nonmonetary effects of the financial crisis in propagation of the great depression this paper examines the effects of the financial crisis of the 1930s onthe path of aggregate output during that period our approach is complementary to that of friedman and schwartz who emphasized the monetary impact of the bank failures we focus on non monetary primarily credit related aspects of the financial sector output link and consider the problems of debtors as well as those of the banking system we argue that the financial disruptions of 1930 33 reduced the efficiency of the credit allocation process and that the resulting higher cost and reduced availability of credit acted to depress aggregate demand evidence suggests that effects of this type can help explain the unusual length and depth of the great depression this abstract was borrowed from another version of this item

collaborative replenishment in the presence of intermediaries in complex supply chains downstream buyers would often replenish individually from intermediaries instead of directly dealing with original manufacturers although collaborative replenishment from intermediaries might generate benefits significant cost reductions could be achieved when direct replenishments from manufacturers are considered this paper constructs a general model to study collaborative replenishment in multi product chains with alternative sources of supply i e manufacturers and intermediaries a collaborative organization determines the optimal choices of replenishment sources on behalf of its members to minimize collective costs we introduce a class of cooperative games associated with these situations and give sufficient conditions for their concavity we investigate the choice of allocation rule and its effect on supply chain efficiency when buyers strategically participate in the collaborative organization we prove that the shapley value coordinates the supply chain i e it makes complete participation the best strategy for buyers even under asymmetric information this setting is compared with an alternative structure where buyers can only collaborate in source specific replenishment organizations that purchase all requested products either from intermediaries or manufacturers although there are always participation strategies that result in minimum collective cost it is impossible to find allocation rules for source specific replenishment organizations that always motivate the buyers to choose such strategies

managing channel profits a channel of distribution consists of different channel members each having his own decision variables however each channel member s decisions do affect the other channel members profits and as a consequence actions a lack of coordination of these decisions can lead to undesirable consequences for example in the simple manufacturer retailer consumer channel uncoordinated and independent channel members decisions over margins result in a higher price paid by the consumer than if those decisions were coordinated in addition the ensuing suboptimal volume leads to lower profits for both the manufacturer and the retailer this paper explores the problems inherent in channel coordination we address the following questions what is the effect of channel coordination what causes a lack of coordination in the channel how difficult is it to achieve channel coordination what mechanisms exist which can achieve channel coordination what are the strengths and weaknesses of these mechanism what is the role of nonprice variables e g manufacturer advertising retailer shelf space in coordination does the lack of coordination affect normative implications from in store experimentation can quantity discounts be a coordination mechanism are some marketing practices actually disguised quantity discounts we review the literature and present a simple formulation illustrating the roots of the coordination problem we then derive the form of the quantity discount schedule that results in optimum channel profits this article was originally published in marketing science volume 2 issue 3 pages 239 272 in 1983

is relationship lending special evidence from credit file data in germany the german financial market is often characterized as a bank based system with strong bank customer relationships the corresponding notion of a housebank is closely related to the theoretical idea of relationship lending it is the objective of this paper to provide a direct comparison between housebanks and normal banks as to their credit policy therefore we analyze a new data set representing a random sample of borrowers drawn from the credit portfolios of five leading german banks over a period of five years we use credit file data rather than industry survey data and thus focus the analysis on information that is directly related to actual credit decisions in particular we use bank internal borrower rating data to evaluate borrower quality and the bank s own assessment of its housebank status to control for information intensive relationships the major results of our study support the view that housebanks are able to establish a distinct behavioral pattern consistent with the idea of long term commitment we find that housebanks do provide liquidity insurance in situations of unexpected deterioration of borrower ratings with respect to loan pricing we find no evidence for intra or intertemporal price differentiation related to housebanking

moral hazard and secured lending in an infinitely repeated credit market game we analyze repeated moral hazard with discounting in a competitive credit market with risk neutrality even without learning or risk aversion long term bank borrower relationships are welfare enhancing the main result is that the borrower obtains an infinite sequence of unsecured loans at below spot market cost following the first good project realization this contract produces first best action choices prior to this stage the borrower gets secured loans with above market borrowing cost the optimal contract thus displays a selective memory feature taking only one of two forms at any given point in time depending on prior history we consider an infinitely repeated bank borrower relationship with moral hazard and universal risk neutrality and explore the ramifications of credit contract duration when the two well known benefits of long term contracting learning and improved risk sharing are absent our objectives are twofold the first is to analyze an infinitely repeated game with discounting in a credit market context we thus relate the theory of repeated games to financial intermediation theory particularly to issues of moral hazard and collateral related distortions the second objective is to understand noteworthy stylized facts of credit markets such as durability in credit relationships lower borrowing costs for established borrowers and unsecured loans for established borrowers versus secured loans for newer borrowers while these practices may be partly due to learning we show that learning is not essential to rationalize them even if information decays rapidly and banks learn nothing about borrowers through time these aspects of credit contracting arise in a repeated game context our main results are as follows first despite universal risk neutrality and the absence of learning a durable bank relationship benefits the borrower 2 the intuition is that the long term contracting permitted by a durable relationship enables the bank to efficiently tax and subsidize the borrower through time to reduce the use of costly collateral second the average welfare loss due to moral hazard per period is positive even as the time horizon goes to infinity third the optimal infinite horizon contract has the striking property that following the period

collateral type of lender and relationship banking as determinants of credit risk abstract this paper analyses the determinants of the probability of default pd of bank loans we focus the discussion on the role of a limited set of variables collateral type of lender and bank borrower relationship while controlling for the other explanatory variables the study uses information on the more than three million loans entered into by spanish credit institutions over a complete business cycle 1988 2000 collected by the bank of spain s credit register central de informacion de riesgos we find that collateralised loans have a higher pd loans granted by savings banks are riskier and finally that a close bank borrower relationship increases the willingness to take more risk

discount pricing decisions in distribution channels with price sensitive demand abstract in this paper we evaluate the effectiveness of quantity discounts and volume discounts as coordination mechanisms in distribution channels with demand that is price sensitive we consider a single vendor single retailer distribution channel demand for the product arises only at the retailer the demand faced by the retailer is assumed to be deterministic but price elastic the retailer in turn buys the product from the vendor the vendor and the retailer act independently and rationally each maximizing their own respective profit the equilibrium point that specifies the vendor s and buyer s inventory and pricing policy is determined by the solution to a stackelberg game we consider the cases when quantity discount and volume discount respectively are offered we develop methods to determine the optimal discount policy for these cases we then consider the case where both volume and quantity discounts are offered simultaneously and develop a method to determine the optimal simultaneous discount offer the relative performance of the alternative discount schemes is then evaluated through a numerical study the results of the study demonstrate that the effectiveness of volume discount as a coordination mechanism is higher when the sensitivity of demand to price changes is higher the effectiveness of quantity discount on the other hand is higher with lower price sensitivity of demand finally the results also demonstrate that perfect coordination is achieved when volume and quantity discounts are offered simultaneously

multiplayer allocations in the presence of diminishing marginal contributions cooperative game analysis and applications in management science we use cooperative game theory to investigate multiplayer allocation problems under the almost diminishing marginal contributions admc property this property indicates that a player s marginal c

secured lending and default risk equilibrium analysis policy implications and empirical results the authors examine collateral in a competitive equilibrium in which borrowers can choose hidden actions and may additionally possess hidden knowledge apart from explaining the widespread use of collateral despite deadweight costs they show that an increase in the riskless interest rate causes equilibrium loan rates and collateral requirements to increase a decline in the deadweight costs of collateral reduces the equilibrium collateral use under moral hazard and an increase in the borrower s project size reduces equilibrium collateral use under moral hazard some of these predictions are tested and found to be supported by the data copyright 1991 by royal economic society

short term contracts and long term agency relationships abstract long term contracts are valuable only if optimal contracting requires commitment to a plan today that would not otherwise be adopted tomorrow we show that commitments are unnecessary and hence short term contracts are sufficient if 1 all public information can be used in contracting 2 the agent can acess a bank on equal terms with the principal 3 recontracting takes place with common knowledge about technology and preferences and 4 the frontier of expected utility payoffs generated by the set of incentive compatible contracts is downward sloping at all times

financial innovation new assets and the behavior of money demand abstract two fundamental changes in us banking regulations have affected the behavior of money demand m1 the first authorized checkable deposit accounts paying explicit interest rates the second allowed these rates to be market determined the theoretical literature does not directly address the impact of these events suggesting that they are primarily an empirical issue however the empirical literature has yet to agree on the impact of financial innovation on money demand for example several studies report an increase in the elasticity of money demand several others report a decline this paper uses a lancaster type choice model to analyze formally the expected impact of these two changes on the demand for money the model derives specific conditions under which i the demand for money increases as new assets are introduced and ii the impact of either the introduction of new assets or the elimination of interest rate restrictions on the elasticity of money demand

the management of near money in the miller orr model is not optimal the most prominent model of the transactions demand for money that incorporates the availability of more than one interest bearing asset is that of miller and orr 1968 this three asset model is an extension of their simpler two asset money bonds model in which money is managed as an inventory with the objective of minimizing holding and transactions costs the extended model is used in graduatelevel textbooks to show that a corporate money manager facing an array of assets will behave much like the manager faced with a choice between money and only one type of security so that the simple model is an adequate basis for modeling the demand for money 1 in empirical work a similar belief is reflected in implementations of the transactions model of money demand that utilize a broad definition of money as though transactions motives will induce a money manager to handle a spectrum of near money assets in the same way as the medium of exchange the miller orr model appears to support such interpretations because in its three asset version the interrnediate interest bearing asset is managed in a fashion similar to that of non interest bearing money but when miller and orr solve this extended version of their model they neglect the corner solution that would allow the manager to hold only the highest yielding asset in this note i show that when the corner solution is

quantity discounts managerial issues and research opportunities marketing managers frequently administer pricing policies involving substantial quantity discounts however our understanding of the precise role of these discounts and their design is quite limited this paper reviews and integrates the economics and marketing literature and presents a detailed analysis of the policies of four firms in order to i specify the variety of motivations for quantity discounts ii provide guidelines to managers in designing quantity discount schedules and iii set out the most fruitful directions for future research

the failure of the bank of united states a defense of joseph lucia note in a recent article in an economic history journal joseph l lucia 1985 reappraised the analysis by milton friedman and anna j schwartz 1963 of the failure of the bank of united states in december 1930 in their extraordinary reply friedman and schwartz 1986 question lucia s scientific integrity as well as the scientific standards of the journal in which lucia s article appeared their opening paragraph states

collateral and rationing sorting equilibria in monopolistic and competitive credit markets the authors examine how market structure affects credit allocation under universal risk neutrality and asymmetric information about borrowers they consider both monopolistic and perf ectly competitive banks and examine the role of collateral in each ca se when a bank is a monopolist on the loan side they find collatera l is never used and asymmetric information results in reduced bank le nding under perfect competition collateral has a useful sorting rol e moreover rationing is possible even with collateral availability and perfectly elastic deposit supply in this setting the authors sh ow co signers are valuable social welfare properties of the monopoly and competitive equilibria are also compared copyright 1987 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

formation of alliances in internet based supply exchanges in different industries such as automobiles chemicals or retailing competitors are joining forces in establishing electronic marketplaces to reduce inefficiencies in the purchasing process and cut costs by combining their buying power joining such an alliance leads to reduced costs including those of possible rivals because members share the development and operating costs a company that joins an alliance agrees to share its suppliers with others which may lead to more intense competition among the increased number of suppliers and it may further benefit an alliance member at the expense of companies left outside the alliance natural questions that could arise then are when would a firm prefer to take part in an electronic marketplace joint venture when would it prefer that other firms possibly rivals join the venture and what are the financial consequences of either joining an alliance or remaining independent in an attempt to gain a better understanding of the issues we have developed a model of three retailers whose products may have a certain degree of substitutability we provide some conditions in terms of product substitutability and compatibility of retailers that would lead to the formation of a three member alliance or a two member alliance or no alliance at all we also study the effect of alliance structure and compatibility of retailers on the profit of a company

dynamic microlending under adverse selection can it rival group lending we derive an optimal lending contract in a two period adverse selection model with limited commitment on the borrower side the contract involves penalty interest rates after default and favorable rates after success under some conditions it also charges first time borrowers higher rates than repeat borrowers as in relationship lending because the lender is constrained to keep borrowing attractive while using revealed information to price for risk we compare the efficiency of a group lending contract of the kind popularized by the microcredit movement to the dynamic individual contract both types of contracts reveal the same information but the contracts face different constraints on using the information to improve risk pricing as a result either type of contract can lead to greater efficiency depending on specifics of the environment opening the possibility that dynamic lending has played a role comparable to that of group lending in the success of microcredit we also characterize the optimal dynamic group contract when both lending techniques are feasible and find that it combines both approaches but with varying emphases a recurrent theme is that in more marginal environments dynamic lending performs relatively better than and is prioritized over group lending we also discuss a number of extensions including spatially and serially correlated risk and the effect of competition

motives behind purchasing consortia abstract although purchasing cooperation between independent companies has been practiced for a long time the phenomenon is not extensively researched especially purchasing consortiums formed by industrial companies have received relatively little attention in literature of the discipline in this paper the key results of the larger study concerning industrial consortium purchasing are presented the study was recently conducted and tested in finnish machine manufacturing industry the objective of this paper is to find out the motives behind purchasing consortia as foundations for the empirical study three theories explaining why companies form purchasing consortia are presented the results of the study indicate that two main reasons for the companies to cooperate on purchasing are the expected cost savings and the collection of information on supply markets

repeated insurance contracts and moral hazard abstract an attempt is made to account for the frequently observed phenomenon of insurance companies offering discounts to clients who possess a favorable record of past claims we argue that such discounts provide a mechanism which enables both insurer and insured to counteract the inefficiency which arises from moral hazard

on repeated moral hazard with discounting in this paper we analyze optimal contracts in an infinitely repeated agency model in which both the principal and agent discount the future we show that there is a stationary representation of the optimal contract when the agent s conditional discounted expected utility is used as a state variable this representation reduces the multi period problem to a static variational problem which can be analyzed using standard variational techniques this reduction is used to obtain several properties of the contract

unfair allocation of gains under the equal price allocation method in purchasing groups certain purchasing groups do not flourish a supposed reason for this is a creeping dissatisfaction among various members of a group with the allocation of the cooperative gains in this paper we analyze unfairness resulting from using the commonly used equal price ep method for allocating gains under the assumption of continuous quantity discounts we demonstrate that this unfairness is caused by neglecting a particular component of the added value of individual group members next we develop two fairness ratios and tie these to fairness properties from cooperative game theory the ratios show among other things that being too big a player in a purchasing group can lead to decreasing gains they can be used to assess if ep is an unfair method in specific situations finally we discuss measures a purchasing group could consider in order to attenuate perceived unfairness thereby the group may improve its stability and prosperity

managerial incentives and capital management the paper shows how career concerns rather than effort aversion can induce a natural incongruity in risk preferences between managers and superiors a model based on learning about managerial talent is developed to study second best contractual remedies we show that the optimal wage contract is an option of the value of the manager s human capital for insurance reasons and that consequently rationing of capital is often required to counterbalance the manager s resulting incentive to overinvest rationing is strictly superior to price decentralization offering one reason for the prevalence of centralized capital budgeting procedures

effect of the number of banking relationships on credit availability evidence from panel data of spanish small firms this paper investigates how the choice between single or multiple banking relationships affects credit availability for a complete panel of small and medium sized spanish firms the results seem to indicate the existence of rationing since a substitution relation has been found between trade and bank credit we also analyse the relationship between the level of indebtedness and the interest rate for each group of firms the results show that those smes that work with fewer financial intermediaries obtain fewer funds for the same increase in the interest rate which indicates that these companies have more financial restraints

incorporating quantity discounts and their inventory impacts into the centralized purchasing decision multi site organizations must balance conflicting forces to determine the appropriate degree of purchasing centralization for their respective supplies the ability to garner quantity discounts represents one of the primary reasons that organizations centralize procurement this paper provides methodologies to calculate optimal order quantities and compute total purchasing and inventory costs when products have quantity discount pricing procedures for both all units and incremental quantity discount schedules are provided for four different strategic purchasing configurations scenarios complete decentralization centralized pricing with decentralized purchasing centralized purchasing with local distribution and centralized purchasing and warehousing for ordering decisions under local distribution procedures to determine optimal order quantities and costs are presented in a precise form that could be easily implemented into spreadsheets by practicing managers for the more complicated multi echelon scenarios we introduce a single cycle policy with a tailored aggregation refinement step that performs very well under experimentation when compared to a conservative bound