POWRE: Topics in Economic Theory: The Timing of Transactions and Firm Formation

This research focuses on two distinct topics in economic theory: the timing of transactions and firm formation. Both will be approached theoretically, primarily using the framework of general competitive equilibrium, although the formation of firms also involves the combination of cooperative and noncooperative game theory. For the first topic, the economic question is to explain, in a consistent and fully specified model, how both the precise times of transactions or payments and the intervals between successive transactions or payments are determined endogenously. The second topic addresses the question of how firms arise in an economy, where the concept of firm includes sole proprietorships, partnerships, and corporations. Economic theory lacks an explanation of when purchases of goods and services are made, including when contracts committing to such transactions are signed and when payments occur. Yet these timing issues are becoming increasingly important as our financial intermediation technology changes. Likewise, microeconomic theory does not explain the formation of firms. Little consideration has been given to the question of why firms form, the process by which formation decisions are made, and the actual creation of the firm. This research promises significant insights regarding these questions. This POWRE award will support a completely new line of research for the investigator involving different substantive questions in economic theory and different techniques. The investigator, who is one of the top female academic economists in the country, will learn new skills and methods which will enable her to move her research in a new direction. The topics proposed and the directions she intends to take are path-breaking in nature. Successful completion of this research will move her further along the path to academic leadership.