why is bank debt senior a theory of asymmetry and claim priority based on influence costs this theory can explain why bank debt is universally senior consistent with the presence of conflict lawyers and absolute priority violations in financial distress better organized banks would more strongly contest priority in financial distress if they were junior because deterrence can reduce creditors total expenses in a priority contest the ex post stronger lobbyist litigant should be senior ex ante for equivalent reasons the theory can advise when public debt should be senior to trade credit and or implicit contracts and can even suggest one rationale for the absolute priority rule apr this article further shows that chapter hi creditor reimbursement procedures can lower overall costs article published by oxford university press on behalf of the society for financial studies in its journal the review of financial studies

interpreting the cyclical behavior of the price level in the u s the development of macroeconomic theory is largely guided by so called stylized facts whether truly facts or myths the existence of such widely believed empirical regularities tends to constrain the class of acceptable theories to be taken seriously a macroeconomic model must be able to explain salient stylized facts in a reasonably satisfactory way it is therefore imperative that these facts be such

how not to sell nuclear weapons we consider situations where a sale affects the ensuing interaction between potential buyers these situations are modeled by assuming that an agent who does not acquire the object for sale incurs an identity dependent externality we construct a revenue maximizing auction for the seller we observe that 1 outside options and participation constraints are endogenous 2 the seller extracts surplus also from agents who do not obtain the auctioned object 3 the seller is better off by not selling at all while obtaining some payments if externalities are much larger than valuations

anarchy efficiency and redistribution this paper develops a contractarian theory of the state and the existence of redistribution the existence of rules of redistribution is explained without any recourse to the risk aversion of agents no veil of ignorance is needed this avoids obligational problems inherent in most other contractarian theories of justice hence this paper departs from the standard legitimization of redistribution as fundamental insurance and interprets it as stemming from a principle of reciprocity in trade since this paper deals with an anarchic society the implementation of redistributional rules is constrained by the assumption of self enforcement we show that this assumption changes the interpretation of the state the state is characterized by a particular design of equilibrium strategies not by the existence of enforcement agencies

team theory garbage cans and real organizations some history and prospects of economic research on decision making in organizations this essay attempts to articulate and advance a long term agenda for organizational economics the essay begins with a general discussion of four specific items on this agenda and then moves to a more specific discussion of decision making in organizations beginning with two polar opposite conceptions team theory and garbage cans and then describing several recent economic models part of the rationale for writing this essay is that this agenda has both substantive and methodological commonalities with the work of james march copyright 2003 oxford university press

distributional conflict in organizations abstract hierarchy can function as an instrument to channel influence activities or power struggles in organizations contrary to what has frequently been argued we show that multi divisional organizations may involve lower influence costs than single tier organizations even though they offer more scope for organizational conflict and have more executives that can be influenced these benefits derive from two effects first part of the conflict in multi divisional organizations takes place on the division level where a small number of agents fight over only a fraction of the overall prize second by grouping agents into common divisions multi divisional organizations create free rider problems in rent seeking our model sheds new light on the desirability of divestitures and the transition from the u to the m form by us corporations in the 1920s

the rise of europe atlantic trade institutional change and economic growth the rise of western europe after 1500 is due largely to growth in countries with access to the atlantic ocean and with substantial trade with the new world africa and asia via the atlantic this trade and the associatedcolonialism affected europe not only directly but also indirectly by inducing institutional change where initial political institutions those established before 1500 placed significant checks on the monarchy the growth of atlantic trade strengthened merchant groups by constraining the power of the monarchy and helped merchants obtain changes in institutions to protect property rights these changes were central to subsequent economic growth

the cyclical relationship between output and prices an analysis in the frequency domain research showing a negative correlation between output and prices has brought into question the conventional wisdom that prices are procyclical however this finding has been shown to be sensitive to the sample period considered this paper examines the relationship in the frequency domain the covariance of output and prices is decomposed into spectral components to investigate whether differences in the price output relationship across sample periods reflect changes in the importance of various frequencies embedded within the correlations or whether they reflect more fundamental changes in the entire spectral relationship some implications for model evaluation are also considered

on the sources of business cycles in the g 7 abstract this paper examines sources of cyclical movements in output inflation and the term structure of interest rates in the g 7 it employs a novel identification approach which uses the sign of the theoretical cross correlation function in response to shocks to catalog orthogonal disturbances we find that demand shocks are the dominant source of output and inflation fluctuations in several of the g 7 countries the proportion of term structure variability explained by different structural sources does not depend on the horizon apart from the us and canada structural shocks are nearly uncorrelated across countries

redistributive politics and economic efficiency the political process often compensates the losers from technical change or international competition in an economically inefficient way namely by subsidizing or protecting declining industries instead of encouraging the movement of resources to other more productive uses we find that a dynamic inconsistency in the game of redistributive politics contributes to this outcome to achieve economically efficient outcomes it is necessary that those making economically inefficient choices not be given offsetting transfers but the political process distributes income on the basis of political characteristics which are in general different from the economic characteristics that are rewarded by the market we identify circumstances in which the inefficient choosers have desirable political characteristics and are therefore immune from threats of having to face the economic consequences of their choices

anarchy and its breakdown anarchy defined as a system in which participants can seize and defend resources without regulation from above is not chaos but rather a spontaneous order however anarchy is fragile and may dissolve either into formless amorphy or into a more organized system such as hierarchy under anarchy each contestant balances between productive exploitation of the current resource base and fighting to acquire or defend resources anarchy is sustainable only when there are strongly diminishing returns to fighting effort the decisiveness parameter is sufficiently low and incomes exceed the viability minimum these considerations explain many features of animal and human conflict

domestic politics and international conflict this paper explores the interactions between domestic politics and international conflict the analysis shows that electoral uncertainty associated with competition between political parties each representing a specific group of the electorate imparts a negative bias on the nation s military spending given military spending by other nations in turn electoral uncertainty lowers other nations incentive to arm as well in this context democratic institutions can be thought of as a possible precommitment mechanism that reduces the severity of conflict between nations and thereby increases the amount of resources available globally for consumption copyright 1994 by american economic association

prices output and hours an empirical analysis based on a sticky price model abstract i show that a simple sticky price model based on rotemberg 1982 is consistent with a variety of facts concerning the correlation of prices hours and output it is consistent with the negative correlation between forecastable movements in prices and output as well as the smaller negative correlation between forecastable movements in prices and hours it is also consistent with the positive correlations of unexpected movements in prices output and hours these patterns are harder to reconcile with the flexible price version of the model in particular they require that money respond differently to forecastable and to unforecastable real shocks

macroeconomic fluctuations demand or supply permanent or temporary abstract we use generalized method of moments to estimate a rational expectations aggregate demand aggregate supply macroeconomic model for five european economies and the united states our aim is to examine whether supply or demand shocks have predominated in these economies during the post war era and whether shocks of either type have been primarily temporary or permanent in nature we find that permanent or temporary demand shocks have been the dominant source of variance in output growth in all six countries but there is a less consistent pattern for inflation permanent supply shocks had the dominant influence on autocorrelations

the comovement between real activity and prices in the g7 in this paper we study the short run and long run comovement between prices and real activity in the g7 countries during the postwar period using var forecast errors and frequency domain filters we find several patterns of the correlation coefficients that are robust across countries and time periods typically the correlation coefficients at long run horizons are significantly negative and the correlation coefficients at short run horizons are substantially higher additionally there is evidence of positive correlation at short run forecast horizons for some countries

the cyclical behavior of prices and relative prices i introduction correlations between shocks to prices and output provide evidence on the source of macroeconomic shocks for example den haan 2000 found positive correlations at short forecast horizons and negative correlations at longer forecast horizons for the consumer price index cpi and the index of industrial production ip 1 he interpreted these results to mean that demand shocks dominate in the short run while supply shocks dominate in the long run several other papers confirm the positive correlation between the cpi and the ip at short forecast horizons on the other hand some of these same authors have found a negative correlation between real gross domestic product gdp and the gdp deflator at short forecast horizons 2 this difference is disappointing since the results provide conflicting evidence on the nature of shocks at short horizons and puzzling since the cpi and the deflator are positively correlated as are ip and gdp an important distinction between pairing gdp with its deflator and pairing ip with the cpi is the extent to which products in the output index are matched to products in the price index gdp and the gdp deflator are based on the same set of goods and services on the other hand ip contains products such as those produced by mining whose prices are not included in the cpi and the cpi includes products such as housing services that are not included in ip in this paper we argue that the correlation between mismatched price and output indexes such at the cpi and ip can be and often is misleading the explanation for why it is important to use matched indexes of price and output is simple suppose that you are interested in the correlation between the price and the quantity of apples if instead you compute the correlation between the price of oranges and the quantity of apples the correlation is correct only if the relative price of oranges to apples does not vary with the quantity of apples if the relative price varies then the mismatched correlation differs in magnitude from and may even have the opposite sign of the matched one correlations between both matched and mismatched pairs are mostly negative positive correlations are rare and small for matched pairs but more frequent for mismatched pairs for example investment and the investment deflator are negatively correlated while investment and the consumption deflator are positively correlated our analysis below shows that these correlations imply that the relative price of consumption to investment may be positively correlated with investment previous authors have noted that the relative price of nondurables is procyclical which is consistent with the bias we find for mismatches these previous results are based on correlations between detrended variables we confirm that these findings hold when considering the correlation between forecast errors of the relative price of nondurables to durables and output measures 3 because there is no price index that matches ip and because correlations between mismatched price and output measures likely differ in size and may have the opposite sign of the correlation for matched pairs there is no way to be certain of the cyclical nature of the prices of goods included in the index of ip an examination of gdp components and price deflators provides reasons to be skeptical of the positive correlation between the cpi and the ip first matched pairs of price indexes and gdp components have small or negative correlations second correlations between mismatched price indexes and gdp components show that the bias created by mismatches is sometimes substantial further this bias tends to be positive when prices of nondurable goods such as the cpi or consumption deflator are mismatched with gdp components composed mostly of durable goods finally when ip is paired with deflators for durables investments or goods the correlation is either small or negative at short forecast horizons

institutions for financial development what are they and where do they come from abstract among the fundamental causes of long run economic performance differences in institutions have received considerable attention in recent years at the same time a large body of theoretical and empirical work shows that financial development can have a big effect on economic performance this raises the more fundamental question as to why some countries have developed financial markets while others do not this paper reviews the theoretical and empirical research on this issue and shows that one of the channels whereby better institutions may have an effect on economic development is through the consolidation of larger and better financial markets an issue that is left aside in this paper relates to what regulations and policies lead to better functioning capital markets at some level one can think of regulations and policies as particular types of institutions nonetheless institutional problems are deeper causes leading to poor economic performance bad policies might simply be part of the channels through which they influence performance thus addressing the question of what determines the emergence of good institutions i e institutions that promote financial development seems particularly important recent research providing some answers to this question is also reviewed

what drives natural gas prices a structural var approach abstract in this study we develop a structural vector autoregressive model var for the german natural gas market our setup allows us to analyze the determinants of the natural gas price in a comprehensive framework in particular we illustrate the usefulness of our approach by disentangling the effects of different fundamental influences on gas prices during three recent supply interruptions the russian ukrainian gas dispute of january 2009 the libyan civil war in 2011 and the withheld russian exports in february 2012 our results show that the natural gas price is affected by temperature storage and supply shortfalls in the short term while the long term development is closely tied to both crude oil and coal prices capturing the economic climate and the substitution relationship between the different energy commodities

business cycles under monetary union a comparison of the eu and us reserve districts in the usa and the 15 countries that make up the eu the comparison is suggestive of what might be expected to emerge in the way of business cycle synchronization from a monetary union between the member states of the eu now simply non decimal denominations of the euro and the national central banks of the 11 are branches of the european system of central banks many prominent observers doubted that europe would ever reach this stage and many continue to believe that monetary union between such a large and dispar ate group of countries is fundamentally unsound a key element in the argu ments of many critics of emu is the degree of business cycle asynchronicity between the member states of the eu this paper contributes to the ongoing debate by documenting key differences and similarities between business cycles in the eu and business cycles in the 12 federal reserve districts in the united states the practice of looking to the us experience for insights into the problems and functioning of a monetary union has a long precedent in the literature on fixed exchange rates in general and in the literature on emu in particular for example in making an argument for fixed exchange rates rolnick and weber 1994 note that the usa can be viewed as having a system of fixed exchange rates between currencies issued by the 12 regional federal reserve banks they argue that the notes issued by the 12 banks are not strictly ident ical and that the difference between the notes creates the possibility that the united states could have a system of floating exchange rates among the 12 federal reserve districts 1 rolnick and weber go on to examine the features of the relationship among the 12 regional federal reserve banks that make a system of fixed exchange rates between them feasible in the process drawing lessons for how a monetary union among the countries of the eu might work the analysis in this paper complements earlier analyses in a number of ways the resurgence of interest in business cycle research over the past 20

four formal izable theories of the firm in this essay i define and compare elemental versions of four theories of the firm these elemental theories are distilled from important contributions by hart holmstrom klein williamson and others although these contributions have been widely cited and much discussed i have found it difficult to understand the commonalities distinctions and potential combinations of these seemingly familiar contributions in this essay therefore i attempt to clarify these issues in three steps i begin with informal summaries of the theories then turn to simple but formal statements of each elemental theory and finally nest the four elemental theories in an integrative framework

the contemporaneous correlation between price shocks and output shocks until the 1990s prices were believed to be procyclical several researchers have since presented evidence of counter cyclical prices this evidence proved robust but its interpretation has varied some have argued that the contemporaneous correlation between output and prices reflects both the source of the current shock and the adjustment process from short run to long run equilibrium the adjustment to the long run imparts a bias towards a negative price output correlation the issue of dynamics is addressed by estimating price shocks and output shocks the sign of the correlation between these shocks does not reveal anything about the relative importance or frequency of demand versus supply shocks however some understanding is gained from the time series of the product of the shocks in periods when the product is negative supply shocks must have been either relatively large or relatively important in periods when the product is positive demand shocks must have been either relatively large or re

macroeconomic fluctuations in developing countries some stylized facts this paper documents the main stylized features of macroeconomic fluctuations and business cycle regularities for a group of 12 developing countries cross correlations between domestic industrial output and a large group of macroeconomic time series including government revenue and expenditure wages inflation money velocity private sector credit international trade and exchange rates are presented the effects of industrial country economic conditions on output fluctuations in these countries are also analyzed the robustness of the results is examined using three detrending procedures a modified hodrick prescott filter the baxter king band pass filter and a nonparametric technique overall the results show some similarities between macroeconomic fluctuations in developing and industrial countries e g procyclical real wages and counter cyclical variation in government expenditure but also some important differences in business cycle characteristics e g countercyclical variation in the velocity of monetary aggregates

international market integration for natural gas a cointegration analysis of prices in europe north america and japan this paper investigates the degree of integration of natural gas markets in europe north america and japan in the time period between the early 1990s and 2004 the relationship between international gas market prices and their relation to the oil price are explored through principal components analysis and johansen likelihood based cointegration procedure both of them show a high level of natural gas market integration within europe between the european and japanese markets as well as within the north american market at the same time the obtained results suggest that the european respectively japanese and the north american markets were not integrated

the comovement between output and prices abstract in this paper i analyze the comovement of us prices and output in the postwar period i use a new set of statistics to characterize the comovement between variables the statistics capture important information about the dynamics in the system the estimation procedure does not require assumptions about the order of integration or the types of assumptions needed for var decompositions i find that the comovement between output and prices is positive in the short run and negative in the long run i show that a model in which demand shocks dominate in the short run and supply shocks dominate in the long run can explain these empirical results while sticky price models with only demand shocks cannot

a tale of two correlations evidence and theory regarding the phase shift between the price level and output abstract we examine the relationship between the price level and output at business cycle frequencies in the postwar period there is evidence of a phase shift between the price level and output such a phase shift is manifested in the price level being countercyclical and the inflation rate being procyclical or acyclical depending on the detrending method used our examination takes three approaches first we apply bootstrapping methods to characterize the two correlations though the methodology could easily be extended to any set of facts second we specify a model economy with forecast heterogeneity showing numerically that this model economy can match the observed pair of correlations third we apply robust control theory deriving conditions in which the price level is countercyclical and the inflation rate is procyclical

the cyclical behavior of prices interpreting the evidence previous studies of the cyclical behavior of prices have found that the cross correlations between output and prices in post wwii u s data are generally negative these correlations h have been interpreted as being more consistent with supply driven models of business cycle fluctuations than with models that focus on demand shocks in this paper the authors show that the signs of price output correlations provide little information about the underlying shock for instance a simple keynesian model driven by demand shocks leads to negative correlations between these variables the authors results suggest that price output correlations may not be a particularly useful way to characterize the cyclical behavior of prices copyright 1995 by ohio state university press

agent based macroeconomics a baseline model abstract this paper develops a baseline agent based macroeconomic model and contrasts it with the common dynamic stochastic general equilibrium approach although simple the model can reproduce a lot of the stylized facts of business cycles the author argues that agent based modeling is an adequate response to the recently expressed criticism of macroeconomic methodology because it allows for aggregate behavior that is more than simply a replication of microeconomic optimization decisions in equilibrium at the same time it allows for absolutely consistent microfoundations including the structure and properties of markets most importantly it does not depend on equilibrium assumptions or fictitious auctioneers and does therefore not rule out coordination failures instability and crisis by definition a situation that is very close to a general equilibrium can instead be shown to result endogenously from non rational micro interaction

macro economic fluctuations in developing countries this article documents the main stylized features of macroeconomic fluctuations for 12 developing countries it presents cross correlations between domestic industrial output and a large group of macroeconomic variables including fiscal variables wages inflation money credit trade and exchange rates also analyzed are the effects of economic conditions in industrial countries on output fluctuations in the sample developing countries the results point to many similarities between macroeconomic fluctuations in developing and industrial countries procyclical real wages countercyclical variation in government expenditures and some important differences countercyclical variation the velocity of monetary aggregates their robustness is examined using different detrending procedures

swords or plowshares a theory of the security of claims to property this paper develops a general equilibrium model of the allocation of resources among appropriative and productive activities the model emphasizes the distinction between offensive weapons which are the instruments of predation and fortifications which provide defense against predation the analysis of this model shows how the equilibrium security of claims to property is determined the analysis focuses on the possibility of a nonaggressive equilibrium in which no resources are allocated to offensive weapons and claims to property are fully secure we also analyze the complex relation between economic welfare and the security of claims to property we find for example that a relatively poor agent could be better off in an equilibrium with less secure claims to property

the tyranny of inequality abstract when parties are very unequally endowed agreement may be very difficult to reach even if the specific transaction is easy to contract on and fungible resources can be transferred to compensate the losing party the very fungibility of the resource transferred makes it hard to restrict its use changing the amount the parties involved spend in trying to grab future rents this spill over effect can inhibit otherwise valuable transactions as well as enable otherwise inefficient transactions agreement typically breaks down when the required transfer is large and the proposed recipient of the transfer is relatively unproductive or poorly endowed we examine the implications of this model for a theory of the optimal allocation of property rights

financial fragility patterns of firms entry and exit and aggregate dynamics abstract we model the entry exit process of industrial dynamics within a theoretical framework in which the financial conditions of firms affect capital accumulation the patterns of entry and exit affect the dynamics of the distribution of firms which are differentiated by the equity ratio i e the ratio of net worth to the capital stock we perform numerical simulations to study the interactions among changes in financial fragility industrial dynamics and the macroeconomic performance