The general framework of this volume is that of game theory, with multiple participants (“players”) who interact repeatedly over time. The players may be people, corporations, nations, computers—even genes. See the Handbook of Game Theory (Aumann and Hart 1994, 2002, 2004; Young and Zamir 2012). Many of the standard concepts of game theory are static by their very nature. This is certainly true...

The paper presents a method for the recursive computation of models with a continuum of heterogeneous agents. Following the literature, it is assumed that the cross-sectional distribution of wealth in the economy can be represented, to a sufficient degree of accuracy, by a finite number of summary statistics. The main innovation of the method is a very flexible representation of the cross-secti...

We analyze the e ects of trade liberalization on rms' decisions and pro ts in a vertical product di erentiation model with countries which have di erent characteristics. Firms decide product speci cations at the beginning of the game, in which autarky is followed by trade liberalization (whose date is anticipated). Our analysis suggests that a rm located in a large (or rich) country is the like...

This paper studies stylized empirical facts regarding the e¤ects of unexpected changes in aggregate macroeconomic policies on consumers that are allowed to di¤er depending on their individual characteristics. In particular, we focus on …scal shocks due to their important e¤ects on consumers’welfare. We use data from the Consumption Expenditure Survey (CEX) to estimate impulse responses as well ...

Goods and services vary along a number of dimensions independently. Customers can choose to acquire information on the quality of some dimensions and not others. Their choices affect firms’ incentives to invest in quality and so lead to indirect externalities in consumers’ choices. We illustrate these ideas in a simple model with a monopolist selling a product with two characteristics, investme...

We present a model of timing of seasonal sales where stores choose several designs at the beginning of the season without knowing which one, if any, will be fashionable. Fashionable designs have a chance to fetch high prices in fashion markets while non-fashionable ones must be sold in a discount market. In the beginning of the season, stores charge high prices in the hope of capturing their fa...

A potential source of instability of many economic models is that agents have little incentive to stick with the equilibrium. We show experimentally that this can matter with price competition. The control variable is a price floor, which increases the cost of deviating from equilibrium. According to traditional theory, a higher floor allows competitors to obtain higher profits. Behaviorally, t...

A widespread result in monetary policy literature is that the price level should be stabilized and, as corollary, the nominal interest rate should vary with the Wicksellian determinants of the real interest rate. The present paper studies how this result is altered when the representative agent assumption is abandoned and financial wealth heterogeneity across households is introduced. I derive ...

The rate of technological growth is likely to be affected by the way in which the stock of human resources is allocated. This social sorting of individuals over occupations is (partly) a market outcome, affected by the relative return to intellectual ability such as intelligence and other individual merits. To analyze how the social sorting is affected by growth, we present a stylized endogenou...