bank runs liquidity costs and investment distortions abstract in this paper we extend the diamond and dybvig 1983 model of intermediation to study further the conditions under which bank runs can occur and to consider how private parties might adjust to the existence of bank run equilibria we provide weaker necessary conditions for runs we then characterize how banks respond to the possibility of runs in their design of deposit contracts and investment decisions banks might choose to offer contracts that prevent runs but under some conditions the second best contracts will involve accepting some risk of runs in order to achieve higher expected returns from their investments

implementing efficient allocations in a model of financial intermediation abstract in a finite trader version of the diamond and dybvig j polit econ 91 1983 401 model the ex ante efficient allocation is implementable by a direct mechanism i e each trader announces the type of his own ex post preference in which truthful revelation is the strictly dominant strategy for each trader when the model is modified by formalizing the sequential service constraint cf wallace fed reserve bank minneapolis quart rev 12 1988 3 the truth telling equilibrium implements the symmetric ex ante efficient allocation with respect to iterated elimination of strictly dominated strategies

distribution of research gains in multistage production systems research irrespective of the incidence of the levy and benefits no longer is valid we have no disagreement with this important observation but we are concerned about the lack of reliable estimates of the elasticity of substitution building on muth s analysis for which we suggest some changes we explore further the sensitivity of the effects of the distribution of benefits of research to different ways in which research can impact on a multistage production system and to the effects of the elasticities

bank runs and investment decisions revisited we examine how the possibility of a bank run affects the deposit contract offered and the investment decisions made by a competitive bank cooper and ross 1998 have shown that when the probability of a run is small the bank will offer a contract that admits a bank run equilibrium we show that in this case the bank will chose to hold an amount of liquid reserves exactly equal to what withdrawal demand will be if a run does not occur in other words precautionary or excess liquidity will not be held this result allows us to determine how the possibility of a bank run affects the level of illiquid investment chosen by a bank we show that when the cost of liquidating investment early is high the level of investment is decreasing in the probability of a run however when liquidation costs are moderate the level of investment is actually increasing in the probability of a run

bank risk taking securitization supervision and low interest rates evidence from the euro area and the u s lending standards using a unique dataset of the euro area and the u s bank lending standards we find that low monetary policy short term interest rates soften standards for household and corporate loans this softening especially for mortgages is amplified by securitization activity weak supervision for bank capital and low monetary policy rates for an extended period conversely low long term interest rates do not soften lending standards finally countries with softer lending standards before the crisis related to negative taylor rule residuals experienced a worse economic performance afterward these results help shed light on the origins of the crisis and have important policy implications the author 2011 published by oxford university press on behalf of the society for financial studies all rights reserved for permissions please e mail journals permissions oup com oxford university press

on the existence of sunspot equilibria in an overlapping generations model abstract the existence of sunspot equilibria is shown in a one commodity overlapping generations model without stationarity assumptions on preferences endowments or nominal taxes the essential assumption is that there is a continuum of perfect foresight equilibria the technique is also useful for constructing stationary sunspot equilibria when they exist consumption in a sunspot equilibrium is shown to lie within the range consistent with perfect foresight

bank runs and institutions the perils of intervention we study ex post efficient policy responses to a run on the banking system and the ex ante incentives these responses create we show that the efficient response to a run is typically not to freeze all remaining deposits since doing so imposes heavy costs on some individuals instead once a run is underway benevolent government institutions would allow additional deposit withdrawals placing further strain on the banking system when depositors anticipate these extra withdrawals their incentive to participate in the run increases in fact ex post efficient interventions can generate the conditions necessary for a self fulfilling run to occur jel g21 g8

a model of housing and credit cycles with imperfect market knowledge abstract the paper presents a model of housing and credit cycles featuring distorted beliefs and comovement and mutual reinforcement between house price expectations and price developments via credit expansion contraction positive negative development in house prices fuels optimism pessimism and credit expansion contraction which in turn boost dampen housing demand and house prices and reinforce agents optimism pessimism bayesian learning about house prices can endogenously generate self reinforcing booms and busts in house prices and significantly strengthen the role of collateral constraints in aggregate fluctuations the model can quantitatively account for the 2001 2008 u s boom bust cycle in house prices and associated household debt and consumption dynamics it also demonstrates that allowing for imperfect knowledge of agents a higher leveraged economy is more prone to self reinforcing fluctuations

evaluating generic milk promotion effectiveness with an imperfect competition model a framework is proposed for incorporating the degree of market competition in evaluating milk promotion effectiveness the imperfect competition model allows simultaneity in price and quantity with an endogenous fluid milk premium the model s usefulness is demonstrated with japanese generic milk promotion data results show a conventional exogenous price or exogenous premium model will underestimate returns to milk promotion

distribution of research gains in multistage production systems comment in a recent paper freebairn davis and edwards hereafter fde have examined an interesting and neglected aspect of the distribution of benefits from research agricultural production is seen to comprise three stages input supply farm production and farm to retail marketing fde have explored the distribution of the benefit stemming from a downwards shift in the supply function at any one of the stages they conclude these benefits are distributed according to the elasticities of consumer demand and supply facing each stage furthermore under the special assumptions they employ this distribution is independent of which of the three supply functions is shifted by research they conclude albeit with due caution that the choice of agricultural research projects should not be limited to farm production research alone especially in view of the cost shares of purchased inputs and marketing services in the retail value of food in fact they argue they farmers may receive greater benefits from off farm oriented research than from farm oriented research p 39 this finding has potentially important implications for agricultural research policy it immediately spurs one to ask whether research funded by the farmer or the fisc might have neglected opportunities for research related to farm inputs or marketing to reach their result fde assume a all supply and demand curves are linear b research induces parallel shifts in supply curves c farmers cannot substitute nonfarm inputs for inputs supplied by farmers in production of the farm product and d marketing firms cannot substitute marketing inputs for raw farm products in the production of retail commodities the purpose of this note is to emphasize the importance of these elasticities of factor substitution in determining the distribution of research benefits between the three stages to do this we use a simple but general two factor model in which we focus attention on the elasticity of factor substitution between marketing services and raw farm products in the third stage marketing this model is not restricted to linear supply and demand curves nor to an elasticity of substitution of zero we maintain the assumptions of parallel shifts of supply curves induced by research and a perfectly elastic supply of marketing services in a revision of fde s application to the u s hog industry the distribution of research benefits is shown to depend crucially on the elasticity of factor substitution their result that such distribution is independent of the stage in which research shifts the supply curve downwards follows only for the special case in which that elasticity is zero this is clearly a restrictive assumption a reexamination of some of the policy issues raised by fde once the assumption is relaxed would seem to be warranted

a century of research on agricultural markets this article provides a perspective on major innovations in research on agricultural markets over the past century we review research on market structure and performance vertical coordination arrangements and institutions for producer collective action contributions to empirical modeling of agricultural price determination and marketing margins are also evaluated as are innovations in research on spatial market relationships and the role of storage finally we discuss contributions to understanding market information systems and the functioning of market based mechanisms for agri

industrialization and consolidation in the u s food sector implications for competition and welfare good sources for information on recent developments in food market structure include barkema drabenstott and welch u s department of agriculture 1996b and rogers my objective is not to add to this literature but rather to consider what we have learned as a profession about the rapid consolidation in food processing and distribution what are its implications for market power economic efficiency and the distribution of economic welfare among producers consumers and marketers

an equilibrium displacement approach to oligopoly market analysis an application to trade in the korean infant formula market this article uses an equilibrium displacement model edm to assess the impact of a change in trade policy in the korean infant formula market that is assumed to be oligopolistic domestic oligopolists compete in a market for a homogenous good with importing firms who enjoy the same level of market power as the domestic producers within an edm framework we investigate how the market adjusts to a new equilibrium in response to an external policy shock that improves access to foreign goods our empirical work consists of two steps we first econometrically estimate the market demand elasticity and market power parameter then using these estimates we simulate our edm model to assess the distributional effects of tariff cuts and other changes in marginal cost simulation results show that with a lower market price and increased consumption the change in consumer surplus resulting from tariff reduction is unambiguously positive but that the change in social welfare can be in either direction depending on who receives market rents associated with imports when importing firms are domestic the domestic welfare change is definitely positive however in the case of foreign importing firms the direction of the welfare change crucially depends on the demand elasticity

the fragility of sunspots and bubbles abstract expectational stability e stability is used to examine the multiplicity of solutions in a range of rational expectations models of interest including muth s inventory model and an overlapping generations model in these model it is found that sunspot and other rational bubble solutions are either e unstable or weakly but not strongly e stable

testing hypotheses about firm behavior in the cigarette industry data on the effects of excise taxes are used to investigate the level of competition in the cigarette industry a lower bound on the numbers equivalent of firms in the context of the conjectural variations model is derived and estimated results point to at least a moderately high level of competition and in particular allow for the rejection of the perfect cartel model this paper relies on comparative statics results and hence circumvents recent criticisms of a study of monopoly behavior in the cigarette industry

measurement of monopoly behavior an application to the cigarette industry a simple scheme is proposed to measure monopoly pricing behavior the coefficient of the tax rate term in a price equation identifies the ratio of price to marginal cost no direct measurement of costs is required so a major problem for other empirical studies of monopoly is avoided empirical results for cross section time series data support rejection of atomistic competition but also provide evidence against the operation of an effective cartel in the cigarette industry the model represents an alternative interpretation of related results in a recent paper by barzel application of the methodology to other markets is feasible

banking panics and policy responses we study how banking panics unfold in av ersion of the diamond and dybvig 1983 model with limited commitment as is well known the banking authority could eliminate the possibility of a run on the banking system by committing to suspend payments to depositors if a run were to start once a run is under way however the banking authority will choose to reschedule rather than suspend payments we construct equilibria in which depositors run on the banking system with positive probability and we show that an equilibrium bank run in this setting is necessarily partial with only some depositors participating we also show that a run naturally occurs in waves with each wave of withdrawals prompting a further policy response from the banking authority the number of waves that occur in equilibrium is stochastic and can be arbitrarily large

why has poland avoided the price liberalization trap the case of the hog pork sector price liberalization in the agri food economy in the transition economies is likely to slip into a trap food prices rocket up consumption declines but food supply does not catch up and even contracts however during the transition period following the 1989 price liberalization the polish hog pork sector succeeded in avoiding this trap by conducting market structure and econometric analysis this article looks for the reasons for this success in the polish hog pork sector the restructuring of state owned enterprises and the emergence of private firms introduced an effective price transmission mechanism between the processing retailing and farm levels this mechanism allowed farm supply to respond to changed demand and to take advantage of increased retail prices such a relatively efficient marketing system was made possible by a relatively stable macroeconomic environment and limited government intervention

a general equilibrium perspective on structural change in the rural economy a research study explored innovative methods for constructing computable general equilibrium cge models for rural structural change and development policy analysis these are the make matrix the personal consumption goods industrial goods matrix the occupation industry matrix and the map distance matrix modeling the cge for rural areas requires particular attention to the results of econometric tests on economics theories especially since rural communities are demographically and economically different from urban regions

optimal generic advertising in an imperfectly competitive food industry with variable proportions abstract this paper determines the impact of food industry market power on farmers incentives to promote in a situation where funds for promotion are raised through a per unit assessment on farm output and food industry technology is characterized by variable proportions specifically building on earlier studies by azzam am j agric econ 80 1998 76 and holloway am j agric econ 73 1991 979 muth s oxford econ papers 16 1965 221 model is extended to consider the farm level impacts of generic advertising when downstream firms possess oligopoly and or oligopsony power and advertising expenditure is endogenous at the market level applying the model to the us beef industry we find that for plausible parameter values market power reduces farmers incentives to promote however the disincentive is moderated by factor substitution and effectively vanishes as the factor substitution elasticity approaches the retail demand elasticity this suggests that the dorfman steiner theorem suitably modified to account for factor substitution suffices to indicate optimal advertising intensity in the us beef sector

the farm retail price spread in an imperfectly competitive food industry in a previous article in this journal gardner investigated the effects of three distinct forces affecting food system equilibria shifts in retail demand shifts in farm commodity supply and shifts in marketing input supply he derived comparative static predictions about how the quotient of retail and farm prices the retailfarm price ratio would adjust to changes in each of these exogenous effects the investigation was conducted within a framework that

on non uniqueness in rational expectations models an attempt at perspective abstract many macroeconomic models involving rational expectations give rise to an infinity of solution paths even when the models are linear in all variables some writers have suggested that this non uniqueness constitutes a serious weakness for the rational expectations hypothesis one purpose of the present paper is to argue that the non uniqueness in question is not properly attributable to the rationality hypothesis but instead is a general feature of dynamic models involving expectations it is also argued that there typically exists in a very wide class of linear rational expectations models a single solution that excludes bubble or bootstrap effects one that occur only because they are arbitrarily expected to occur a systematic procedure for obtaining solutions free from such effects is introduced and discussed in addition this procedure is used to interpret and reconsider several prominent examples with solution multiplicities including ones developed by fischer black and john b taylor

welfare implications of oligopoly in u s food manufacturing a statistical procedure is used to show that increased concentration in u s food manufacturing industries is associated with increased total input productivity a price leadership model is employed in order to estimate total welfare loss if an elasticity of 1 is assumed deadweight loss to society is estimated at 0 5 of food value if an elasticity of 0 5 is assumed total loss to consumers amounts to 6 11 of food value which is 10 billion in 1975 the increase in total factor productivity which is linked to concentration is roughly sufficient to offset the entire loss to consumers

dynamic oligopoly in the rice export market a linear quadratic dynamic oligopoly model is used to estimate the competitiveness of the rice export market the model nests various market structures using either open loop or feedback strategies the estimated feedback model implies a less competitive market structure than the estimated open loop model the rice export market is oligopolistic but it is closer to competitive than collusive copyright 1989 by mit press

the integration of the market for soybeans and soybean products abstract this article addresses the question of whether soybeans soybean meal and soybean oil produced in the usa and exported were part of a single world geographic market during the decade of the 1980s an answer to this question is sought using an approach to defining a geographic market based on the notion of instantaneous causality the empirical results based on prices for soybeans soybean meal and soybean oil for three spatially diffuse locations suggest that there was but a single identifiable world market for these commodities over the period of study this has implications for the continued presence of soybean production subsidies and discussions on international agreements designed to reduce or eliminate these subsidies

optimal diamond dybvig mechanism in large economies with aggregate uncertainty abstract this paper characterizes the direct mechanism which implements the constrained optimal outcome in a version of diamond and dybvig 1983 with aggregate uncertainty and a continuum of agents using this result numerical examples where the best direct mechanism has a bank run equilibrium are easily obtained

on the robustness of bubbles in linear re models the authors analyze the expectational stability e stability of the different solutions of a linear rational expectations model in which the endogenous variable depends on expectations of its current and future values formed in the past and also on its own lagged value it is shown that continuum of bubble solutions cannot be strongly e stable in contrast for certain parameter values a particular solution that would normally be identified as a bubble solution can be strongly e stable the results are applied to a macroeconomic model with real balance effects copyright 1992 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

interest rates and financial fragility abstract how do the interest rates banks earn on their assets affect the susceptibility of the banking system to a self fulfilling run by depositors i study this question in a version of the model of diamond and dybvig 1983 with limited commitment and a non trivial portfolio choice i show that the relationship between these interest rates and financial fragility is often non monotone for example a small increase in the return on illiquid investment or a small increase in the term premium may raise banks susceptibility to a run while a larger increase would make the banking system more stable the same is true for changes in short term rates holding the longer term rates fixed i provide a precise characterization of these comparative statics of financial fragility

structural breaks cointegration and the farm retail price spread for lamb this paper examines the farm retail price spread for lamb from monthly uk data for 1979 1993 using cointegration it examines seasonal patterns in producer and retail prices and seeks to identify a long run relationship between them results show that a long run relationship exists and that the direction of granger causality is from retail to producer prices lamb prices are therefore set in the retail market results also show that there is a structural break in the relationship in january 1990 when the price increases this coincides exactly with a change in policy

are rational explosive solutions learnable abstract it is commonly believed that rational explosive solutions are unstable or fragile under adaptive learning contrary to this belief the paper shows that under realistic parameterizations rational explosive solutions are both e stable and strongly e stable in a class of models with lagged endogenous variables it also establishes the convergence of least squares learning process to explosive solutions taking a simple cagan model of inflation as an application the paper shows that money supply feedback rule gives rise to a rational explosive solution for prices which is learnable in real time this provides a new potential explanation for historical high inflation finally e stability results for non msv explosive solutions are provided

the impact of the export enhancement programme on the soybean market in the united states this study endeavours to understand the nature and extent of the market interrelationships between the price of soybeans the price of soybean meal and oil and the crushing margin in order to assess how processors benefit relative to farmers with regard to the export enhancement programme as it applies to soybean oil the results suggest that while both farmers and processors do benefit from the programme processors benefit porportionately more than farmers receiving nearly three times the relative return of farmers from the effects of the programme this observed outcome is a function of the joint nature of the products being produced soybean meal and oil by processors and the relative less importance afforded to soybean oil in the production process in an absolute sense however the returns to soybean farmers are substantially greater than those to processors being a function of the magnitude of the price of soybeans relative to the crushing margin

occupational structure wages and migration in late nineteenth century england and wales the relationships among occupational structure wages and internal migration in england and wales in the second half of the nineteenth century are analyzed the author concludes that socioeconomic inequalities among districts provide the major explanation for migration annotation

estimating the degree of market power in the beef packing industry a technique for assessing the degree of monopoly power developed by appelbaum 1979 1982 is extended here to permit measurement of monopsony power as well data from the u s beef packing industry are examined the results reveal small but statistically significant monopoly monopsony price distortions in slaughter cattle and wholesale beef markets but in spite of a recent trend toward heightened concentration in the industry give no indication that performance has become appreciably less competitive of late this abstract was borrowed from another version of this item

comparative statics for oligopoly demand shift effects when demand rises in an imperfectly competitive industry price output profits consumer surplus and welfare may individually rise or fall the possibilities are thus broader than with either a demand shift under competition or a cost shift in either typ e of industry systematic relationships are established showing howe ver that the pattern of effects cannot be arbitrary imperfect compe tition is necessary for profits to fall when demand rises profits alw ays rise with either perfect competition or perfect collusion this a gain contrasts with the cost shift case where imperfect competition is not necessary for perverse profit effects copyright 1988 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

hedonic estimation of quality factors affecting the farm retail margin a model of the farm retail marketing margin is tested using producer and retail prices of a perishable product in which time during season and quality characteristics are variable empirical analysis verifies that the marketing margin of california fresh peaches decreases during the season and increases with improved quality results identify potential producer gains from improving product quality early in the season and from price signals compensating producers for quality characteristics other than weight

equilibrium bank runs we analyze a banking system in which the class of feasible deposit contracts or mechanisms is broad the mechanisms must satisfy a sequential service constraint but partial or full suspension of convertibility is allowed consumers must be willing to deposit ex ante we show by examples that under the so called optimal contract the postdeposit game can have a run equilibrium given a propensity to run triggered by sunspots the optimal contract for the full predeposit game can be consistent with runs that occur with positive probability thus the diamond dybvig framework can explain bank runs as emerging in equilibrium under the optimal deposit contract

demand for farm output in a complete system of demand functions demand interrelationships for farm outputs that are theoretically consistent with consumer demand and marketing group behavior provide important linkages between retail and farm prices a conceptual model based on reduced form specifications for retail and farm prices is formulated and applied empirically to a set of eight disaggregated food commodities this approach circumvents the need for retail quantities which are frequently unavailable for disaggregated food commodities the results are consistent with theory and generally indicate significant substitution between farm and marketing inputs except for poultry derived demand elasticities are at least 40 larger compared to those derived assuming fixed proportions

long run growth uncertainty observed macroeconomic forecasts display a positive correlation between expectations of long run growth of endogenous variables e g output and cyclical activity existing business cycle models appear inconsistent with the evidence this paper presents a model of the business cycle in which households have imperfect knowledge of long run growth rate of endogenous variables and continually learn about these growth rates the model features comovement and mutual influence between households growth expectations and market outcomes it can replicate the evidence on growth forecasts and suggests that optimism and pessimism about long run growth rates is a crucial ingredient in understanding business cycle fluctuations

bailouts and financial fragility how does the belief that policymakers will bail out investors in the event of a crisis affect the allocation of resources and the stability of the financial system i study this question in a model of financial intermediation with limited commitment when a crisis occurs the efficient policy response is to use public resources to augment the private consumption of those investors facing losses the anticipation of such a bailout distorts ex ante incentives leading intermediaries to choose arrangements with excessive illiquidity and thereby increasing financial fragility prohibiting bailouts is not necessarily desirable however it induces intermediaries to become too liquid from a social point of view and may in addition leave the economy more susceptible to a crisis a policy of taxing short term liabilities in contrast can correct the incentive problem while improving financial stability

competition in the us meatpacking industry is it history the us meatpacking industry has become concentrated to a degree not experienced since the days of the beef trust a century ago a number of mainstream studies have investigated if such concentration has been detrimental to competition just as earlier studies may have helped shape competition policy towards meatpacking a century ago contemporary studies have made their way into current discussions and may shape competition policy at the turn of this century this paper asks whether or not contemporary studies are useful in informing competition policy after comparing how competition looks from the econometric vantage point with how it looks from the vantage point of the industry s 300 yr history this article concludes that mainstream studies are more useful for a competition policy targeting conduct rather than structure

expectational stability and the multiple equilibria problem in linear rational expectations models linear models involving expectations of future endogenous variables generally have multiple rational expectations equilibria this paper investigates the stability of solutions in the disequilibrium sense of whether given a small deviation of expectations functions from some rational expectations equilibrium the system returns to that solution under a natural revision rule weak and strong local stability are distinguished stability conditions are calculated for a simple general linear model and applied to two macroeconomic examples in some cases there is a unique stable equilibrium in other cases a continuum of equilibria forms a weakly but not strongly stable class