We consider infinite-horizon economies populated by a continuum of agents subject to idiosyncratic shocks. This framework contains models of saving and capital accumulation with incomplete markets in the spirit of works by Bewley, Aiyagari, and Huggett; models of entry, exit, and industry dynamics in the spirit of Hopenhayn’s work; and dynamic models of occupational choice and search models as special cases. Robust and easy-to-apply comparative statics results are established with respect to exogenous parameters as well as various kinds of changes in the Markov processes governing the law of motion of the idiosyncratic shocks.

We study the direct and spillover effects of local state capacity in Colombia. We model the determination of state capacity as a network game between municipalities and the national government. We estimate this model exploiting the municipality network and the roots of local state capacity related to the presence of the colonial state and royal roads. Our estimates indicate that local state capacity decisions are strategic complements. Spillover effects are sizable, accounting for about 50 percent of the quantitative impact of an expansion in local state capacity, but network effects driven by equilibrium responses of other municipalities are much larger.

We provide a general framework for the analysis of institutional dynamics in an environment in which payoffs and political powers change stochastically. Assuming that economic and political institutions as well as individual types can be ordered, and preferences and the distribution of political power satisfy natural “single-crossing” (increasing differences) conditions, we prove existence of a pure-strategy Markov voting equilibrium, provide conditions for its uniqueness, and present a number of comparative static results. We then use this framework to study the dynamics of political rights and repression in the presence of threats from extremist groups and the dynamics of collective experimentation.

This paper argues that the extent of financial contagion exhibits a form of phase transition: as long as the magnitude of negative shocks affecting financial institutions are sufficiently small, a more densely connected financial network (corresponding to a more diversified pattern of interbank liabilities) enhances financial stability. However, beyond a certain point, dense interconnections serve as a mechanism for the propagation of shocks, leading to a more fragile financial system. Our results thus highlight that the same factors that contribute to resilience under certain conditions may function as significant sources of systemic risk under others.