A model of free-entry perfectly competitive markets in which firms may produce more than one product is developed. The formulation is very simple and closely parallels the classic single-product model, the goal being to provide a useful, accessible tool for applications-oriented research. Examples of the kind of analysis made possible by the model, and simple extensions of it, are presented.

[We study a competitive model in which managers differ in ability and choose unobservable effort. Each firm chooses its size, how able a manager is to hire, and managerial compensation. The model can be considered an amalgam of agency and Superstars, where optimizing incentives enhances the firm's ability to provide a talented manager with greater resources. The model delivers many testable implications. Preliminary results show that the model is useful for understanding interesting compensation trends, for example, why CEO pay has recently become more closely associated with firm size. Allowing for firm productivity differences generally strengthens our results.]

Firm numbers first rise, then later fall, as an industry evolves. This nonmonotonicity is explained using a competitive model in which innovation opportunities fuel entry and relative failure to innovate prompts exit; equilibrium time paths for price and quantity also share features of the data. The model is estimated using data from the U.S. automobile tire industry, a particularly dramatic example of the nonmonotonicity in firm numbers.

This paper studies the evolution of a competitive industry in which a fixed number of firms reduce costs by innovating and by imitating their rivals' technologies. As the firms' technologies gradually improve, industry output expands and price falls. Technological leaders tend to rely on innovations to reduce their costs, whereas the laggards rely more on imitation. Imitation causes technology to spread from the leaders to the followers and forces some convergence of technology among firms as the industry matures. This convergence is accompanied by faster growth of smaller firms and a consequent tightening of the distribution of output over firms. Since imitation is a kind of spillover of technology, equilibrium is likely to involve insufficient innovative and imitative effort relative to a social optimum.

This paper studies the evolution of a competitive industry in which a fixed number of firms reduce costs by innovating and by imitating their rivals' technologies. As the firms' technologies gradually improve, industry output expands and price falls. Technological leaders tend to rely on innovations to reduce their costs, whereas the laggards rely more on imitation. Imitation causes technology to spread from the leaders to the followers and forces some convergence of technology among firms as the industry matures. This convergence is accompanied by faster growth of smaller firms and a consequent tightening of the distribution of output over firms. Since imitation is a kind of spillover of technology, equilibrium is likely to involve insufficient innovative and imitative effort relative to a social optimum.

Firm numbers first rise, then later fall, as an industry evolves. This nonmonotonicity is explained using a competitive model in which innovation opportunities fuel entry and relative failure to innovate prompts exit; equilibrium time paths for price and quantity also share features of the data. The model is estimated using data from the U.S. automobile tire industry, a particularly dramatic example of the nonmonotonicity in firm numbers. Copyright 1994 by University of Chicago Press.

Poor countries have lower PPP-adjusted investment rates and face higher relative prices of investment goods. It has been suggested that this happens either because these countries have a relatively lower TFP in industries producing capital goods or because they are subject to greater investment distortions. This paper provides a micro-foundation for the cross-country dispersion in investment distortions. We first document that firms producing capital goods face a higher level of idiosyncratic risk than their counterparts producing consumption goods. In a model of capital accumulation where the protection of investors' rights is incomplete, this difference in risk induces a wedge between the returns on investment in the two sectors. The wedge is bigger, the poorer the investor protection. In turn, this implies that countries endowed with weaker institutions face higher relative prices of investment goods, invest a lower fraction of their income, and end up being poorer. We find that our mechanism may be quantitatively important.

This article explores a model in which a union confronts many competitive workers, firms, and consumers. Under "monopoly" unionism, union coverage may be incomplete; then, union wages and employment are insensitive to product demand variation. Under "efficient" unionism, coverage can never be incomplete; some union variables necessarily vary with product demand. Preliminary evidence on the demand independence under incomplete coverage hypothesis is presented. Also, more structure is imposed and further hypotheses are derived, and the manner in which the model can be enriched to allow for a variety of union-related issues within a consistent framework is set out.

A frequent practice in empirical work is to "preanalyze" the data via various sample inclusion rules. Truncation of "outliers" is common. These procedures are a form of sample censoring imposed by the investigator. Such censoring produces effects familiar from the sample selection literature. This paper investigates the question why an investigator might want to censor a sample and what the costs are. In an empirical example, using a variance components model of a wage equation, potential inconsistency problems are highlighted. The results indicate that while the slope coefficients, <tex-math>\hatβ</tex-math>, may typically be less sensitive to censoring than the variance components, some common forms of censoring also markedly affect <tex-math>\hatβ</tex-math>. Finally, a Bayesian estimator that incorporates prior information in a flexible way was developed. The usual Bayesian procedure was reversed, by using the Bayesian estimator to recover the prior beliefs that an investigator imposes by any proposed truncation of outliers. Especially in large samples, extremely dogmatic prior beliefs may be imposed when outliers are eliminated. Prior distributions of the type developed in the paper may be used by the investigator to clarify the nature of his prior beliefs revealed by a willingness to truncate data points and to assess whether or not any proposed truncation accurately reflects thoes beliefs.