currency and credit in a private information economy in an environment with private information spatial separation and limited communication a currency like object and more standard named credits can be distinguished the credit objects can be used among agents in an enduring relationship that is among agents with known trading histories whereas the currency like object must be used among relative strangers in this environment collectively determined pareto optimal rules make the level of the currency like object and the mix of currency to named credits responsive to individual needs and to economywide states total indebtedness is determined by the number of lenders that is by preference or demand shocks and the mix of currency to credits is determined by transaction patterns among the agents

the inflation tax in a real business cycle model money is incorporated into a real business cycle model using a cash in advance constraint the model economy is used to analyze whether the business cycle is different in high inflation and low inflation economies and to analyze the impact of variability in the growth rate of money in addition the welfare cost of the inflation tax is measured and the steady state properties of high and low inflation economies are compared

credit and inflation under borrowerʼs lack of commitment here we investigate the existence of credit in a cash in advance economy where there are complete markets but for the fact that agents cannot commit to repay their debts defectors are banned from the credit market but they can use money balances for saving purposes without uncertainty deflation crowds out credit completely the equilibrium allocation however is efficient if the government deflates at the time preference rate efficiency can also be restored with positive inflation for any non negative inflation rate below the optimal level the volume of credit and the real interest rate increase with inflation our results hold when idiosyncratic uncertainty is introduced and households are sufficiently impatient but in one instance efficiency cannot be restored if the deflation rate is nearby the rate of time preference our numerical examples suggest that the optimal inflation rate is not too large for reasonable levels of patience and risk aversion finally we present a framework where the use of money arises endogenously and show that it is tantamount to our cash in advance framework our results hold in this modified environment

money is privacy an extensive literature in monetary theory has emphasized the role of money as a record keeping device money assumes this role in situations where using credit would be too costly and some might argue that this role will diminish as the cost of information and thus the cost of credit based transactions continues to fall in this paper we investigate another use for money the provision of privacy that is a money purchase does not identify the purchaser while a credit purchase does in a simple trading economy with moral hazard the efficiency of money is compared with that of credit and we find that money may be useful even when information is free

genetically modified crops corporate pricing strategies and farmers adoption the case of bt cotton in argentina this article analyzes adoption and impacts of bt cotton in argentina against the background of monopoly pricing based on survey data it is shown that the technology significantly reduces insecticide applications and increases yields however these advantages are curbed by the high price charged for genetically modified seeds using the contingent valuation method it is shown that farmers average willingness to pay is less than half the actual technology price a lower price would not only increase benefits for growers but could also multiply company profits thus resulting in a pareto improvement implications of the sub optimal pricing strategy are discussed recently genetically modified gm crops have brought about important changes in the global market for agricultural technologies especially seeds prospects of high economic returns and tightened intellectual property rights iprs have provided new incentives for the private sector to invest in crop improvement and extend its business to nontraditional markets the increasingly proprietary nature of seed technologies has implications for farmers adoption and benefit distribution private innovators endowed with a patent on a technology will attempt to capture the gains from their innovation through monopoly pricing moschini and lapan recent studies have looked into the partitioning of welfare created by gm crops among agricultural producers consumers and innovating input firms e g moschini lapan and sobolevsky falckzepeda traxler and nelson in these studies however the market price of the technology is

computing multi period information constrained optima this paper presents a detailed theoretical derivation and justification for methods used to compute solutions to a multi period including infinite period continuum agent unobservedeffort economy actual solutions are displayed illustrating cross sectional variability in consumption and labour effort in the population at a point in time and variability for a typical individual over time the optimal tradeoff between insurance and incentives is explored and the issue of excess variability is addressed by consideration of the analogue full information economy and various restricted contracting regimes

estimating the demand for a new technology bt cotton and insecticide policies this article examines the potential demand for bt cotton in the southeast from information gathered in the first year of commercialization we combine revealed preference rp data on adoption of bt cotton varieties with stated preference sp data on willingness to adopt to estimate demand using a double bounded maximum likelihood procedure using estimated demand equations we simulate the costs of reducing conventional insecticide applications through subsidization of bt cotton results indicate that reducing cotton insecticide applications by 40 in the southeast would require a 21 acre subsidy with total annual program costs between 53 million and 60 million

money credit and banking in monetary models where agents are subject to trading shocks there is typically an ex post inefficiency since some agents are holding idle balances while others are cash constrained this problem creates a role for financial intermediaries such as banks who accept nominal deposits and make nominal loans in general financial intermediation improves the allocation the gains in welfare come from the payment of interest on deposits and not from relaxing borrowers liquidity constraints we also demonstrate that when credit rationing occurs increasing the rate of inflation can be welfare improving

accessing modern science policy and institutional options for agricultural biotechnology in developing countries the paper highlights the complexity of the challenge in developing forms of collaboration between a variety of actors in the biotechnology area in developing countries national research systems with diverse capacities in biotechnology international research centers local private research and development companies and advanced research institutes in both industrialized and developing countries case studies are provided from strong programs such as india china and brazil which will be tool developers as well as users programs that are developing an adaptive capacity in biotech to use tools and methods in a large number of countries whose research systems have virtually no capacity in molecular biology each type program presents challenges and opportunities for accessing new technologies based on facilitation of private investments public private partnerships and local capacity to design proprietary technologies working with the consultative group on international agricultural research centers as intermediaries and partners and with regional consortia policy and institutional issues for accessing modern science are then discussed and many of the challenges involve developing strategies in intellectual property management while pubic research organizations will need to develop innovative means of segmenting markets to complement private sector interests

optimal monetary policy in a model of money and credit we investigate the extent to which monetary policy can enhance the functioning of the private credit system specifically we characterize the optimal return on money in the presence of credit arrangements there is a dual role for credit it allows buyers to trade without fiat money and also permits them to borrow against future income however not all traders have access to credit as a result there is a social role for fiat money because it allows agents to self insure against the risk of not being able to use credit in some transactions we consider a nonlinear monetary mechanism that is designed to enhance the credit system an active monetary policy is sufficient for relaxing credit constraints finally we characterize the optimal monetary policy and show that it necessarily entails a positive inflation rate

on nonparametric supply response analysis in this paper we explore the usefulness of nonparametric methods in the investigation of production behavior and the estimation of price elasticities of output supply and input demand functions the approach can handle the situation where some data points are not consistent with production theory the method is illustrated by estimating supply demand elasticities of outputs and inputs in u s agriculture

surplus distribution from the introduction of a biotechnology innovation we examine the distribution of welfare from the introduction of bt cotton in the united states in 1996 the welfare framework explicitly recognizes that research protected by intellectual property rights generates monopoly profits and makes it possible to partition these rents among consumers farmers and the innovating input firms we calculate a total increase in world surplus of 240 3 million for 1996 of this total the largest share 59 went to u s farmers the gene developer monsanto received the next largest share 21 followed by u s consumers 9 the rest of the world 6 and the germplasm supplier delta and pine land company 5

credit and identity theft abstract the quintessential crime of the information age is identity theft the malicious use of personal identifying data in this paper we model identity and its use in credit transactions various types of identity theft occur in equilibrium including new account fraud existing account fraud and friendly fraud the equilibrium incidence of identity theft represents a tradeoff between a desire to avoid costly or invasive monitoring of individuals on the one hand and the need to control transactions fraud on the other our results suggest that technological advances will not eliminate this tradeoff

credit mismatch and breakdown abstract this paper studies the phenomenon of mismatch in a decentralized credit market where borrowers and lenders must engage in costly search to establish credit relationships our dynamic general equilibrium framework integrates incentive based informational frictions with a matching process highlighted by i borrowers endogenous market entry and exit decision entry frictions and ii time and resource costs necessary to locate credit opportunities search frictions a key feature of the incentive compatible loan contract negotiated between borrowers and lenders is the interaction of informational frictions in the form of moral hazard with entry and search frictions we find that the removal of entry barriers can eliminate incentive based equilibrium credit rationing more generally entry and incentive frictions are important in understanding the extent of credit rationing and credit mismatch while search and incentive frictions are important for understanding credit market breakdown

intellectual property rights and the welfare effects of agricultural r d the profound changes that have affected agriculture in modern times are perhaps best illustrated by the evolution of production techniques due to mechanization new chemical inputs such as herbicides pesticides and fertilizers genetic selection of crops and animals new crop varieties and countless other technical and organizational improvements these innovations have allowed a generalized increase in physical output while at the same time agriculture has suffered a massive exodus of labor forces towards the non farm sectors indeed a stylized fact of developed countries post war growth is that productivity in agriculture has grown faster than in other sectors jorgenson and gollop 1992 this remarkable record naturally begs the question of what is at its root and a view that commands considerable consensus is that agricultural productivity growth is due to past investments in scientific research and development r d

optimal pricing of payment services abstract payments are increasingly being made with payment cards despite the fact that the cost of clearing a card payment usually exceeds the cost of transferring cash we examine this puzzle through the lens of monetary theory we consider the design of an optimal card based payment system when cash is available as an alternative means of payment we find that a feature akin to the controversial no surcharge rule may be necessary to ensure the viability of the card payment system this rule states that merchants cannot charge a customer who pays by card more than a customer who pays by cash

money and credit as means of payment abstract a stochastic economic environment is presented in which the mix of cash and resource costly credit used as means of payment is endogenous for reasonable values of the credit cost parameter velocity can be quite variable and sensitive to the nominal interest rate those parameter values also generate larger welfare costs of inflation than have been found previously and a sizable impact of inflation on real interest rates

ex ante analysis of the benefits of transgenic drought tolerance research on cereal crops in low income countries this article develops a framework to examine the ex ante benefits of transgenic research on drought in eight low income countries including the benefits to producers and consumers from farm income stabilization and the potential magnitude of private sector profits from intellectual property rights iprs the framework employs country specific agroecological drought risk zones and considers both yield increases and yield variance reductions when estimating producer and consumer benefits from research benefits from yield variance reductions are shown to be an important component of aggregate drought research benefits representing 40 of total benefits across the eight countries further estimated annual benefits of us 178 million to the private sector suggest that significant incentives exist for participation in transgenic drought tolerance research

agricultural supply response a survey abstract this paper surveys the literature on agricultural supply response to prices in developing countries empirical estimates of elasticities depend both on the methodology adopted and on country specific factors relating to technology economic structure and macro constraints the paper seeks to establish some general conclusions on supply responsiveness within these limitations supply response to output prices at the aggregate and at the crop levels is considered first crop specific acreage elasticities range between zero and 0 8 in the short run while long run elasticities tend to be higher between 0 3 and 1 2 yield elasticities are smaller and less stable than acreage elasticities clearly inter crop pricing can be relied upon to effect shifts in the commodity composition of agricultural output evidence also suggests that supply elasticities vary systematically with such factors as price and yield risks multiple cropping the importance of the crop farm incomes farm size tenancy and literacy the most controversial and important aspect of supply response is the effect on aggregate agricultural output of agriculture s terms of trade conventional time series estimates range from 0 1 to 0 3 a major cross country study reports an aggregate elasticity as high as 1 66 it is argued that cross country estimates are apt to exaggerate aggregate responsiveness while time series studies underestimate it somewhat for ldcs a tentative range of 0 4 to 0 5 seems plausible hence the distributive effects of the terms of trade are likely to be more significant than the allocative effects asian evidence shows that only a third of the inter country differences in fertilizer use can be attributed to fertilizer price policies provided new technologies and infrastructure are in place fertilizer subsidies can help in technology diffusion and in over coming credit constraints the choice between price supports and input subsidies will depend on a variety of country or situation specific factors nevertheless a significant general factor favoring price supports is that they can more easily be coupled with price stabilization goals than input subsidies though sparse the available evidence on the response of marketed surplus suggests that price policy is not a reliable instrument for regulating inter sectoral trade

on efficiency and distribution this paper is a theoretical study of alternative ways of allocating resources in an exchange economy in which individual preferences are subject to unpredictable shocks that cannot be monitored efficiency in this economy requires wealth inequality to increase over time the paper is based on the author s 1991 harry johnson lecture copyright 1992 by royal economic society

economic organization with limited communication this paper presents formal stylized representations of communication accounting systems oral assignment portable object written message and telecommunication systems are considered the environments that allow this formalization are characterized by spatial separation private information and a need to keep track of past actions transfers and shocks in environments that have spatial separation and private information beneficial multilateral arrangements can depend critically on agents ability to communicate to one another values of contemporary shocks and to keep track of histories of past transfers or past announced shocks this paper formalizes this idea and focuses on com

the effects of imperfect competition on the size and distribution of research benefits studies of agricultural research benefits usually assume perfectly competitive markets studies that have allowed for market power of agribusiness firms have generally assumed unrealistic pure monopsony or monopoly behavior this paper allows for processing firms to exhibit a range of degrees of oligopsony power in buying raw farm products and oligopoly power in selling processed farm products the results indicate that different types of research induced technical change can exacerbate or ameliorate distortions from the exercise of market power by agribusiness firms which affects the size and especially the distribution of research benefits

ex ante agricultural research evaluation with site specific technology generation the case of sorghum in kenya abstract agricultural commodity research has very site specific productivity impacts crucial determinants of the magnitude and distribution of research benefits include agroecological conditions for technology generation and adoption as well as commodity market structure this paper presents a process for ex ante research evaluation which accounts for these factors with a dynamic spatial multi market model simulation results based on sorghum research in kenya demonstrate that potential research benefits can vary dramatically across program research target zones in kenya however population induced demand growth not technological development will have the greatest influence on future sorghum markets

the potential benefits of herbicide resistant transgenic rice in uruguay lessons for small developing countries abstract in many developing countries the potential benefits from adopting a transgenic variety developed by a multinational corporation are limited by the crop s small production base this paper presents an ex ante evaluation of the economic impact of herbicide resistant transgenic rice in a small developing country uruguay to fully account for the multinational s market power the firm s seed markup is assumed to affect the adoption rate for the variety stochastic simulation techniques are employed to understand how potential benefits may vary with changes in technology yield costs and adoption parameters the results indicate a 1 82 million mean net present value for producers from the development and utilization of transgenic rice in uruguay and 0 55 million for the multinational these relatively small multinational firm benefits suggest that a firm will not undertake significant efforts to develop transgenic varieties adapted to local conditions without either strategic partnerships with local institutions or access to wider regional markets

a prospective evaluation of biotechnology in semi subsistence agriculture abstract the paper analyses ex ante the economic implications of transgenic virus and weevil resistant sweet potatoes in kenya these technologies are being developed within international projects involving public and private organisations it is expected that the resistant varieties will significantly reduce the crop losses in farmers fields model calculations show that both innovations are likely to bring about substantial growth in economic surplus the projected annual gross benefit is 5 4 mus million us for virus resistance and 9 9 mus for weevil resistance due to the semi subsistence nature of sweet potato the producing households will be the main beneficiaries however market consumers will also capture about one fourth of the aggregate welfare gains the high profitability of the projects is confirmed by significantly positive returns on research investments the examples demonstrate the viability of successful research partnerships between the public and private sectors as most of the basic biotechnology tools available to date are patented by private companies in the north which often do not have sufficient market incentives to develop end technologies for the south more interactions of this kind are required from a development policy perspective working with typical semi subsistence crops is particularly appealing because it immediately targets the poor and avoids conflicts with the private sector s commercial interests

liquidity loanable funds and real activity abstract this paper develops a general equilibrium model of two traditional explanations of the monetary black box linking money and real activity the liquidity effect and the loanable funds effect these effects are modeled with a monetary production economy in which central bank injections of cash are funnelled into the economy through the credit market since only borrowers have direct access to the newly injected cash monetary injections cause nominal interest rates to fall if firms are borrowers then monetary injections also increase current and future real activity

roundup ready soybeans in argentina farm level and aggregate welfare effects although adoption rates of genetically modified crops have been staggering in some countries there is still comparatively little evidence about biotechnology impacts under diverse agroecological and institutional conditions these knowledge gaps lead to an overly precautious attitude among policy makers and the public this article analyzes the effects of roundup ready rr soybeans in argentina the country with the second biggest transgenic area worldwide based on recent survey data it is shown that the technology increases total factor productivity by 10 on average with cost savings being somewhat more pronounced for smaller than for larger farms the reduction in use of toxic herbicides and of tillage operations entails positive environmental repercussions aggregate welfare effects are computed over the 1996 2001 period with a three region partial equilibrium model comprising argentina the united states and the rest of the world in 2001 rr soybeans created more than us 1 2 billion of economic surplus at the global level the largest share went to consumers 53 followed by seed and biotechnology firms 34 and agricultural producers 13 due to comparatively weak intellectual property protection and thus only small technology mark ups in seed prices and widespread adoption argentine soybean growers receive 90 of the benefits in that country this demonstrates that farmers in developing countries can gain considerably when they obtain access to suitable foreign innovations through technology spill overs

potential impacts of bt eggplant on economic surplus and farmers health in india in this article the potential impacts of bt eggplant technology in indian agriculture are analyzed several proprietary bt hybrids are likely to be commercialized in the near future based on field trial data it is shown that the technology can significantly reduce insecticide applications and increase effective yields comprehensive farm survey data are used to project farm level effects and future adoption rates simulations show that the aggregate economic surplus gains of bt hybrids could be around us 108 million per year consumers will capture a large share of these gains but farmers and the innovating company will benefit too as the company has also shared its technology with the public sector bt open pollinated varieties might become available with a certain time lag this would make the technology more accessible especially for resource poor farmers entailing further improvements in welfare and distribution effects the wider implications of the private public technology transfer are discussed furthermore the potential benefits for farmers health resulting from reduced insecticide applications are examined using an econometric model and a cost of illness approach these benefits are worth an additional 3 4 million per year yet they constitute only a small fraction of the technology s environmental and health externalities more research is needed for comprehensive impact analysis

short term contracts and long term agency relationships abstract long term contracts are valuable only if optimal contracting requires commitment to a plan today that would not otherwise be adopted tomorrow we show that commitments are unnecessary and hence short term contracts are sufficient if 1 all public information can be used in contracting 2 the agent can acess a bank on equal terms with the principal 3 recontracting takes place with common knowledge about technology and preferences and 4 the frontier of expected utility payoffs generated by the set of incentive compatible contracts is downward sloping at all times

efficiency and equality in a simple model of efficient unemployment insurance abstract this paper describes the efficient allocation of consumption and work effort in an economy in which workers face idiosyncratic employment risk and considerations of moral hazard prevent full insurance we impose a lower bound on the expected discounted utility that can be assigned to any agent from any date onward and show with this feature added that the efficient unemployment insurance scheme induces an invariant cross sectional distribution of individual entitlements to utility the paper thus provides a simple prototype model suited to the study of the normative question what is the trade off between equality and efficiency in resource allocation journal of economic literature classification numbers d31 d63 d82 j65

money and credit with limited commitment and theft we study the interplay among imperfect memory limited commitment and theft in an environment that can support monetary exchange and credit imperfect memory makes money useful but it also permits theft to go undetected and therefore provides lucrative opportunities for thieves limited commitment constrains credit arrangements and the constraints tend to tighten with imperfect memory as this mitigates punishment for bad behavior in the credit market theft matters for optimal monetary policy but at the optimum theft will not be observed in the model the friedman rule is in general not optimal with theft and the optimal money growth rate tends to rise as the cost of theft falls

payments systems design in deterministic and private information environments abstract the first setup we study is a deterministic model with spatial separation where we consider alternative payments systems institutions and their implications for allocation and welfare a payments system with period by period settlement in outside money improves on decentralized exchange an efficient allocation is supported by a payments system where settlement is not imposed in the second model there is random matching and unobserved productivity shocks and preference shocks we explore how risk should be shared optimally in this economy and interpret the results in terms of how actual payments systems should operate journal of economic literature classification numbers e4 e5

infringement of intellectual property rights causes and consequences parallel revolutions in molecular biology and the legal framework that assigns intellectual property rights iprs to plant genetic resources have resultedin the emergence of agricultural biotechnology andthe introd uction of genetically modified gm products into the foodsystem iprs create economic incentives for research andd evelopment by making the innovator the residual claimant of the benefits associatedwith the new technology whereas iprs purport to protect intellectual property full appropriation of the benefits from the innovation is not a given when infringement of iprs i e piracy is profitable rational economic agents compliance with ipr provisions is by no means assured costly monitoring and enforcement are requiredto d eter unauthorized illegal use of the new technology experience from various countries aroundthe worldind icates that ipr enforcement is far from being perfect andmany successful innovations are

a dynamic model of unsecured credit abstract we study the terms of credit in a competitive market in which sellers lenders are willing to repeatedly finance the purchases of buyers borrowers by engaging in a credit relationship the key frictions are i the lender cannot observe the borrower s ability to repay a loan ii the borrower cannot commit to any long term contract iii it is costly for the lender to contact a borrower and to walk away from a contract and iv transactions within each credit relationship are not publicly observable the lender s optimal contract has two key properties delayed settlement and debt forgiveness finally we study the impact of changes in the initial cost of lending on the contract terms

the dynamics of agricultural biotechnology adoption lessons from series rbst use in wisconsin 1994 2001 this article exploits panel data from wisconsin dairy farmers to examine the dynamics of recombinant bovine somatotropin rbst adoption and to identify the characteristics that distinguish among nonadopters disadopters and early and late adopters panel methods are used to control for omitted variables and endogenous regressors that call into question coefficient estimates derived from cross section adoption models the results however confirm previous findings that larger farms with complementary feeding technologies are more likely to adopt rbst nonadopters appear quite unlikely to become adopters and rbst adoption will remain at rather moderate levels in wisconsin

money and dynamic credit arrangements with private information abstract we construct a model with private information in which consumers write dynamic contracts with financial intermediaries a role for money arises due to random limited participation of consumers in the financial market without defection constraints a friedman rule is optimal the mean and variability of wealth tend to fall with inflation in the steady state and the welfare effects of inflation are very small with defection constraints the effects of inflation on the distribution of welfare and consumption are large but the effect on average welfare is still small the relaxation of defection constraints resulting from higher inflation can cause a substantial increase in the real interest rate journal of economic literature classification numbers d8 e4 g2

moral hazard optimal unemployment insurance and experience rating abstract this paper is concerned with evaluating alternative unemployment insurance ui schemes in a dynamic economy with moral hazard we consider changes in the size and duration of ui benefits and the effects of experience rating and use a dynamic contracting approach to determine a benchmark optimal allocation radical changes in the current ui system increase welfare but not by much a move to full experience rating has distributional effects but the aggregate effects are negligible

credit markets limited commitment and government debt a dynamic model with credit under limited commitment is constructed in which limited memory can weaken the effects of punishment for default this creates an endogenous role for government debt in credit markets and the economy can be non ricardian default can occur in equilibrium and government debt essentially plays a role as collateral and thus improves borrowers incentives the provision of government debt acts to discourage default whether default occurs in equilibrium or not these are our own views and not necessarily those of the federal reserve banks of richmond and st louis or the board of governors of the federal reserve system we thank seminar and conference participants at the chicago federal reserve bank workshop on money banking and payments the 2012 sed meetings along with 3 anonymous referees and the editor dimitri vayanos for their helpful comments and suggestions

monetary policy in a channel system abstract channel systems for conducting monetary policy are becoming increasingly popular despite its popularity the consequences of implementing policy with a channel system are not well understood we develop a general equilibrium framework of a channel system and study the optimal policy a novel aspect of the channel system is that a central bank can tighten or loosen its policy without changing its policy rate this policy instrument has so far been overlooked by a large body of the literature on the optimal design of interest rate rules

anticipated inflation and the capital stock in a cash in advance economy abstract an economy is constructed in which the steady state capital stock is inversely related to the rate of inflation as a result that is directly opposite the usual conclusion

currency and credit are equivalent mechanisms i study a pure exchange economy with many agents whose marginal utility of consumption is stochastically heterogeneous and independent of wealth with realized marginal utility of wealth private information i show that currency and credit are equivalent to a contract that is efficient when the privacy of information is viewed as a constraint and that the cash in advance constraint is an expression of an incentive constraint

on efficient distribution with private information this paper is a study of the dynamics of the efficient distribution of consumption in an exchange economy with many consumers each of whom is subject to private idiosyncratic taste shocks we propose a recursive method for finding feasible allocations that are incentivecompatible and that are pareto optimal within this set the method is applied to several parametric examples we find that in an efficient allocation the degree of inequality continually increases with a diminishing fraction of the population receiving an increasing fraction of the resources we discuss the extent to which these allocations can be decentralized via market arrangements this paper is a study of the dynamics of the efficient distribution of consumption in an exchange economy with private information the economy we study has a constant endowment flow of a single non storable consumption good which is to be allocated each period among a large number of consumers each period these consumers experience unpredictable idiosyncratic privately observed taste shocks affecting their marginal utility of current consumption efficiency dictates that more resources be allocated to those consumers who in any given period have a high marginal utility of current consumption

debt enforcement and the value of money this paper presents a framework in which fiat money has value in equilibrium even though a risk free higher return asset can be equally used as a medium of exchange in a limited commitment environment agents may prefer to borrow a low return asset because that results in a larger borrowing capacity thus a monetary equilibrium in which money is dominated in rate of return exists

the welfare effect of access to credit i present a model in which credit and outside money can be used as means of payment in order to analyze how access to credit aects welfare when credit markets feature limited participation allowing more agents to use credit has an ambiguous eect on welfare because it may make consumption risk sharing more ine cient i calibrate the model using u s data on credit card transactions and show that the increase in access to credit from 1990 to the near present has had a slightly negative impact on welfare

repeated principal agent relationships with lending and borrowing abstract it is shown optimal long term contracts are strictly better than a series of unrelated short term contracts for two reasons long term contracts allow risk to be spread over time and the agent s intertemporal choices provide information about the unobservable random variable

competition between non profit and for profit health insurers this study investigates the effects of tax regulatory and reimbursement policies and other factors exogenous to the health insurance market on the relative price to commercial insurers paid by blue cross plans for hospital care their administrative expense and accounting profits premiums and ultimately blue cross market share we specify and estimate a simultaneous equation model to assess interrelationships among these variables we conclude that premium tax advantages enjoyed by the blues have virtually no effect on the blues premiums or their market shares a blue cross plan s market share has a positive effect on the discount it obtains from hospitals as does coverage of blue shield charges by a state mandated rate setting plan an upper bound on the effect on the blue cross market share of covering blue cross under rate setting but excluding the commercials from such coverage is seven percentage points tests for administrative slack in the operation of blue cross plans yield mixed results

dynamic insurance with private information and balanced budgets this paper studies a dynamic insurance problem with bilateral asymmetric information and balanced budgets there are two infinitely lived agents in our model both risk averse and each has an i i d random endowment stream which is unobservable to the other in each period each agent must have a non negative consumption and together they must consume the entire aggregate endowment dynamic incentive compatibility in the nash sense is defined we give sufficient and necessary conditions for the existence of a constrained efficient contract we show that a constrained efficient contract can be characterized in a bellman equation we demonstrate that the long run distribution of expected utilities of each agent is not degenerate we also develop an algorithm for computing the efficient contract and in a numerical example we find that the consumption processes of the agents form stationary markov chains

repeated moral hazard and one sided commitment abstract this paper considers a repeated unobserved endowment economy with a restriction that agents can walk away from insurance contracts at the beginning of any period and contract with another insurer one sided commitment an equilibrium is derived characterized by a unique market determined insurance contract with the property that agents never want to walk away from it the paper shows that trade or insurance still occurs and that a non degenerate long run distribution of consumption exists a numerical example shows that this distribution is nearly log normal journal of economic literature classification numbers d30 d31 d80 d82

the welfare cost of inflation in general equilibrium abstract this paper presents a general equilibrium monetary model in which inflation distorts a variety of marginal decisions although individually none of the distortions is very large they combine to yield substantial welfare cost estimates a sustained 4 percent inflation like that experienced in the us since 1983 costs the economy the equivalent of 0 41 percent of output per year when currency is identified as the relevant definition of money and over 1 percent of output per year when m1 is defined as money the results illustrate how the traditional partial equilibrium approach can seriously underestimate the true cost of inflation

optimal clearing arrangements for financial trades abstract clearinghouses support financial trades by keeping records of transactions and by providing liquidity through short term credit that participants clear periodically we study efficient clearing arrangements for exchanges where traders must clear with a clearinghouse and for over the counter otc markets where traders can clear bilaterally when clearing is costly it can be efficient to subsidize otc clearing by charging a higher clearing price for transactions conducted on exchanges the clearinghouse then operates across both markets since clearinghouses offer credit intertemporal incentives are needed to ensure settlement when liquidity costs increase concerns about default lead to a tightening of liquidity provision

income fluctuation and asymmetric information an example of a repeated principal agent problem we examine a simple repeated principal agent model with discounting there are a risk averse borrower with an unobservable random income and a risk neutral lender the efficient contract is characterized it tends to the first best constant consumption contract as the discount factor tends to one and the time horizon extends to infinity if the time horizon is infinite and the contract is legally enforceable the borrower s utility becomes arbitrarily negative with probability one if the borrower has constant absolute risk aversion consumption is transferred between any two states at a constant interest rate which is less than the rate of time preference

changing locus of agricultural research will the poor benefit from biotechnology and privatization trends over the past decade the locus of agricultural research and development has shifted dramatically from the public to the private multinational sector three interrelated forces are transforming the system for supplying improved agricultural technologies to the world s farmers the first is the strengthened and evolving environment for protecting intellectual property in plant innovations the second is the rapid pace of discovery and growth in importance of molecular biology and genetic engineering finally agricultural input and output trade is becoming more open in nearly all countries these developments have created a powerful new set of incentives for private research investment altering the structure of the public private agricultural research endeavor particularly with respect to crop improvement

on repeated moral hazard with discounting in this paper we analyze optimal contracts in an infinitely repeated agency model in which both the principal and agent discount the future we show that there is a stationary representation of the optimal contract when the agent s conditional discounted expected utility is used as a state variable this representation reduces the multi period problem to a static variational problem which can be analyzed using standard variational techniques this reduction is used to obtain several properties of the contract

outside versus inside bonds a modigliani miller type result for liquidity constrained economies when agents are liquidity constrained two options exist sell assets or borrow we compare the allocations arising in two economies in one agents can sell government outside bonds and in the other they can borrow by issuing inside bonds all transactions are voluntary implying no taxation or forced redemption of private debt we show that any allocation in the economy with inside bonds can be replicated in the economy with outside bonds but that the converse is not true however the optimal policy in each economy makes the allocations equivalent

money and risk sharing we study the use of money for sharing consumption risk in our model agents randomly receive endowments at some points in time and produce at other points due to information frictions agents cannot use intertemporal contracts to share risk the use of money allows agents to overcome these information frictions the friedman rule is shown to generate efficient risk sharing furthermore we quantify the welfare costs of incomplete risk sharing and find that with 10 inflation the welfare cost of inefficient risk sharing is approximately 1 1 5 of steady state consumption