a theory of commerce abstract the theory of commerce advanced here captures prominent features of retail trade large employment congestion effects anonymous posted prices and quantity discounts this theory is built around a directed search model where buyers preferences are private information the analytical solution is easily inserted in a neoclassical growth framework in this framework the parameters of retail trade are calibrated using commercial margins and employment welfare properties depend on the sellers ability to charge two tier prices with two tier prices the directed search equilibrium is efficient otherwise it is not this contrasts with the full information benchmark where directed search is always efficient

information and time of usage decisions in the bottleneck model with stochastic capacity and demand abstract this paper analyzes the effects of information on participation and time of use decisions for a facility subject to queueing congestion when there are predictable and unpredictable fluctuations in capacity and demand with constant elasticity demand and schedule delay cost functions expected social surplus is greater with perfect than with imperfect information but imperfect information can reduce welfare by inducing adverse changes in individuals times of usage this finding has implications for the design of emerging technologies such as advanced traveller information systems that provide information about usage conditions

can japan make a comeback fter being the best performer in the oecd during the preceding 40 years japan has experienced economic stagnation since the beginning of the 1990s what has happened to the japanese economy can it make a comeback as a fastgrowing economy what is required in terms of economic policy japan is the second largest economy in the world it is the largest or second largest importer of most raw materials and it owns more foreign assets than any other country what happens to the japanese economy is therefore of great importance not only for the japanese but also for the entire world

the dynamics of urban traffic congestion and the price of parking we consider commuting in a congested urban area while an efficient time varying toll may eliminate queuing a toll may not be politically feasible we study the benefit of a substitute a parking fee at the workplace an optimal time varying parking fee is charged at zero rate when there is queuing and eliminates queuing when the rate is non zero within certain limits inability to charge some drivers for parking does not reduce the potential welfare gain drivers who cannot be charged travel when there is queuing in some cases interaction between morning and evening commutes can be exploited to remove queuing completely

equilibrium price dispersion with sequential search abstract the paper studies equilibrium pricing in a product market for an indivisible good where buyers search for sellers buyers search sequentially for sellers but do not meet every seller with the same probability specifically a fraction of the buyers meetings lead to one particular large seller while the remaining meetings lead to one of a continuum of small sellers in this environment the small sellers would like to set a price that makes the buyers indifferent between purchasing the good and searching for another seller the large seller would like to price the small sellers out of the market by posting a price that is low enough to induce buyers not to purchase from the small sellers these incentives give rise to a game of cat and mouse whose only equilibrium involves mixed strategies for both the large and the small sellers the fact that the small sellers play mixed strategies implies that there is price dispersion the fact that the large seller plays mixed strategies implies that prices and allocations vary over time we show that the fraction of the gains from trade accruing to the buyers is positive and nonmonotonic in the degree of market power of the large seller as long as the large seller has some positive but incomplete market power the fraction of the gains from trade accruing to the buyers depends in a natural way on the extent of search frictions

a rudimentary random matching model with divisible money and prices abstract we consider a version of kiyotaki and wright s monetary search model in which agents can hold arbitrary amounts of divisible money a continuum of stationary equilibria indexed by the aggregate real money stock exists with all trading occurring at a single price there is always a maximum level of the real money stock consistent with existence of such an equilibrium in the limit as trading becomes faster relative to discounting any real money stock becomes feasible in such an equilibrium in contrast to the original kiyotaki wright model higher equilibrium real money stocks unambiguously correspond to higher welfare in this costless production environment journal of economic literature classification numbers d51 e40

staggered contracts and the frequency of price adjustment this paper describes a methodology for measuring the frequency of price change in order to test the relevance of assuming prices to be set for discrete periods of time at overlapping intervals taylor 1980 has related the frequency of adjustment to the rigidity of the economy in responding to unanticipated events estimates of the frequency of price change are computed from data on the component parts of the deflator for personal consumption expenditure the results show a substantial decrease in the period between price changes during the middle 1960s and marked fluctuations in the 1970s the movements suggest changes in the rigidity associated with both changes in general price inflation and changes in the posture of the fiscal and monetary authorities

endogenous search price dispersion and welfare abstract this paper studies the welfare cost of inflation in a frictional monetary economy with endogenous consumer search equilibrium entails price dispersion where sellers compete for buyers by posting prices we identify three channels through which inflation affects welfare the real balance channel is the source of welfare loss its interaction with the price posting channel generates a welfare cost larger than lucas 2000 the search channel reduces the welfare cost by more than one half through general equilibrium effect the aggregate effect of these three channels on welfare is non monotonic additionally the welfare cost of inflation fluctuations is negligible

prudential regulation and the credit crunch evidence from japan the underlying causes of sharp declines in bank lending during recessions in large developed economies as exemplified by the u s in the early 1990s and japan in the late 1990s are still being debated due to the lack of any convincing identification strategy of the supply side capital lending relationship from lending demand using within bank share of real estate lending in the late 1980s as an instrumental variable for bank capital we find that japanese banks cut back on their lending in response to a large loss of bank capital in fiscal year 1997

equilibrium using credit or money with indivisible goods this note studies the trade of indivisible goods using credit or money in a frictional market we show how indivisibility matters for monetary equilibrium under different assumptions about price determination bargaining generates a price and allocation that are independent of the nominal interest or inflation rate over some range this is not the case with price posting and directed search in either case we provide conditions the nominal rate cannot be too high under which stationary monetary equilibrium exists and we show it is unique or generically unique

a comment on price dispersion inflation and welfare by a head and a kumar the principal results of head and kumar s article are derived under the natural assumption that the number of price offers received per period by buyers is distributed poisson this case is of interest for two reasons first because the infinite sums and integrals that enter the equilibrium conditions can be solved in closed form the derivations of the model s implications are straightforward second by regarding the arrival rate as the relevant measure of search intensity the analysis of endogenous search effort is simplified the empirical relationship between the rate of inflation and cross seller variation in prices has a long history however it is primarily empirical work without a theory the article by head and kumar 2005 provides an insightful theoretical foundation for the relationship with empirical content the primary purpose of this comment is to derive the principal results of the article using a special but natural assumption about the distribution of the number of price quotes received by buyers wherever possible the authors notation is utilized any new variables are introduced in the text 2 the model the model studied is a synthesis of the monetary exchange model proposed by shi on one hand and the price setting model of burdett and judd on the other in the burdett judd model each sellers sets its price to maximize expected profit given those of others the set of prices are described by a price offer c d f f p and each buyer observes a random sample of offers from this distribution each period the number of offers k i sitself a random variable let qk represent the probability that k offers will be received by any buyer in the article the authors assume that at least one price offer is always received it will be useful to extend the analysis here slightly by assuming that receiving no offer is a possibility i e q0 0

sticky prices a new monetarist approach why do some sellers set nominal prices that apparently do not respond to changes in the aggregate price level in many models prices are sticky by assumption here it is a result we use search theory with two consequences prices are set in dollars since money is the medium of exchange and equilibrium implies a nondegenerate price distribution when the money supply increases some sellers may keep prices constant earning less per unit but making it up on volume so profit stays constant the calibrated model matches price change data well but in contrast to typical sticky price models money is neutral jel e52 e31 e42

an equilibrium model of search unemployment this paper develops a simple general equilibrium model with sequential search in which a nondegenerate wage offer distribution is endogenously determined we use this model to analyze the comparati

information and prices with capacity constraints since george j stigler s 1961 seminal work the literature on consumer search has attempted to understand the relationship between the prices that are set by sell ers and the extent to which consumers can observe and compare these prices before purchasing a good in the theoretical branch of this literature one conclusion is almost universal as buyers become better informed about prices ex ante sellers will set lower prices in equilibrium 1 in fact this relationship is so engrained in the theory of consumer search that it is often accepted as manifest and applied to various markets and situations with little or no hesitation 2 in this paper i examine a completely standard consumer search model with one small yet often relevant additional restriction i assume that sellers possess a limited number of goods or can only serve a limited number of customers at once so that a given seller may be unable to meet realized demand in such an environment i show that the conven tional wisdom regarding information and prices does not necessarily hold having more informed consumers can lead to either an increase or decrease in equilibrium prices or have no effect at all i characterize the regions of the parameter space where each is likely to occur the assumption that a seller s capacity may be fixed and that this constraint may be binding is a fairly important feature of many markets in some markets time is the constraint doctors and barbers and contractors can only serve a limited number of clients at once in other markets space is an issue private schools have a lim ited number of spots in each classroom while restaurants have a limited number of tables perhaps most common is markets in which sellers inventory is occasionally a limiting factor landlords have a limited number of apartments for rent and ticket agents have a limited number of concert tickets available in markets such as these consumers regularly trade off price and availability they are willing to pay more for

a model of money with multilateral matching we develop a model of decentralized monetary exchange to examine the distributional effects of inflation across heterogeneous agents the agents have private information about their productivity preferences or money holdings matching is multilateral and each seller is visited by a stochastic number of buyers the good is allocated according to a second price auction in money in equilibrium homogeneous buyers hold different amounts of money leading to price dispersion we find the closed form solution for the distribution of money holdings entry of sellers is suboptimal except at the friedman rule inflation acts as a regressive tax

ski lift pricing with applications to labor and other markets the market for ski runs or amusement rides often features admission tickets with no explicit price per ride therefore the equilibrium i nvolves queues which are systematically longer during peak periods s uch as weekends moreover the prices of admission tickets are much l ess responsive than the length of queues to variations in demand eve n when these variations are predictable despite the queues and stick y prices the authors show that the outcomes are nearly efficient und er plausible conditions they then show that similar results obtain f or some familiar congestion problems and for profit sharing schemes i n the labor market copyright 1987 by american economic association

congestion pricing and capacity of large hub airports a bottleneck model with stochastic queues this paper models and estimates congestion prices and capacity for large hub airports the model includes stochastic queues time varying traffic rates and endogenous intertemporal adjustment of traffic in response to queuing delay and fees relative costs of queuing and schedule delays are estimated using data from minneapolis st paul simulations calculate equilibrium traffic patterns queuing delays schedule delays congestion fees airport revenues airport capacity and efficiency gains the paper also investigates whether a dominant airline internalizes delays its aircraft impose it tests game theoretic specifications with atomistic nash dominant stackelberg dominant and collusive airline traffic

a divisible search model of fiat money this paper extends the kiyotaki wright search model of fiat money to allow for divisible money and goods the extension allows me to examine the standard issues in monetary economics such as the neutrality and superneutrality of money by severing the artificial link in the kiyotaki wright model between the money supply and the number of money holders it is shown that money is neutral but not superneutral money growth generates a trading opportunity effect it changes the fraction of different agents in the economy and hence changes the probability with which agents have a successful match in addition money growth has a negative effect on the real money balance that is familiar in walrasian monetary models the balance of the two effects can imply a positive optimal money growth rate

menu costs and the neutrality of money a model of endogenous price adjustment under money growth is presented firms follow s s pricing policies and price revisions are imperfectly synchronized in the aggregate price stickiness disappears and money is neutral the connection between firm price adjustment and relative price variability in the presence of monetary growth is also investigated the results contrast with those obtained in models with exogenous fixed timing of price adjustment

on the multiplicity of monetary equilibria green zhou meets lagos wright abstract green and zhou relax the assumption made in early search based models of monetary exchange of indivisible money their paper and various extensions make much technical progress and derive some interesting substantive results in particular they show there is an indeterminacy of steady state monetary equilibria we reconsider this result in the framework of lagos and wright which is more tractable we show that a similar multiplicity arises and is much easier to derive and understand we also compare the results to those in related nonmonetary models and discuss how they depend on details including the number of agents and the timing

information and usage of free access congestible facilities with stochastic capacity and demand we investigate the effect of information on users participation decisions at a free access congestible facility that is subject to unpredictable fluctuations in capacity and demand with demand isoelastic in user cost and user cost isoelastic in the ratio of demand to capacity optimal design capacity is larger with mean preserving spreads in capacity and demand if and only if demand elasticity is less than one expected welfare is greater with better information interestingly with nonconstant elasticity demand and or user costs information can be welfare reducing

on the indeterminacy of equilibrium exchange rates in this paper we consider a particular international economic policy regime the laissez faire regime the distinguishing features of which are unrestricted portfolio choice and floating exchange rates and as we show this regime although favored by many economists is not economically feasible it does not have a determinate equilibrium that is an implication of an overlapping generations model more basically it is an implication of the notion that money is wanted only in order to accomplish trades

oligopolistic pricing with sequential consumer search n identical stores compete by choosing prices for a homogeneous good with constant marginal costs consumers search sequentially with perfect recall for the lowest price one class of consumers called shoppers have zero search costs while all other consumers have a positive search cost c there is a unique symmetric nash equilibrium price distribution with the property that it changes smoothly from marginal cost pricing when all consumers are shoppers and or c 0 and monopoly pricing when no consumers are shoppers remarkably as the number of stores increases the nash equilibrium becomes more monopolistic copyright 1989 by american economic association

retrospective on the bubble period and its relationship to developments in the 1990s in reviewing what happened in the 1980s in japan and how the bursting of the bubble created problems in the early 1990s the following conclusions are obtained 1 in order to limit damage to the economy from a bubble and its bursting it is important to build a resilient financial system through strict supervision policy so that asset price fluctuations would not weaken financial institutions supervision policy would include regulatory measures limiting lending concentration and exposure to real estate related sectors 2 monetary policy should pay attention to asset price movements but it may be difficult and inappropriate to raise the interest rate sharply when inflation is low below one per cent like in japan even though asset prices are increasing at 30 40 per cent 3 the official discount rate could have been raised in the summer of 1988 in japan when the federal reserve and bundesbank raised interest rates this would have slowed down the rise of stock and land prices but the bubble was already large by then 4 the bubble in the second half of the 1980s was only partially responsible for the lost decade of the 1990s in japan a series of policy errors made a small problem of the burst bubble much bigger than necessary

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

does commodity money eliminate the indeterminacy of equilibrium abstract previous studies have shown that a random matching model with divisible fiat money and without constraint on agents money inventories possesses a continuum of stationary single price equilibria wallace j econom theory 81 1998 223 conjectures that the indeterminacy can be eliminated by the use of commodity money instead i find that in a similar random matching model with dividend yielding commodity money a continuum of stationary single price equilibria exists when the utility of dividend is not too high this result casts doubt on the conventional belief that the indeterminacy of monetary equilibrium is be caused only by the nominal nature of money

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

the adjustment of prices to monetary shocks when trade is uncertain and sequential trade is both uncertain and sequential money surprises are not neutral because prices at the beginning of the trading process cannot depend on its end in contrast with fixed price models in this paper sellers can change prices during trade in contrast with lucas s article here there is no asymmetry in the information about the money supply the price quoted by individual sellers may adjust slowly to changes in the targeted money supply but the distribution of quoted prices adjusts perfectly to these changes and the real price distribution is independent of the anticipated rate of change in the money supply

random queues and risk averse users we analyse nash equilibrium in time of use of a congested facility users are risk averse with general concave utility queues are subject to varying degrees of random sorting ranging from strict queue priority to a completely random queue we define the key no residual queue property which holds when there is no queue at the time the last user arrives at the queue and prove that this property holds in equilibrium under all queueing regimes considered the no residual queue property leads to simple results concerning the equilibrium utility of users and the timing of the queue

search price setting and inflation a model of monopolistic competition in an inflationary environment is developed which embodies optimal sequential search price dynamics and entry on the part of consumers and firms respectively equilibrium price strategies are s s these bounds increase continuously with consumer search costs and so does price dispersion indeed the whole equilibrium varies smoothly from the competitive bertrand to the monopolistic diamond 1971 end of the spectrum the latter s paradoxical result is explained as a limiting case where frictions on firms side of the market price adjustment costs but not on buyers search costs tend to zero a positive relationship between smooth and perfectly anticipated inflation and price dispersion or uncertainty is established

congestion in a city with a central bottleneck we consider dynamic congestion in an urban setting where trip origins are spatially distributed all travelers must pass through a downtown bottleneck in order to reach their destination in the cbd each traveler chooses departure time to maximize general concave scheduling utility we find that at equilibrium travelers sort according to their distance to the destination the queue is always unimodal regardless of the spatial distribution of trip origins we construct a welfare maximizing tolling regime which eliminates congestion all travelers located beyond a critical distance from the cbd gain from tolling even when toll revenues are not redistributed while nearby travelers lose we discuss our results in the context of acceptability of tolling policies

reference prices costs and nominal rigidities we assess the importance of nominal rigidities using a new weekly scanner dataset we find that nominal rigidities take the form of inertia in reference prices and costst defined as the most common prices and costs within a given quarter reference prices are particularly inertial and have an average duration of roughly one year even though weekly prices change roughly once every two weeks we document the relation between prices and costs and find sharp evidence of state dependence in prices we use a simple model to argue that reference prices and costs are useful statistics for macroeconomic

the q s s pricing rule we introduce menu costs in the search theoretic model of imperfect competition of burdett and judd when menu costs are not too large the equilibrium is such that sellers follow a q s s pricing rule according to the rule a seller lets inflation erode the real value of its nominal price until it reaches some point s then the seller pays the menu cost and resets the real value of its nominal price to a point randomly drawn from a distribution with support s q where s s q a q s s equilibrium differs with respect to a standard s s equilibrium 1 in a q s s equilibrium sellers sometimes keep their nominal price constant to avoid paying the menu cost other times because they are indifferent to changes in the real value of their price an exploratory calibration reveals that menu costs account less than half of the observed duration of nominal prices 2 in a q s s equilibrium higher inflation leads to higher real prices as sellers pass onto buyers the cost of more frequent price adjustments and to lower welfare

money is memory abstract this paper examines the sets of feasible allocations in a large class of economic environments in which commitment is impossible following myerson 8 the standard definition of feasibility is adapted to take account of the lack of commitment the environments feature either memory or money memory is defined as knowledge on the part of an agent of the full histories of all agents with whom he has had direct or indirect contact in the past money is defined as an object that does not enter utility or production functions and is available in fixed supply the main proposition is that any allocation that is feasible in an environment with money is also feasible in the same environment with memory depending on the environment the converse may or may not be true hence from a technological point of view money is equivalent to a primitive form of memory journal of economic literature classification numbers e40 c73 d82

self confirming price dispersion in monetary economies abstract in a monetary economy we show that price dispersion arises as an equilibrium outcome without the need for costly simultaneous search or any heterogeneity in preferences production costs or search technologies a distribution of money holdings among buyers makes sellers indifferent across a set of posted prices leading to a non degenerate price distribution this price distribution in turn makes buyers indifferent across a range of money balances rationalizing the non degenerate distribution of money holdings we completely characterize the distribution of posted prices and money holdings in any equilibrium equilibria with price dispersion admit higher maximum prices than observed in any single price equilibrium and feature an increasing density of prices in contrast to existing theories price dispersion reduces welfare by creating mismatch between posted prices and money balances inflation exacerbates this welfare loss by shifting the distribution towards higher prices

state dependent pricing and the general equilibrium dynamics of money and output economists have long suggested that nominal product prices are changed infrequently because of fixed costs in such a setting optimal price adjustment should depend on the state of the economy yet while widely discussed statedependent pricing has proved difficult to incorporate into macroeconomic models this paper develops a new tractable theoretical state dependent pricing framework we use it to study how optimal pricing depends on the persistence of monetary shocks the elasticities of labor supply and goods demand and the interest sensitivity of money demand

the effect of bank credit on asset prices evidence from the japanese real estate boom during the 1980s bernanke bs 2001 am econ rev v91 p253 doi 10 1257 aer 91 2 253 cargill thomas 2000 financial policy cen gerlach s 2005 j bank financ v29 p461 doi 10 1016 j jbankfin 2004 05 015 hoshi t 2000 nber macroecon annu v14 p129 hoshi t 1993 4421 nber hoshi t 2001 monetary ec studies v19 p1 hutchison m 1997 political ec japanes ito t 1996 monetary ec studies v14 p143 ito t 2004 japans lost decade o p17 kindleberger c 1978 financial crises the kitagawa h 1994 financial dev japan p81 kiyotaki n 1997 j polit econ v105 p211 doi 10 1086 262072 peek j 2000 am econ rev v90 p30 doi 10 1257 aer 90 1 30 petersen ma 2002 j financ v57 p2533 doi 10 1111 1540 6261 00505 ueda k 2000 crisis change japane p59 ueda k 1994 japanese main bank s p89 weinstein de 1998 j financ v53 p635 doi 10 1111 0022 1082 254893

implications of rational inattention abstract a constraint that actions can depend on observations only through a communication channel with finite shannon capacity is shown to be able to play a role very similar to that of a signal extraction problem or an adjustment cost in standard control problems the resulting theory looks enough like familiar dynamic rational expectations theories to suggest that it might be useful and practical while the implications for policy are different enough to be interesting

money and price posting under private information abstract we study price posting with undirected search in a search theoretic monetary model with divisible money and divisible goods ex ante homogeneous buyers experience match specific preference shocks in bilateral trades the shocks follow a continuous uniform distribution and the realizations of the shocks are private information we show that there exists a unique monetary equilibrium for generic values of the inflation rate in equilibrium each seller posts a continuous pricing schedule that exhibits quantity discounts buyers may spend nothing a fraction or all of their money holdings depending on their preference shock realizations inflation reduces the extent of non linear pricing the model captures the hot potato effect of inflation along both the extensive margin as an increase in the trading probability and the intensive margin as higher fractions of money being spent