Knowledge that Transforms

Abstract We introduce markup equilibrium—an extension of Walrasian equilibrium in which consumers pay a fixed percentage markup over producer prices. In quasilinear markets, markup equilibria exist despite nonconvexities. They are resource-feasible and envy-free, incur no budget deficit, and require little more communication and computation than ordinary Walrasian equilibrium. The associated markup mechanism is asymptotically incentive-compatible. We also introduce a Bound-Form First Welfare Theorem, which states that for any feasible allocation, the welfare loss compared to the first-best is bounded, using any price vector, by the sum of the resulting (i) budget surplus and (ii) rationing losses suffered by the participants. Using producer prices, this bound implies that any markup equilibrium with a small markup and few unallocated goods is nearly efficient.

Abstract Government intervention in the financial market through its own trading fundamentally changes the market’s structure, function, and outcome. I develop a general equilibrium framework to study the impact of government trading on investor welfare. I show that with incompleteness and information asymmetry, the market equilibrium is in general suboptimal, and government intervention can potentially improve investor welfare even with no additional information. However, the actual welfare impact of government intervention is sensitive to the details of the economy and the policy design. Popular policy targets such as price stability, market liquidity, and informational efficiency can have different welfare implications.

Abstract We show that U.S. firms cut imports by 31.8% when their international suppliers experience environmental and social (E&S) incidents. These trade cuts are larger for publicly listed U.S. importers facing high E&S investor pressure and lead to cross-country supplier reallocation, suggesting that E&S preferences in capital markets can be privately costly but have real effects for foreign suppliers. Larger trade cuts around the incident result in better supplier E&S performance in subsequent years and in the eventual resumption of trade. Our results highlight the role of investors in ensuring suppliers’ E&S compliance along global supply chains.

Biopharmaceuticals advance health and economic growth. Unlike central bargaining abroad, the United States uses private firms, pharmacy benefit managers (PBMs), to manage medicine access and spending. Yet, PBMs' roles in advancing efficiency are understudied. Ho and Lee model PBMs' use of tiered formularies, lists of covered medicines, without the use of proprietary data on the price concessions drug makers offer for preferred placement. They find PBMs' use of tiered formularies generate significant payor savings through competition. Complementing Ho and Lee, Feng and Maini (2024) model how patient demand inertia limits PBMs' ability to extract price concessions from drug makers which consequently erodes the efficacy gains of PBM formularies. Conti, Frandsen, Powell, and Rebitzer (2021) model formulary auctions where PBM size drives payor savings, but also spurs endogenously set high list prices, reducing patient access. Future economic research should focus on PBM market entry and vertical integration, pharmacy steering, and effects on innovation.