In this paper we argue that two important causes of welfare losses in oligopolistic markets have been neglected. We show that in models where location is endogenous, welfare losses arising from wrong locations or from lack of market coverage may be substantial despite firms competing in prices. In contrast, welfare losses arising from quality choice are modest but they might vary discontinuousl...

This paper characterizes a stationary Markov-perfect political equilibrium where agents vote over income taxation that distorts educational investment. Agents become rich or poor through educational investment, and the poor have a second chance at success. The results show the following concerning the cost of a second chance. First, when the cost is low, the economy is characterized by high lev...

This paper analyses the incentive properties of prospective payment systems for hospital contracts, a key feature in many health systems’ reforms. Building on current literature, the model explicitly allows for the existence of waiting time, modelled as adversely affecting patients’ utility and therefore reducing social welfare. The model shows that rewarding hospitals for their demand leads to...

This paper discusses the impact of foreign direct investment (FDI) on market entry and welfare in a model of two countries and two periods. In the first period, firms enter the market as national firms, in the second period, FDI is possible. The paper demonstrates that FDI reduces market entry because equilibrium profits in the second period decline with a decrease in the fixed cost of FDI. The...

Profit Sharing and Relative Consumption Traditionally, it has been argued that profit sharing can increase employment and welfare because it lowers marginal labour costs without reducing total cost or labour income. In this paper, we show that profit sharing can also represent a Pareto-improvement if labour supply is excessive due to relative consumption effects. Mandatory profit sharing reduce...

Existing studies of fiscal policy interactions are based on single equation models of either taxation or expenditures, without specifying the underlying social welfare function, without taking account of budget constraints and without allowing for cost differences between jurisdictions. Taking all this into account, we derive an extended version of the linear expenditure system (LES) with polic...

In this paper we identify conditions under which the introduction of a pay-as-you-go social security system is ex-ante Pareto-improving in a stochastic overlapping generations economy with capital accumulation and land. We argue that these conditions are consistent with many calibrations of the model used in the literature. In our model financial markets are complete and competitive equilibria ...

We construct a stochastic overlapping generations model in which households of di¤erent ages are subject to aggregate shocks that a¤ect both wages and asset prices. We use a realistically calibrated version of the model to assess the distributional consequences of severe recessions. More speci…cally, within the context of this model we ask whether young people can be better o¤ if they become ec...

This paper examines a three-stage model of divisionalization where, first, two parent firms create independent units, second, the parent firms allocate cost reduction levels over these units, and third, the resulting units compete in a Cournot market given their current costs of production. The introduction of the cost reduction phase is shown to reduce the incentives toward divisionalization s...

This simple paper models the production allocation choices of a multinational enterprise (MNE) in a three-country framework -a northern country and two southern countries. The products made in the southern countries are of lower quality, and have higher substitutability than those between the south and the north. We investigate how exchange rates affect production, employment, profits and welfa...