This paper studies how rising returns to scale contributed to declining business dynamism and increasing markups and expenditures devoted to customer acquisition in the U.S. economy. It introduces a firm dynamics model with heterogeneous markups and customer accumulation based on directed search, in which larger firms gain a competitive edge from higher returns to scale. This makes markets less contestable for new firms and leads to the rise of superstar firms. The model quantitatively accounts for a substantial share of these trends, and the underlying micro-level mechanisms align with empirical evidence.

Alleviating the economic damages from climate change is, to first order, a problem of efficiently limiting firms' emissions. We analyze a neoclassical general-equilibrium model in which fossil-energy use generates climate damages. The model crucially incorporates substantial cross-firm heterogeneity in emission efficiency that we document using a novel firm-level dataset spanning 150 countries. Firms choose energy and other inputs and self-report emissions that are otherwise privately observed. Our central result is a simple formula for the marginal externality damage of emissions, the optimal carbon tax, that accounts for firms' incentives to distort reported emissions. The optimal tax varies markedly across firms as a function of marginal damages, output, and emission efficiencies, and exceeds common uniform-tax benchmarks, on average. Quantifying the model shows large welfare gains from internalizing reporting incentives: the constrained optimal tax recovers 3/4 of the potential welfare benefits; a uniform tax that does not internalize reporting incentives, by contrast, recovers almost none of them.

This paper develops a general equilibrium model of firm and investment dynamics to study the sources of the divergence between a persistently high measured return on capital and a declining risk-free rate in the U.S. since the 1980s. The framework delivers a closed-form decomposition of the gap between the two rates into profits, risk premia, capital gains, taxes, capital wedges, and aggregation, together with an identification strategy applicable to standard data sources. Applying the framework to U.S. firms, we find that capital wedges account for about 70 percent of this divergence, while risk premia and profits explain the rest. The rise in wedges is a within-firm phenomenon, associated with intangible capital and hurdle-rate wedges that slow capital accumulation. These same forces imply that the true return on capital has declined alongside the risk-free rate and are also consistent with slower productivity growth and rising stock market valuations.

This paper exploits a unique dataset to document novel facts on spatial differences in capital unemployment, defined as idle units searching to be traded. The data reveal that these differences are persistent and primarily driven by spatial variation in separation rates between capital and firms. We demonstrate that a dynamic spatial search-and-matching model of local capital markets can quantitatively account for these patterns. Frictions in these markets reduce aggregate output and imply that the social planner's allocation diverges from the decentralized equilibrium. Place-based policies implementing the planner allocation stimulate capital supply leading to welfare gains.

This paper develops a general equilibrium framework to study how temperature affects firm-level demand, productivity, and input allocation, and uses it to derive an aggregate damage function for climate change. Using matched data for Italian firms and climate variation, we find that extreme temperatures reduce both productivity and the marginal product of capital. Our model estimates aggregate productivity losses from local temperature fluctuations ranging from 1.6% to 17.8%, depending on adaptation and scenario. For a given scenario, these losses are about four times larger than in representative-firm models, which overlook frictions and heterogeneity. Embedding our framework into Integrated Assessment Models would revise upward the economic costs of climate change.

We document a technological change in production technology biased towards intangible capital, such as computerized information and software, over other inputs in the last three decades. This has led to higher investment adjustment costs for firms. A general equilibrium firm dynamics model suggests that this can result in (i) increased firm size and concentration, (ii) changes in aggregate factor shares, and (iii) rise in dispersion of total factor productivity revenue coupled with declining aggregate productivity. This paper provides an alternative mechanism behind these macroeconomic changes in the US economy, emphasizing the efficient response of firms to changes in production technology.

This paper revisits the cyclicality of the aggregate markup using a micro-to-macro approach that emphasizes the role of firm-level heterogeneity, reallocation, and aggregation. Using US firm-level data from 1990-2016, we find that young firms have procyclical markups conditional on monetary shocks, while older firms show countercyclical markups. We show that economic activity reallocates from old to young firms after these shocks, and that firm aging has shifted the distribution toward older firms, changing the aggregate markup response from acyclical to countercyclical to monetary shocks. This may reconcile prior conflicting findings on the cyclicality of the aggregate markup, and has implications for the transmission of monetary policy and the relative importance of demand and supply shocks in driving business cycles.