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We investigate the market for news under two assumptions: that readers hold beliefs which they like to see confirmed, and that newspapers can slant stories toward these beliefs. We show that, on the topics where readers share common beliefs, one should not expect accuracy even from competitive media: competition results in lower prices, but common slanting toward reader biases. On topics where reader beliefs diverge (such as politically divisive issues), however, newspapers segment the market and slant toward extreme positions. Yet in the aggregate, a reader with access to all news sources could get an unbiased perspective. Generally speaking, reader heterogeneity is more important for accuracy in media than competition per se. [ABSTRACT FROM AUTHOR]

Historical anecdotes abound of new investors being drawn into a booming asset market, only to suffer when the market turns. While the role of investor contagion in asset bubbles has been explored extensively in the theoretical literature, causal empirical evidence on the topic is much rarer. This paper studies the recent boom and bust in the US housing market and establishes that many novice investors entered the market as a direct result of observing investing activity of multiple forms in their own neighborhoods and that "infected" investors performed poorly relative to other investors along several dimensions. (JEL D84, G12, G51, R31) [ABSTRACT FROM AUTHOR]

African agricultural markets are characterized by low farmer revenues and high consumer food prices. Many have worried that this wedge is partially driven by imperfect competition among intermediaries. This paper provides experimental evidence from Kenya on intermediary market structure. Randomized cost shocks and demand subsidies are used to identify a structural model of market competition. Estimates reveal that traders act consistently with joint profit maximization and earn median markups of 39 percent. Exogenously induced firm entry has negligible effects on prices, and low take-up of subsidized entry offers implies large fixed costs. We estimate that traders capture 82 percent of total surplus. (JEL L13, O13, Q11, Q12, Q13) [ABSTRACT FROM AUTHOR]

The interaction between community and markets remains a central theme in the social sciences. The empirical evidence is rich: in some instances, markets strengthen social ties, while in others they undermine them. The impact of markets on inequality and welfare also varies widely. This paper develops a model where individuals in a social network choose whether to participate in their network and whether to participate in the market. We show that individual behavior is defined by the q-core of the network and the key to understanding the conflicting evidence is whether the market and the network are complements or substitutes. (JEL D63, D85, J15, L82, O15, Z13, Z31) [ABSTRACT FROM AUTHOR]

This article presents the author's response to the criticisms made against his paper on a dynamic optimal intervention model to solve the problems of factor-market distortions. Edward Ray, in his comment on my 1976 paper, analyzes a slightly different model than the one I presented, and thus reaches different conclusions. His principal conclusions are that given wage rigidities, a wage subsidy to producers is needed, and this subsidy is equivalent to the optimal static subsidy that ensures full employment in each sector; and given the forced equilization of wages across sectors, a subsidy to workers is needed to encourage labor transfers between sectors. Thus, Ray finds that full employment is always desirable, whereas I find that some unemployment is present along the optimum path. The differences in our solutions arise from the different specifications of our models. Ray finds that full employment is always desirable, and that two subsidies are required. His first conclusion differs from my conclusion because he uses a different model; the specification of the control model, and not the presence of distortions, determines whether full employment is optimal. Regarding his second conclusion, we have seen that the policies needed to support the optimal plan depend on the types of distortions present and the way in which the labor market functions.

Most assets are traded in multiple interconnected trading venues. This paper develops an equilibrium model of decentralized markets that accommodates general market structures with coexisting exchanges. Decentralized markets can allocate risk among traders with different risk preferences more efficiently, thus realizing gains from trade that cannot be reproduced in centralized markets. Market decentralization always increases price impact. Yet, markets in which assets are traded in multiple exchanges, whether they are disjoint or intermediated, can give higher welfare than the centralized market with the same traders and assets. In decentralized markets, demand substitutability across assets is endogenous and heterogeneous among traders. (JEL D43, D44, D85, G11, G12) [ABSTRACT FROM AUTHOR]

Real matching markets are subject to constraints. For example, the Japanese government introduced a new medical matching system in 2009 that imposes a 'regional cap' in each of its 47 prefectures, which regulates the total number of medical residents who can be employed in each region. Based on Kamada and Kojima (2011), this paper studies matching markets with such constraints by examining in great detail the Japanese medical matching market. Specifically, we show that the new system introduced in 2009 has problems in terms of stability and strategy-proofness, and provide an alternative mechanism that does better. [ABSTRACT FROM AUTHOR]

Recent literature has documented failures of truthful preference reporting in the strategy-proof deferred acceptance algorithm. I consider the implications of these strategic mistakes for a common welfare consideration: the ability of the mechanism to sort the best students to the best schools. I find that these mistakes have the potential to significantly help or significantly hinder sorting. Through this channel, the presence of mistaken play may have widely varying welfare effects. I discuss related considerations in the welfare evaluation of mistaken play in the deferred acceptance algorithm and the implications for 'nudges' that correct these mistakes. [ABSTRACT FROM AUTHOR]

Structural estimation of matching games with transferable utility, including matching games of trading networks and many-to-many matching, is increasingly popular in empirical work. I explore several modeling decisions that need to be made when specifying a structural model for a matching game. One decision is the choice of a game theoretic solution concept to impose in the structural model. I discuss pairwise stability, competitive equilibrium, and noncooperative games such as auctions. Another decision is whether to work with a continuum of agents or a finite number of agents. I explore other issues as well. [ABSTRACT FROM AUTHOR]

Under the traditional interpretation of macroeconomic fluctuations, aggregate demand shocks move output and prices in the same direction, while aggregate supply shocks move output and prices in opposite directions. This paper examines the joint behavior of U.S. output, unemployment, prices, wages, and nominal money and asks whether it is consistent with this interpretation. The answer is a qualified yes. [ABSTRACT FROM AUTHOR]

In this article, the authors reply to comments raised by economist Ngo Van Long on their paper presented in 1988 related to the organization of rural markets and the process of economic development. The authors agree that Long has correctly pointed out an error in their paper. Put simply, when the share of land in output is constant and utility functions are homothetic, increasing the number of landlords in an "almost competitive" economy has no effect on aggregate saving and hence on capital accumulation. With total income from land constant, an increase in the fraction of landlords implies that land income per landlord, falls by the same percentage. If saving is linear, which is the case with a homothetic utility function, the percentage increase in saving per landlord equals the percentage fall, so that total saving is invariant. Once saving functions, which are not linear, are considered, an increase could raise, lower, or leave unchanged capital accumulation. The main interest was to show how different forms of organization of rural factor markets affected capital accumulation via their effect on the functional distribution of income and hence saving. The point was to show how making land non-traded, for a given number of landlords, increased saving relative to an economy where land is traded.

In this paper, we demonstrate the efficiency of seller entry in a model of competing auctions in which we allow for both buyer and seller heterogeneity. This generalizes existing efficiency results in the competitive search literature by simultaneously allowing for nonrival (many-on-one) meetings and private information. (JEL D44, D82) [ABSTRACT FROM AUTHOR]

The Federal Reserve's mandate has evolved considerably over the organization's hundred-year history. It was changed from an initial focus in 1913 on financial stability, to fiscal financing in World War II and its aftermath, to a strong anti-inflation focus from the late 1970s, and then back to greater emphasis on financial stability since the Great Contraction. Yet, as the Fed's mandate has expanded in recent years, its range of instruments has narrowed, partly based on a misguided belief in the inherent stability of financial markets. We argue for a return to multiple instruments, including a more active role for reserve requirements. [ABSTRACT FROM AUTHOR]

This paper studies an overlapping generations model with stochastic production and incomplete markets to assess whether the introduction of an unfunded social security system leads to a Pareto improvement. When returns to capital and wages are imperfectly correlated, a system that endows retired households with claims to labor income enhances the sharing of aggregate risk between generations. Our quantitative analysis shows that, abstracting from the capital crowding-out effect, the introduction of social security represents a Pareto-improving reform, even when the economy is dynamically efficient. However, the severity of the crowding-out effect in general equilibrium tends to overturn these gains. (JEL D58, D91, E62, H31, H55) [ABSTRACT FROM AUTHOR]

This paper uses the consumption Euler equation to derive a decomposition of consumption growth into four sources. These four sources are new information, and three sources of predictable consumption growth: intertemporal substitution, changes in the preferences for consumption, and incomplete markets for consumption insurance. Using household-level data, we implement this decomposition for the average growth rate of consumption expenditures on nondurable goods in the United States from 1982 to 1997. The economic importance of precautionary saving rivals that of the real interest rate, but the relative importance of each source of movement in the volatility of consumption is not precisely measured. [ABSTRACT FROM AUTHOR]

This paper looks at the work of Gary S. Becker, American economist, professor of sociology, friend, and colleague of Kevin M. Murphy. Murphy discusses the traditional approach of Becker's teaching and ideas as they were expressed through his wealth of content and style in course design; his discussions on the role of preferences, technology, and constraints as they influence household production; and his emphasis on the importance of markets and desire for more. Murphy recognizes Becker's teaching style as groundbreaking, unapologetic, and pure economics. [ABSTRACT FROM AUTHOR]

Does national market size matter for industrial structure? This has been suggested by theoretical work on 'home market' effects. In the present paper, the author shows that what previously was regarded as an assumption of convenience--transport costs only for the differentiated goods--matters a great deal. In a focal case in which differentiated and homogeneous goods have identical transport costs, the home market effect disappears. This paper discusses available evidence on the relative trade costs for differentiated and homogeneous goods. No compelling argument is found that market size will matter for industrial structure. (JEL F1, 01, R1) [ABSTRACT FROM AUTHOR]

This paper concerns the difficulties associated with establishing a time at which a market will operate. We first describe the experience of several dozen markets and submarkets, from entry-level professional labor markets in the United States, Canada, England, and Japan, to the (American) market for postseason college football bowls. The difficulties these markets have experienced in coordinating the timing of transactions have been decisive in determining how they are organized today. The paper develops a framework in which to address the timing of transactions and the tendency observed in many of these markets for transactions to become earlier and earlier. [ABSTRACT FROM AUTHOR]

This paper proposes a new way to generalize the insights of stark asset pricing theory to a multiperiod setting. The paper uses a loglinear approximation to the budget constraint to substitute out consumption from a standard intertemporal asset pricing model. In a homoscedastic lognormal setting, the consumption - wealth ratio is shown to depend on the elasticity of intertemporal substitution in consumption, while asset risk premia are determined by the coefficient of relative risk aversion. Risk premia are related to the covariances of asset returns with the market return and with news about the discounted value of all future market returns. [ABSTRACT FROM AUTHOR]

This paper speculates on the advantages and disadvantages of past experience in economic reform by analyzing the nature and degree of exposure to markets in Hungary and Poland. Because economic policy changes of the enormity of those taking place in Eastern Europe are not introduced in a vacuum, the paper also discusses the economic, social, and political environment on the eve of the creation of the new, non-Communist governments. It concludes with a discussion of the implications of previous experience with reforms and of the environment in which reforms are introduced for the pace and sequencing of the transition to a market economy. New institutions, such as a commercial banking system and capital markets have to be created. Because many economic agents in Hungary and Poland have already made mistakes that occur in learning how a market economy operates, fewer resources may now need to be expended in learning to adapt to the new market systems. On the other hand, the habits ingrained under the old reformed systems may make the transition more difficult.

This paper argues that research and development (R&D) should be viewed explicitly as information acquisition activities. A firm's choice among various R&D strategies is equivalent to deciding what information to gather. Moreover, the pursuit of different research projects involves searching for different sorts of information. Thus, R&D is not homogeneous. To attempt to summarize R&D activities by a single aggregate measure, for example, by the cost of R&D inputs or by modeling the intensity of only a single exogenously given project is inherently misleading. Such a story misses the important possibilities for alternative R&D projects to serve as complements or substitutes for each other. The neglect of heterogeneity risks misleading conclusions about welfare effects based on underinvestment or overinvestment in research and development. This paper proposes an alternative abstract analysis of R&D activities that focuses on filling the gaps discussed in the paper.

It has long been part of the conventional wisdom that financial markets overreact. Both casual observation and academic research support this view. The October crashes of 1987 and 1989 reinforce the research by economist Robert Shiller and others that suggests that stock prices are too volatile. Also Shiller's 1987 survey evidence reveals that investors were reacting to each other during these crashes, rather than to hard economic news. A similar conclusion is reached by economists Kenneth French and Richard Roll in 1986, who find that prices are more volatile when markets are open than when they are closed. Prior research of authors argued that mean reversion in stock prices is evidence of overreaction. In the paper of 1985 authors showed that stocks that were extreme losers over an initial three to five-year period earned excess returns over the subsequent three to five years. In the 1987 paper, authors showed that these excess returns cannot easily be attributed to changes in risk, tax effects or the small firm anomaly. Rather authors argued that the excess returns to losers might be explained by biased expectations of the future.

Parallel search and information-gathering problems, in general, are computationally complex, and there has been relatively little research effort in this direction. This paper shows that under some meaningful conditions, simple ordering rules are obtained for the optimal strategy. Although the conditions imposed are somewhat restrictive, this study may be a starting point for finding less stringent conditions which yield similar simple rules of interest in applications. The purpose of this paper is to point out that simple ordering rules are obtained for the optimal parallel selection of projects, under reasonably general and meaningful conditions. These conditions may be stated in terms of risks and stochastic orderings of the distributions associated with the projects. The motivation for the study of parallel search and information-gathering models is obvious. In problems where information acquisition is costly and time consuming, the returns to parallel effort are higher than when undertaking a single project at a time.

Because the Ricardian Equivalence Theorem depends on an operative motive for private intergenerational transfers, it is important to determine the conditions under which either transfer motive will be operative. Several papers have studied whether the bequest motive is operative in a variety of different models' but the literature does not contain an analysis of the conditions that determine whether the gift motive is operative. The major goal of this paper is to determine conditions under which each of the intergenerational transfer motives is operative if individual consumers have two-sided transfer motives. The specification of the motives for intergenerational transfers has important implications for a wide range of issues extending beyond the effects of fiscal policy, including the intergenerational transmission of inequality, and for the behavior of financial markets, especially markets for life insurance and annuities. The second notion of intergenerational consistency is that the first-order conditions of parents and their children should not contradict each other.

Real competitive markets are very different from the kind of idealized competitive markets modeled in the Arrow-Debreu world. The results reported in this article describe one attempt to provide a better basis for understanding competition in market economies. The result that increases in competition may lower welfare does not require perverse assumptions, and indeed is more general than the special models presented in this article; the result obtains in a variety of situations where markets are incomplete, information is imperfect and costly, and where research and development expenditures and learning are important. Second, author's results suggest that unless antitrust policy is based more directly on a more complete analysis of the functioning of competition in imperfectly competitive environments, the pursuit of well-intentioned policies may well result in Pareto-inferior equilibria with consumers as well as producers being worse off. The task now is to delineate more precisely the conditions under which various policies are likely to lead to welfare improvements.

This article presents the author's comments on a paper by David Howard about the predictive ability of the Barro-Grossman (B-G) disequilibrium model applied to the Soviet Union economy. The B-G model focuses on the responses of saving and labor supply to conditions of excess demand, defined as the case where at the prevailing price, the demand for consumer goods exceeds their supply. The B-G model predicts that under conditions of excess demand, referred to also as repressed inflation, an increase in the quantity of goods available leads to a decrease in saving and an increase in labor supply, with its consequent multiplier effect on output. Howard tailors the B-G model to the Soviet economy by including an uncontrolled market, specifically the collective farm market, and by eliminating the role of profits as an argument in the effective saving and labor supply functions. While the B-G model supplies an important theoretical framework for predicting responses to changes in the constrained availability of goods, the model is difficult to test empirically. Moreover the methodology used by Howard is flawed in several ways. An adequate measure of the supply of goods available on the constrained market is needed to test the B-G model.

This article introduces two classes of bonds into the analysis of devaluation in asset markets. The major conclusions of previous research hold even when before devaluation the economy has a position, whether creditor or debtor, in foreign currency denominated market instruments. In the long run, a devaluation causes all nominal variables to rise by the same amount as the exchange rate, whereas all real variables are unchanged. The model is derived from Mundell's (1968) formalization of the Metzlerian framework for an open economy, but incorporates a portfolio balance view of the asset markets. The analysis is focused on a small economy with static expectations which has goods and financial capital mobility with the rest of the world. The nature of the steady-state equilibrium following a devaluation can be established very quickly. A condition of long-run equilibrium is that the capital account be in balance, so that the quantity of nominal assets is constant over time. Under these circumstances clearing of markets occurs at unchanging prices. This paper has investigated both impact and long-run effects of a devaluation for an economy which starts in full equilibrium. It has shown that the changes in the price variables in the short run are within narrower or wider limits than are derived when portfolio considerations are not included, depending upon whether the economy is a creditor or debtor in foreign currency denominated assets.

Honesty is the best policy in the face of a strategy-proof mechanism--irrespective of others' behavior, the best course of action is to report one's preferences truthfully. We review evidence from different markets in different countries and find that a substantial percentage of participants do not report their true preferences to the strategy-proof Deferred Acceptance mechanism. Two recurring correlates of preference misrepresentation are lower cognitive ability and the expectation of stronger competition. We evaluate possible explanations, which we hope will inform practicing market designers. [ABSTRACT FROM AUTHOR]

Price and quantity interventions intended to affect assignments are common in many labor and education markets (e.g., financial aid, quotas). This article discusses an empirical framework, based on the theory of stable matching, that is suitable for policy analysis while accounting for the presence of equilibrium sorting. It then compares financial incentives and supply interventions for encouraging the training of family medicine residents in rural America. Due to equilibrium effects, the primary effect of financial incentives is to increase the quality, not numbers, of residents in rural programs, while quantity regulations directly affect numbers without adversely affecting quality. [ABSTRACT FROM AUTHOR]

We estimate a model of illicit drugs markets using data on purchases of crack cocaine. Buyers are searching for high-quality drugs, but they determine drugs' quality (i.e., their purity) only after consuming them. Hence, sellers can rip off first-time buyers or can offer higher-quality drugs to induce buyers to purchase from them again. In equilibrium, a distribution of qualities persists. The estimated model implies that if drugs were legalized, in which case purity could be regulated and hence observable, the average purity of drugs would increase by approximately 20 percent and the dispersion would decrease by approximately 80 percent. Moreover, increasing penalties may raise the purity and affordability of the drugs traded by increasing sellers' relative profitability of targeting loyal buyers versus first-time buyers. (JEL D12, K42, L15, L65) [ABSTRACT FROM AUTHOR]

We repeat a survey we did in the waning days of the Soviet Union (Shiller, Boycko and Korobov, AER 1991) comparing attitudes towards free markets between Moscow and New York. Additional survey questions, from Gibson Duch and Tedin (J. Politics 1992) are added to compare attitudes towards democracy. Two comparisons are made: between countries, and through time, to explore the existence of international differences in allegiance to democratic free-market institutions, and the stability of these differences. [ABSTRACT FROM AUTHOR]

We propose a new theory of exclusive dealing. The theory is based on the assumption that a dominant firm has a competitive advantage over its rivals, and that the buyers' willingness to pay for the product is private information. In this setting, the dominant firm can impose contractual restrictions on buyers without necessarily compensating them, implying that exclusive dealing contracts can be both profitable and anticompetitive. We discuss the general implications of the theory for competition policy and illustrate by examples its applicability to antitrust cases. (JEL D21, D43, D82, D86, K21, L13, L40) [ABSTRACT FROM AUTHOR]

In this article, author respond to the comments made by economist Stephan Salant on their 1982 paper which advances the thesis that the patent system provides not only the opportunity but the incentive for a monopolist to preempt potential entrants to an industry. Salant claims that the conclusions of the paper result "either from faulty logic or from authors' implicit assumption that a market fails to operate." The article responds by showing that the conclusions are logically consistent, and that Salant's argument is flawed by its incompleteness. The preemptive patenting results hold whenever equally efficient firms compete with nonzero transaction costs and whenever any cost disadvantage experienced by the incumbent is less than the transaction costs incurred in the process of bargaining for production rights. Furthermore, the article also shows that if the incumbent's cost disadvantage exceeds transaction costs, then the preemption result hinges on the relative transaction costs in the markets for R&D outputs and inputs. The conditions derived by Salant are erroneous, and indeed irrelevant to the incentives for preemption.

Are attitudes about morally controversial (and often prohibited) market transactions affected by information about their costs and benefits? We address this question for the case of payments for human organs. We find in a survey experiment with US residents (N=3,417) that providing information on the potential efficiency benefits of a regulated price mechanism for organs significantly increased support for payments from a baseline of 52 percent to 71 percent. The survey was devised to minimize social desirability biases in responses, and additional analyses validate the interpretation that subjects were reflecting on the case-specific details provided, rather than just reacting to any information. [ABSTRACT FROM AUTHOR]

We develop a dynamic equilibrium model of asset markets with adverse selection. There exists a unique equilibrium in which better quality assets trade at higher prices but with a lower price-dividend ratio in less liquid markets. Sellers of high-quality assets signal quality by accepting a lower trading probability. We show how the distribution of sellers' private information affects an asset's price and liquidity, how a change in that distribution can cause a fire sale and a flight to quality, and how asset purchase and subsidy programs may raise prices and liquidity and reverse the flight to quality. (JEL D82, G12) [ABSTRACT FROM AUTHOR]

To investigate whether secondary markets aid or harm durable goods manufacturers, we build a dynamic model of durable goods oligopoly with transaction costs in the secondary market. Calibrating model parameters using data from the US automobile industry, we find the net effect of opening the secondary market is to decrease new car manufacturers' profits by 35 percent. Counterfactual scenarios in which the size of the used good stock decreases, such as when products become less durable, when the number of firms decreases, or when firms can commit to future production levels, increase the profitability of opening the secondary market. (JEL L13, L25, L62, L81) [ABSTRACT FROM AUTHOR]

Calls for benefit-cost analysis in rule-making, based on the Dodd-Frank Wall Street Reform Act, have revealed a paucity of work on allocative efficiency in financial markets. We propose three principles to help fill this gap. First, we highlight the need for quantifying the statistical cost of a crisis to trade off the risk of a crisis against loss of growth during good times. Second, we propose a framework quantifying the social value of price discovery, and highlighting which arbitrages are over- and under-supplied from a social perspective. Finally, we distinguish between insurance benefits and gambling-facilitation harms of market completion. [ABSTRACT FROM AUTHOR]

A key lesson of the financial crisis 2007-09 is that the Bagehot Rule, 'lend freely but at a high rate,' needs to be updated for the emerging market-based credit system. A modern rule is suggested: Markets, not Banks; Outside spread, not Inside spread; Core, not Periphery. [ABSTRACT FROM AUTHOR]

The article seeks to explain correlation among global stock markets by examining capital account openness. History reveals that correlations among markets are not stable over time. The authors employ regression techniques to examine over the past 100 years both stock market correlations, and market openness as reflected by data provided by the International Monetary Fund on exchange restrictions. Their analysis shows that correlations among markets increase when capital is free to flow among nations.

In this article the authors describe a model that illustrates the diffusion of information through a large market as based on the exchange of data between individuals. The article is written with an emphasis on the dispersal of information in cross section and taking into account the beliefs and predispositions of the individuals who come into contact with the information. Through the study of privately held auctions, a decentralized market, the authors obtain data that shows that equilibrium results in the revelation of information as a result of trade.

Crises are volatile times when endogenous sources of information are closely monitored. We study the role of information in crises by introducing a financial market in a coordination game with imperfect information. The asset price aggregates dispersed private information acting as a public noisy signal. In contrast to the case with exogenous information, our main result is that uniqueness may not obtain as a perturbation from perfect information: multiplicity is ensured with small noise. In addition, we show that: (a) multiplicity may emerge in the financial price itself; (b) less noise may contribute toward nonfundamental volatility even when the equilibrium is unique; and (c) similar results obtain for a model where individuals observe one another's actions, highlighting the importance of endogenous information more generally. (JEL D53, D82, D83). [ABSTRACT FROM AUTHOR]

Reciprocal exchange, or gift exchange, remains a widespread means of obtaining goods and services. This paper examines the persistence of reciprocal exchange by formalizing the interaction between self-enforcing exchange agreements and monetary market exchange. When more people engage in reciprocal exchange, market search costs increase, reciprocity is easier to enforce and yields higher utility. Thus, personalized exchange can persist even when it is inefficient. Conversely, large markets can destroy reciprocity when reciprocal exchange is efficient. The results characterize the use of personal "connections" as a system of reciprocal exchange and explain the disappearance of reciprocity when tribes encounter markets. [ABSTRACT FROM AUTHOR]

Which is the more profitable way to sell a company: an auction with no reserve price or an optimally-structured negotiation with one less bidder? We show under reasonable assumptions that the auction is always preferable when bidders' signals are independent. For affiliated signals, the result holds under certain restrictions on the seller's choice of negotiating mechanism. The result suggests that the value of negotiating skill is small relative to the value of additional competition. The paper also shows how the analogies between monopoly theory and auction theory can help derive new results in auction theory. [ABSTRACT FROM AUTHOR]

This paper argues that default plays an important positive role in the economy. If markets are incomplete and traders are only able to enter into contracts that they will be able to execute regardless of future events, contingent contracting may be severely restricted. Moreover, opening new markets may not relieve these restrictions. Default promotes efficiency in a way that opening new markets does not, by making it possible for traders to enter into contracts that they will be able to execute with high probability, but not with certainty. [ABSTRACT FROM AUTHOR]

In a recent paper published in the 1993 issue of the journal "The American Economic Review, researchers Olivier J. Blanchard and Danny Ouah (1989) propose a method to identify the dynamic effects of supply and demand disturbances on real GNP. This article shows that a very simple and natural dynamic modification in the macroeconomic model underlying Blanchard and Quah's econometric work may lead in a moving-average representation with zeros on the wrong side of the unit circle. As for the restrictions imposed by Blanchard and Quah, the matrix P is identified by requiring orthogonality of the components of e(t), one of the components of e(t) has no long-run effect on output, unit variance of the components of e(t). The introduction of a learning-by-doing process has produced less-trivial dynamics in the model. Moreover, the determinant is identical to the learning-by-doing polynomial d(L) and therefore has the zeros of d(L).

This paper examines price changes associated with airline mergers during 1985-1984, a period of natural experimentation in which mergers were not contested by the government. The results show that prices increased on routes served by the merging firms relative to a control group of mutes unaffected by tire merger. Mergers may lead to more efficient operations. but on the whole, the impact of efficiency gains on airfares is more than offset by exercise of increased market power. [ABSTRACT FROM AUTHOR]

This paper presents an economic institution which enabled 11th-century traders to benefit from employing overseas agents despite the commitment problem inherent in these relations. Agency relations were governed by a coalition - an economic institution in which expectations, implicit contractual relations, and a specific information-transmission mechanism supported the operation of a reputation mechanism. Historical records and a simple game-theoretical model are used to examine this institution. The study highlights the interaction between social and economic institutions, the determinants of business practices, the nature of the merchants' law, and the interrelations between market and nonmarket institutions. [ABSTRACT FROM AUTHOR]

The paper measures the degree of price discrimination across export destinations that is associated with exchange-rate changes using U.S.,Great Britain, German, and Japanese industry-level data. Given the industries sampled. more price discrimination across destinations is observed in Great Britain, German, and Japanese data. For industries that match across source countries, however, behavior is very similar across source countries. Furthermore, destination-specific price adjustment on exports to the United States from Germany and Japan is similar to price adjustment observed on shipments to other destinations. Most variation in the data appears to be related to industry. [ABSTRACT FROM AUTHOR]

One of the most puzzling aspects of the floating-exchange-rate regime since 1973 has been the apparent irrationally embedded in investors' exchange-rate expectations. This paper investigates whether exchange-rate forecasts, although biased, are still rational. The idea is that investors can be rational and yet make repeated mistakes if the true model of the exchange rate is evolving over time. My results support the hypothesis that the exchange rate has followed a switching-regime process. Moreover, the switching-regime model estimated can explain about 75 percent of the bias implied by the forward market and the survey data. [ABSTRACT FROM AUTHOR]

This article discusses some recent advances in the empirical study of markets, with an emphasis on current and potential applications to the study of mergers. The paper has two parts. In the first section, it discusses recent empirical models of static equilibrium in differentiated products markets. This work has benefited from advances in data availability and in empirical methodology. It argues that simple theoretical models with symmetric linear demands may not capture the results that can appear when more realistic models are estimated. In the second section, the article discusses the computation of dynamic equilibrium models. Although some further advances in methodology are necessary to apply these dynamic models to data, they demonstrate that a static analysis of mergers can lead to misleading results. The static models of the last section do not take into account the long-run reactions of merging and non-merging firms, changes in investment strategies, changes in entry and exit, and changes in the nature of competition.