This paper argues that regional variation in the efficiency of labor allocation among German manufacturing plants plays a critical role in explaining regional disparities in productivity. In fact, we show that over 50% of the East-West productivity gap is associated with a less efficient labor...

We study a mechanism design problem where allocation rule is randomized and transfers are contingent on outcomes. A sender reports his private information. An exogenous randomized allocation rule assigns an outcome based on the report. A central planner designs an outcome-contingent transfer to...

This paper introduces an internal capital market into a two-factor model of multi-segment frms that features managers' empire building and informational frictionswithin the organization. Our novel theory shows that international trade imposesdiscipline on divisional managers and improves capital...