We consider a procurement problem in which the procurement agent is supposed to allocate the realization of a project according to a competitive mechanism that values bids in terms of the proposed price and quality. Potential bidders have private information about their production costs. Since the procurement agent is also in charge of verifying delivered quality, in exchange for a bribe, he ca...

In the industry center of lighters in Wenzhou, China, lighters are produced by a large number of small, vertically specialized, and agglomerated firms. Some firms specialize in assembling lighters, while the others specialize in producing parts. A perfect-competition model is developed to analyze this phenomenon, and four related factors are revealed to be involved. First, compared with standar...

This paper argues that the Phillips curve–wage curve controversy cannot be settled within the conventional testing frameworks and suggests an alternative test, which builds on the model of Blanchard and Katz (1997). Using long macro data for the OECD countries, the evidence gives very strong support for the Phillips curve and indicates that wage behaviour is no different among the OECD countrie...

Credit markets play an important role in the macroeconomy and credit market data is often used to predict both future macroeconomic and stock market performance. In this paper we propose a tractable general equilibrium asset pricing model with heterogeneous firms that links movements in stock and bond markets to macroeconomic activity. The model suggests that movements in risk premia in corpora...

We analyze the interaction of explicit and implicit contracts in a model with selfish and fair principals. Fair principals are willing to honor implicit agreements, whereas selfish principals are not. Principals are privately informed about their types. We investigate a separating equilibrium in which principals reveal their type through the contract offer to the agent. If this equilibrium is p...

Countries compete for new FDI investment, whereas stocks of FDI generate agglomeration benefits and are potentially subject to extortionary taxation. We study the interaction between these aspects in a simple vintage capital framework with discrete time and an infinite horizon, focussing on Markov perfect equilibrium. We show that the equilibrium taxation destabilizes agglomeration advantages. ...