We consider the free-market and socially optimal outcomes in a general oligopoly model with many firms which first engage in R&D and then compete in either output or price. Strategic behavior by firms tends to reduce output, R&D, and welfare and so justifies higher subsidies except when R&D spillovers are low and firms' actions are strategic substitutes. It also reduces the benefits of R&D cooperation. Moreover, policies to encourage cooperation are likely to be redundant (since it is always privately profitable) and simulations suggest that the welfare cost of lax competition policy is high.

Reviewing The Spatial Economy by Fujita, Krugman, and Venables, this paper argues that the key contribution of the new economic geography is a framework in which standard building blocks of mainstream economics (especially rational decision making and simple general equilibrium models) are used to model the trade-off between dispersal and agglomeration. The approach thus gives a choice-theoretic basis for a “propensity to agglomerate.”

A two-country model of oligopoly in general equilibrium is used to show how changes in market structure accompany the process of trade and capital-market liberalization. The model predicts that bilateral mergers in which low-cost firms buy out higher-cost foreign rivals are profitable under Cournot competition. As a result, trade liberalization can trigger international merger waves, in the process encouraging countries to specialize and trade more in accordance with comparative advantage. With symmetric countries, welfare is likely to rise, though the distribution of income always shifts towards profits.

This paper examines the behavior of a small open economy facing perfectly elastic supply curves for some of its productive factors. In particular, the paper derives some comparative statics properties of such economies, compares them with the properties of otherwise identical economies in which all factor prices are determined endogenously, and investigates the relationship between factor-price rigidities, factor-price equalization, and the pattern of specialization. Among the new results which are proved, it is shown that, as more and more factor-price rigidities are imposed on an economy, it comes "closer" to a state of factor-price equalization.

This paper explores the implications for international monetary economics of recent work on macroeconomic models of temporary equilibrium with rationing. A model of a small open economy is presented, which, though fully consistent in the long run with the monetary approach to the balance of payments, behaves very differently in the short run when the wage and the price of nontradeables are sticky. Among the comparative statics properties of the model are the following: a devaluation may not improve the trade balance; a wage cut may not increase employment; and technological progress has different effects, depending on the sector in which it occurs.

We characterize the relationship between the distributions of two variables linked by a structural model. We then show that, in models of heterogeneous firms in monopolistic competition, this relationship implies a new demand function that we call “CREMR” (Constant Revenue Elasticity of Marginal Revenue). This demand function is the only one that is consistent with productivity and sales distributions having the same form (whether Pareto, lognormal, or Fréchet) in the cross section, and it is necessary and sufficient for Gibrat's Law to hold over time. Among the applications we consider, we use our methodology to characterize misallocation across firms; we derive the distribution of markups implied by any assumptions on demand and productivity; and we show empirically that CREMR‐based markup distributions provide an excellent parsimonious fit to Indian firm‐level data, which in turn allows us to calculate the proportion of firms that are of suboptimal size in the market equilibrium.

This paper adopts a new approach to the problem of generalizing the properties of the two-by-two Heckscher-Ohlin model, asking whether we can obtain results which hold in very general models for dichotomous categories of commodities and factors. Using duality theory, some results of this kind are derived, which generalize certain properties of the Heckscher-Ohlin model to models which allow for any number of goods and factors, joint production, international factor mobility, and substitution between primary factors and intermediate inputs. The consequences of assuming sector-specific factors and equal numbers of goods and factors' are also examined.

Real incomes are routinely compared internationally using methods that “correct” for deviations from purchasing power parity. The most widely used of these is the Geary method which, though theoretically suspect, underlies the Penn World Table. This paper provides a theoretical foundation for the Geary method which I call the GAIA (“Geary-Allen International Accounts”) system. I show that the Geary method is exact when preferences are non-homothetic Leontief and, more generally, gives a (possibly poor) approximation to the GAIA benchmark. An empirical application suggests that both it and other widely used methods underestimate the degree of international inequality.