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A model is developed simulating the demand for commercial paper by each institution, (Households (HH), Life Insurance Companies (LIC), Non-Financial Corporations (CRP), and Finance Cost (FC) and the total demand. Simulations of the commercial paper rate are also generated using just the demand equations (total supply exogenous) and then employing the entire model (supply endogenous) to determine the rate. Simulation periods are from 1960: two to 1980: four for all demand simulations. The dynamic simulation of the total demand for commercial paper performs well. Their resulting root-mean- square errors, 3.485 compares favorably with FRB-MIT estimate of the commercial paper rate. [ABSTRACT FROM AUTHOR]

The abstracts are from papers presented at the American Finance Association meetings in 1993. "Option Valuation with Systematic Stochastic Volatility" is from Kaushik I. Amin and Victor K. Ng. "Influence Costs and Capital Structure" is by Laurie Simon Bagwell and Josef Zechner. "An Equilibrium Model Rationalizing "Swings" in Financial and Macroeconomic Time Series Data" is by Gurdip S. Bakshi.

The article includes abstracts on articles related to the financial services industry, including "Firm Performance and Mechanisms to Control Agency Problems between Managers and Shareholders," "Dynamic Equilibrium and Volatility in Financial Asset Markets," and "Liquidation Costs and Capital Structure."

Analyzes the expected effect of all measures which discriminate between firms on the basis of size, and that of the elimination of the dual-tax system in general equilibrium terms in Canada. Effect on the efficiency in the use of Canada's resources; Impact on shares of the Canadian national income that accrue to labor and capital; Relationship between significant partial factor taxes and the shape of the production possibility curve.

Using a general equilibrium framework, the paper derives trade policy endogenously for a small country. It shows that, contrary to the existing literature, a lobbying industry is not guaranteed trade protection; it may even face trade taxes. Besides lobbying, trade policy depends on other factors such as the trade revenue distribution rule, income distribution across groups, trade openness, factor substitutability in production, industry employment size, and labor market flexibility. The paper also shows that the observed phenomenon of government preference for import tariffs over export subsidies—a long overdue puzzle—is an inherent outcome of lobbying equilibrium. It also shows that trade policies such as import tariffs and export taxes that have the same impact on economic market—Lerner symmetry (1936)—are driven by the same forces in the political market. [ABSTRACT FROM AUTHOR]

This paper constructs a general equilibrium model with endogenous stochastic production and establishes that the equilibrium interest rate can he constant in a closed production economy when the preferences are represented by constant absolute risk aversion utility functions. The results in this paper and their limitations are compared and contrasted with related contributions in the financial economics literature. [ABSTRACT FROM AUTHOR]

This paper estimates the value of tax benefits in 76 management buyouts of public companies completed in the period 1980 to 1986. The median value of tax benefits, estimated at the time the buyout company goes private, has a lower bound of 21% and an upper bound of 143 % of the premium paid to pre-buyout shareholders. The estimated value depends on the rate buyout debt is repaid and the tax rate applied to the interest deductions. The paper also presents evidence on the actual taxes paid and debt repayment rates by these companies after the buyout. The results in this paper suggest that tax benefits are an important source of the wealth gains in management buyouts. [ABSTRACT FROM AUTHOR]

This paper discusses the pricing of assets in an intertemporal rational-expectations model when real production and inflation evolve according to first-order autocorrelated processes. The focus is on the structure of the various intertemporal discount rates (yields) exhibited by this economy. Yield curves are identified for consumption claims, indexed bonds, and nominally riskless bonds and can be extended to any claim that can be approximated by a (finite) linear combination of such securities. The model demonstrates that, if the average term structure for nominally riskless securities is upward sloping, then the yield curve for consumption (market) claims is downward sloping, suggesting that conventional methods for computing long-term discount rates err by not accounting for maturity factors. The paper also explores the relationship between the intertemporal equilibrium and its embedded single-period equilibria. The single-period risk measures in this economy are derived and shown to be (generally) functions of maturity. A model of nominal bond betas is constructed along these lines. It is shown that bond betas that are increasing functions of maturity do not necessarily imply an upward-sloping term structure. [ABSTRACT FROM AUTHOR]

This paper surveys Negishi's significant contributions to economics and the research programs they have generated. In a series of papers and books, Negishi developed a number of models and methods of analysis that changed the course of modern economics and catalyzed research in areas that range from welfare and theoretical to applied and computable general equilibrium analysis, and the extension of imperfect competition to general equilibrium. trade theory and international economics. This paper shows that the Negishian research programs that emanated from his works are progressive, and still have an ongoing impact on mainstream economic analysis decades after their publication. [ABSTRACT FROM AUTHOR]

It has been suggested that moral courage in the workplace supports more robust application of regulatory principles. A workforce with the courage to act on moral imperative, it is argued, can bolster corporate governance and promote both more stable business organisations and greater economic stability at large. Research in the area investigates the bases of moral courage, a central implication being that businesses should invest in ethical training as a matter of public policy. It is standard to present moral courage as the strength of will to do the morally right thing. From a managerial perspective, however, this distorts the normative character of the kind of issues managers typically face. Doing the morally right thing commonly entails inflicting permissible harms. Such harms, though permissible, can be a source of moral concern to the conscientious manager. A difficulty for the standard account, then, is that moral courage may be expected in scenarios in which the moral implications of the manager's action have not been fully assessed. In this paper, an alternative account of moral evaluation is presented that incorporates the concern around permissible harms. The basis of such concern is found to be manager‐regret. Building on this foundation, we can establish a new definition of moral courage, that understands the right action to be that which entails defensible harms, and requires courage because those harms will likely have to be defended. It should be recognised in the academic literature that moral courage has this intellectual dimension. Furthermore, managerial training and practice should reflect this understanding of moral courage if its benefits to public policy, in particular corporate governance, are to be realised. The thesis takes a novel approach to the topic that draws, centrally, on the work of Bernard Williams, Martha Nussbaum and Søren Kierkegaard. [ABSTRACT FROM AUTHOR]

In this paper, we analyze the behavior of equilibrium real interest rates in an identical consumer economy in which the preferences are represented by time additive logarithmic utility functions and production technologies are Cobb-Douglas with stochastic constant returns to scale. The following main results are established. (i) When there is no relative price uncertainty, it is shown that the equilibrium interest rate exhibits a mean reverting tendency. A nontrivial steady state distribution is found to exist for the equilibrium interest rate. The properties of the equilibrium interest rate are also derived and discussed. (ii) In a multigood economy, even with additive preferences across goods, the equilibrium interest rates depend explicitly on relative prices. The substitution possibilities in production technologies induce this result. This is in contrast to the findings of Richard and Sundaresan [11] who show that the analytical general equilibrium term structure of interest rates formula of Cox, Ingersoll, and Ross [5] is unaffected by the introduction of relative price uncertainty when the technologies are linear and hence involve no substitution. Furthermore, we relate our results to those of Cox, Ingersoll, and Ross [5], Breeden [3], and Richard and Sundaresan [11] with special emphasis on stochastic production and relative price uncertainty. [ABSTRACT FROM AUTHOR]

These two papers apply the monetary approach to the balance of payments to explain: (1) the relationship between daily changes in forward and spot exchange rates, and exchange rates and interest differentials; and (2) the relationship between exchange rate movements and/or reserve movements and monetary developments over quarterly time periods. Both papers are based on traditional assumptions of the monetarist approach but find that non-monetary factors are also needed to explain countries' exchange rate and reserve movements. It might be useful to consider the validity of some of the basic assumptions when applied to individual industrial countries. [ABSTRACT FROM AUTHOR]

Transnational families have long used migration as a strategy for upward social mobility. However, migration projects are increasingly complex and often do not involve a single move from one country to another. Drawing on qualitative interviews, this paper explores how Latin American families negotiate different stages of their migration from Latin America to Spain to the UK. The paper demonstrates how families negotiate within the opportunity structures afforded to them to achieve physical and social mobility. These opportunities are structured by different legal regimes and the way that immigration, citizenship and labour market policies are implemented. The initial migration from Latin America to Spain had enabled Latin American families to gain economic stability and EU citizenship, but at the cost of a period of family separation. However, faced with the financial crisis, some families opted for onward migration to the UK, a process that resulted in families becoming "re‐transnationalised." [ABSTRACT FROM AUTHOR]

Bank regulations affect the behaviour of credit and money creation; hence, they are essential for economic growth and stability. This paper develops an analytical model of the monetary circuit to show the macroeconomic effects of money creation under bank regulations. It describes the equilibrium in which banks create money in accordance with capital adequacy ratios or net stable funding ratios. This study reveals the equilibrium economic growth rate and debt level. In addition, this paper demonstrates how bank regulations influence firm capital structures, and the conditions for firms using debt and filing for bankruptcy. Results show that bank regulations can transfer risk from banks to firms. In fact, this study identifies a channel through which banks actively influence the macroeconomy through their money creation. [ABSTRACT FROM AUTHOR]

A list of manuscripts for future publication is presented on topics including equilibrium default, debt maturity and numerical equivalence.

Copyright of Papers in Regional Science is the property of Wiley-Blackwell and its content may not be copied or emailed to multiple sites or posted to a listserv without the copyright holder's express written permission. However, users may print, download, or email articles for individual use. This abstract may be abridged. No warranty is given about the accuracy of the copy. Users should refer to the original published version of the material for the full abstract. (Copyright applies to all Abstracts.)

This paper analyzes the market for financial assets in a production and exchange economy with several realized outputs and a single unobservable source of nondiversifiable risk. The paper demonstrates that, for a large class of diffusion outputs and preferences, optimizing consumers first estimate the realizations of the unobservable factor and then use these estimates to determine portfolio and consumption rules. Moreover, the explicit consideration of this unobservable productivity factor affects equilibrium demands and prices. The equilibrium spot rate of interest emerges as the "best estimate" of the unobservable factor, and multiperiod default-free bonds arise as the optimal hedge for the unobservable changes of the stochastic investment opportunity set. [ABSTRACT FROM AUTHOR]

This paper tests the effectiveness of techniques proposed by: Scholes-Williams; Dimson; Fowler, Rorke, and Jog; and Cohen, Hawawini, Maier, Schwartz, and Whitcomb to control for bias in beta estimates from thin trading and price adjustment delays. Each technique produces beta estimates that reduce the amount of this bias, but the amount of reduction in the best case is only 29%. This paper extends previous work by providing evidence of the extent of bias from thin trading and price adjustment delays for OLS betas estimated using daily data. Further, the effectiveness of the Scholes-Williams, Dimson, FRJ, and CHMSW techniques for adjusting beta estimates for the bias created by thin trading and trading delays is investigated using a new approach which employs actual data and allows for the construction of portfolios with known true betas. This paper is divided into four parts. The next section discusses the data and methodology. Then the following two sections present the results and discuss limitations of the study. The final section provides a summary. [ABSTRACT FROM AUTHOR]

This paper relates the value of additional information to asset prices in a pure exchange setting. The price structure of interest revolves around a "pricing-hypothesis": the prices in an economy with less information are unbiased estimators of the prices that would obtain in a more informative economy. Two basic results are developed. First, if the incremental information is useless then the pricing-hypothesis applies. Second, if the pricing hypothesis is assumed valid, then the information is valuable in a weak sense. The results are also considered in the context of empirical research. The case is made for viewing statistical tests of association between prices and signals as tests of the social value of information. [ABSTRACT FROM AUTHOR]

This paper modifies the Black-Scholes option pricing model to include the effects of transaction costs and different borrowing and lending rates. The paper demonstrates that these market imperfections tend to offset each other yielding a bounded range of prices for each option. The paper also shows that under some conditions the option pricing hedge may be society's lowest cost financial intermediary. [ABSTRACT FROM AUTHOR]

This paper, utilizing dealer's "trading book" information, presents some empirical evidence supporting the validity of a dealer pricing model. It shows that much of the transaction prices variation may be explained by the specialist's optimal determination of his bid and ask quotes. Furthermore, it demonstrates that the dealer's bid-ask spread is an important explanatory variable in the observed transaction return. Finally, it indicates that the dealer's inventory level may affect his quotes and thus the transaction prices and order arrivals. The paper provides insights into the relationship between transaction prices and equilibrium prices, which will permit more extensive use of transaction data in empirical investigations. It also provides a better understanding of optimal dealer pricing strategies, suggesting that the proposed empirical model may be used to evaluate a dealer's trading performance. [ABSTRACT FROM AUTHOR]

Our understanding of why corporations pay dividends is currently unsatisfactory. On the one hand, received theory tells us that dividends are irrelevant (in the sense that any two arbitrarily chosen dividend policies have equivalent consequences), both in the absence of taxes (Miller and Modigliani) and in their presence (Miller and Scholes). On the other hand, dividends continue to flood the empirical world with cash as regularly and as consistently as the sun scorches the desert, and one is hard put to characterize this pattern (currently at an annual rate of about $63 billion) as being founded on irrelevance. Not surprisingly, the attendant anomaly has led some, notably Black, to suggest that we really don't know why companies pay dividends. Something is clearly amiss. The present paper will look to the information content of dividends as a substantive (although not necessarily complete) explanation for the prevalence and persistence of positive dividend policies in market economies. The notion that dividends may constitute a source of information is, of course, not new (see e.g., Miller and Modigliani, Black, Stern). The basic idea is that the raising and lowering of dividends communicates information over and beyond what is provided by (mandated and nonmandated historical cost-based) earnings reports, forecasts, and other announcements. By in effect merging extant dividend theory with the theory of public information, the present paper generates several noteworthy consequences. [ABSTRACT FROM AUTHOR]

This paper attempts to continue a line of attack on capital budgeting problems that was essentially begun by Myers and Turnbull. Their method was to use simple, tractable assumptions about cash flow stochastic processes and an intertemporal capital asset pricing relationship to investigate the accuracy of "cruder," traditional methods of valuation like discounting at a risk-adjusted cost of capital. We extend this approach to some prototypical mean-reverting cash flow processes which, we argue, are economically more relevant than the extrapolative, purely indeterministic processes used by Myers and Turnbull. In his discussion of the Myers and Turnbull paper, Hamada suggested that their results needed to be examined in the context of other types of cash flow processes; this paper is an attempt in that direction. It is our belief that, given the fact that risk-adjusted discount rate valuation (with project classes or divisions serving as surrogate measures of risk) is an important capital budgeting practice in many firms, asking questions of this type is a useful exercise in applied corporate finance. [ABSTRACT FROM AUTHOR]

The article comments on a paper published within the issue, "Elimination of the Double Taxation of Dividends and Corporate Financial Policy," by Robert H. Litzenberger and James C. Van Horne. The author summarizes the paper by claiming the authors' have clearly demonstrated the inability to separately analyze capital structure decisions and dividend policy in the presence of differential personal income taxes and dividend paying firms. He also discusses Litzenberger and Van Horne's development of a multi-period state-preference model. The model incorporates differential personal income taxes by introducing a time state claim on taxable ordinary income and a time state claim on nontaxable wealth. The author feels that Litzenberger and Van Horne carry out a thorough and careful analysis of two alternative ways to eliminate the double taxation of dividends.

One important attribute of an efficient capital market is that current market prices fully reflect all available information and, thus, capital market equilibrium is conditional upon this information. There is, however, nothing in the efficient capital market model that provides theoretical insights on the nature or properties of the mechanism through which this conditioning information becomes available. In this paper, some properties and implications of one scheme for information-production were examined. The assumptions underlying this scheme are consistent with those that imply capital market efficiency. The production arid dissemination of information for use by capital market agents was handled via market game theory. Insofar as information about the allocation of real resources is concerned, it was shown that a Pareto optimal competitive solution (in the game-theoretic sense) is attained.[22] And, from the definition of this solution, one knows that the solution involves nonzero expenditures on information so long as at least one group of agents finds it desirable to invest in information-production. Moreover, it was shown that the returns (from information-production) to each agent converge to that agent's competitive allocation (in the classical sense). A basic idea used was as follows. The value of information to an individual was expressed in terms of a certainty equivalent. The certainty equivalents for the members of a coalition defined the payoff vector for that coalition. Then, it was shown that a core for the information- production game exists. The effects of information-production on the equilibrium production-investment decisions of firms whose securities are traded in the capital market were also examined. [ABSTRACT FROM AUTHOR]

The article presents a critique of Robert E. Verrecchia's article "The Use of Mathematical Models in Financial Accounting," which appeared in the 1982 supplement issue of this journal. The author discusses the way that Verrecchia organized his paper around the areas of social welfare and the public disclosure of accounting information, capital market information efficiency, and the correlation between disclosure and private data. The article concludes that Verrecchia's analysis of mathematical models in accounting is excellent and meets its own criteria for evaluation.

Individual investors trade less aggressively on any particular piece of information as more investors observe it. The trades of the new investors observing a piece of information "crowd out" some of the trades of the old investors who observe that same piece of information. This paper shows that when traders are risk averse, these crowding out effects lead the proportions of traders who choose to observe one signal versus another to differ from the proportions that maximize the informativeness of prices. [ABSTRACT FROM AUTHOR]

The assumption that the market portfolio follows a specified diffusion process implies, in a simple equilibrium framework, that the representative individual must have a certain utility function which is identified in the paper. Not every diffusion process is viable, i.e., can be "endogenized" to be the market portfolio's price process in such an equilibrium model. The paper provides necessary and sufficient conditions for viability which imply that viable diffusion processes constitute a rather restricted family. [ABSTRACT FROM AUTHOR]

This paper demonstrates that temporal risk aversion makes smoothing consumption over time less attractive, while the usual risk aversion makes it more attractive. As temporal risk aversion increases, the equilibrium interest rate decreases and the equity premium increases. This paper also shows a striking and novel result that an increase in time impatience can lead to either a decrease or an increase in the interest rate, depending on the nature of the nonseparability. [ABSTRACT FROM AUTHOR]

This paper values a contingent claim to discrete stochastic cash flows generated by a Poisson arrival process with a randomly varying intensity parameter. In the most general case, both the size and the arrival intensity of cash flows may correlate with state variables in a continuous time economy. Assuming the conditions of an intertemporal capital asset pricing model, solutions for the value of the contingent claim can be found using various techniques. The paper suggests immediate applications to the valuation of insurance contracts, the decision to build a firm with unknown future investment opportunities, and the pricing of mortgage-backed securities. [ABSTRACT FROM AUTHOR]

This paper develops a consumption-oriented model of asset prices in a multigood economy that is, in principle, testable even when aggregate consumption of goods and their market prices are only partially observable. Previous studies show that, when there are m consumption goods, equilibrium expected excess returns on securities are functions of their covariances with m + 1 variables-aggregate consumption expenditure and market prices of consumption goods. Without making any further assumptions, the present model shows that a similar equilibrium relationship can be expressed in terms of covariances of asset returns with the following m + 1 variables: market prices of k consumption goods and aggregate consumption of m + 1 - k goods. Because the author's result provides researchers with some flexibility in choosing the set of m + 1 variables that measure riskiness of securities, it should lead to more powerful tests of the model. [ABSTRACT FROM AUTHOR]

Alan Shapiro's paper entitled "Currency Risk and Country Risk in International Banking" is a timely one in a subject area whose popularity is growing. These comments are written in suggestion form, and their purpose is to suggest areas in which the paper might be strengthened. The comments will be directed in three areas of the paper. 1. The nature of the equilibrium referred to in the section on currency risk and firm borrowing. 2. The direction of causation between exchange rates and prices. 3. Foreign currency risk and country risk in country borrowing. [ABSTRACT FROM AUTHOR]

A discussion of several conference papers that examined postwar monetary policy in the U.S. is presented. The author begins by discussing the paper that examined international trade. The author points to the growing trend of government intervention in trade and questions if the forces that promote equilibrium in a free exchange market can still function in a market guided by governments. The author also explores domestic bank lending policies and increases in short-term interest rates.

This interesting paper by Professors John and Nachman [5] draws together some central issues in mainstream finance with emerging techniques to examine reputation-based phenomena in a variety of market contexts. The paper is a nice synthesis of several strands in the literature. These include the Kreps and Wilson [6, 7] approach to sequential rationality and reputation, the idea developed in Spatt [10] in studying the reputation aspects of debt contracts and debt repayment that in the presence of correlated opportunities the firm's first period actions can reveal information about second period opportunities, and the Myers [8] analysis of the underinvestment problem that emerges from the incentive conflict between debtbolders and equityholders. This paper examines the underinvestment problem studied by Myers [8] in an agency setting by introducing repeated play in a two-period model with correlated investment opportunities by the firm. Reputation incentives reduce the frequency of underinvestment in the first period so that the Myers [8] phenomenon arises in muted form at that date. In the first period underinvestment still occurs, but to a lesser degree than in a single period economy. The equityholders in the first period undertake the project in relatively more states of the world than in a one-period setting, although the project is then still not undertaken in as many states as the full information Pareto outcome. The first-period actions provide the market information about subsequent opportunities. The equityholders favor investment relatively more often than in a single-period model in that the first-period investment signals a more favorable distribution of second-period opportunities. [ABSTRACT FROM AUTHOR]

This article presents the author's opinion on the article presented by Professors Brennan and Schwartz. The article distinguished between the book and market values of the assets and liabilities of a firm and financial constraints are posed in terms of plausible accounting ratios. The author discusses some concerns he had with the paper including that personal taxes are ignored and interest rates are assumed to be constant in their examination of the financial policy of an evolving firm.

Abstract: This paper investigates the effectiveness of sovereign wealth funds (SWFs) in reducing macroeconomic volatility occasioned by oil price shocks in oil‐exporting African countries. The oil price boom‐bust cycles complicate fiscal operations, distort budget implementation and trigger macroeconomic instability in oil exporting African countries. We formulate and simulate a dynamic stochastic general equilibrium model that features SWFs and the fiscal sector. We compare a baseline model without the SWFs to a model with the SWFs. The simulation analysis suggests that the establishment of SWFs can mitigate the vulnerability of oil‐exporting African countries to oil price shocks. In particular, SWFs can reduce fiscal expenditure and real exchange rate volatility. Furthermore, SWFs can stabilise the level of external debt and reduce the level of money supply thereby sterilising the oil revenue. Since oil price shock is one of the important external shocks inducing economic instability in oil‐exporting African countries, the creation of SWFs can insulate these economies from external shocks. [ABSTRACT FROM AUTHOR]

Taking the product substitutability into account, this paper considers the horizontal mergers under Cournot with Bertrand competition. Firstly, the big market size indicates non‐intention to merge. Secondly, independent goods indicate indifferences between the quantity competition and price competition. Finally, firms under quantity competition are more willing to merge than under price competition. The antitrust authority is more inclined to approve the merger under quantity competition than that under price competition. [ABSTRACT FROM AUTHOR]

The question addressed in this paper is: can monetary policy succeed in stabilizing the economy even when the policy model on which it is predicated is mis-specified? Using variants of the 3-equation macroeconomic model, it is shown that this question can be answered in the affirmative. The purpose of the paper is not to encourage indifference toward model uncertainty, however, but rather to warn against the perils of 'policy model complacency.' This arises if the success of policy is misinterpreted as successful understanding of the workings of the economy, which makes the policy maker vulnerable to surprises: events with systematic origins in the 'true' model of the economy that are not anticipated by the (mis-specified) policy model. To safeguard against this problem, policy makers should always entertain eclectic views of the workings of the economy. This task is easily accomplished by paying attention to heterodox macroeconomics, which frequently makes predictions that are very much at variance with those of the dominant policy model. [ABSTRACT FROM AUTHOR]

Unpredictable income poses a significant threat to economic stability for many U.S. households. While budgeting may help to mitigate some of the negative effects of unpredictable income, the process of budgeting can also be more challenging under such circumstances. This paper presents new descriptive evidence on the relationship between income predictability, financial wellbeing, and budgeting behavior using data from a nationally‐representative survey of nearly 4000 U.S. adults. We document a strong negative relationship between income unpredictability and financial wellbeing. However, the strength of this negative relationship is substantially attenuated for those who budget. This suggests that budgeting may be a useful tool for mitigating the adverse effects of unpredictable income. Despite these benefits, the propensity to budget is significantly lower among those with the most unpredictable income. These findings indicate the need for policy reforms that insure households against unpredictable income in addition to efforts targeting individual‐level financial management strategies. [ABSTRACT FROM AUTHOR]

The paper analyzes the relationship between agglomeration economies (urbanization, specialization, and diversity) and firm‐level performance during a period of deep economic downturn (2011–2018). We use data from the National Survey of Economic Activities for eight Tunisian manufacturing industries to explore which agglomeration externalities matter most for firm performance after the revolution. The analysis considers, in addition, the role played by selected firm‐specific characteristics. The empirical results, based on a multilevel analysis approach, sanction the importance of firm‐specific determinants of productivity and exporting. They also indicate that only specialization externalities have a positive and significant effect on firms' performance. The replicate results during a period of economic stability (1998–2004) show, however, that specialization and urbanization economies are both relevant predictors of firms' productivity and that more productive firms, in particular the smaller ones, are better able to benefit from agglomeration. This finding has not been confirmed for the post‐revolutionary period. [ABSTRACT FROM AUTHOR]

Economists invoke Mundell (1961 ) in arguing for the general policy of a flexible exchange rate regime as a means of restoring equilibria after shocks. But there is a discrepancy between the intent of the general policy and attempts at its implementation as identified by specific changes in exchange rates. When we assemble the set of specific changes called for by distinct economists operating as advocates for individual countries, these are uniformly in the form of beggar-thy-neighbour advice – i.e. travesties of objectively identifying disequilibria and a menace to international cooperation and peace. This paper traces the unintended travesties to problems of complexity and uncertainty, problems that implicitly are assumed absent in Mundell (1961 ) rendering the situation so simple that equilibria are transparent. The problems remained essentially unaddressed when economists extended Mundell (1961 ) via expected utility theory since this theory also ignores the impossibility of maximising and the complexities of central bankers, private firms and others in doing the evaluation stage in reaching decisions. The problems can be overcome by modelling within SKAT, the Stages of Knowledge Ahead Theory. This paper points to experimental evidence in support of the view that under all sorts of disequilibrating shocks, currency unions outperform flexible currencies by eliminating the inefficiencies generated by exchange rate uncertainty. [ABSTRACT FROM AUTHOR]

A letter to the editor is presented in response to the article "Public Policy, Economic Inequality, and Poverty: The United States in Comparative Perspective," by Timothy Smeeding.

Copyright of Papers in Regional Science is the property of Wiley-Blackwell and its content may not be copied or emailed to multiple sites or posted to a listserv without the copyright holder's express written permission. However, users may print, download, or email articles for individual use. This abstract may be abridged. No warranty is given about the accuracy of the copy. Users should refer to the original published version of the material for the full abstract. (Copyright applies to all Abstracts.)

This paper analyses alternative subsidy schemes and long‐run entry bias in a new industry that creates positive environmental externalities (both generation externalities and externalities associated with interindustry technology spillovers). It demonstrates that per‐unit subsidy scheme, despite attracting fewer firms, results in higher industry output and economic surplus in the equilibrium compared with the expenditure equivalent lump‐sum subsidy scheme. However, the later leads to higher total surplus, unless spillover externalities are sufficiently small. Further, the free‐entry equilibrium number of firms may be excessive or insufficient. A key finding of this paper is that the first‐best equilibrium outcome can be implemented through a unique combination of per‐unit subsidy and lump‐sum subsidy/tax, which involves positive government expenditure in the presence of positive externalities. [ABSTRACT FROM AUTHOR]

Abstract: In this paper we construct a general equilibrium model of trade and illustrate that return to unskilled labor may be negatively correlated with the price of product it produces. Specifically, we show that greater protection for the intermediate good that uses “unskilled” labor can reduce the unskilled wages. This result has interesting political‐economic implications. [ABSTRACT FROM AUTHOR]

The article presents a commentary on the paper "Yes, The APT is Taxable," by R. Roll and S. Ross. The author contends that nothing in the paper indicates that a refutable empirical hypothesis can be obtained through the arbitrage framework itself. He explains that the equilibrium models presented have much to offer, but are really generalizations of the mean-variance capital assets pricing model (CAPM), in multi beta form. The author also notes that the market portfolio plays no particular role in the theory.

This paper provides a positive theory of voluntary disclosure by firms. Previous theoretical work on disclosure of new information by firms has demonstrated that releasing public information will often make all shareholders worse off, due to an adverse risk-sharing effect. This paper uses a general equilibrium model with endogenous information collection to demonstrate that there exists a policy of disclosure of information which makes all shareholders better off than a policy of no disclosure. The welfare improvement occurs because of explicit information cost savings and improved risk sharing. This provides a positive theory of precommitment to disclosure, because it will be unanimously voted (or by stockholders and will also represent the policy that will maximize value ex ante. In addition, it provides a "missing link" in financial signalling models. Apart from the effects on information production analyzed in this paper, most existing financial signalling models are inconsistent with a firm taking actions which facilitate future signalling because release of the signal makes all investors worse off. [ABSTRACT FROM AUTHOR]

This paper studies a laboratory market where an agent is paid by a principal to provide a service of unknown quality. It is useful to place this model in the context of studies on markets with quality variation: the quality variation may be either exogenous or endogenous; the setting may be single-period, finite-multiperiod, or infinite-period; quality may be set once and for all (in the first period) or adjusted dynamically; and the market structure may range between monopolistic and competitive [the italics identify the specific choices made by DeJong, Forsythe, and Lundholm (DFL)]. Clearly, the above suggests a number of alternative settings for future research and for interesting comparisons; for example, if quality is set once-and-for-all, we obtain a clear rationale for reputation formation—how will this effect be reflected in laboratory results? The paper presents interesting results which are examined in light of the predictions of two static models: a "lemons" model and a "ripoffs" model. The results indicate that the "ripoffs" model outperforms the "lemons" model, and furthermore there is evidence for more cooperative behavior than that predicted by the "ripoffs" model, namely, there are reputation effects. The authors allude to the results of Kreps, Milgrom, Roberts, and Wilson which, as they correctly argue, are difficult to operationalize in the current setting; clearly, the analysis would benefit from the guidance of an explicit multiperiod model. In the following section, I suggest an approach to modeling the problem at hand. [ABSTRACT FROM AUTHOR]

This paper explores the relations between the prices of capital assets and the specifications of the underlying technologies of the economy. Professor Huffman deduces the equilibrium price of capital for several economies, and then examines how the behavior of this price and investments in capital are affected by the presence of installation costs. These comparisons across alternative technologies are interesting and will be discussed in more detail subsequently. First, I shall comment briefly on the motivation for this analysis, and discuss the structure of Huffman's model and its relation to several asset pricing models that have been studied previously in the literature. [ABSTRACT FROM AUTHOR]

This paper reports the results of controlled experiments designed to test the Harris-Raviv generalization of the Vickrey theory of bidding in multiple unit discriminative auctions. The paper also discusses further development of the theory—in a way suggested by the experimental results—to include bidders with distinct risk preferences. [ABSTRACT FROM AUTHOR]