submarkets and the evolution of market structure we construct a model of industry evolution in which the central force for change is the creation and destruction of submarkets firms expand when they are able to exploit new opportunities that arrive in the form of submarkets they contract and ultimately exit when the submarkets in which they operate are destroyed this simple framework can transparently explain a wide range of well known regularities about industry dynamics most notably the subtle relationships between size age growth and survival data on the laser industry where submarkets are prominent further illustrate the ability of the model to explain distinctive patterns in the evolution of industries and firms

the federal funds rate and the channels of monetary transmission the authors show that the interest rate on federal funds is extremely informative about future movements of real macroeconomic variables then they argue that the reason for this forecasting success is that the funds rate sensitively records shocks to the supply of bank reserves that is the funds rate is a good indicator of monetary policy actions finally using innovations to the funds rate as a measure of changes in policy the authors present evidence consistent with the view that monetary policy works at least in part through credit i e bank loans as well as through money i e bank deposits copyright 1992 by american economic association

asymmetric price adjustment and economic fluctuations this paper considers a possible explanation for asymmetric adjustment of nominal prices the authors present a menu cost model in which positive trend inflation causes firms relative prices to decline automatically between price adjustments in this environment shocks that raise firms desired prices trigger larger price responses than shocks that lower desired prices the authors use this model of asymmetric adjustment to address three issues in macroeconomics the effects of aggregate demand the effects of sectoral shocks and the optimal rate of inflation copyright 1994 by royal economic society

asymmetric monetary policy empirical evidence for italy a growing body of empirical work has examined the potential asymmetry in the effects of monetary policy on united states real activity this study looks for such an empirical evidence for italy in the period 1982 1998 monetary shocks are obtained as residuals from a central bank reaction function where the three months interbank rate is taken as the indicator of the monetary policy stance the effects of these positive and negative shocks on output are statistically different from zero and the null of symmetry between the two is rejected in favour of negative shocks having a greater impact on real output growth thus confirming an asymmetric effect of monetary policy even for italy

learning theory and the logic of critical mass the oliver marwell theory of critical mass is a prominent solution to the free rider problem that plagues collective action in large groups i reformulate the theory as a stochastic learning model in which cooperative responses are shaped by the social sanctions and cues generated by the responses of others this relaxes four assumptions in the original formulation that the actors are rational decisions are isolated events outcomes are deterministic and public goods have pure jointness of supply and collective profit computer simulations then show how adaptive actors become trapped in a suboptimal equilibrium and how they escape through attainment of critical mass start up problems arise from accommodation to social costs and not from low returns to early contributors as previously believed simulations also identify a new dilemma of group size and show why solidarity tends to emerge in response to crisis finally normative solidarity appears to be a consequence rather than cause of critical mass but may promote recovery from random deviance

multimarket competition in banking with an example from the portuguese market abstract banks typically have more than one branch and their activities usually span over several markets this multilocational nature of banks generates equilibrium price dispersion the paper proposes a spatial competition model to explain price differences across banks in the deposits market the model allows to separate two different sources of observed market power collusion in the industry and product differentiation induced by location in local markets an application to portuguese commercial banking is reported as an illustration

modelling price competition across many markets an application to the spanish loans market abstract the purpose of this work is the structural modelling of price competition in a product differentiated industry in which many firms of varying size compete across many independent small markets with the target of identifying price behaviour we apply it to model competition among the more than 79 banks that were active in the spanish loans market during the period 1983 1991 using micropanel data a model in which national banks as opposed to regional and local banks fully internalize their cross rate effects in pricing is selected as the model that best fits the data our framework allows us to estimate the dead weight loss due to market power and to decompose it assessing the part attributable to price coordination

endogenous thresholds and tests for asymmetry in us prime rate movements abstract this paper tests the hypothesis that movements in the prime rate are dependent upon the interest rate regime we find that the responsiveness of prime to changes in the federal funds rate is relatively symmetric but that the speed of adjustment of prime is faster when there is a substantial deviation from the equilibrium relationship linking these rates these two results would confirm that lending markets are competitive in the us and that monetary policy actions are readily transmitted to lending rates

shared atm networks and banking competition abstract in this paper we study the incentives of banks to share their automatic teller machines atms when they are competitors in the market for deposits we construct a stylized model of banking competition which emphasises the distinctive features of atm compatibility we find that in equilibrium either a strict subset of banks share their atms or total incompatibility prevails we also derive the implications for atm compatibility of withdrawal fees interchange bank fees entry and depositor switching costs finally we investigate the normative implications of our model and draw some policy conclusions

a theory of the critical mass i interdependence group heterogeneity and the production of collective action collective action usually depends on a critical mass that behaves differently from typical group members sometimes the critical mass provides some level of the good for others who do nothing wh

herd behaviour by japanese banks after financial deregulation this paper investigates whether japanese banks followed herd behaviour during the 1980s and 1990s the results indicate the existence of herding during the sample period while the inefficiency of herding is concentrated in the early to mid 1980s the period immediately after financial deregulation began evidence for the inefficient herding is observed in the behaviour of banks that made loans to new borrowers and in the behaviour of banks that followed the type of banks that were more informed on lending to new borrowers on the other hand inefficient herd behaviour is rarely observed in the 1990s

comments on arrow and on lucas such a number of interesting and provocative things are put forward in lucas and in arrow in this issue that i would like to be able to dissect them in detail for example lucas states that the problem of controlling inflation has been successfully solved in a scientific sense p s405 i am tempted to explore the limits of the set of problems that might be said to be scientifically solved in the lucas sense but i fear that this would take up a good deal of space arrow deplores the use of homogeneity assumptions as a device for adding content to otherwise inconclusive economic theories but presumably he does not believe that the sonnenschien mantel debreu theorem is the ultimate conclusion regarding the useful content of the propositions of general equilibrium theory some restrictions of intermediate strength are presumably called for and i would like to make the case that strong empirical generalizations about the nature of human actors such as those describing the biological requirements for survival are available and relevant in this connection this too would take some space to develop in detail though not as much as the first subject given the constraints i must choose a focus i will focus on what i take to be the main message that lucas has put forward regarding the relationship between adaptive behavior and the rationality assumptions employed in standard economic theory this message is recognizable as the intellectual descendant of similar discussions by friedman and machlup in the 1940s and 1950s and the ideas involved remain extremely influential in the discipline today i will present and comment on my own statement of this position which i following blaug 1980 will call the classic defense of the rationality as

on the asymmetric effects of money supply shocks international evidence from a panel of oecd countries we examine whether the asymmetric effect of money on output is an international phenomenon and investigate the reasons for this asymmetry quarterly data from the 1963 93 period for a panel of twelve oecd countries strongly support asymmetry internationally negative money supply shocks are shown to have a stronger effect on output than positive shocks our methodology also enables us to distinguish between two sets of theories consistent with the output asymmetries a convex aggregate supply and a credit view we find that the effects of money on prices are generally symmetric which may be consistent with both sets of theories being operative at once

learning to cooperate stochastic and tacit collusion in social exchange the prisoner s dilemma formalizes the social trap that arises when individually rational choices aggregate with mutually undesirable consequences the game theoretic solution centers on the opportunity for tacit collusion in repeated play however not all actors grasp the strategic implications of future interaction accordingly this study reformulates the game as a stochastic learning model in which the behavior of interdependent actors is constinually shaped by sanctions and cues generated by their interaction computer simulations of a two person game show that adaptive actors are led into a social trap more readily than are fully rational actors but they are also better at finding their way out prosocial norms appear to be a consequence rather than cause of cooperation but useful in promoting forgiveness of random deviance the model is then elaborated as an n way prisoner s dilemma simulations show how the effects of network size density mobility and anonymity derive from a fundamental princi

exit voice dynamics in collective action an analysis of emigration and protest in the east german revolution1 what triggers protest in a highly repressive regime do opportunities to exit an unfavorable regime through flight spur collective action aimed to reform or replace it drawing on hirschman s microeconomic theory of exit and voice as responses to organizational decline this article offers a sociological theory of exit voice dynamics that considers the implications of social embeddedness for collective action a unique data set on migration and protest in the east german revolution of 1989 90 is used to analyze county level variations in exit and voice alongside indicators of political loyalty social movement organization and social and economic conditions the analysis finds strong support for the reformulated exit voice model and its prediction of an inverted documentclass aastex usepackage amsbsy usepackage amsfonts usepackage amssymb usepackage bm usepackage mathrsfs usepackage pifont usepackage stmaryrd usepackage textcomp usepackage portland xspace usepackage amsmath amsxtra

chains of cooperation threshold effects in collective action granovetter s threshold model of collective action shows how each new participant triggers others until the chain reaction reaches a gap in the distribution of thresholds hence outcomes depend on the network of social ties that channel the chain reactions however structural analysis is encumbered by the assumption that thresholds derive from changing marginal returns on investments in public goods a learning theoretic specification imposes less stringent assumptions about the rationality of the actors and is much better suited to a structural analysis computer simulations suggest that threshold effects may be the key to solving the coordination problem when individual choices are contingent on participation by others this interdependence facilitates the coordination of contributions needed to shift the bistable system from a noncooperative equilibrium to a cooperative one further simulations with low density networks show that these chain reactions require bridges that link socially distant actors supporting granovetter s case for the strength of weak ties

the asymmetric effects of monetary shocks the case of turkey this paper examines whether there is an asymmetry in the effects of positive versus negative and small versus big money supply shocks and whether the effects of the shocks on output and prices vary over the business cycles in the case of turkey negative shocks to money are found to have greater output and smaller price effects compared to the effects of positive shocks irrespective of the initial state of the economy it is also found that monetary shocks of different size affect output growth and inflation rates proportionately these findings can be interpreted as evidence for the view that the short run aggragate supply curve is convex in such a country like turkey

the paradox of group size in collective action a theory of the critical mass ii many sociologists incorrectly believe that larger groups are less likely to support collective action than smaller ones the effect of group size infact depends on costs if the costs of collective goods rise with the number who share in them larger groups act less frequently than smaller ones if the costs vary little with group size larger groups should exhibit more collective action than smaller ones because larger groups have more resources and are more likely to have a critical mass of highly interested and resourceful actors the positive effects of group size increase with group heterogeneity and nonrandom social ties paradoxically when groups are hetero geneous fewer contributors may be needed to provide a good to larger groups making collective action less complex and less expensive

spatial competition in the banking system localization cross subsidies and the regulation of deposit rates abstract the paper analyses a spatial competition model of the banking sector banks offer two kind of services deposits and credit and can either borrow or lend on the money market we investigate the consequences of the regulation of rates paid on deposits the main conclusions are as follows regulation first increases network size beyond social optimum in the long run it results in lower equilibrium credit rates because of increased competition secondly regulation generates tied sales contracts by which banks propose bundles of credit and deposit services tied sales in turn motivate the introduction of cross subsidies between the two activities the rent levied upon regulated deposits financing lower rates in the credit market finally it is shown that in a regulated environment the effectiveness of monetary policy is reduced in the sense that fluctuations of money market rates are less than fully transmitted in credit rates

rationality of self and others in an economic system in this paper i want to disentangle some of the senses in which the hypothesis of rationality is used in economic theory in particular i want to stress that rationality is not a property of the individual alone although it is usually presented that way rather it gathers not only its force but also its very meaning from the social context in which it is embedded it is most plausible under very ideal conditions when these conditions cease to hold the rationality assumptions become strained and possibly even self contradictory they certainly imply an ability at information processing and calculation that is far beyond the feasible and that cannot well be justified as the result of learning and adaptation let me dismiss a point of view that is perhaps not always articulated but seems implicit in many writings it seems to be asserted that a theory of the economy must be based on rationality as a matter of principle otherwise there can be no theory this position has even been maintained by some who accept that economic behavior is not completely rational john stuart mill 1909 bk 2 ch 4 argued that custom not competition governs much of the economic world but he adds that the only possible theory is that standard economic doctrine makes assumptions of rationality that have very strong implications for the complexity of individuals decision processes the most complete assumptions of competitive general equilibrium theory require that all future and contingent prices exist and be known in fact of course not all these markets exist the incompleteness of markets has several side consequences for rationality for one thing each decision maker has to have a model that predicts the future spot prices this is an informational burden of an entirely different magnitude than simply optimizing at known prices it involves all the complexity of rational analysis of data and contradicts the much praised informational economy of the price system it is also the case that equilibria become much less well defined similar problems occur with imperfect competition this research was supported by the office of naval research grant onr n00014 79 c 0685 at the center for research in organizational efficiency institute for mathematical studies in the social sciences stanford university stanford california

the independent submarkets model an application to the spanish retail banking market abstract the aim of this paper is to test the predictions of sutton s independent submarkets model with data on the spanish retail banking market the prediction of this model for aggregates of submarkets is that the form of equilibrium outcome must involve some minimal degree of size inequality however within each submarket when three conditions hold the only form of equilibrium outcome will be an extreme fragmented structure to test these predictions firstly i propose methods to identify independent submarkets then i analyze the degree of inequality in bank sizes for markets with different levels of aggregation submarkets regions and national market using concentration by towns data i find that in single submarket towns the degree of inequality of the size among banks is zero moreover multimarket towns with a significant degree of concentration are shown to be formed by a different number of independent submarkets where each bank owns one branch nonetheless when the regional and the national bank markets are considered the degree of inequality in bank sizes becomes high these results are consistent with the predictions of the theoretical model

social networks and collective action a theory of the critical mass iii most analyses of collective action agree that overcoming the freerider problem requires organizing potential contributors thus making their decisions interdependent the potential for organizing depends on the social ties in the group particularly on the overall density or frequency of ties on the extent to which they are centralized in a few individuals and on the costs of communicating and coordinating actions through these ties mathematical analysis and computer simulations extend a formal microsocial theory of interdependent collective action to treat social networks and organization costs as expected the overall density of social ties in a group improves its prospects for collective action more significant because less expected are the findings that show that the centralization of network ties always has a positive effect on collective action and that the negative effect of costs on collective action declines as the group s resource or interest heterogeneity increases these nonobvious resu

latent submarket dynamics and industry evolution lessons from the us laser industry in its first 35 years the us laser industry was characterized by steady growth in output and the number of producers whereas subsequently the number of producers steadily declined despite continued growth in the industry s output a model of industry evolution that features the creation destruction and fusing of independent submarkets is developed to explain these two eras data on all laser producers are used to test various implications of the model concerning entry exit and innovation the findings suggest that the emergence of an integrative submarket can fundamentally alter an industry s market structure and the character of innovation which is applied to explain historical developments in the evolution of various innovative industries

does anticipated monetary policy matter an econometric investigation a heated debate has arisen over the policy ineffectiveness proposition associate with the work of lucas sargent and wallace it postulates that anticipated aggregate demand policy will have no effect on business cycle fluctuations so that one deterministic feedback policy rule is as good as any other from the point of view of stabilizing the economy this paper develops a methodology for empirically analyzing rational expectations models displaying this neutrality result and then applies it to the important question of whether anticipated monetary policy matters to the business cycle

when does one bad apple spoil the barrel an evolutionary analysis of collective action this paper studies collective action games in which the production of a public good requires teamwork a leading example is a threshold game in which provision requires the voluntary participation of m out of n players quantal response strategy revisions allow play to move between equilibria in which a team successfully provides and an equilibrium in which the collective action fails a full characterization of long run play reveals the determinants of success these include the correlation between players costs of provision and their valuations for the good the addition of an extra bad apple player can spoil the barrel by destabilizing successful teams and so offers a rationale for limiting the pool of possible contributors copyright 2008 wiley blackwell

asymmetric effects of positive and negative money supply shocks this paper examines whether positive and negative money supply shocks have symmetric effects on output the results are consistent with the hypothesis that positive money supply shocks do not have an effect on output while negative money supply shocks do have an effect on output this finding is independent of whether or not expected money is assumed to affect output the results reported in this paper imply that the fed could increase the growth rate of real output by reducing the standard deviation of unexpected changes in the money supply

firm size distribution testing the independent submarkets model in the italian motor insurance industry this paper tests the presence of multiple independent submarkets in the italian motor insurance industry independence is motivated by administrative boundaries among provinces and by further locational reasons we find that the independence effects are sufficient to induce a minimum degree of inequality in the size distribution of firms once submarkets are aggregated these results are fully consistent with the predictions of sutton 1998 we also show that the degree of skewness in the firms size distribution is related to characteristics such as the population living in an area its density and the riskiness of a submarket