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We study the role of private debt financing in reducing government transfers and information costs in a state‐owned firm. We show that debt contracts allow the government to reduce socially costly subsidies by letting underperforming state‐owned firms default. When the firm has private information, the government uses debt to reduce the firm's information rents. The option of default and privatization allows the government to stop subsidizing the firm. We identify the conditions under which information costs outweigh privatization costs and a positive debt level benefits governments.

AbstractThis paper studies the costs and benefits of fixed and flexible exchange rate regimes in the presence of endogenous intensive and extensive margins of trade. The net benefit depends on the levels and volatilities of those margins as well as on their correlation with consumers' preferences. A fixed exchange rate regime is preferred for sufficiently high labour supply elasticities and lower love for product diversity. Delays between entry and production make fixed exchange rate regimes less attractive.

Abstract In the Dixit‐Stiglitz model of monopolistic competition, entry of firms is socially too small. Other authors have shown that excess entry is also a possibility with other preferences for diversity. We show that workers' rents also contribute to explain excess entry through a general equilibrium mechanism. Larger wages indeed raises the aggregate earnings and firms sales and profits, which entices too many firms to enter. We discuss the possibility of over‐provision of varieties by comparing the equilibrium to unconstrained and constrained social optima and to other regulatory frameworks where wages are not controlled.

Should governments in developing countries promote private ownership and deregulated prices in noncompetitive sectors? Or should they run publicly owned firms and regulate prices at the expense of rents to insiders? A theoretical model is used to answer these normative questions. The analysis focuses on the tradeoff between fiscal benefits and consumer surplus during privatization of noncompetitive sectors. Privatization transfers control rights to private interests and eliminates public subsidies, yielding benefits to taxpayers at the cost of increased prices for consumers. In developing countries, where budget constraints are tight, privatization and price liberalization may be optimal for low profitability industries but suboptimal for more profitable industries. And once a market has room for more than one firm, governments may prefer to regulate the industry. Without a credible regulatory agency, regulation is achieved through public ownership.

Abstract.  We investigate the spatial distribution and organization of an imperfectly competitive industry when firms may choose to operate more than a single production unit. Focusing on a short‐run setting with a fixed mass of firms, we first fully characterize the spatial equilibria analytically. Comparing the equilibrium and the first‐best, we secondly show that both organizational and spatial inefficiencies may arise. In particular, when fixed costs are low, when transport costs are high, and when products are close substitutes, the market outcome may well have to too many multinationals operating from a social point of view ('over‐investment'). As a by‐product, under‐agglomeration of exporters in the larger market may arise.