We propose a general model of monopolistic competition, which encompasses existing models while being flexible enough to take into account new demand and competition features. The basic tool we use to study the market outcome is the elasticity of substitution at a symmetric consumption pattern,...

We look for a theoretical justification of nominal wage contracts in household diversification of risk. We assume it is more costly for households than for firms to use financial markets for this purpose. In a calibrated general equilibrium model we find from stochastic simulation that where...

Incorporating space in economic models has two important consequences. First, the hypothesis of perfect competition becomes untenable, and second, the distinction between private and public goods becomes blurred. We review arguments that lead to these conclusions and summarize recent work...

This essay presents a rigorous theory of involuntary unemployment in less developed countries based on the observation that at low consumption levels a person's overall ability to work is impaired. The theory links the incidence of involuntary unemployment in a market economy to the incidence of...

Pareto-improving economic reforms that also simultaneously achieve efficiency can be implemented through a strategy of ‘dual-track’ liberalization. Its success requires the feasibility of the original plan and its continued enforcement by the state. The Chinese experience demonstrates that...

We analyze the impact of globalization on individual gains from trade in a general equilibrium model of monopolistic competition featuring product diversity, pro-competitive effects and income heterogeneity between and within countries. We show that, although trade reduces markups in both...

I examine the causes and the consequences of differences in labor market outcomes across local labor markets within a country. The focus is on a long-run general equilibrium setting, where workers and firms are free to move across localities and local prices adjust to maintain the spatial...

We use a North-South model with property right differences and resource dynamics to study the effects of trade on resource use and welfare. Autarky is likely to Pareto-dominate free trade in the long run when the environment is quite fragile, and the result is reversed when the environment is...

This paper simulates the costs of the US-Japan auto VER. Under a standard constant returns to scale (CRTS) formulation, the costs are estimated at about $10 billion. It then sequentially introduces important features of the auto VER: endogenous rent premium determination, wage distortions in...

This paper considers the generalized second-best analytics of optimal restructuring under a political constraint, building on the modelling approach in Dehejia (1997). It is shown that the second-best optimum entails administering the terms-of-trade shock fully at the initiation of the reform,...