We consider a wide number of applications of an intrafirm bargaining game within organizations where employees and the firm engage in wage negotiations. Under our presumption that contracts cannot bind employees to the organization, the resulting stable wage and profit profiles give rise to an objective function for the firm that places weight on inframarginal profits in an economically significant manner. We in turn employ this methodology to explore applications of organizational design, hiring and capital decisions, training and cross-training, the importance of labor and asset specificity, managerial hierarchies, preferences for unionization, responses to competition, and internal capital budgeting.

The evidence on international capital immobility is extensive, including the lack of international portfolio diversification, real interest differentials across countries, and the high correlation between domestic savings and investment. We develop a model with asymmetric information between countries that helps rationalize all the above observations and then examine the implications of this model for optimal domestic tax policy. Without asymmetric information, past work showed that small open economies should not impose corporate income taxes. With asymmetric information, the optimal policy instead involves government subsidies to capital imports. Some omitted factors that argue against subsidizing capital imports are explored briefly.

During recessions, output prices seem to rise relative to wages and raw-material prices. One explanation is that imperfectly competitive firms compete less aggressively during recessions. That is, markups of price over marginal cost are countercyclical. We present a model of countercyclical markups based on capital-market imperfections. During recessions, liquidity-constrained firms boost short-run profits by raising prices to cut their investments in market share. We provide evidence from the supermarket industry in support of this theory. During regional and macroeconomic recessions, more financially constrained supermarket chains raise their prices relative to less financially constrained chains.