"We consider Roy's economies with perfectly competitive labor markets and asymmetric information. Firms choose their investments in physical capital before observing the characteristics of the labor markets they will face. We provide conditions under which equilibrium allocations are constrained...

The pricing kernel puzzle is the observation that the pricing kernelmight be increasing in some range of the market returns. This paperanalyzes the pricing kernel in a nancial market equilibrium. If mar-kets are complete and investors are risk-averse and have common andtrue beliefs, the pricing...

An industry is modeled in which entrepreneurs, who are heterogeneous in ability, may produce formally or informally. It is shown how the formal-informal mix depends on the distribution of ability, product demand and various parameter values...

In this paper we address the issue of finding efficient partial equilibria in markets with nonconvexities.This is a problem that has intrigued generation of economists. Beside its theoreticalimportance this issue is fundamental in energy markets which do not give the right price signalsand...

We analyze the equilibrium and the optimal resource allocations in a monocentric city undermonopolistic competition. Unlike the constant elasticity of substitution (CES) case, wherethe equilibrium markups are independent of the city size, we present a variable elasticity ofsubstitution (VES)...

Our objective is to identify the trading strategy that would allow an investor to take advantage of “excessive” stock price volatility and “sentiment” fluctuations. We construct a general-equilibrium model of sentiment. In it, there are two classes of agents and stock prices are excessively...