markets for pollution control when firms are noncompliant the problem of noncompliance and enforcement in transferable discharge permit tdp markets has not received much attention this paper examines the consequences of noncompliance for a tdp market given fairly general assumptions about the characteristics of the enforcement policy in place the analysis reveals that when firms are noncompliant tdp markets retain their efficiency property only under some fairly stringent conditions the effect of noncompliance on the equilibrium permit price raises some important questions about the ability of a tdp market to achieve and remain in equilibrium when firms are noncompliant

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

market contagion evidence from the panics of 1854 and 1857 to test a model of contagion where individuals hear some bad news and communicate it to their acquaintances who then pass it on leading to a market panic requires a knowledge of the information networks of participants something hitherto unavailable for two panics in the 1850s this paper examines the behavior of irish depositors in a new york bank as recent immigrants their social network was determined largely by their place of origin in ireland and where they lived in new york during both panics this social network turns out to be the prime determinant of behavior

understanding bank runs the importance of depositor bank relationships and networks we use a unique new database to examine micro depositor level data for a bank that faced a run we use minute by minute depositor withdrawal data to understand the effectiveness of deposit insurance the role of social networks and the importance of bank depositor relationships in influencing depositor propensity to run we employ methods from the epidemiology literature which examine how diseases spread to estimate transmission probabilities of depositors running and the significant underlying factors we find that deposit insurance is only partially effective in preventing bank runs further our results suggest that social network effects are important but are mitigated by other factors in particular the length and depth of the bank depositor relationship depositors with longer relationships and those who have availed of loans from a bank are less likely to run during a crisis suggesting that cross selling acts not just as a revenue generator but also as a complementary insurance mechanism for the bank finally we find there are long term effects of a solvent bank run in that depositors who run do not return back to the bank our results help understand the underlying dynamics of bank runs and hold important policy implications

on the informational superiority of quantities over prices in the presence of an externality in this study we investigate the convexity of the profit function of a regulated firm with respect to the random shocks in the marginal costs and the demand intercept and its implications regarding information disclosure when these shocks are revealed to the firm at a future stage we illustrate that information disclosure is attained when the firm is regulated through the use of a quantity rather than a price instrument to do so we argue that increased convexity obtained under complete information is a sufficient condition as a policy implication we suggest a new argument which favors the use of quantities over prices these implications are more pronounced once we allow for multiple firms

commercial policy and the domestic carrying trade in this paper the authors examine the economic consequences of existing u s restrictions on trade in domestic water transportation cabotage services they briefly trace the history of u s policy on cabotage the authors also use an applied general equilibrium model of the united states to analyze the effects of the jones act on welfare and on production trade and employment in important upstream and downstream sectors the economic effects of u s maritime policies rank them with u s trade policies like the mfa the automobile and steel quotas of the mid 1980s and agricultural import restraints coauthors are hugh m arce kenneth a reinert and joseph e flynn

correlated uncertainty and policy instrument choice abstract for two decades environmental economists have generally maintained that benefit uncertainty is irrelevant for choosing between price and quantity instruments but that cost uncertainty matters with the identity of the efficient instrument depending upon the relative slopes of the marginal benefit and cost functions but in the presence of simultaneous correlated uncertainty such policy instrument recommendations may be inappropriate with plausible values of relevant parameters the conventional identification of a price instrument will be reversed to favor instead a quantity instrument the opposite reversal from the choice of a quantity instrument to a price instrument seems less likely to occur

cabotage sabotage the curious case of the jones act abstract this paper examines the economic implications of the jones act which restricts domestic waterborne shipments to american vessels since the passage of this cabotage law a century ago a plausibly exogenous rise in foreign competition has contributed to the closure of most american shipyards and to a decline in american built ships thus the jones act requirements have become more onerous over time the results show that domestic shipments are less likely to be transported via water than imports of the same good into the same state exploiting the decline in jones act eligible vessels over time additional results show that this cabotage law has disproportionately decreased domestic water trade especially in coastal states these findings support common but to date unverified claims that the jones act impedes domestic trade

bank commercial loan markets and the role of market structure evidence from surveys of commercial lending abstract this paper seeks to test two tenets that underlie the current practice of antitrust analysis in banking the first is the view that bank commercial loan markets are local in nature and the second is the view that banks in more concentrated markets are more likely to engage in some form of noncompetitive behavior tests of both of these tenets are conducted using an extensive set of loan specific survey information not previously employed to address these issues results consistent with the existence of local banking markets and the dominance of competitive differences as an explanation for observed differences in loan rates are found

regulating altruistic agents altruism or regard for others can encourage self restraint among generators of negative externalities thereby mitigating the externality problem we explore how introducing impure altruism into standard regulatory settings alters regulatory prescriptions the optimal calibration of both quantitative controls and externality taxes is affected it also leads to surprising results on the comparative performance of instruments under quantity based regulation welfare is increasing in the propensity for altruism in the population under price based regulation the relationship is non monotonic price based regulation is preferred when the population is either predominantly altruistic or predominantly selfish quantity based regulation is preferred for cases in between

services linkages and the value added content of trade services trade constitute roughly one third of trade on a value added basis and much of this is concentrated in margin services transport logistics linked to trade in goods however producer services are also part of the value added contained in traded goods this is especially true in high income countries where services account for roughly 70 percent of value added working with data a set of global social accounting matrices spanning intermittent years from 1992 to 2007 this paper examines the services embodied in trade on a value added basis this includes not only the direct and indirect contribution of services to value added contained in a given country s exports but also the extent to which third country value added in services through intermediate linkages of imported goods and services are also embodied in production and trade this exercise serves to highlight not only the importance of non tradables in trade but also by extension the importance that productivity foreign affiliates sales and trade and investment in services may hold for interdependence and cross border linkages

prices vs quantities the irrelevance of irreversibility we explore the efficacy of price and quantity controls in a dynamic setup in which the decisions of some agents are irreversible the assumption of irreversibility is shown to improve the performance of a tax relative to that of a system of tradable quotas and significantly alter the equilibrium behavior of agents we nevertheless conclude that taking into account the fact that agents decisions may be irreversible does not lead to policy implications significantly different from those reached in a simpler model in which irreversibility is ignored

distinguishing panics and information based bank runs welfare and policy implications in this paper we contrast panics and information based bank runs in an effort to provide a robust and empirically plausible model of how bank runs are triggered the model of information based runs is characterized by two sided asymmetric information the bank cannot observe the true liquidity needs of the depositors while depositors are asymmetrically informed about bank asset quality we also examine the relative degrees of risk sharing provided by bank deposit contracts and traded equity contracts we show that the choice of deposit or equity depends on the attributes of and information about the underlying investment returns

enforcement leverage when penalties are restricted in the united states empirical studies of the enforcement of continuous compliance with environmental regulations especially air and water pollution regulations have repeatedly demonstrated the following i for most sources the frequency of surveillance is quite low ii even when violations are discovered fines or other penalties are rarely assessed in most states iii sources are nonetheless thought to be in compliance a large part of the time the evidence for the apparently low level of enforcement activity is found in a number of case studies of state and local enforcement of air and water quality regulations conducted jointly by the environmental protection agency epa and council on environmental quality ceg together with periodic surveys of implementation of air and water quality legislation conducted by the general accounting office gao these surveys show

monopoly regulation under asymmetric information prices versus quantities we compare two instruments to regulate a monopoly that has private information about its demand or costs fixing either the price or quantity for each instrument we consider sophisticated screening and simple bunching mechanisms we characterize the optimal mechanisms and compare their welfare performance with unknown demand and increasing marginal costs the sophisticated price mechanism dominates that of quantity whereas the sophisticated quantity mechanism may prevail when marginal costs decrease the simple price mechanism dominates that of quantity when marginal costs decrease but the opposite may arise if marginal costs increase with unknown costs both instruments are equivalent

assessing the relative merits of development charges and transferable development rights in an uncertain world traditionally regulatory instruments have been used to achieve planning objectives however emerging market based policy instruments such as transferable development rights a quantity based app

bank runs as coordination failures an experimental study we use experimental methods to investigate what factors contribute to breakdowns in coordination among a bank s depositors subjects in our experiment decide whether to leave their money deposited in a bank or withdraw it early a bank run occurs when there are too many early withdrawals we explore the effects of adding uncertainty about fundamental withdrawal demand and of changing the number of opportunities subjects have to withdraw our results show that i bank runs are rare when fundamental withdrawal demand is known but occur frequently when it is stochastic and ii subjects are more likely to withdraw when given multiple opportunities to do so than when presented with a single decision for the multiple opportunity case we evaluate individual withdrawal decisions according to a set of simple cutoff rules we find that the cutoff rule corresponding to the payoff dominant equilibrium of the game which involves bayesian updating of probabilities explains subject behavior better than other rules

product differentiation and the treatment of foreign trade in computable general equilibrium models of small economies this paper examines the treatment of exports and imports and external closure rules adopted in recent single country computable general equilibrium models of small economies the paper presents a simple one sector analytic model which captures the major features of the multi sector counterpart used in applied models the paper derives graphical and algebraic solutions to the model and shows that unlike some earlier external closures this one gives rise to a well behaved price taking economy the model is also useful to illustrate the role of elasticities in popular trade theoretic models that include traded and non traded goods

credit reporting relationship banking and loan repayment how does information sharing between lenders affect borrowers repayment behavior we show in a laboratory credit market that information sharing increases repayment rates as borrowers anticipate that a good credit record improves their access to credit this incentive effect of information sharing is substantial when repayment is not third party enforceable and lending is dominated by one shot transactions if however repeat interaction between borrowers and lenders is feasible the incentive effect of credit reporting is negligible as bilateral banking relationships discipline borrowers information sharing nevertheless affects market outcome by weakening lenders ability to extract rents from relationships copyright 2007 the ohio state university

the determinants of attitudes towards strategic default on mortgages we use survey data to measure households propensity to default on mortgages even if they can afford to pay them strategic default when the value of the mortgage exceeds the value of the house the willingness to default increases in both the absolute and the relative size of the home equity shortfall our evidence suggests that this willingness is affected by both pecuniary and non pecuniary factors such as views about fairness and morality we also find that exposure to other people who strategically defaulted increases the propensity to default strategically because it conveys information about the probability of being sued

measuring strategic uncertainty in coordination games this paper proposes a method to measure strategic uncertainty by eliciting certainty equivalents analogous to measuring risk attitudes in lotteries we apply this method by conducting experiments on a class of one shot coordination games with strategic complementarities and choices between simple lotteries and sure payoff alternatives both framed in a similar way despite the multiplicity of equilibria in the coordination games aggregate behaviour is fairly predictable the pure or mixed nash equilibria cannot describe subjects behaviour we present two global games with private information about monetary payoffs and about risk aversion while previous literature treats the parameters of a global game as given we estimate them and show that both models describe observed behaviour well the global game selection for vanishing noise of private signals offers a good recommendation for actual players given the observed distribution of actions we also deduce subjective beliefs and compare them with objective probabilities

prices vs quantities the political perspective regulation regimes subject to the influence of interest groups are compared it is shown that the allocation of the regulated commodity varies with the implemented control and that the advantage of prices vs quotas increases with the elasticity of the demand for or the supply of the commodity and decreases with the number of organized producers in the regulated industry control regimes can be ranked for negative but not positive externalities finally a control regime leading to a more efficient commodity allocation also entails using fewer resources in rent seeking activities

the political economy of administered protection trade restrictions are hardly ever voted directly by congress though the threat of direct congressional action is frequently present pressure for protection is usually applied through the major instruments for the administrative regulation of imports the antidumping and countervailing duty procedures and the escape clause mechanism in this paper we will examine these instruments for the administrative regulation of imports the form of the paper is not novel a theory of how these mechanisms work is developed then operational implications of this theory are deduced and tested over the record of countervailing duty antidumping and escape clause cases decided from 1975 through 1979 this is the period over which the trade act of 1974 was in force because the nature of these mechanisms is relatively unfamiliar a relatively large amount of institutional information is provided

the role of demandable debt in structuring optimal banking arrangements demandable debt finance by banks warrants explanation because it entails costs of bank suspension liquidation and idle reserve holdings an explanation is developed in which demandable debt provides incentive compatible intermediation where the banker has comparative advantage in allocating investment funds but may act against the interests of uninformed depositors demandable debt attracts funds by giving depositors an option to force liquidation its usefulness in transacting follows from information sharing between monitors and nonmonitors copyright 1991 by american economic association

price versus quantity monitoring in an adverse selection context this article explores the relative usefulness of price information over quantity information the main finding is that price monitoring can induce a sales level that is greater than the full information sales level this imposes additional selling costs on the agent and reduces that agent s rents the analysis identifies sufficient conditions for the principal to prefer price monitoring over quantity monitoring business format franchises exhibit many of the features of the setting analyzed here and the article s findings have implications for designing information systems in that sector of the economy

welfare costs of the u s antidumping and countervailing duty laws abstract the antidumping ad and countervailing duty cvd laws in the united states have become the most pervasive form of import relief sought by domestic producers this paper estimates the collective economic effect of the hundreds of active u s ad cvd orders using a computable general equilibrium model we estimate that the collective net economic welfare cost in 1993 of these orders to be 4 billion this welfare estimate is sensitive to various modeling assumptions which are explored in the paper with the implementation of the uruguay round agreements the ad cvd laws remain one of the costliest programs restraining u s trade

on freezing depositor funds at financially distressed banks an experimental analysis this article reports an experiment conducted to evaluate the effects of alterations in the terms of repayments to depositors following a liquidity suspension as well as the effect of alterations in the publicity of information about withdrawal behavior on the fragility of distressed banks results indicate that a tough renegotiation stance of protecting depositors who maintain their money in the bank can quite effectively promote stability information provided to depositors regarding past withdrawal behavior weakens the effectiveness of a tough renegotiation policy but reduces fragility somewhat for a more lenient rescheduling condition

the willingness to pay willingness to accept gap a failed replication of plott and zeiler abstract the well known willingness to pay willingness to accept wtp wta gap refers to the observation that individuals attach a higher value to objects they own wta than to objects they do not own wtp we report on experiments to re investigate the possibility that the wtp wta gap arises from subject misconceptions due to experimental procedures as suggested by plott and zeiler 2005 the contribution of this paper is two fold first we attempt to replicate the findings by plott and zeiler that the wtp wta gap disappears when using procedures that are aimed at reducing misconceptions such as extensive training and practice rounds for the bdm mechanism however we fail to do so as the wtp wta gap persists in the main task where subjects state their wta or wtp for a mug second we use the paid practice rounds to identify subjects without apparent misconceptions and find that also for those subjects who never make dominated choices in the lottery tasks the wtp wta gap in the mug task exists thus we find no evidence of the idea that subject misconceptions are the main source of the wtp wta gap

assessing the benefits to developing countries of liberalisation in services trade this paper discusses the potential impacts of services trade liberalisation on developing countries and reviews existing quantitative studies its purpose is to distill themes from current literature rather than to advocate specific policy changes the picture emerging is one of valiant attempts to quantify in the presence of formidable analytical and data problems yielding only a clouded image of likely impacts on trade consumption production and welfare emerging to the point that the policy implications of results are not always clear a central intuition would seem to be that with genuine two sided oecd non oecd liberalisation in services that are seemingly considerably labour intensive in delivery the potential should be there for significant developing country gains from global liberalisation allowing full cross border delivery however this picture is neither fully endorsed by available studies neither is it explicitly contradicted this seems to be the case for a number of reasons one difficulty with the studies is that the conceptual underpinnings of what determines trade in services and how this trade differs analytically from that of trade in goods if at all is an issue prior to assessments of impacts of liberalisation of trade in services on developing countries being discussed key issues here are the treatment of mobility for service providers both firms and workers and the differing analytical structures needed to analyse individual service items banking insurance telecoms etc some recent analytical work suggests that liber alisation in some service items such as banking need not always yield gains and this contrasts with quantitative studies where analytical structures mirror conventional trade in goods treatments the discussion and measurement of barriers to service trade in both developed and developing countries is also problematic one is talking of domestic regulation entry barriers portability of providers competition policy regimes more so than only barriers at national borders as with tariffs both representing and quantifying such barriers raise major difficulties and these are also spelled out in the paper which barriers actually restrict trade and which do not because they are redundant is one issue for instance it is also often misleading to represent barriers in simple ad valorem equivalent form as a result numerical modelling work on the effects of service trade barriers which is based on ad valorem equivalent modelling is often not fully convincing in addition individual country results vary considerably across studies in ways that it is frequently hard for outsiders to understand studies do however point towards a tentative conclusion that effects are small and positive for developed and most developing countries if fdi flow changes accompanying service trade liberalisation are excluded from the analysis but much larger and more variable across countries if they are present this could be taken to suggest that mode 3 gats liberalisation roughly captured in some studies might be important for developing countries but mode 4 gats liberalisation could be even more important given large barriers to labour flows across countries thus if service trade liberalisation is thought of primarily as a surrogate for improved functioning of global factor markets in which more capital flows to developing countries and more labour flows from them to developed countries then developing countries could benefit in a major way from genuine two sided oecd non oecd liberalisation developing countries fear however that in global negotiations on services liberalisation where there is an asymmetry of power that largely one sided liberalisation may be the outcome and their gains will be correspondingly limited the paper concludes by evaluating econometric studies on linkage between services liberalisation and country growth rules and briefly discusses some key sectoral issues in health services and transportation

prices versus quantities with incomplete enforcement abstract i study whether incomplete enforcement of a regulation has any impact on the choice between price e g taxes and quantity e g tradeable quotas instruments results indicate that a second best design accounting for incomplete enforcement can be implemented equally well with either instrument as long as the benefit and cost curves are known with certainty if these curves are uncertain to the regulator however the quantity instrument performs relatively better than the price instrument the reason is that the effective amount of control under the quantity instrument is no longer fixed which makes this instrument come closer to a non linear instrument

public preferences for carbon tax attributes the impacts of climate change are already visible throughout the world recognizing the threats posed by climate change the durban platform the 17th session of the conference of parties cop 17 underscores that the global nature of climate change calls for the widest possible cooperation and ambitious action by all countries a crucial starting point for the design of effective and publicly acceptable policies is to explore public preferences for climate policy instruments using a choice experiment this study investigates public preferences for carbon tax attributes in a developing country context the results account for heterogeneity in preferences and show that turkish people prefer a carbon tax with a progressive cost distribution rather than one with a regressive cost distribution the private cost has a negative effect on the probability of choosing the tax earmarking carbon tax revenues increases the public acceptability of the tax moreover there is a preference for a carbon tax that promotes public awareness of climate change

truth or consequences enforcing pollution standards with self reporting abstract evidence suggests that a surprisingly large fraction of firms comply with pollution emission standards even though expected penalties for noncompliance are low we offer an explanation of this puzzle by extending the standard model of enforcement to include a self reporting requirement and enforcement power these extensions are enough to challenge the conventional result that higher fines lead to higher compliance rates we find that under plausible conditions higher compliance rates are achieved with lower fines for noncompliance and the cost of enforcing a given level of aggregate pollution is minimized by setting the fine for noncompliance equal to zero

panic bank runs we provide experimental evidence that panic bank runs occur in the absence of problems with fundamentals and coordination failures among depositors the two main culprits identified in the literature depositors withdraw when they observe that others do so even when theoretically they should not our findings suggest that panic also manifests itself in the beliefs of depositors who overestimate the probability that a bank run is underway loss aversion has a predictive power on panic behavior while risk or ambiguity aversion do not

welfare costs of u s quotas in textiles steel and autos this paper deals with the problems of partial equlibrium analysis by presenting estimates from a static ten sector computable general equilibrium cge model of the u s economy calibrated to the year 1984 following the introduction the paper is organized as follows section 2 outlines the model section 3 details the sources of estimates of premia on preexisting qrs quota rents in 1984 and the sources for the parameters describing demand and supply elasticities welfare and employment estimates of qr removal are presented by industry and in the aggregate in section 4 conclusions follow in section 5

coordination failures and the lender of last resort was bagehot right after all the classical doctrine of the lender of last resort lolr elaborated by bagehot 1873 asserts that the central bank should lend to illiquid but solvent banks under certain conditions several authors have argued that this view is now obsolete in modern interbank markets a solvent bank cannot be illiquid this paper provides a possible theoretical foundation for rescuing bagehot s view our theory does not rely on the multiplicity of equilibria that arises in classical models of bank runs we built a model of banks liquidity crises that possesses a unique bayesian equilibrium in this equilibrium there is a positive probability that a solvent bank cannot find liquidity assistance in the market we derive policy implications about banking regulation solvency and liquidity ratios and interventions of the lender of last resort furthermore we find that public bailout and private bail in involvement are complementary in implementing the incentive efficient solution and that bagehot s lender of last resort facility must work together with institutions providing prompt corrective action and orderly failure resolution finally we derive similar implications for an international lender of last resort ilolr jel g21 g28

should i default on my mortgage even if i can pay experimental evidence abstract we study strategic default in the laboratory i e in a controlled experiment subjects are initially endowed with a house and a mortgage we use neutral wording in the experiment and must decide at each period in which their mortgage is alive among three options making the mortgage payment selling the house or walking away from their house and defaulting on their mortgage at each point in time we can observe whether defaulters can afford to make the mortgage payment and thus directly compute the number of strategic defaulters subjects default in the right periods and quite fast learn what they should consume we find experimental support for the double trigger hypothesis individuals faced with low income and low house prices are more likely to default we observe that subjects default less than optimal and this decision is significantly affected by social norm concerns in the context of the experiment individuals under consume in the first periods of life they are cautious when indebted both introducing a 50 probability of recourse and a responsible homeowner reward are very effective in preventing default in the lab especially by individuals receiving a bad shock to income when house prices are low

an experimental exploration of self fulfilling banking panics their occurrence persistence and prevention this article tests the possibility and the degree of persistence of self fulfilling banking panics through an experimental protocol panics are proved to be persistent phenomena that are difficult to prevent however it seems possible to curb them through a learning effect caused by a temporary but sufficient suspension of the deposit availability combined with a narrow banking solution which makes banks more liquid additionally panic prevention requires a full deposit coverage to be effective this suggests that the moral hazard issue should not be tackled through a lower deposit coverage especially in emerging countries banking systems where depositors are likely to lose confidence

trade in producer services and returns due to specialization under monopolistic competition this paper demonstrates that liberalizing trade in services while yielding efficiency gains associated with comparative advantage may yield additional gains for both importing and exporting countries because of an increased division of labor a model is developed in which producer services coordinate and control the specialized members of complex production processes the model is used to analyze trade in services and its effect on the division of labor and the realization of returns from specialization this differs from the recent literature on traded services and specialization because of the explicit role introduced for services in the specialization process

strategic loan defaults and coordination an experimental analysis this paper experimentally studies the impact of bank and borrower fundamentals on loan repayment we find that solvent borrowers are more likely to default strategically when the bank s expected strength is low although loan repayment is a pareto dominant nash equilibrium borrowers are also less likely to repay when other borrowers expected repayment capacity is low regardless of banks fundamentals we show that changes in expectations about bank and borrower fundamentals change the risk dominance properties of the borrowers coordination problem and that these changes subsequently explain strategic defaults for the individual borrower loss aversion and negative past experiences reduce repayment suggesting that bank failure can be contagious in times of distress

interbank contagion at work evidence from a natural experiment this article tests financial contagion due to interbank linkages for identification we exploit an idiosyncratic sudden shock caused by a large bank failure in conjunction with detailed data on interbank exposures first we find robust evidence that higher interbank exposure to the failed bank leads to large deposit withdrawals second the magnitude of contagion is higher for banks with weaker fundamentals third interbank linkages among surviving banks further propagate the shock finally we find results suggesting that there are real economic effects these results suggest that interbank linkages act as an important channel of contagion and hold important policy implications jel g01 g21 g28 e58 since the onset of the financial turmoil increased uncertainty reflected particularly in counterparty risk has led banks to hoard liquidity this has resulted in a significant decline of trading in the interbank money markets jean claude trichet president of the european central bank december 2008

loss avoidance as selection principle evidence from simple stag hunt games abstract we investigate experimentally the conjecture that loss avoidance solves the tension in stag hunt games for which payoff dominance and risk dominance make conflicting predictions contrary to received textbook wisdom money losing outcomes do shift behavior albeit not strongly toward the payoff dominant equilibrium

optimal trading ratios for pollution permit markets abstract we demonstrate a novel method for improving the efficiency of pollution permit markets by optimizing the exchange of emissions through trade under full information it is optimal for emissions to exchange according to the ratio of marginal damages under asymmetric information we derive necessary conditions for the marginal damage trading ratios to be optimal illustrate that the marginal damage trading ratios are generally not optimal and show how to improve efficiency using optimal trading ratios we calculate the optimal trading ratios for a global carbon market the gains from using optimal trading ratios rather than marginal damage trading ratios range from substantial to trivial which suggests the need for careful consideration of asymmetric information when designing permit markets