the hyperinflation model of money demand revisited in this paper we propose a test of the hyperinflation model of money demand which is valid under any assumption concerning agents expectations subject only to the restriction that forecasting errors are stationary it is also demonstrated that highly efficient parameter estimates can be obtained and restrictions on them tested under the same weak assumption finally it is shown how these first stage estimates can be utilized to test the stronger assumption of rational expectations the arguments are illustrated by analysis of the classic data on european hyperinflations previously analyzed by cagan 1956 barro 1970 and abel dornbusch huizinga and marcus 1979 copyright 1991 by ohio state university press

experimental tests of core theory and the coase theorem inefficiency and cycling abstract we examine experimentally the bargaining process and the final allocation of payoffs in games that differ in terms of whether the core exists and in the initial allocation of property rights among the players this paper highlights the interaction among property rights transaction costs and the empty core our experimental results indicate that the existence of the core is an important determinant of bargaining generally and the coase theorem in particular they confirm our conjecture that when the core is empty and property rights are ill defined coasean efficiency breaks down among other results our experiments show that the number of inefficient non pareto optimal agreements and bargaining rounds with cycling are significantly greater when the core is empty than when the core exists especially when property rights are ill defined our results suggest an economic role for specific property right arrangements to resolve the empty core

money demand the cagan model and the inflation tax some latin american evidence this paper examines the demand for money under conditions of very high inflation in argentina bolivia brazil chi le and peru during the 1970s and 1980s the authors test whether the monetary and inflationary experiences of these countries can be adequately characterized by the cagan 1956 model using an econometric procedure that is not reliant on any particular assumpti on concerning expectations formation except that forecasting errors are stationary the authors also examine the importance of foreign asset substitution in domestic portfolios and the hypothesis that monetary policy was tantamount to maximization of the inflation tax revenue before testing the rational expectations hypothesis copyright 1993 by mit press

testing for rational bubbles with exogenous or endogenous fundamentals the german hyperinflation once more abstract the presence of rational price bubbles during the german hyperinflation is tested under two different structural assumptions on the money process if the money supply is constrained to be exogenous to the current inflation rate the hypothesis of no bubble can be rejected however this is no longer found to be true when a feedback rule from inflation to money creation is allowed the analysis contradicts previous results presented in the literature

the usefulness of core theory in economics economic problems it has an undeserved reputation of being too abstract owing mainly to the manner in which it is employed in the theory of general equilibrium in fact core theory is a highly flexible way of looking at practical economic problems especially problems in industrial orga nization this paper seeks to show how simple numerical examples can illus trate the idea of the core and in turn how the core can illustrate basic principles of economics

the coase theorem and coalitional stability it is the contention of this paper that the coase theorem has yet to be formulated and proved in a rigorous manner the problem addressed is that of strategic coalitional behaviour when more than two agents are involved in the externality it is shown that there are examples for which non efficient allocations are stable in the sense of aumann maschler bargaining sets thereby vitiating the coase theorem hence a proper formulation of the coase theorem must exclude bargaining set stability it is our contention that the coase theorem which asserts that with zero transaction costs and zero income effects the identical pareto efficient allocation of resources will emerge regardless of the initial assignment of property rights has yet to be formulated and proved in a rigorous manner the problem addressed here is that of strategic coalitional behaviour when more than two agents are involved in the externality for the coase theorem to hold in such situations two conditions are important first assuming that the maximum joint payoff can be effected only by the formation of the grand coalition e g by the merger of all parties involved in the externality the grand coalition must be stable second only the grand coalition must be stable for if some other coalition is also stable then the latter may form instead of the grand coalition so that a pareto optimal allocation need not obtain the point of this note is to show that a rigorous statement of the coase theorem must exclude bargaining set notions of coalitional stability because

equilibrium selection inn person coordination games abstract this paper investigates several approaches to equilibrium selection and the relationships between them the class of games we study are n person generalized coordination games with multiple pareto rankable strict nash equilibria the main result is that all selection criteria select the same outcome namely the risk dominant equilibrium in two person games and that most equivalences break for games with more than two players all criteria select the pareto efficient equilibrium in voting games of which pure coordination games are special cases journal of economic literature classification numbers c70 c72 d82

evolutionary consumers imply monopolies exit we address the question of how a monopolist should price when facing evolutionary consumers who gradually move in the direction of following their optimal strategy but may make temporary suboptimal choices we show that under a broad generalization of the most commonly used model of evolution the monopolist will set a path of prices such that all consumers eventually stop purchasing the monopolist s product

p dominance and equilibrium selection under perfect foresight dynamics this paper studies equilibrium selection based on a class of perfect foresight dynamics and relates it to the notion of p dominance a continuum of rational players are repeatedly and randomly matched to play a symmetric n n game there are frictions opportunities to revise actions follow independent poisson processes the dynamics has stationary states each of which corresponds to a nash equilibrium of the static game a strict nash equilibrium is linearly stable under the perfect foresight dynamics if independently of the current action distribution there exists a consistent belief that any player necessarily plays the nash equilibrium action at every revision opportunity it is shown that a strict nash equilibrium is linearly stable under the perfect foresight dynamics with a small degree of friction if and only if it is the p dominant equilibrium with p 1 2 it is also shown that if a strict nash equilibrium is the p dominant equilibrium with p 1 2 then it is uniquely absorbing and globally accessible for a small friction but not vice versa set valued stability concepts are introduced and their existence is shown journal of economic literature classication numbers c72 c73

the noncooperative transportation problem and linear generalized nash games abstract we extend the classical transportation problem from linear optimization and introduce several competing forwarders this results in a noncooperative game which is commonly known as linear generalized nash equilibrium problem we show the existence of nash equilibria and present numerical methods for their efficient computation furthermore we discuss several equilibrium selection concepts that are applicable to this particular nash game

social stability and equilibrium in the field of noncooperative game theory nash equilibrium nash 1951 has played a central role as a solution concept in bold strokes one may discern two major interpretations of nash equilibrium in the context of rational players the first which is close to the eductive interpretation of binmore 1987 1988 and the complete information interpretation of kaneko 1987 assumes that the game is played exactly once if it is a repeated game the repetition occurs once and the players have sufficient knowledge and ability to analyze the game in a rational manner sometimes it is assumed that all players have consistent hierarchies of beliefs where the game and their priors are common knowledge bayesian interpretation such as proposed by aumann 1987 advanced this idea to the level that the players have a common prior from this point of view however nash equilibrium seems far from being satisfactory

efficient ex ante stabilization of firms abstract distressed firms are vulnerable to inefficient panic based runs of their workers suppliers and customers a policymaker may try to prevent such a run by pledging to protect the interests of these stakeholders should a firm cease to do business however this promise also enables the firm to demand better terms of trade from its stakeholders which blunts the policy s effectiveness we show how to avoid such an adverse response by the use of partial countercyclical insurance under certain conditions such a scheme costlessly implements the first best outcome in the limit as the stakeholders information becomes precise we also identify least cost efficient schemes in the cases of large noise learning and duopoly

banking competition and market efficiency this paper analyses competition among financial intermediaries in a set up where financial intermediaries economize on duplicated monitoring diamond 1984 we analyse two different games in which both direct trade and indirect trade are available we show that in general equilibrium outcomes are inefficient so that diamond s efficiency result is fragile intermediation may increase rather than decrease transaction costs disintermediation may also be an equilibrium we discuss the role played by the nonconvexities of banks technology and that played by competition for deposits and loans

evolutionary dynamics with aggregate shocks abstract we study the evolution of the continuous time replicator dynamics when payoffs are subject to aggregate shocks that take the form of a wiener process in the absence of mutation the system need not have an ergodic distribution with mutation the system does have an ergodic distribution in the limit as the mutation rate and the variance of the shocks converge to zero this distribution concentrates on the risk dominant equilibrium this result is not however robust to changes in the underlying deterministic dynamics

threatening thresholds the effect of disastrous regime shifts on the non cooperative use of environmental goods and services abstract this paper presents a tractable dynamic game in which agents jointly use a resource the resource replenishes fully but collapses irreversibly if the total use exceeds a threshold the threshold is assumed to be constant but its location may be unknown consequently an experiment to increase the level of safe resource use will only reveal whether the threshold has been crossed or not if the consequence of crossing the threshold is disastrous i e independent of how far the threshold has been exceeded it is individually and socially optimal to update beliefs about the threshold s location at most once the threat of a disastrous regime thereby facilitates coordination on a cautious equilibrium if the initial safe level is sufficiently valuable the equilibrium implies no experimentation and coincides with the first best resource use the less valuable the initial safe value the more the agents will experiment for sufficiently low initial values immediate depletion of the resource is the only equilibrium when the regime shift is not disastrous but the damage depends on how far threshold has been exceeded experimentation may be gradual

avoidable cost ride a double auction roller coaster the double auction trading institution has been highly efficient across diverse marginal cost market structures whether human subjects or zero intelligence robots populated those markets accordingly many researchers suspect that double auction performance transcends market structure and agent strategy but the authors show that large avoidable costs undermine the efficiency and stability of human subject double auctions and these low human efficiencies are simultaneously well above zero intelligence efficiencies their results dramatically illustrate the potential havoc wrought by highly competitive institutions when they must cope with nonconvex technologies copyright 1996 by american economic association

risk dominance and perfect foresight dynamics in n player games abstract in perfect foresight dynamics an action is linearly stable if expectation that people will always choose the action is self fulfilling a symmetric game is a pim game if an opponent s particular action maximizes the incentive of an action independently of the rest of the players this class includes supermodular games games with linear incentives and so forth we show that in pim games linear stability is equivalent to u dominance a generalization of risk dominance and that there is no path escaping a u dominant equilibrium existing results on n player coordination games games with linear incentives and two player games are obtained as corollaries

p dominance and perfect foresight dynamics abstract we investigate stability of p dominant equilibria under perfect foresight dynamics we show that a strict p dominant equilibrium with i p i 1 is globally accessible and absorbing in perfect foresight dynamics we also investigate robustness and extensions of this result we apply our proof method to games with u dominant equilibria and unanimity games

does voluntary participation undermine the coase theorem abstract the coase theorem states that costless enforcement of voluntary agreements yields efficient outcomes we argue that previous treatments fail to recognize the full meaning of voluntary it requires a two stage game a non cooperative participation decision followed by coaseian bargaining only among those who choose to participate we illustrate this in a simple public goods model and find outcomes ranging from extremely inefficient to fully efficient however the efficient equilibrium is not robust to even very small transaction costs thus we cast doubt on coaseian claims of universal efficiency finally we outline a kind of coercion that restores efficiency

an approach to equilibrium selection abstract we consider equilibrium selection in 2 2 bimatrix both symmetric and asymetric games with two strict nash equilibria by embedding the static games in a dynamic random matching framework played by a continuum of anonymous agents unlike in evolutionary games the players are rational and maximize discounted payoffs but they are restricted to make a short run commitment when choosing actions this dynamic game with frictions has stationary states which correspond to the nash equilibria of the static game our selection is based on differential stability properties of the stationary states it is shown that for a small degree of friction a strict nash equilibrium becomes uniquely absorbing and globally accessible if and only if it is risk dominant harsanyi and selten a general theory of equilibrium selection in games mit press cambridge ma 1988 journal of economic literature classification numbers c72 and c73