strategy proof exchange we consider the allocation of goods in exchange economies with a finite number of agents who may have private information about their preferences in such a setting standard allocation rules such as walrasian equilibria or rational expectations equilibria are not compatible with individual incentives we characterize the set of allocation rules which are incentive compatible or in other words the set of strategy proof social choice functions social choice functions which are strategy proof are those which can be obtained from trading according to a finite number of pre specified proportions the number of proportions which can be accommodated is proportional to the number of agents such rules are necessarily inefficient even in the limit as the economy grows

debt maturity without commitment i analyze how lack of commitment afiects the maturity structure of sovereign debt governments balance beneflts of default induced redistribution and costs due to income losses in the wake of a default their choice of short versus longterm debt afiects default and rollover decisions by subsequent policy makers the equilibrium maturity structure is shaped by revenue losses on inframarginal units of debt that re ect the price impact of these decisions the model predicts an interior maturity structure with positive gross positions and a shortening of the maturity structure when debt issuance is high output low or a cross default more likely these predictions are consistent with empirical evidence

financial fragility and the exchange rate regime abstract we study financial fragility exchange rate crises and monetary policy in a model of an open economy with diamond dybvig banks the banking system the exchange rate regime and central bank credit policy are seen as parts of a mechanism intended to maximize social welfare if the mechanism fails banking crises and speculative attacks on the currency become possible we compare currency boards fixed rates and flexible rates with and without a lender of last resort a currency board cannot implement a social optimum in addition it allows bank runs to occur a fixed exchange rate system may implement the social optimum but is more prone to bank runs and exchange rate crises than a currency board a flexible rate system implements the social optimum and eliminates runs provided that the exchange rate and credit policies of the central bank are appropriately designed journal of economic literature classification numbers f3 e5 g2

some further results on rosen and quandt s labor market model abstract this note presents some new evidence on estimation of rosen and quandt s disequilibrium aggregate labor market model it is found that the earlier results of rosen and quandt are not robust in terms of computational aspects the specification of the minimum condition differencing and different data samples

erratum to environmental determinants of cost sharing multiple cost sharing rules often coexist in seemingly identical environments we use shared irrigation costs as a context for examining the extent to which the structural environment explains cost sharing rule selection we find that environmental factors affecting irrigation costs and benefits as well as those determining irrigator distribution along the ditch have impressive explanatory power these results present some of the first formal empirical analysis of the manner in which structural features influence the actual cost sharing choices of economic agents moreover our results also suggest that previous axiomatic studies are reflective of real world cost sharing behavior

endogenous debt crises we distinguish two types of debt crises those that are the outcome of exogenous shocks to productivity growth for instance and those that are endogenously created either by self fulfilling panic in financial markets or by the reckless behavior of panglossian borrowers after krugman we characterize as panglossian those borrowers who only focus on their best growth prospects anticipating to default on their debt if hit by an adverse shock rationally ignoring the risk of default we apply these categories empirically to the data we show that taken together endogenous crises are powerful explanations of debt crises more important for instance than the sheer effect of growth on a country s solvency

the limits of monopolization through acquisition we address the question of whether competitive acquisition of firms by their rivals can result in complete or partial monopolization of a homogeneous product industry this question is modeled in terms of two distinct three stage noncoopera tive games analysis of subgame perfect pure strategy nash equilibria of these games discloses that under simplifying assumptions monopolization of an industry through acquisition is limited to industries with relatively few firms partial monopolization is either limited in scope or can be completely eliminated by prohibiting any owner from acquiring over 50 percent of the firms in the industry

manufacturing stocks and forward looking expectations in the uk this paper derives a model of the stocks plan based on optimal behavior by the firm when facing adjustment costs with forward looking expectations formation estimates of the model are reported for manufacturing using three alternative expectations mechanisms for determining expected sales time series published forecasts derived from national institute published forecasts and rational expectations the latter uses a submodel dependent on weakly exogenous variables single equation and whole model comparisons are made of the stocks equation estimated with forward expectations versus a traditional backward looking model these favor the forward looking model copyright 1986 by the review of economic studies limited

disequilibrium models with rational expectations an application to the uk labour market this paper develops and estimates an explicit switching model for the u k labour market which includes expectations terms in the labour demand function these expectations terms are dealt with by using the rational expectations hypothesis

inefficient foreign borrowing a dual and common agency perspective studying the implications of uncoordinated borrowing the paper first looks at whether and when countries borrow too much in the aggregate it then revisits the original sin debate analyzing whether and when equity portfolio investment international portfolio diversification domestic currency denomination and longer maturities enhance borrowing countries access to international lending the paper thereby relates a country s level and quality of access to international capital markets to a variety of institutional features such as the level of domestic savings their location the extent of control rights held by political authorities and the interests of dominant domestic political forces

contracting with externalities the paper studies inefficiencies arising in contracting between one principal and n agents when the utility of each agent depends on all agents trades with the principal when the principal commits to a set of publicly observable bilateral contract offers the arising inefficiency is due entirely to the externalities imposed on non signers in contrast when the principal s offers are privately observed the distortion is due to the externalities given agents equilibrium trades comparison of the two externalities determines the relative efficiency of the two contracting regimes in both cases we show that when n is large each agent can be treated as non pivotal provided that appropriate continuity assumptions are satisfied we also study the case in which the principal can condition each agent s trade on other agents messages we characterize the set of such mechanisms in which each agent s participation is voluntary when the principal can commit to any such mechanism she implements the first best outcome while threatening each deviator with the harshest possible punishment however in the presence of noise that goes to zero slower than n goes to infinity in the limit we obtain a generally inefficient outcome in which each agent feels non pivotal

can debt crises be self fulfilling abstract several papers argue that debt crises can be the result of self fulfilling expectations that no one will lend to a country triggering default and rationalizing the refusal to lend i show these coordination failures can be eliminated by a combination of state contingent securities and a mechanism that allows investors to promise to lend only if enough other investors do so as well this suggests that runs on the debt of a single borrower such as the government can be eliminated and that self fulfilling features are more plausible when externalities among many decentralized borrowers allow for economy wide debt runs to occur

slow moving debt crises we study slow moving debt crises self fulfilling equilibria where high interest rates due to fears of higher future default leads to a gradual but faster accumulation of debt ultimately validating investors fears we show that slow moving crises arise in a variety of settings both when fiscal policy follows a given rule or when it is chosen by an optimizing government we discuss how multiplicity is avoided for low debt levels for sufficiently responsive fiscal policy rules and for long enough debt maturities when the equilibrium is unique debt dynamics are characterized by a tipping point below which debt fall and stabilizes and above which debt and default rates grow we provide game theoretic foundations for our approach

environmental determinants of cost sharing abstract multiple cost sharing rules often coexist in seemingly identical environments we use shared irrigation costs as a context for examining the extent to which the structural environment explains cost sharing rule selection we find that environmental factors affecting irrigation costs and benefits as well as those determining irrigator distribution along the ditch have impressive explanatory power these results present some of the first formal empirical analysis of the manner in which structural features influence the actual cost sharing choices of economic agents moreover our results also suggest that previous axiomatic studies are reflective of real world cost sharing behavior

the mexican peso crisis sudden death or death foretold abstract we argue that allowing for the possibility of a self fulfilling panic helps to understand several features of the recent mexican crisis self fulfilling expectations became decisive in generating a panic only after the government ran down gross reserves and ran up short term dollar debt we present a simple model to explain how and why multiple equilibria can occur for some levels of reserves or debt but not for others lastly we argue that the imperfect credibility of mexican exchange rate policy made it advisable to follow more contractionary fiscal and monetary policies in 1994 our model formalizes the reasons why this is so

a cheap lunch for emerging markets removing international financial market imperfections with modern financial instruments summary this paper develops a market based procedure to significantly reduce the indebtedness of emerging markets by applying an asset backed security approach to a pool of emerging market bonds in an extensive simulation study based on historical data the cumulated interest savings over a horizon of 10 years amount to about 20 of the credit sum on average with a standard deviation of 8 and up to 44 for individual countries dependent on the internal distribution of the surplus the theoretical structure of the transaction is explicitly derived in cooperation with professionals from major commercial banks and it implies only negligible implementation cost the implementation requires neither institutional reforms nor debt forgiveness but can supplement or substitute previous measures

a corporate balance sheet approach to currency crises this paper presents a general equilibrium currency crisis model of the third generation in which the possibility of currency crises is driven by the interplay between private firms credit constraints and nominal price rigidities despite our emphasis on microfoundations the model remains sufficiently simple that the policy analysis can be conducted graphically the analysis hinges on four main features i ex post deviations from purchasing power parity ii credit constraints a la bernanke gertler iii foreign currency borrowing by domestic firms iv a competitive banking sector lending to firms and holding reserves and a monetary policy conducted either through open market operations or short term lending facilities we derive sufficient conditions for the existence of a sunspot equilibrium with currency crises we show that an interest rate increase intended to support the currency in a crisis may not be effective but that a relaxation of short term lending facilities can make this policy effective by attenuating the rise in interest rates relevant to firms

choosing rules to govern the commons a model with evidence from mexico abstract i develop a model to assess distributive rules observed in field data on 48 mexican farmer managed irrigation systems households decide whether to contribute maintenance effort the aggregate amount of which affects the level of output distributive rules with congruence between the sharing of collective costs and benefits elicit the highest level of effort empirically however incongruent rules dominate the surveyed systems i argue that transaction costs offset some efficiency benefits of congruent rules i estimate a model of rule choice inequality and the age of the water users association strongly increase the likelihood that a system chooses proportional water allocation

can hysteresis explain different labour market operations between europe and the united states this paper offers an analysis of the labour market operation in europe and the united states during 1970 1985 it appears that the labour market developments in europe are more characterized by hysteresis than in the united states simulation results indicate that the unemployment rate in europe would have reached the level of that in the united states in 1985 when wage formation had been more similar

water allocation by social choice rules the case of sequential rules abstract this paper considers the problem of allocating shares of irrigation water to different agricultural agents with single peaked preferences with respect to their own shares we define two different sequential allocation rules that respect the asymmetry between the agents and maintain the properties of pareto efficiency and strategy proofness and we design a specific algorithm to apply these rules the results of the empirical application of these rules for the case of an irrigated area located in the ebro basin spain show that the designed sequential rules are able to substantially improve the efficiency of the currently applied proportional rule in context of severe scarcity of water and or high administrative water prices

coordination risk and the price of debt abstract creditors of a distressed borrower face a coordination problem even if the fundamentals are sound fear of premature foreclosure by others may lead to pre emptive action undermining the project recognition of this problem lies behind corporate bankruptcy provisions across the world and it has been identified as a culprit in international financial crises but has received scant attention from the literature on debt pricing without common knowledge of fundamentals the incidence of failure is uniquely determined provided that private information is precise enough this affords a way to price the coordination failure comparative statics on the unique equilibrium provides several insights on the role of information and the incidence of inefficient liquidation