money and capital abstract the effects of money anticipated inflation on capital formation is a classic issue in macroeconomics previous papers adopt reduced form approaches putting money in the utility function or imposing cash in advance but using otherwise frictionless models we follow instead a literature that tries to be explicit about the frictions making money essential this introduces new elements including a two sector structure with centralized and decentralized markets stochastic trading opportunities and bargaining these elements matter quantitatively and numerical results differ from findings in the reduced form literature the analysis also reduces a gap between microfounded monetary economics and mainstream macro

the optimal taxation of fiat money in search equilibrium this paper investigates the link between welfare and the taxation of money in the context of a general equilibrium search model where decentralized trading motivates the use of fiat money since buyers with money must invest effort or search intensity to contact sellers with goods a natural trading externality arises given a sufficiently productive economy search efforts will be too low relative to social efficiency this provides a welfare improving role for policies which tax money balances the nature of this role is explored and its implications for optimal monetary policy discussed copyright 1995 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

the distribution of money and prices in search equilibrium this article considers a search theoretic model of monetary exchange agents bargain over both the amount of money and the quantity of goods to be exchanged in bilateral meetings determining endogenously the distributions of money and of prices i show that money is neutral if changes in the money supply are accomplished via proportional transfers however within the class of lump sum transfers an increase of the rate of monetary expansion tends to decrease the dispersion of wealth and prices and to improve welfare when inflation is low but when inflation is high enough the opposite effects occur

currency competition a partial vindication of hayek abstract this paper establishes the existence of equilibria for environments in which outside money is issued competitively such equilibria are typically believed not to exist because of a classic overissue problem if money is valued in equilibrium an issuer produces money until its value is driven to zero by backward induction money cannot have value in the first place this paper shows that overissuance is not a problem if agents believe that if an issuer produces more than some threshold number of notes then only those notes issued up to the threshold will be valued additional notes will be worthless this result is very general applying to any monetary economy in which equilibria with and without valued money exist if the money supply is finite the paper also compares the allocation achieved by a monopolist to that achieved with competitive issuance in both a search and an overlapping generations environment the results depend on the environment considered but two general conclusions arise first it is ambiguous whether competitive issuers can achieve a more desirable allocation than a monopolist second with competitive issuance a licensing agency can always improve on pure laissez faire and achieve the efficient allocation in the long run

a search theoretic model of legal and illegal currency abstract using a search theoretic model of money we explore the conditions under which two currencies domestic and foreign will co exist despite legal restrictions on the use of foreign currency for internal trade we study how changes in government policy i e its enforcement of currency laws through fines or the rate of enforcement affects the acceptability of illegal currency the equilibrium value of both currencies and the implicit exchange rate first we construct a model with indivisible goods to show conditions under which legal currency is fully acceptable but illegal currency circulates with varying acceptability we then introduce bargaining to determine prices in legal and illegal currency we show that some enforcement polices can create multiple equilibria while others will not also some methods of enforcement are capable of driving the illegal currency out of circulation while others are not

choosy search and the mismatch of talents this article proposes a multi sector matching model where workers have symmetric sector specific skills and the search market is segmented by sector workers choose the range of markets they are willing to participate in i identify a composition externality workers do not take into account the impact of their choice on sector specific mean productivity among the pools of job seekers consequently workers prospect too many market segments and there is room for public policy even when the so called hosios condition holds

general equilibrium with nonconvexities and money in a general equilibrium economy with nonconvexities there are sunspot equilibria with good welfare properties sunspots can ameliorate the effects of the nonconvexities for these economies we show that agents act as if they have quasi linear utility functions we use this result to construct a new model of monetary exchange along the lines of lagos and wright where trade occurs in both centralized and decentralized markets but instead of quasi linear preferences we assume general preferences but with indivisible labor this suggests that modern monetary theory is more robust than one might have thought it also constitutes progress on the classic problem of integrating monetary economics and general equilibrium theory

on high inflation and the allocation of resources abstract this paper formalizes some of the disruptive effects of inflation on the organization of markets rapid inflation induces buyers to speed up purchases which thus inhibits the selection of more adequate trading partners through search this blurs distinctions across firms of different productivities and leads to resource misallocations as inflation causes efficient and inefficient firms to be less distinguishable the incentives to engage in cost reduction are dampened and lower growth results the model could provide a rationale for the large number of bankruptcies and large turnover rates following successful inflation stabilization programs like those of israel bolivia and argentina

money as the mechanism of exchange abstract the existence and use of money remained an embarrassing puzzle for monetary analysis we observe over man s history that social groups without generally accepted media of exchange exhibit poor survival characteristics most social groups do not use assets or commodities at random in the execution of exchanges one observes that a small subset of assets is dominantly used in transactions these transaction dominating assets are usually referred to as money the literature contains many suggestive attempts to explain the emergence and role of money the classic writers made passing references in somewhat pictorial language to the extension markets and increasing labor productivity induced by the use of a general medium of exchange this idea has never been systematically developed however karl brunner 1971

the innovative behavior of spanish enterprises and its impact on salaries our aim was to analyze the effects of firms innovative behavior on their employees salaries in the spanish manufacturing industry we found a premium in the wage paid by innovative firms regardless of size however when taking company size into account we found that the effect of innovations was greater in small medium enterprises sme contrary to what was expected the inferences of the models estimated suggest that the higher the market concentration the weaker the appropriability regime especially for smes however at the same time a firm s innovations reduce the impact of market concentration on wages making innovating firms more autonomous than non innovating ones even more to be able to innovate firms have to isolate their employees salaries from the product market these results hold regardless of firm s size but have a greater impact on the small medium group of firms finally our analysis backs the assumption that salaries in both large and small medium firms are generated by two distinct economic regimes supporting the proposition that an sme is not simply a scaled down large firm

a search theoretic approach to monetary economics the essential function of money is its role as a medium of exchange the authors formalize this idea using a search theoretic equilibrium model of the exchange process that captures the double coincidence of wants problem with pure barter one advantage of the framework described here is that it is very tractable the authors also show that the model can be used to addre ss some substantive issues in monetary economics including the potenti al welfare enhancing role of money the interaction between specializat ion and monetary exchange and the possibility of equilibria with multip le fiat currencies copyright 1993 by american economic association

dollarization and currency exchange abstract we use a dual currency money search model to study dollarization agents hold portfolios consisting of two currencies one of which is risky we use numerical methods to solve for the steady state distributions of currency portfolios transaction patterns and value functions as risk increases agents increasingly use the safe currency as a medium of exchange dollarization occurs furthermore the safe currency trades for multiple units of the risky currency this type of currency exchange and the corresponding nominal exchange rate are often observed in black market or unofficial currency exchange markets in developing countries due to decentralized trading a distribution of exchange rates arises whose mean and variance change in predictable ways when currency risk increases

the distribution of money balances and the nonneutrality of money recent monetary models with explicit microfoundations are made tractable by assuming that agents have access to centralized markets after one round of decentralized trade given quasi linear preferences this makes the distribution of money degenerate which keeps the models simple but precludes the discussion of distributional effects of monetary policy we generalize these models by assuming two rounds of trade before agents can readjust their money holdings to study a range of new distributional effects analytically we show that unexpected symmetric lump sum money injections may increase short run output and welfare whereas asymmetric injections may increase long run output and welfare

inflation output and welfare this paper studies the effects of anticipated inflation on aggregate output and welfare within a search theoretic framework we allow money holders to choose the intensities with which they search for trading partners so inflation affects the frequency of trade as well as the quantity of output produced in each trade we consider the standard pricing mechanism for search models i e ex post bargaining as well as a notion of competitive pricing if prices are bargained over the equilibrium is generically inefficient and an increase in inflation reduces buyers search intensities output and welfare if prices are posted and buyers can direct their search search intensities are increasing with inflation for low inflation rates and decreasing for high inflation rates the friedman rule achieves the first best allocation and inflation always reduces welfare even though it can have a positive effect on output for low inflation rates

the sopranos redux the empirical economics of waste crime almer c and goeschl t the sopranos redux the empirical economics of waste crime regional studies evidence for the argument that enforcement makes environmental policies effective is limited with respect to geography scope enforcement tools and regulatory context non us evidence on criminal enforcement of illegal waste disposal is examined using a panel dataset of 44 counties from the german state of baden wurttemberg for the period 1995 2005 the results support the pro enforcement argument cumulatively there is clear evidence for a general deterrence effect of enforcement intensity on the amount of waste crime however regional economic and political economy factors matter significantly for environmental outcomes violations appear to be treated differently depending on their local political economy context

alcohol availability and crime a robust approach the relationship between alcohol availability and crime is investigated in this study it first considers common parametric specifications that have been used in the literature after applying a powerful consistent conditional moment test for correct specification it is found that these common parametric specifications are rejected by the data the study then proceeds with a robust nonparametric method that can have a rate of convergence close to that for a correctly specified parametric model when the underlying relationship is somewhat linear the application of nonparametric methods reveals structure present in the data that would remain undetected when applying common parametric specifications but more importantly reveals that the impact of alcohol availability is considerably higher than one might believe on the basis of the misspecified parametric model it is also found that the marginal effect of alcohol availability on crime changes with the level of alcohol availability

inflation and welfare in retail markets prior production and imperfectly directed search this paper considers the effect of monetary policy and inflation on retail markets goods are dated and produced prior to being retailed buyers direct their search on price and general quality buyers match specific tastes are private information sellers set the same price for all buyers some of whom do not value the good highly enough to buy it the market economy is typically inefficient as a social planner would have the good consumed under free entry of sellers the friedman rule is optimal policy when the upper bound on the number of participating sellers binds moderate levels of inflation can be welfare improving

monetary policy and asset prices a mechanism design approach we investigate the eects of monetary policy on asset prices in economies where assets are traded periodically in over the counter otc markets with bilateral meetings between buyers and sellers the trading mechanism in pairwise meetings is designed to maximize social welfare taking as given the frictions in the environment e g lack of commitment and limited enforcement and monetary policy we show that asset price bubbles emerge in a constrained e cient monetary equilibrium only if liquidity is abundant and the rst best allocation is implementable in contrast if liquidity is scarce assets are priced at their fundamental value in any constrained e cient monetary equilibrium in which case an increase in in ation has no eect on asset prices but it reduces output and welfare finally for low in ation rates the bursting of an asset price bubble can be an optimal response to a shock that reduces assets resalability

generalized search theoretic models of monetary exchange abstract virtually all simple search models of money assume agents with money cannot produce and so everyone has either 0 or 1 units of money in steady state we alternatively assume agents can always produce and simply restrict money inventories to 0 or 1 this seems better for many issues for example in the standard model it is difficult to interpret increases in the money supply because increasing the fraction of agents holding money decreases the economy s productive capacity our model avoids these problems and thus delivers more natural and simpler implications in many contexts we compare results on existence multiplicity and welfare across models

inflation and welfare a search approach this paper extends recent findings in the search theoretic literature on monetary exchange regarding the welfare costs of inflation we present first estimates of the welfare cost of inflation using the welfare triangle methodology of bailey 1958 and lucas 2000 we then derive a money demand function from the search theoretic model of lagos and wright 2005 and we estimate it from u s data over the period 1900 2000 we show that the welfare cost of inflation predicted by the model accords with the welfare triangle measure when pricing mechanisms are such that buyers appropriate the social marginal benefit of their real balances for other mechanisms welfare triangles underestimate the true welfare cost of inflation because of a rent sharing externality we also point out other inefficiencies associated with noncompetitive pricing which matter for estimating the cost of inflation we then illustrate how endogenous participation decisions can mitigate or exacerbate the cost of inflaion and we provide calibrated examples in which a deviation from the friedman rule is optimal finally we discuss distributional effects of inflation

environmental crime and punishment empirical evidence from the german penal code u s and e u environmental policy employ criminal sanctions to enforce compliance recent moves toward revising their use are based on little empirical evidence as to their effectiveness this paper exploits a unique dataset to study the deterrent effect of criminal enforcement the dynamic panel data analysis leads to three findings first criminal sanctions do provide the intended deterrent effects second standing trial provides one of the most significant deterrents rather than the probability of conviction or the magnitude of fines third public preferences regarding environmental quality and political economy variables affect reported environmental crime

money in search equilibrium in competitive equilibrium and in competitive search equilibrium we compare three market structures for monetary economies bargaining search equilibrium price taking competitive equilibrium and price posting competitive search equilibrium we also extend work on the microfoundations of money by allowing a general matching technology and entry we study how equilibrium and the effects of policy depend on market structure under bargaining trade and entry are both inefficient and inflation implies first order welfare losses under price taking the friedman rule solves the first inefficiency but not the second and inflation may actually improve welfare under posting the friedman rule yields the first best and inflation implies second order welfare losses

toward a theory of international currency we use the framework of random matching games and develop a two country model of the world economy in which two national currencies compete and may be circulated as media of exchange there are multiple equilibria which differ in the areas of circulation of the two currencies in one equilibrium the two national currencies are circulated only locally in another one currency is circulated as an international currency there is also an equilibrium in which both currencies are accepted internationally we also find an equilibrium in which the two currencies are directly exchanged we first characterize the existence conditions of these equilibria in terms of the relative country size and the degree of economic integration and then use an evolutionary approach to equilibrium selection to explain the evolution of the international currency as the two economies become more integrated some welfare implications are also discussed for example a country can improve its national welfare by letting its own currency circulate internationally provided the domestic circulation is controlled for when the total supply is fixed however a resulting currency shortage may reduce the national welfare

inflation and dollarization in a dual currency search theoretic model abstract we examine the effect of an inflation tax in a dual currency economy where a weak domestic currency circulates alongside a strong foreign currency we show that in a domestic hyperinflation the foreign currency actually loses value but becomes the dominant medium of exchange

compensation for quality difference in a search model of money we study an economy in which there is always double coincidence of wants agents have perfect information about qualities of goods and there are no transaction costs the hold up problem arises because efforts invested in improving quality prior to search may not be compensated in the market situations in which barter fails to motivate quality improvement are identified with money however the extra effort in quality improvement will be compensated when high quality good producers trade with agents holding both the low quality good and money injection of money can induce almost all agents to produce the high quality good

money as a medium of exchange in an economy with artificially intelligent agents abstract we study the exchange economies of kiyotaki and wright 1989 in which agents must use a commodity or fiat money as a medium of exchange if trade is to occur our agents are artificially intelligent and are modeled as using classifier systems to make decisions in the assignment of credit within the classifier systems we introduce some innovations designed to study sequential decision problems in a multi agent environment for most economies that we have simulated trading and consumption patterns converge to a stationary nash equilibrium even if agents start with random rules in economies with multiple equilibria the only equilibrium that emerges in our simulations is the one in which goods with low storage costs play the role of medium of exchange i e the fundamental equilibrium of kiyotaki and wright

a fundamental theory of exchange rates and direct currency trades in this paper we construct a two country search model to determine the nominal exchange rate between two fiat monies our model allows agents to use any currency to trade for goods in all countries however search frictions restrict agents opportunities for instantaneous arbitrage and hence make the nominal exchange rate determinate the nominal exchange rate depends on the two countries economic fundamentals including the stocks and growth rates of the two monies direct exchanges between currencies are essential and they imply a nominal exchange rate that is different from the relative price between the two currencies in the goods markets there are persistent violations of the law of one price and purchasing power parity in equilibrium despite the fact that prices are perfectly flexible and all goods are tradeable between countries nominal and real exchange rates can move together in the steady state in response to money growth shocks

lack of recall and centralized monetary trade we introduce lack of recall of past transactions as an alternative assumption to anonymity in a model where trade is centralized in environments where there is an intertemporal lack of double coincidence of wants problem and lack ofcommitment lack of recall can give rise to monetary equilibria that dominate nonmonetary outcomes in terms of welfare

inflation and productive activity in a multiple matching model of money abstract this paper investigates the relationship between money growth inflation and productive activity in a dynamic general equilibrium multiple matching framework where trade frictions are manifested by limited consumption variety productive activity and matching in the goods market are endogenized by a time allocation decision of work and search effort we find that a high degree of complementarity between participation in the labor and goods markets creates a channel by which inflation can positively influence production and output this feature arises when household preferences for consumption variety is sufficiently large and it can also lead to the multiplicity of monetary equilibria

examining the link between crime and unemployment a time series analysis for canada we use national and regional canadian data to analyse the relationship between economic activity as reflected by the unemployment rate and crime rates given potential aggregation bias we disaggregate the crime data and look at the relationship between six different types of crimes rates and unemployment rate we also disaggregate the data by region we employ an error correction model in our analysis to test for short run and long run dynamics we find no evidence of long run relationship between crime and unemployment when we look at both disaggregation by type of crime and disaggregation by region lack of evidence of a long run relationship indicates we have no evidence of the motivation hypothesis for selected types of property crimes we find some evidence of a significant negative short run relationship between crime and unemployment lending support to the opportunity hypothesis inclusion of control variables in the panel analysis does not alter the findings qualitatively or quantitatively

aggregation bias in the economic model of crime this paper uses county level panel data to test the appropriateness of the one size fits all reduced form regression approach commonly used when estimating the economic model of crime empirical results provide initial evidence that previous studies which restrict deterrent effects to have identical impacts across crime types may be presenting statistically biased results

on the efficiency of monetary exchange how divisibility of money matters abstract we use alternative assumptions about the divisibility of goods and money and the ability of agents to use lotteries on money to investigate to what extent the indivisibility of money is the cause for the typically inefficient production and consumption decisions in search theoretic models of money our framework potentially generates three types of inefficiencies the no trade inefficiency where no trade takes place even though it would be socially efficient to trade and the too much trade and too little trade inefficiencies where the quantities produced and exchanged are either larger or smaller than what the solution to a social planner s problem would mandate it is shown that while the no trade and the too much trade inefficiencies are caused by the indivisibility of money the too little trade inefficiency remains even when money is divisible unless it is sufficiently valued

juvenile crime and punishment evidence from japan over the last decade juvenile crime has become a serious social problem in japan the juvenile law was revised in 2001 to impose harsher punishment on juvenile offenders this revision makes it possible to impose criminal punishment on 14 and 15 year old criminal offenders while those offenders aged 16 19 have always faced criminal punishment both before and after the revision using this revision as a natural experiment this study conducts a difference in differences estimation to examine the effect of punishment on juvenile crime the analysis provides evidence that punishment can deter juvenile crime in addition this research examines the criminal behaviour of 13 year olds who face no change in punishment but who soon will in the near future the results suggest that the revision also had a negative impact on the criminal behaviour of these younger offenders

does more mean worse three decades of enterprise policy in the tees valley this paper argues that there have been three distinct phases of enterprise policy in the uk in the past 30 years the 1970s saw no effective enterprise policy policy off the 1980s witnessed an attempt to increase the number of start ups and the 1990s saw a concentration on business quality this paper looks at how enterprise has evolved in cleveland tees valley over the past three decades it suggests and finds that businesses in the 1980s were more numerous but of lower quality even if the influence of unemployment is accounted for than those from the 1970s and 1990s this implies that we should be cautious about the value of policy attempts to increase business formation rates in areas such as cleveland tees valley

on the timing of production decisions in monetary economies in most macroeconomic models inflation tends to be harmful in this paper we show that by simply changing the timing of production decisions by firms from on demand to in advance some inflation can boost welfare as long as goods are sufficiently perishable the main conclusion from this research is that by effectively hiding the strategic interaction between supply and demand assuming production on demand is not without loss of generality

on money as a medium of exchange we analyze economies in which individuals specialize in consumption and production and meet randomly over time in a way that implies that trade must be bilateral and quid pro quo nash equilibria in trading strategies are characterized certain goods emerge endogenously as media of exchange or commodity money depending both on their intrinsic properties and on extrinsic beliefs there are also equilibria with genuine fiat currency circulating as the general medium of exchange we find that equilibria are not generally pareto optimal and that introducing fiat currency into a commodity money economy may unambiguously improve welfare velocity acceptability and liquidity are discussed

the evolution of monetary equilibrium abstract the hahn problem is that even if a monetary equilibrium with valued fiat money exists in general equilibrium a nonmonetary equilibrium with a zero price on money generally also exists why should we expect the former over the latter here i consider the preferences that will survive repeated trading in an exchange economy where agents compete in biological fitness with unobservable preferences and positive assortativity in matching evolutionarily stable preferences implement the competitive equilibrium that maximizes the sum of agents fitnesses in a standard bewley townsend model this implies selection of the monetary over the nonmonetary equilibrium and also implies the survival of agents with money in the utility function trust in fiat money is only a recent development and even today such faith is hardly universal cass and shell 1980

existence of steady states with positive consumption in the kiyotaki wright model we prove the general existence of steady states with positive consumption in an n goods and fiat money version of the kiyotaki wright model by admitting mixed strategies we also show that there always exists a steady state in which everyone accepts a least costly to store object in particular if fiat money is one such object then there always exists a monetary steady state we also establish some other properties of steady states and comment on the relationship between steady states and incentive feasible allocations

sorting versus screening search frictions and competing mechanisms in a market where sellers compete by posting trading mechanisms we allow for a general search technology and show that its features crucially affect the equilibrium mechanism price posting prevails when meetings are rival i e when a meeting by one buyer reduces another buyer s meeting probability under price posting buyers reveal their type by sorting ex ante only if the meeting technology is sufficiently non rival price posting is not an equilibrium multiple buyer types then visit the same sellers who screen ex post through auctions

a theory of a generally acceptable medium of exchange and barter abstract this paper develops a model that accounts both for the existence of money defined as a generally acceptable medium of exchange and for the survival of some barter exchange in economies in which money exists in contrast to jones 1976 seminal article in which individuals are restricted to fix trading strategies before entering the market the present model assumes that individuals have conditional trading strategies that allow them to effect exchange according to the types of trades they encounter in the market the analysis shows how decentralized market forces generate money and lead to a unique level of monetization

directed search coordination failure and seller profits an experimental comparison of posted pricing with single and multiple prices we experimentally examine posted pricing and directed search in one treatment capacity constrained sellers post fixed prices which buyers observe before choosing whom to visit in the other firms post both single buyer applied when one buyer visits and multibuyer when multiple buyers visit prices we find based on a 2 2 two buyers and two sellers market and a follow up experiment with 3 and 2 3 markets that multibuyer prices can be lower than single buyer prices or prices in the one price treatment also allowing the multibuyer price does not affect seller profits and increases market frictions

time inconsistency and the long run effects of inflation recent work by laibson 1997 identifies that individuals time discount factors evolve over time this leads to a time inconsistency problem in which savings are distorted this paper studies the long run effects of inflation in the presence of a time inconsistency problem

personal indebtedness spatial effects and crime there is a long and detailed history of attempts to understand what causes crime one of the most prominent strands of this literature has sought to better understand the relationship between economic conditions and crime an economic argument is that in an attempt to maintain consumption in the face of unemployment people may resort to sources of illicit income in a similar manner we might expect ex ante that increases in the level of personal indebtedness would be likely to provide similar incentives to engage in criminality in this paper we seek to understand the spatial pattern of property and theft crimes using a range of socioeconomic variables including data on the level of personal indebtedness

the determinants of employee crime in the uk we present evidence on employee theft in the uk using data on actual recorded crime in a model where employees are rational cheaters whose theft decisions may also be influenced by individual characteristics we produce hypotheses about the role of labour market deterrence and individual influences on employee theft we then examine the role of these influences using regional crime data supplemented by data from the uk labour force survey and the home office our results provide information on employee theft as a particular type of crime on policy that may help to combat it and on alternative views of the motivation for crime

a unified framework for monetary theory and policy analysis search theoretic models of monetary exchange are based on explicit descriptions of the frictions that make money essential however tractable versions of these models typically make strong assumptions that render them ill suited for monetary policy analysis we propose a new framework based on explicit micro foundations within which macro policy can be studied the framework is analytically tractable and easily quantifiable we calibrate the model to standard observations and use it to measure the cost of inflation we find that going from 10 percent to 0 percent inflation is worth between 3 and 5 percent of consumption much higher than previous estimates

decentralized international exchange traditional models of international trade take place within trading environments in which trade is coordinated by a walrasian auctioneer who instantly matches buyers and sellers in world markets this assertion seems inconsistent with evidence suggesting that trading arrangements seem to economize on transactions costs associated with international trade recognizing these insights we depart from standard models of international trade by incorporating the difficulties in the coordination of exchange within a two country random matching model of international trade we capture a motivation for trade through comparative advantage and interpret trade across economies to be associated with an agent s endogenous choice to participate in foreign markets although an individual may decide to search abroad to obtain additional gains from trade resulting from comparative advantage she is less likely to meet trading partners abroad as search frictions are higher in the foreign country than in the domestic market using this framework we show that international trade is associated with convergence in relative prices across countries we also show that the extent of market frictions in the foreign country affects relative prices the volume of international trade and welfare levels due to market participation externalities associated with international trade we show that a movement from autarky to free trade may actually lower welfare levels we conclude by examining the possible inefficiencies associated with international trade due to the decentralized nature of exchange and the policy implications of our model

income and the environment in rural india is there a poverty trap we study the relationships between rural income distributions and changes in environmental conditions in southern western and central india between 1994 95 and 2000 01 other than the relatively rich we find that all income strata benefit from an improved environment and intermediate expenditure households benefit more than the very poor in absolute terms higher median consumption expenditures and richness are estimated to increase environmental decline but we do not find a significant impact of income poverty on local environmental health the results do not support the poverty trap conjecture with environmental degradation driving expenditure reductions that promote offsetting aforestation which benefits the poor

rational expectations business cycles in search equilibrium we examine the rational expectations equilibrium paths of the model of search and barter in diamond s aggregate demand management in search equilibrium for some initial positions there are two equilibrium paths converging to different steady states with the high activity path pareto dominating the low activity path with some parameters there is also a continuum of equilibrium paths converging to another steady state moreover there can be cycles that are equilibrium paths even though the environment is stationary

a contribution to the pure theory of money abstract this article analyzes a general equilibrium model with search frictions and differentiated commodities because of the many differentiated commodities barter is difficult in that it requires a double coincidence of wants and this provides a medium of exchange role for fiat currency we prove the existence of equilibrium with valued fiat money and show it is robust to certain changes in the environment rate of return dominance liquidity and the welfare implications of fiat money are discussed

currency competition in a fundamental model of money abstract we study how two fiat monies one safe and one risky compete in a decentralized trading environment the currencies equilibrium values their transaction velocities and agents spending patterns are endogenously determined we derive conditions under which agents holding diversified currency portfolios spend the safe currency first and hold the risky one for later purchases we also examine when the reverse spending pattern is optimal traders generally favor dealing in the safe currency unless trade frictions and the currency risk is low as risk increases or trading becomes more difficult the transaction velocity and value of the safe money increases

a new suggestion for simplifying the theory of money we propose a new search theoretic model of monetary exchange with indivisible assets based on price posting instead of bargaining and incorporating noisy search this yields some familiar results plus a lot more the model admits multiple steady states due to the self referential nature of liquidity it admits cyclic chaotic and stochastic equilibria and compared to bargaining versions the dynamics are more general and have better microfoundations it generates price dispersion with interesting efficiency implications plus sticky prices and rational inattention parametric examples yield closed form solutions based on these results we suggest this should become a benchmark model in monetary economics

under reporting of r d in small firms the impact on international r d comparisons there is a widely recognised tendency for conventional measures of r d activity to under estimate the r d investments of small companies this arises due to small firms emphasis on developmental rather than fundamental research and because this activity is often informally organised international survey evidence suggests a greater degree of formality in the organisation of r d in german small firms this reduces the likely degree of under estimation of german small firms r d activity relative to that in the u k as a result aggregate r d figures may be under estimating the true level by 13 9 per cent in the u k and 2 4 per cent in germany this is equivalent to around half of the historical difference between aggregate levels of business r d in the u k and germany

dollar illiquidity and central bank swap arrangements during the global financial crisis abstract while the global financial crisis was centered in the united states it led to a surprising appreciation in the dollar suggesting global dollar illiquidity in response the federal reserve partnered with other central banks to inject dollars into the international financial system empirical studies of the success of these efforts have yielded mixed results in part because their timing is likely to be endogenous in this paper we examine the cross sectional impact of these interventions theory consistent with dollar appreciation in the crisis suggests that their impact should be greater for countries that have greater exposure to the united states through trade and financial channels less transparent holdings of dollar assets and greater illiquidity difficulties we examine these predictions for observed cross sectional changes in cds spreads using a new proxy for innovations in perceived changes in sovereign risk based upon google search data we find robust evidence that auctions of dollar assets by foreign central banks disproportionately benefited countries that were more exposed to the united states through either trade linkages or asset exposure we obtain weaker results for differences in asset transparency or illiquidity however several of the important announcements concerning the international swap programs disproportionately benefited countries exhibiting greater asset opaqueness

government transaction policy media of exchange and prices abstract we study government transaction policies in search theoretic models of money we model government as a subset of agents who are subject to the same random matching technology and other constraints as private agents but who behave in an exogenous way regarding which objects they accept in trade and at what price the objective is to see how these policies affect private agents strategies and hence the set of equilibria we analyze how the effects depend on factors like the size of government the intrinsic properties of money and the availability and efficacy of substitutes like barter or foreign currency journal of economic literature classification numbers c78 e31 e42

the transition from barter to fiat money how did it become possible to exchange apparently valueless pieces of paper for goods this paper provides an equilibrium account of the transition between barter and fiat money regimes the explanation relies on the intervention of a self interested government that must be able to promise credibly to limit the issue of money to achieve credibility the government must offset the benefits of seigniorage by internalizing some of the macroeconomic externalities generated by the issue of fiat money the government s patience and the extent of its involvement in the economy are key determinants of whether the transition can be accomplished copyright 1995 by american economic association

estimating the economic model of crime with panel data previous attempts at estimating the economic model of crime with aggregate data relied heavily on cross section econometric techniques and therefore do not control for unobserved heterogeneity this is even true of studies that estimated simultaneous equations models using a new panel data set of north carolina counties the authors exploit both single and simultaneous equations panel data estimators to address two sources of endogeneity unobserved heterogeneity and conventional simultaneity their results suggest that both labor market and criminal justice strategies are important in deterring crime but that the effectiveness of law enforcement incentives has been greatly overstated copyright 1994 by mit press

inflation and welfare in the steady state this is a paper on expected inflation and welfare in steady state equilibrium the demand for money is an inventory demand with an endogenous payment period the clower constraint is not imposed higher inflation reduces welfare by reducing consumption as people devote more of their real income to maintaining lower average money holdings high inflation does not necessarily promote an increase in the capital stock the mundell tobin effect is absent the policy conclusion is standard deflate at the rate of time preference because capital is held socially optimal consumption falls short of its golden rule level if inside money is allowed it drives out fiat money and welfare is again at a maximum

friedman meets hosios efficiency in search models of money this article studies optimal monetary policy in an economy with endogenous search decisions we show that the same frictions that give fiat money a positive value generate an inefficient quantity of goods in each trade and an inefficient number of trades the friedman rule eliminates the first inefficiency and the hosios rule the second a monetary equilibrium attains the social optimum if and only if both rules are satisfied when they cannot be satisfied simultaneously optimal monetary policy achieves only the second best we analyse the conditions under which the second best monetary policy exceeds the friedman rule

liquidity a new monetarist perspective this essay surveys the new monetarist approach to liquidity work in this literature strives for empirical and policy relevance plus rigorous foundations questions include what is liquidity is money essential in achieving desirable outcomes which objects can or should serve in this capacity when can asset prices differ from fundamentals what are the functions of commitment and collateral in credit markets how does money interact with credit and intermediation what can and should monetary policy do the research summarized emphasizes the micro structure of frictional transactions and studies how institutions like monetary exchange credit arrangements or intermediation facilitate the exchange process

why fiat money is a safe asset abstract this paper presents a model in which 1 fiat money has strictly positive value in the unique trembling hand equilibrium this holds as each bank note is both a a witness for the existence of some agent in the economy with debt backed by collateral and b the only matter that allows the debtor to settle her debt the fear to lose the collateral creates future money demand by the debtor and thereby ensures positive money value 2 money is a safe asset as not only a single but all debtors in the economy demand money so that idiosyncratic shocks to solvency wash out by this mechanism fiat money is essentially equivalent to large securitized pools of debt which 3 can establish the pooling allocation even if pooling itself is infeasible

capitalism and socialism a review of kornai s dynamism rivalry and the surplus economy understanding the nature of capitalism has been a central theme of economics the collapse of the eastern bloc and the global financial crisis spurred the reemergence of the political economy as a new frontier and the revival of interest in the nature of capitalism janos kornai s book dynamism rivalry and the surplus economy two essays on the nature of capitalism fills an important intellectual gap in understanding the dynamic nature of capitalism by comparing it with its mirror image socialism to further develop the themes contained in the book serious challenges are posed theoretically and empirically as well as in subjects such as hybrid capitalism