Knowledge that Transforms

This paper studies quarterly employment flows of approximately 10,000 U.S. manufacturing establishments. We use establishments' hours-week to construct measures of the deviation between desired and actual employment and use these as the establishments' main state variables. Our main findings are: (i) micro-economic adjustment functions are nonlinear, with plants adjusting disproportionately to large shortages; (ii) adjustments are often either large or nil, suggesting the presence of nonconvexities in the adjustment cost technologies; (iii) the bulk of average employment fluctuations is accounted for by aggregate, rather than reallocation, shocks; and (iv) microeconomic nonlinearities amplify the impact of large aggregate shocks.

This paper demonstrates that bilateral free-trade agreements can undermine political support for further multilateral trade liberalization. If a bilateral trade agreement offers disproportionately large gains to key agents in a country, then their reservation utility is raised above the multilateral free-trade level, and a multilateral agreement would be blocked. Bilateral agreements between countries with similar factor endowments are most likely to have this effect. It also follows that bilateral free-trade agreements can never increase political support for multilateral free trade.

This paper presents an auction model in which the seller may choose not to sell in spite of receiving a bid above the announced reserve price. Such behavior is seen frequently in auctions, yet would be suboptimal within most existing models. Here, the seller uses resale to signal information about the object's value that could not easily be communicated via a reserve price announcement. The model predicts that bids for reauctioned objects increase relative to initial bids and that, on average, prices of both reauctioned items and those sold at initial auction rise as delay in reauctioning increases.