banking panics information and rational expectations equilibrium this paper shows that bank runs can be modeled as an equilibrium phenomenon we demonstrate that some aspects of the intuitive story that bank runs start with fears of insolvency of banks can be rigorously modeled if individuals observe long lines at the bank they correctly infer that there is a possibility that the bank is about to fail and precipitate a bank run however bank runs occur even when no one has any adverse information extra market constraints such as suspension of convertibility can prevent bank runs and result in superior allocations banking panics were a recurrent phenomenon in the united states until the 1930s they have re emerged as a source of public concern and much theoretical research recently in this paper we provide an information theoretic rationale for bank runs the traditional story is that contagion is an important aspect of bank runs the idea seems to be that when the general public observes large withdrawals from the banking system fears of insolvency grow resulting in even larger withdrawals of deposits in our model some individuals withdraw because they get information that future returns are likely to be low uninformed individuals observing this also have an incentive to liquidate their investments in addition some individuals need to withdraw deposits for other than informationally based reasons thus if the random realization of such a group of individuals is unusually large then the uninformed individuals will be misled and will precipitate a run on the bank the technology is such that a large volume of withdrawals involves liquidation costs consequently runs on the bank do impose social costs a mechanism that may reduce these costs in our model is to suspend convertibility if withdrawals are high however those individuals who need to withdraw their assets for liquidity reasons are worse off ex post our model provides a rationalization for restrictions in demand deposits that were widespread prior to 1929 friedman and schwartz 7 suggest that restrictions of payments ensured

voting in firms the role of agenda control size and voter homogeneity voting is a common feature of most firms unrestricted voting however can lead to unstable decision making the authors find that firms make trade offs among collective decision making production scale firm structure and voter characteristics that are consistent with efforts to economize on the costs of voting firm responses include agenda control restrictions to obtain a homogeneous voting population and limits on firm size the authors consider three long surviving producer cooperatives representing extreme cases of collective decision making and find that their organization is sensitive to the costs of voting and to the employment of mechanisms to constrain those costs copyright 1991 by oxford university press

patenting in the shadow of competitors this article empirically examines the patenting behavior of new biotechnology firms that have different litigation costs i show that firms with high litigation costs are less likely to patent in subclasses with many other awards particularly those of firms with low litigation costs this pattern is consistent with the literature on costly litigation which suggests that firms that have high litigation costs will take greater precautions to avoid litigation these results are robust to a variety of control variables and modifications that seek to test alternative explanations

interest rates and currency prices in a two country world abstract this paper is a theoretical study of the determination of prices interest rates and currency exchange rates set in an infinitely lived two country world which is subject both to stochastic endowment shocks and to monetary instability formulas are obtained for pricing all equity claims nominally denominated bonds and currencies and these formulas are related to earlier closely related results in the theories of money finance international trade

monetary stabilization and the informational value of monetary aggregates a simple stochastic model is developed which demonstrates that information on the nominal value of money conveys sufficient information about the disturbance to currency and deposit demand so that monetary prices such as adjusting the level of bank reserves have no impact on the dispersion of price level forecast errors however if information on monetary aggregates is obtained only with a lag then reserve requirements can reduce the disturbances to the demand for high powered money and hence prices such a reserve ratio depends critically on the variance covariance matrix of shocks to the monetary demands

what s different about banks abstract negotiable certificates of deposit cd s trade in the capital market in competition with other securities like commercial paper and bankers acceptances if cd s must pay lenders competitive monetary interest the reserve tax on cd s is borne by bank borrowers viability of the tax means there must be something special about bank loans that makes some borrowers willing to pay higher interest rates than those on other securities of equivalent risk moreover there must be something special about banks that prevents other intermediaries from competing to assure that it never pays to finance loans with cd s

the relative effectiveness of patents and secrecy for appropriation abstract changes in patent law global competition and the rise of several new technologies suggest that patents could be of greater value than secrecy for many innovative firms particularly small firms that are unable to use market power or other factors to appropriate their investments in innovation data from the 1993 european community innovation survey cis for up to 2849 r d performing firms is analysed to determine the relative importance of secrecy vs patents this particular combination of appropriation methods is interesting because secrecy can act as a mutually exclusive alternative to patents the results show that a higher percentage of firms in all size classes rate secrecy as more valuable than patents however ordered logit regressions show that the probability that a firm rates secrecy as more valuable than patents declines with an increase in firm size for product innovations while there is no relationship for process innovations the firm s r d intensity has no effect on the relative value of secrecy vs patents there is weak evidence to show that participation in cooperative r d increases the value of patents over secrecy for product innovations the results are relevant to ongoing debates over changes to the patent system and the need for policies to encourage small firms to patent more

the search for a stable money demand function a survey of the post 1973 literature phe question of whether the demnand function for money is stable is one of the most important recurring issues in the theory and application of macroeconomic policy what is being sought in a stable demand function is a set of necessary conditions for money to exert a predictable influence on the economy so that the central bank s control of the money supply can be a useful instrument of economic policy as such the notion of a stable demand function appears to involve three key elements e g john t boorman 1976 p 317 and david e w laidler 1977 pp 34 35 first the demand for money relation should be highly predictable in a statistical sense as measured by the usual goodness of fit statistics precision of estimated coefficients and presumably its ability to forecast accurately out of sample second a stable demand function for money has relatively few arguments a relationship that requires knowledge about a large number of variables in order to pin it down is in effect not predictable finally the variables that appear as arguments in the function should represent significant links to spending and economic activity in the real sector in sum a stable demand function for money means that the quantity of money is predictably related to a small set of key variables linking money to the real sector of the economy the importance of a stable money demand function for monetary policy can be illustrated with the standard is lm model in which interest rates and gnp are the endogenous variables in this context a stable demand function for money translates into a well defined relationship between money interest rates and gnp

optimal fiscal and monetary policy in an economy without capital abstract this paper is concerned with the structure and time consistency of optimal fiscal and monetary policy in an economy without capital in a dynamic context optimal taxation means distributing tax distortions over time in a welfare maximizing way for a barter economy our main finding is that with debt commitments of sufficiently rich maturity structure an optimal policy if one exists is time consistent in a monetary economy the idea of optimal taxation must be broadened to include an inflation tax and we find that time consistency does not carry over an optimal inflation tax requires commitment by rules in a sense that has no counterpart in the dynamic theory of ordinary excise taxes the reason time consistency fails in a monetary economy is that nominal assets should from a welfare maximizing point of view always be taxed away via an immediate inflation in a kind of capital levy this emerges as a new possibility when money is introduced into an economy without capital

financial intermediation and delegated monitoring this paper develops a theory of financial intermediation based on minimizing the cost of monitoring information which is useful for resolving incentive problems between borrowers and lenders it presents a characterization of the costs of providing incentives for delegated monitoring by a financial intermediary diversification within an intermediary serves to reduce these costs even in a risk neutral economy the paper presents some more general analysis of the effect of diversification on resolving incentive problems in the environment assumed in the model debt contracts with costly bankruptcy are shown to be optimal the analysis has implications for the portfolio structure and capital structure of intermediaries

money and asset prices in a cash in advance economy an asset pricing model with money introduced via a cash in advance constraint is presented the monetary velocity is variable hence money demand does not obey the trivial quantity equation the effects of disturbances in output and money growth on real balances the price level and interest rates are examined monetary policy has effects on real asset prices the fisher relation and the premium on nominal bonds are discussed the precise role of the timing of information and transactions for properties of price levels and interest rates are clarified

secrecy versus patenting we develop an equilibrium search model of innovation with the possibility of multiple independent discovery we distinguish innovations from ideas and we view patents as probabilistic property rights that are constrained by the innovators option to keep the innovation secret we find that the patent system can simultaneously stimulate innovation information disclosure and welfare an optimal patent may provide more or less protection than secrecy and in many cases it provides less suggesting that its main function is information spreading rather than rewarding the costs of the innovative activity

the case against patents evidence that they serve to increase innovation and productivity unless productivity is identifi ed with the number of patents awarded which as productivity is identifi ed with the number of patents awarded which as evidence shows has no correlation with measured productivity this disconnect is evidence shows has no correlation with measured productivity this disconnect is at the root of what is called the patent puzzle in spite of the enormous increase in at the root of what is called the patent puzzle in spite of the enormous increase in the number of patents and in the strength of their legal protection the us economy the number of patents and in the strength of their legal protection the us economy has seen neither a dramatic acceleration in the rate of technological progress nor a has seen neither a dramatic acceleration in the rate of technological progress nor a major increase in the levels of research and development expenditure major increase in the levels of research and development expenditure both theory and evidence suggest that while patents can have a partial equiboth theory and evidence suggest that while patents can have a partial equilibrium effect of improving incentives to invent the general equilibrium effect on librium effect of improving incentives to invent the general equilibrium effect on innovation can be negative the historical and international evidence suggests that innovation can be negative the historical and international evidence suggests that while weak patent systems may mildly increase innovation with limited side effects while weak patent systems may mildly increase innovation with limited side effects strong patent systems retard innovation with many negative side effects more generstrong patent systems retard innovation with many negative side effects more generally the initial eruption of innovations leading to the creation of a new industry from ally the initial eruption of innovations leading to the creation of a new industry from chemicals to cars from radio and television to personal computers and investment chemicals to cars from radio and television to personal computers and investment banking is seldom if ever born out of patent protection and is instead the fruit of a banking is seldom if ever born out of patent protection and is instead the fruit of a competitive environment it is only after the initial stage of rampant growth ends that competitive environment it is only after the initial stage of rampant growth ends that mature industries turn toward the legal protection of patents usually because their mature industries turn toward the legal protection of patents usually because their internal growth potential diminishes and they become more concentrated these internal growth potential diminishes and they become more concentrated these observations supported by a steadily increasing body of evidence are consistent with observations supported by a steadily increasing body of evidence are consistent with

reserve requirements and optimal seigniorage abstract this note presents a model of optimizing agents who chose to hold deposits at financial intermediaries which are required to hold fractional reserves of fiat money when the stock of fiat money is expanded the reserve requirement functions as a tax on deposits the combination of reserve requirements and inflation results in a lower steady state utility than a direct tax on deposits the optimal monetary policy when reserves are required is to minimize reserve requirements and inflate without limit the stock of fiat money

sticky goods prices flexible asset prices monopolistic competition and monetary policy a monetary general equilibrium asset pricing model with sticky goods prices is developed goods prices are set by monopolistically competitive firms that maximize stock market value equilibria with underutilization of resources excess capacity in some states result in contrast to previous monetary asset pricing models the degree of competition affects capacity utilization monetary policy can affect output and resource utilization in addition to real asset prices depending upon the amount of information available to the monetary authority

money and interest in a cash in advance economy the authors analyze an aggregative general equilibrium model in which the use of money is motivated by a cash in advance constraint applied to purchases of a subset of consumption goods the system is subject to both real and monetary shocks which are economy wide and observed by all they develop methods for verifying the existence of characterizing and explicitly calculating equilibria copyright 1987 by the econometric society

monetary policy and bank regulations in an economy with financial innovations this is a study of financial innovations and moves towards the cashless society in a general equilibrium cash in advance model it is assumed that a subset of goods cash goods and check goods

the patent paradox revisited an empirical study of patenting in the u s semiconductor industry 1979 1995 we examine the patenting behavior of firms in an industry characterized by rapid technological change and cumulative innovation recent survey evidence suggests that semiconductor firms do not rely heavily on patents to appropriate returns to r d yet the propensity of semiconductor firms to patent has risen dramatically since the mid1980s we explore this apparent paradox by conducting interviews with industry representatives and analyzing the patenting behavior of 95 u s semiconductor firms during 1979 1995 the results suggest that the 1980s strengthening of u s patent rights spawned patent portfolio races among capital intensive firms but it also facilitated entry by specialized design firms

the liquidity services of money this paper investigates the liquidity services provided by cash interest bearing check balances and securities which pay higher interest than checks securities must be traded before con sumers know their desired level or composition of consumption cash a nd checks are more liquid since they are available on demand cas h is more liquid than checks since it is more widely useable as a medium of exchange cash will often be used to buy goods which could be bought by check and the demand for cash will be less sensitive t han the demand for checks to the interest paid on check balances copyright 1988 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

r d spillovers patents and the incentives to innovate in japan and the united states national surveys of r d labs across the manufacturing sectors in the us and japan show that intraindustry r d knowledge flows and spillovers are greater in japan than in the us and the appropriability of rents due to innovation less patents in particular are observed to play a more central role in diffusing information across rivals in japan and appear to be a key reason for greater intraindustry r d spillovers there suggesting that patent policy can importantly affect information flows uses of patents differ between the two nations with strategic uses of patents particularly for negotiations being more common in japan

financial intermediation and price level control abstract because currency and deposits are not perfect substitutes in all transactions there are simplified financial systems in which control of the supply of currency is sufficient to control the price level most important in a currency supply approach price level control does not imply control of financial intermediation thus price level goals never have to be weighed against the availability of credit to finance real activity

nominal prices and interest rates in general equilibrium endowment shocks the outstanding problem of neoclassical monetary theory has been to determine the effect of changes in the money stock on nominal prices and interest rates the classic result is that in the absence of money illusion contracts fixed in nominal terms and other such impedimenta money is neutral thus a doubling of the money stock results in a doubling of the nominal price level and in no change in nominal interest rates except at most for a temporary liquidity effect while the price level is rising to its new level during the adjustment period the nominal interest rate might temporarily drop this neutrality result has conventionally been proved in a static framework in intertemporal models it is necessary to distinguish between static neutrality and dynamic neutrality if a model displays dynamic neutrality fluctuations in the money stock immediately induce a proportional change in the nominal price level and no change in nominal interest rates or any real variable this property is different from and stronger than static neutrality which in dynamic models states only that if the money stock at all dates is doubled so will be the price level at all dates the effects of exogenous shocks in the monetary growth rate on nominal prices and interest rates are analyzed a representative individual rational expectations framework is adopted and a demand for money is generated by entering money in the utility function the effects of monetary shocks on inflation and interest rates are shown to depend on the autocorrelation of the monetary growth rate for example under serial independence the inflation rate equals the monetary growth rate and the nominal interest rate is nonrandom while under positive negative autocorrelation the nominal interest rate is affected positively negatively by positive growth rate shocks i am grateful to the staff of the federal reserve bank of philadelphia to the finance groups at the university of southem california and virginia polytechnic institute and to c j lacivita dan peled john seater and jon sonstelie for valuable comments on earlier drafts

secrecy the patent puzzle and endogenous growth abstract endogenous growth models typically assume that innovations are protected solely by patents consequently they predict that strengthening patent protection stimulates innovation by increasing the private return to r d this contrasts with empirical evidence that 1 firms routinely employ a combination of patents and secrecy and 2 stronger patent regimes have been associated with increased patenting but not increased innovation a finding referred to as the patent puzzle in this paper i develop a novel model of endogenous growth that is consistent with this evidence successful innovators choose an appropriation strategy in the form of a patent secrecy mix both protection methods are imperfect and innovators face a trade off between secrecy s superior protection against imitation and patenting s protection against rival innovation i demonstrate that growth oriented policy changes generate important economic effects through their impact on the endogenous appropriation strategies of innovators

money and banking in a cash in advance economy this paper studies banking and financial innovations in a stochasti c general equilibrium model assuming the existence of two distinct types of goods cash goods which can only be purchased by cash and check goods which can also be purchased by checks drawn against interest bearing bank accounts the authors analyze the effects of changes in the payment s structure i e the share of check goods reserve requirements on banks and changes in the supply of reserves the authors find e g that an increased share of check goods and a decrease of the bank reserve ratio in general both lead to a decrease in the variance of the price level copyright 1988 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association