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This article presents a general equilibrium model in which middlemen emerge to facilitate trade in an environment of idiosyncratic tastes and heterogeneous goods. The gains to the traders can be measured along three dimensions: the rate of production, the time-preference losses generated by the matching process, and the quality of the match between consumers' preferences and the goods they ultimately consume.

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A model of tax competition in which Þrms earn rents is described. The size of these rents, coupled with the degree to which the Þrms are foreign-owned, determine the equilibrium tax rates. The existence of rents signiÞcantly alters some generally accepted results involving the possibility of a Pareto-improving common tax rate and the underprovision of publicly provided goods. *We are grateful to Robin Boadway, James Brox, Lutz-Alexander Busch, Clemens Fuest and Luca Micheletto for their helpful comments.