behavior of a general equilibrium menu-cost economy where firms are heterogeneous in the shocks they perceive,...

It has become increasingly common to allocate highway franchises to the bidder that offers to charge the lowest toll. Often, building a highway increases the value of land held by a small group of developers, an effect that is more pronounced with lower tolls. We study the welfare implications...

In this paper we characterize the average response of output to aggregate demand shocks in an economy where individual firms follow state-dependent pricing rules. We find that: (i) the average response of output to aggregate demand shocks decreases with core inflation and varies...

In this paper we provide a framework to study the aggregate dynamic behavior of an economy where individual units follow (S,s) policies. We characterize structural and stochastic heterogeneities that ensure convergence of the economy's aggregate to that of its frictionless counterpart, determine...

This paper studies two episodes where an exporting industry saw its sales plummet after importing countries banned their products to protect their citizens' health. The first case is the poisoned grapes crisis involving Chile and the United States in 1989. The second is the mad cows dispute...

There are many industries in which potentially competitive segments require services provided by natural monopoly bottlenecks (essential facilities). Since it is difficult to regulate these facilities, developing countries are using Demsetz auctions, where the facility is awarded to the firm...

In many circumstances, a principal, who wants prices to be as low as possible, must contract with agents who would like to charge the monopoly price. This paper compares a Demsetz auction, which awards an exclusive contract to the agent bidding the lowest price (competition for the field) with...

In this paper we derive a model of aggregate investment that builds from the lumpy microeconomic behavior of firms facing stochastic fixed adjustment costs. Instead of the standard (S,s) bands, firms' optimal adjustment policies are probabilistic, with a probability of adjusting (adjustment...