This article introduces a general equilibrium model of endogenous technical change through basic and applied research. Basic research differs from applied research in the nature and the magnitude of the generated spillovers. We propose a novel way of empirically identifying these spillovers and embed them in a framework with private firms and a public research sector. After characterizing the equilibrium, we estimate our model using micro-level data on research expenditures by French firms. Our key finding is that uniform research subsidies can accentuate the dynamic misallocation in the economy by oversubsidizing applied research. Policies geared towards public basic research and its interaction with the private sector are significantly welfare-improving.

Lending marketplaces aimed at directly connecting retail lenders and borrowers retreat from auctions and, instead, set prices and allocate credit on their own, despite evidence that retail investors possess valuable soft and nonstandard information. We investigate this puzzle by analyzing a unique data set of 7,455 auctions and 34 million bids from a leading British peer-to-business platform. We find that the platform was vulnerable to liquidity shocks, resulting in sizable deviations from information efficiency. Deviations increased over time because of a growing role played by noncrowd players, particularly large investors and algorithms.

We conjecture that suppliers offer trade credit to ease competition in downstream markets. We show theoretically that suppliers that have to transfer surplus to high-bargaining-power customers would want to offer an increasing price schedule to preserve sales to other buyers. Suppliers can implement this using trade credit. Empirically, we find that suppliers grant trade credit to high-bargaining-power customers when they fear the cannibalization of sales to other customers. Exploiting a law that lowered the cost of offering trade credit, we show that higher provision of trade credit to high-bargaining-power customers leads to an expansion of the suppliers’ customer base.