guarding the guardians good government requires some restraints on the powerful but how can those be impose if there is no one above them this paper studies the equilibrium allocation of power and resources established by self interested incumbents under the threat of rebellions from inside and outside the group in power commitment to uphold individuals rights can only be achieved if power is not as concentrated as incumbents would like it to be ex post power sharing endogenously enables incumbents to commit to otherwise time inconsistent laws by ensuring more people receive rents under the status quo and thus want to defend it

financial development convergence abstract we show that credit levels relative to gdp and other measures for financial development tend to converge across countries over time the results are obtained using a broad sample of countries over many years and controlling for the quality of country level institutions the efficiency of financial institutions and a range of macroeconomic variables while we find evidence for convergence in the broad sample we show that it levels off when countries reach a medium level of financial development at high levels of financial development convergence slows down even more and becomes negligible

reciprocity and cooperation in repeated coordination games the principled player approach abstract two long lived players play a repeated coordination game i show the restrictions on players beliefs which imply that cooperation is optimal play journal of economic literature classification number d83

perspectives on mechanism design in economic theory economics began with xenophon s oeconomicus c 360 bce in which socrates interviews a model citizen who has two primary concerns he goes out to his farm in the country to monitor and motivate his workers there then he goes back to the city where his participation in various political institutions is essential for maintaining his rights to own this farm such concerns about agents incentives and political institutions are also central in economic theory today but they were not always two centuries ago economics developed as an analytical social science by focusing on produc tion and allocation of material goods developing methodologies of national income accounting and price theory questions about resource allocation seemed particularly amenable to math ematical analysis because flows of goods and money are measurable and should satisfy flowbalance equations and no arbitrage conditions from this perspective the classical economic problem was that people s ability to satisfy their desires is constrained by limited resources the classical economic result was that unrestricted free trade can achieve allocative efficiency in the sense that reallocating the available resources cannot improve everyone s welfare a shift of focus from allocation of resources back to analysis of incentives began from the time of augustin cournot 1838 when economic theorists began to analyze optimal decisions of rational individuals as a tool for understanding supply and demand in price theory see jurg

thomas schelling s contributions to game theory thomas schelling brings game theory to life and does so in two senses first instead of the abstract and austere beauty of mathematical theorems that we find in most of game theory going back to von neumann morgenstern and nash he gives us lively and memorable examples to explain and illustrate his ideas schelling s 1960a p 21 pictures of bargaining when two dynamite trucks meet on a road wide enough for one who backs up and of tacit coordination can two people who are told to meet each other in new york city on a specified day but are not told the place or time and are unable to contact each other successfully meet 1960a pp 55 56 are among the best known but my personal favorite is schelling s 1965 pp 66 67 example of the strategy of salami tactics for defeating threats by incremental escalation

inflation financial markets and long run real activity abstract empirical evidence suggests that real activity the volume of bank lending activity and the volume of trading in equity markets are strongly positively correlated at the same time inflation and financial market activity are strongly negatively correlated in the long run as are inflation and the real rate of return on equity inflation and real activity are also negatively correlated in the long run particularly for economies with relatively high rates of inflation we present a monetary growth model in which banks and secondary capital markets play a crucial allocative function we show that at least under certain configurations of parameters the predictions of the model are consistent with these and several other observations about inflation finance and long run real activity

stock markets and development this paper asks if financial development especially stock market development affects the level and or the growth rate of economic activity it finds a substantial effect on both current wisdom suggests that the growth effects of financial intermediation could be either permanent or transitory for instance the greenwood jovanovic 1990 henceforth gj model has an ak stucture with no diminishing returns to the reproducible factor and a permanent exogenous improvement in financial structure would cause a permanent increase in the rate of growth on the other hand if the returns to the reproducible factor did diminish better intermediation could lead only to level effects since one should not a priori exclude either growth effects or level effects we shall look for both our search for growth effects will use the gj model our search for level effects will rely on an amended version of the mankiw romer and weil 1992 henceforth mrw structure

on the complexity of strategy switching dynamics abstract a new approach has been proposed to analyze the strategy switching dynamics in a discrete model or a non cooperative game with the following characteristics i the agents are motivated by absolute payoffs rather than relative ones ii the payoffs vary as the composition of the population changes iii the agents are boundedly rational in the sense that they can only predict the outcomes of their own actions rich dynamic phenomena are exhibited for such discrete dynamic models or games the approach is then applied to explore the relative profitability of price taking behavior in a quantity competing heterogeneous oligopoly

stock markets banks and growth panel evidence this paper investigates the impact of stock markets and banks on economic growth using a panel data set for the period 1976 98 and applying recent gmm techniques developed for dynamic panels on balance we find that stock markets and banks positively influence economic growth and these findings are not due to potential biases induced by simultaneity omitted variables or unobserved country specific effects

poverty traps the money growth rule and the stage of financial development abstract this paper investigates how monetary policy influences the emergence of local indeterminacy local bifurcations and multiple steady states depending upon the degree of the commitment parameter that defines financial market imperfection using diamond s overlapping generations model with credit market frictions the analytical results will show that poverty traps happen as an inevitable outcome under a wider range of money growth rates because financial markets are less developed put differently we derive analytically the positive link between financial development and per capita income

industry growth and capital allocation does having a market or bank based system matter are market based or bank based financial systems better at financing the expansion of industries that depend heavily on external finance facilitating the formation of new establishments and improving the efficiency of capital allocation across industries we find evidence for neither the market based nor the bank based hypothesis while legal system efficiency and overall financial development boost industry growth new establishment formation and efficient capital allocation having a bank based or market based system per se does not seem to matter much

the long run relationship between inflation and output in postwar economies abstract we investigate the relationship between inflation and real output in a large sample of postwar economies our methodology is to use a structural vector autoregression to estimate the response of the level of real output to permanent inflation shocks separately for each country we find that a permanent shock to inflation is not associated with a permanent movement in the level of real output for most countries in our sample the main exceptions are certain low inflation countries in which permanent inflation shocks permanently increase the level of output we also find that permanent inflation shocks do not permanently influence real output growth rates in our sample

stock market returns and inflation evidence from other countries this paper investigates the relation between common stock returns and inflation in twenty six countries for the postwar period our results do not support the fisher hypothesis which states that real rates of return on common stocks and expected inflation rates are independent and that nominal stock returns vary in one to one correspondence with expected inflation there is a consistent lack of positive relation between stock returns and inflation in most of the countries

strategy subsets closed under rational behavior a set of strategy profiles is here said to be closed under rational behavior curb of it contains all its best replies each curb set contains the support of at least one nash equilibrium in mixed

how good are standard debt contracts stochastic versus nonstochastic monitoring in a costly state verification environment the authors investigate ex ante efficient contracts in an environment in which implementation is costless in this environment standard debt contracts will typically not be optimal optimal contracts may involve defaults even in states in which the borrower is fully able to repay the authors then examine the welfare costs of arbitrarily restricting the set of feasible contracts to standard debt contracts when model parameters are calibrated to realistic values the welfare loss from exogenously imposing this restriction is extremely small thus if implementation costs are actually nontrivial as seems likely standard debt contracts will be very close to optimal copyright 1994 by university of chicago press

learning in games by random sampling abstract we study repeated interactions among a fixed set of low rationality players who have status quo actions randomly sample other actions and change their status quo if the sampled action yields a higher payoff this behavior generates a random process the better reply dynamics long run behavior leads to nash equilibrium in games with the weak finite improvement property including finite supermodular games and generic continuous two player quasi concave games if players make mistakes and if several players can sample at the same time the resulting better reply dynamics with simultaneous sampling converges to the pareto optimal nash equilibrium in common interest games journal of economic literature classification numbers c70 c72 c73

help wanted economists crime and public policy beginning with gary w becker s 1968 article on crime and punishment economists have contributed important theoretical insights and empirical findings to the study of criminal behavior but the influence of economists on crime relevant research and over policy debates remains negligible this essay summarizes some basic data on the causes of crime the social costs and benefits of incarceration and replenishing social capital work on crime by economists should become influential in setting research agendas and shaping policy debates but economists will have to roll up their sleeves complexify their models and confront a real world prisoner s dilemma or two

costly monitoring financial intermediation and equilibrium credit rationing abstract this paper establishes a link between equilibrium credit rationing and financial intermediation in a model with asymmetrically informed lenders and borrowers costly monitoring and investment project indivisibilities intermediation is shown to dominate borrowing and lending between individuals and these financial intermediaries exhibit several of the important features of intermediaries as we know them equilibrium interest rates and the aggregate quantity of loans respond quite differently to changes in taste and technology parameters depending on whether or not there is rationing in equilibrium

financial structure and economic growth recent empirical work on financial structure and economic growth analyzes multi country dataset in panel and or cross section frameworks and concludes that financial structure is irrelevant we highlight their shortcomings and re examine this issue utilizing a time series and a dynamic heterogeneous panel methods our sample consists of fourteen countries tests reveal that cross country data cannot be pooled financial structure significantly explains output levels in most countries the results are rigorously scrutinized through bootstrap exercises and they are robust to extensive sensitivity tests we also test for several hypotheses about the prospective role of financial structure and financial development on economic growth

the role of financial sector competition for monetary policy in this paper we examine the impact of competition in the banking industry on financial market activity in particular we explore this issue in a setting where banks simultaneously insure individuals against liquidity risk and offer loans to promote intertemporal consumption smoothing in addition spatial separation and private information generate a transactions role for money interestingly we demonstrate that the industrial organization of the financial system bears significant implications for the effects of monetary policy under perfect competition higher rates of money growth lead to lower interest rates and a higher volume of lending activity in contrast in a monopoly banking sector money growth restricts the availability of funds and raises the cost of borrowing

banking sector development and interest rate volatility in emerging economies over the last decades macroeconomic stability is said to be one of the major concerns of emerging economies financial sector as a core of macroeconomic stability has been under close consideration of policy makers the relationship between interest rate uncertainty and banking sector development as one of the most important indicators of financial sector development especially for emerging economies has not received enough attention in the literature perhaps this article is the most comprehensive study that investigates the relationship between interest rate uncertainty and banking sector development for a large group of emerging economies to do this the short run and long run models using a bounds testing approach to cointegration for 12 emerging economies over the period 1980 2011 have been developed estimated results from all models indicate that interest rate uncertainty has significant effect on banking sector development in both short run and long run phenomena in the majority of countries

does judicial efficiency lower the cost of credit the authors investigate the effect of judicial efficiency on banks lending spreads for a large cross section of countries they measure bank interest rate spreads for 106 countries at an aggregate level and for 32 countries at the level of individual banks the authors find that after controlling for a number of other country characteristics judicial efficiency in addition to inflation is the main driver of interest rate spreads across countries this suggests that in addition to improving the overall macroeconomic climate in a country judicial reforms through a better enforcement of legal contracts are critical to lowering the cost of financial intermediation for households and firms

evolution rationality and equilibrium in games abstract evolutionary game theory studies the robustness of strategy profiles and sets of strategy profiles with respect to evolutionary forces in games played repeatedly in large populations of boundedly rational agents the approach is macro oriented in the sense of focusing on the strategy distribution in the interacting population s some of the main features of this approach are here outlined and connections with learning models and standard notions of game theoretic rationality and equilibrium are discussed some desiderata and results for robust long run predictions are considered

financial markets the pattern of industrial specialization and comparative advantage evidence from oecd countries due to underlying technological and organizational differences industries differ in their need for external finance since services provided by the financial sector are largely immobile across countries the pattern of industrial specialization should be influenced by the level of financial development among oecd countries we find a strong causal effect of the financial sector on industrial specialization further the financial sector is a source of comparative advantage in a way consistent with the hecksher ohlin vanek model results are also presented on which aspects of financial systems are important for specialization and comparative advantage

monitoring the monitor an incentive structure for a financial intermediary this paper studies financial intermediation i e delegated monitoring in a costly state verification model there are a finite number of agents thus the intermediary cannot fully diversify its portfolio and is subject to default risk the role of the intermediary is to satisfy simultaneously the different portfolio preferences of borrowers and lenders two questions arise when a delegated monitor is subject to non trivial default risk a what arrangement solves the problem of monitoring the monitor b what intermediary portfolio accomplishes optimal asset transformation between borrowers and lenders unlike previous delegated monitoring studies the law of large numbers is not sufficient to obtain our results instead we appeal to a stronger results the large deviation principle which establishes that convergence in the law of large numbers is exponential

institutions household credit composition and the business cycle we show that the negative effect of household credit growth on subsequent economic growth documented in the recent literature is not the same across countries the effect is stronger in countries with weak institutions where the fraction of consumer credit in total household credit is greater that is an important nuance as consumer credit is a sizable part of household credit in many emerging markets and its rapid buildup should be observed with the same caution as a rapid buildup in housing credit jel g21 e32 e44

from institutions to financial development and growth what are the links this paper presents an integrated overview of the literature linking institutions financial development and economic growth from the large body of research on institutional development the paper first selects those contributions that make it possible to study the role of institutional arrangements in ameliorating worsening the information frictions and transaction costs that characterize the development of financial markets the paper then investigates the theoretical mechanisms by which these specific frictions affect economic growth and presents the stock of empirical evidence quantifying the impact of institutions on growth through financial development

nash equilibrium and the history of economic theory john nash s formulation of noncooperative game theory was one of the great breakthroughs in the history of social science nash s work in this area is reviewed in its historical context to better understand how the fundamental ideas of noncooperative game theory were developed and how they changed the course of economic theory

who is credit constrained in the u s economy an important assumption of the life cycle model of consumption is the postulate of perfect capital markets this hypothesis has recently been challenged by substantial empirical evidence hall and mishkin 1982 using the panel study of income dynamics estimate that 20 percent of united states families are liquidity constrained mariger 1986 derives a life cycle model with endogenous liquidity constraints and using a cross section estimates this fraction to be 19 4 percent hubbard and judd 1986 simulate a model with a constraint on net worth which shows that with reasonable assumptions about preferences 19 0 percent of united states consumers are liquidity constrained the emerging consensus points therefore to a fraction of approximately 20 percent of the population behaving in a manner that is inconsistent with the pure life cycle model in addition hayashi 1985 and zeldes 1989 investigate the correlation among consumption wealth and income for various population groups and infer that liquidity constraints are more important for younger families with low levels of wealth and saving the main limitation of these studies is that in their data sets constrained consumers are not observable and have to be identified via indirect evidence thus there is as yet little firm evidence about the characteristics of the consumers who are likely to be credit constrained this paper adopts an approach that differs from previous tests for liquidity constraints because it makes use of data where constrained consumers are observable and explicitly links their existence to credit market imperfections and personal characteristics the data drawn from the 1983 survey of consumer finances scf and described in section ii provide information on individuals whose request for credit has been rejected by financial intermediaries in section iii a model is developed in which consumers and lenders behavior jointly determines the probability that a consumer is rationed in the credit market this probability is then

cross country evidence on long run growth and inflation i introduction many believe inflation has important adverse effects on long run economic performance this conviction is based on the logic summarized by fischer and modigliani 1978 for example that firms and workers devote productive resources to dealing with inflation that inflation uncertainty reduces efficiency by discouraging long term contracting and increasing relative price variability and so on nonetheless many others believe that the magnitudes of such costs are small and insignificant at moderate rates of inflation cross country growth regressions would seem to offer a sensible means of empirically determining inflation s effects 1 such analysis would appear less sensible however in light of the levine and renelt 1992 finding that estimates of the growth inflation relationship vary sharply with the regression specification nonetheless analyses completed subsequent to levine and renelt 1992 for example fischer 1991 1993 cozier and selody 1992 and cukierman et al 1993 continue to use growth regressions to infer inflation s effects and typically conclude growth and inflation to be inversely related this paper shows that while inflation does generally appear to be inversely related to growth estimates of the relationship suffer two additional robustness problems problems which emerge across a variety of model specifications more specifically this analysis first demonstrates the sensitivity of growth inflation results to modifications to the sample of countries limited from the start to low and moderate inflation countries it next demonstrates the sensitivity of results to modifications in the time period for example among oecd countries abbreviating the covered time period from 1960 85 to 1968 85 reduces inflation s effect on growth to insignificance such fragility with respect to the country sample and time period may be viewed as even more fundamental than the regression specification sensitivity documented by levine and renelt 1992 this analysis then shows that the same robustness problems plague alternative specifications of the growth inflation relationship the baseline regression estimated here supposes a linear growth inflation relationship formally it follows from an augmented solow growth model 1956 in which inflation drives the level but not the growth rate of steady state income plausible alternatives include allowing inflation to have non linear effects on growth as in log and quadratic specifications and respecifying the model such that inflation formally drives steady state growth rather than just the steady state level of income such alternatives to the baseline specification yield results which suffer the same basic difficulties of sensitivity to country sample and time period ultimately these findings should further discourage that is lay to rest the practice of quantifying inflation s effects with cross country growth regressions while cross country growth regressions may be viewed as generally suggesting that inflation imposes costs the fragility of the estimates indicates researchers will need to use alternative approaches to better identify inflation s costs researchers might for example find it productive to build on the investment analyses of huizinga 1993 and pindyck and solimano 1993 which combine time series and cross section variation ii theory as detailed by mankiw romer and weil 1992 the solow growth model 1956 augmented to allow for human capital may be used to derive a simple relationship between growth and initial income population growth and the rates of physical and human capital investment 1 ln y sub i t y sub i 0 gamma sub 0 gamma sub 1 ln y sub i 0 gamma sub 2 ln n sub i g delta gamma sub 3 ln s sub i gamma sub 4 ln h sub i v sub i the variable y denotes income per capita n represents exogenous population growth g denotes the exogenous rate of growth of labor augmenting technology delta is the common rate of depreciation of physical and human capital and s and h denote respectively the rates of physical and human capital accumulation

endogenous enforcement institutions we model the state as a self enforcing agreement over the use of force powerful individuals punish violations of contracts and property rights and if they shirk or abuse their power society reverts to a low production anarchy stage our model has two implications first improvements in coercion move the optimal enforcement system from private ordering where coercive punishments are not used to centralized state where punihments sanction violations by citizens but not by the ruler to decentralized state where punishments sanction all violations second institutions that reinforce the allegiance of state militias to the law simultaneously insure that contract violations are punished and that the ruler does not expropriate citizens thus they are more productive than judicial institutions which solely facilitate contract enforcement the model is consistent with the historical correlation between technological advances in coercion and the transition from private to state enforcement and with the fact that institutional constraints on the executive affected the long run economic development of nations more than improvements in judicial institutions acemoglu and johnson 2005 we also provide a framework for the optimal sequencing of institutional reforms they should focus first on the binding self enforcement constraint punishment or expropriation and switch to other constraints when the initially binding constraint becomes slack

rationalizable strategic behavior the notion of equilibrium proposed by nash 19 has come to play a dominant role in economic applications of noncooperative games while analyses of nash equilibria have unquestionably contributed to our understanding of economic behavior it would be unreasonably optimistic to maintain that nash solved the problem of noncooperative strategic choice there is a small literature beginning with ellsberg 6 and a much larger oral tradition which argues that nash behavior is neither a necessary consequence of rationality nor a reasonable empirical proposition in this paper i take the view that although there may be various reasons why an agent might select a nash strategy the notion of an equilibrium has little intrinsic appeal within a strategic context when an agent reaches a decision in ignorance of the strategies adopted by other players rationality consists of making a choice which is justifiable by an internally consistent system of beliefs rather than one which is optimal post hoc this point of view is not original indeed most serious justifications of the nash hypothesis embrace such an approach arguing that agents will expect the game to yield a nash outcome and consequently will choose their equilibrium strategies nevertheless when we think in terms of maximizing utility subject to expectations rather than realizations it becomes clear that the nash hypothesis far from being a consequence of rationality arises from certain restrictions on agents expectations which may or may not be plausible depending upon the game being played we are then quite naturally led to ask are there any restrictions of individuals expectations and hence choices which are required by rationality alone rather than by subjective plausibility this paper is concerned with defining justifying characterizing and refining a criterion for rational strategic choice which i label rationalizability

liquidity risk and financial competition implications for asset prices and monetary policy abstract this paper studies the implications of banking competition for capital markets and monetary policy in particular i develop a two sector monetary growth model in which a group of agents is exposed to liquidity shocks and money is essential banks insure depositors against such risk and invest in the economy s assets in this setting i compare an economy with a perfectly competitive banking sector to an economy with a fully concentrated financial sector unlike previous work banks can have market power in both deposits and capital markets compared to a perfectly competitive financial sector i demonstrate that a monopolistic banking system can have substantial adverse consequences on capital formation assets prices and the degree of risk sharing furthermore multiple steady states can emerge and the economy becomes subject to poverty traps more importantly market power in financial markets may overturn the tobin effect present under a perfectly competitive financial sector this necessarily happens in economies with high degrees of liquidity risk and low levels of capital formation

currency elasticity and banking panics theory and evidence existing models of banking panics contain no role for monetary factors and fail to explain why some banking systems experienced panics while others did not a monetary model is constructed where seasonal variations in the demand for liquidity and credit play a critical role in generating banking panics these panics occur when there are restrictions on the issue of currency in private banks but they do not occur if banks are unrestricted empirical evidence from canada and the united states for the period 1880 1910 is largely consistent with the predictions of the model

when does tit for tat diplomacy in trade policy pay off in international relations short run incentives for non cooperation often dominate yet external institutions for enforcing cooperation are hampered by national sovereignty supposedly strengthening the role of selfenforcing mechanisms this paper examines their scope with a focus on contingent protection aka tit for tat in trade policy by highlighting various strategies in a linear partial equilibrium framework we show that retaliation of non cooperative behavior by limiting market access works as a disciplining device independently of supply and demand parameters our theoretical results are backed by empirical evidence that countries more frequently involved in wto mediated disputes entailing tit for tat strategies pursue on average more liberal trade regimes

financial market frictions monetary policy and capital accumulation in a small open economy abstract we consider a small open economy with a costly state verification problem and binding reserve requirements the presence of these frictions leads to the existence of two steady states with credit rationing an increase in the money growth rate the world interest rate or reserve requirements raises lowers gdp in the high low activity steady state however sufficiently large increases in money growth or the world interest rate can transform the high activity steady state from a sink to a source the model also delivers prescriptions for restoring the stability of this steady state in such an eventuality journal of economic literatureclassification numbers e5 f4

experimental evidence on the evolution of the meaning of messages in sender receiver games an experiment this paper experimentally investigates the evolution of message meanings when talk is cheap we consider communication between a privately informed sender and a receiver when the sender s message does not affect payoffs directly sender receiver games introduced by jerry green and nancy stokey 1980 and vincent p crawford and joel sobel 1982 provide the simplest stylized environment in which communication is essential communication is the only way to link the receiver s action to the sender s private information in addition sender receiver games have been widely used to study communication in accounting economics finance and political science intuition strongly suggests that effective communication will evolve when the players interests are closely aligned however there is always a nash equilibrium in which the sender randomizes uniformly across all messages such babbling equilibria are proper roger b myerson 1978 blume 1994 and even strategic stability elon kohlberg and jeanfrancois mertens 1986 does not rule out uninformative equilibria in general in response a literature developed that formulates equilibrium selection criteria by appealing to the existence of a commonly understood language matthew rabin 1990 steven a matthews et al 1991 joseph farrell 1993 that can be used to formulate credible deviations from equilibrium unfortunately the selection criteria from this literature are frequently strong enough to remove all equilibria from consideration in addition these arguments are vulnerable to stiglitz s observation in koo cho and david m kreps 1987 that successful deviations from equilibrium may induce further deviations which in turn may undermine the credibility of the original deviations both problems can be avoided by a dynamic approach as in rabin and sobel 1996 we also adopt a dynamic perspective but do not require messages to have a priori meanings instead distinct meanings may emerge endogenously this is important for communication across cultures and for language change 2 we are guided by recent results of blume department of economics university of iowa iowa city ia 52242 dejong department of accounting university of iowa iowa city ia 52242 kim department of economics sung kyun kwan university seoul 110 745 korea sprinkle department of accounting university of wisconsin madison wi 53706 we thank joyce berg vince crawford robert forsythe joel horowitz deirdre mccloskey forrest nelson larry samuelson gene savin joel sobel and especially two anonymous referees for their advice and suggestions we benefitted from comments and discussions resulting from presentations at the 1994 summer meetings of the econometric society the 1996 social learning workshop at suny stony brook the io me gt workshop at the university of iowa the university of bonn the university of bielefeld the center for economic research at tilburg university ohio state university seoul national university and texas a m university we are grateful for financial support from the college of business administration at the university of iowa the ira b mcgladrey institute and the national science foundation

rationalizable strategic behavior and the problem of perfection this paper explores the fundamental problem of what can be inferred about the outcome of a noncooperative game from the rationality of the players and from the information they possess the answer is summarized in a solution concept called rationalizability strategy profiles that are rationalizable are not always nash equilibria conversely the information in an extensive form game often allows certain unreasonable nash equilibria to be excluded from the set of rationalizable profiles a stronger form of rationalizability is appropriate if players are known to be not merely rational but also cautious what constitutes rational behavior in a noncooperative strategic situation this paper explores the issue in the context of a wide class of finite noncooperative games in extensive form the traditional answer relies heavily upon the idea of nash equilibrium nash 17 the position developed here however is that as a criterion for judging a profile of strategies to be reasonable choices for players in a game the nash equilibrium property is neither necessary nor sufficient some nash equilibria are intuitively unreasonable and not all reasonable strategy profiles are nash equilibria the fact that a nash equilibrium can be intuitively unattractive is well known the equilibrium may be imperfect introduced into the literature by selten 20 the idea of imperfect equilibria has prompted game theorists to search for a narrower definition of equilibrium while this research some of which will be discussed here has been extremely instructive it remains inconclusive theorists often agree about what should happen in particular games but to capture this intuition in a general solution concept has proved to be very difficult if this paper is successful it should make some progress in that direction the other side of the coin has received less scrutiny can all non nash profiles really be excluded on logical grounds i believe not the standard justifications for considering only nash profiles are circular in nature or make gratuitous assumptions about players decision criteria or beliefs the following discussion of these points is extremely brief due to space constraints more detailed arguments may be found in pearce 18

tenable strategy blocks and settled equilibria when people interact in familiar settings social conventions usually develop so that people tend to disregard alternatives outside the convention for rational players to usually restrict attention to a block of conventional strategies no player should prefer to deviate from the block when others are likely to act conventionally and rationally inside the block we explore two set valued concepts coarsely and finely tenable blocks that formalize this notion for finite normal form games we then identify settled equilibria which are nash equilibria with support in minimal tenable blocks for a generic class of normal form games our coarse and fine concepts are equivalent and yet they differ from standard solution concepts on open sets of games we demonstrate the nature and power of the solutions by way of examples settled equilibria are closely related to persistent equilibria but are strictly more selective on an open set of games with fine tenability we obtain invariance under the insertion of a subgame with a unique totally mixed payoff equivalent equilibrium a property that other related concepts have not satisfied

oil price shocks and chinese banking performance do country risks matter abstract this paper contributes to the existing literature by investigating the impacts of oil prices on bank performance through a broad array of camel capital adequacy asset quality management earnings and liquidity indicators in china over the period 2000 2014 to gain further insights into this issue we also discuss whether the correlations change with different dimensions of country risk i e economic financial and political which extant studies ignored the results reveal that oil prices have a significant impact on banking performance as their increase triggers a reduction in banking performance in terms of capitalization management efficiency earning power and liquidity however these adverse effects are mitigated by country stability especially economic stability and political stability these results are important for policy makers who should be cautious when formulating a strategy for macroeconomic stability from the managerial perspective bank managers should consider establishing early warning and response mechanisms on the back of oil price shocks in order to operate under better performance

financial intermediation and delegated monitoring this paper develops a theory of financial intermediation based on minimizing the cost of monitoring information which is useful for resolving incentive problems between borrowers and lenders it presents a characterization of the costs of providing incentives for delegated monitoring by a financial intermediary diversification within an intermediary serves to reduce these costs even in a risk neutral economy the paper presents some more general analysis of the effect of diversification on resolving incentive problems in the environment assumed in the model debt contracts with costly bankruptcy are shown to be optimal the analysis has implications for the portfolio structure and capital structure of intermediaries

money banking and capital formation we consider a monetary growth model in which banks arise to provide liquidity in addition there is a government that issues not only money but interest bearing bonds these bonds compete with capital in private portfolios when the government fixes a constant growth rate for the money stock we show that there can exist multiple nontrivial monetary steady states one of these steady states is a saddle while the other can be a sink moreover paths approaching a steady state can display damped endogenous fluctuations and development trap phenomena are common across different steady states low capital stocks are associated with high nominal interest rates the latter signal the comparative inefficiency of the financial system also increases in the steady state inflation rate can easily reduce the steady state capital stock journal of economic literatureclassification numbers e13 e44 e50 g20 o16

admissibility in games suppose that each player in a game is rational each player thinks the other players are rational and so on also suppose that rationality is taken to incorporate an admissibility requirement that is the avoidance of weakly dominated strategies which strategies can be played we provide an epistemic framework in which to address this question specifically we formulate conditions of rationality and mth order assumption of rationality rmar and rationality and common assumption of rationality rcar we show that i rcar is characterized by a solution concept we call a self admissible set ii in a complete type structure rmar is characterized by the set of strategies that survive m 1 rounds of elimination of inadmissible strategies iii under certain conditions rcar is impossible in a complete structure

violent crime and punishment an application of the lisrel model public anxiety over violent crime has forged a broad consensus to purchase more crime control recently the president brought into law a federal anti crime bill that will put an additional 100 000 police on the nation s streets this paper presents empirical evidence on the deterrence effect of police presence the principal finding is that police presence deters commission of violent crimes by increasing the risk of being punished for committing those crimes this risk is modelled as a latent variable because the probability and severity of punishment for committing a violent crime are generally communicated in an onconsistant fashion the violent crime commission rate is also treated as a latent variable because it is almost certainly afflicted with measurement error

how much bang for the buck mexico and dollarization two arguments advanced in favor of mexico abandoning the peso and adopting the u s dollar are to lower exchange rate volatility and inflation we are not able to identify an independent link between economic growth and either the exogenous component of exchange rate volatility or the exogenous component of inflation exchange rate volatility generally reflects other factors rather than representing an independent growth determinant the findings are consistent with theoretical predictions that inflation influences growth by affecting financial development however we present suggestive evidence that legal reforms offer greater financial development dividends for mexico than adopting the dollar two of the main arguments advanced in favor of mexico abandoning the peso and adopting the u s dollar are 1 to lower inflation and inflation uncertainty and 2 to reduce exchange rate volatility from 1960 tol995 mexico s annual inflation rate averaged about 24 5 percent while inflation in the united states averaged 5 5 percent in addition mexico has experienced severe exchange rate fluctuations against the dollar especially in the last fifteen years supporters of complete dollarization believe that reducing the rate of inflation which moves very closely with the volatility of inflation toward u s levels and eliminating exchange rate variability vis a vis the u s dollar will enhance the business climate and thereby promote economic performance if lower inflation rates and less exchange rate variability boost growth then this strengthens the case for dollarization if however inflation and exchange rate variability do not exert large impacts on economic activity then the arguments in favor of dollarization must be sought elsewhere besides inflation and exchange rate volatility policymakers must contemplate an array of factors in deciding on dollarization dollarization would eliminate discretionary monetary policy and limit lender of last resort facilities during financial sec

evolutionary game theory game theory has been developed as a theory of rational behavior in interpersonal conflict situations with economics and the other social sciences being the intended fields of application since the theory is based on an idealized picture of human rationality it is by no means obvious that it can be applied to situations in which the players cannot be attributed any intellectual capabilities however in their seminal paper the logic of animal conflict maynard smith and price showed that animal contests can be modeled as games and that game theory can be applied successfully in biology the objective of this chapter is to review some of the developments in this biological branch of game theory and to point out the distinctions and similarities with the classical branch also see parker and hammerstein 1985 the main emphasis will be on the mathematics involved lack of space prevents an extensive discussion of the underlying biological assumptions as well as an analysis of specific examples for these the reader is referred to the very stimulating book evolution and the theory of games by john maynard smith

who will monitor the monitors informal law enforcement and collusion at champagne abstract informal monitors can sometimes substitute for formal law enforcement monitors hired to minimize cheating however are themselves vulnerable to collusion and extortion i focus on one such informal monitor the fair authorities at the trade fairs at champagne asking why the fairs survived for centuries instead of instantly crumbling in the face of the authorities overwhelming incentives to collude milgrom et al s 1990 seminal model of the champagne fairs is not equipped to deal with collusion though it does deal with extortion i show that there is a collusion proof equilibrium in an alternative model with a competing fair and merchant guilds self governed merchant communities and show how these institutions interact with the champagne fair authorities incentives this is invulnerable to collusion extortion and reverse extortion unscrupulous clients threatening to smear a monitor s reputation unless bribed i highlight the crucial roles of competition among monitors the existence of a collective body to organize coordinated punishment of monitors caught colluding and network effects among the monitor s customers that exacerbate any punishment

interest margins and bank regulation in central america and the caribbean abstract this paper examines empirically the determinants of bank interest margins in central america and the caribbean over the period 1998 2014 a particular focus is set on the impact of differences in the regulatory environment and market structure across countries in explaining the interest margins of individual banks our results suggest that bank market power operating costs credit risk and liquid asset holdings increase the margin between loan and deposit rates while increased income diversification and gdp growth are associated with lower loan deposit spreads when considering information on banking regulation we find strong evidence to support our main hypothesis that improvements in market quality and liberalization have a significant effect on interest margins more specifically reductions in entry requirements to banking higher involvement of foreign banks and increased financial statement transparency are associated with significant reductions in interest margins

financial market participation financial intermediation and monetary policy abstract it is not uncommon for the friedman rule to be optimal in neoclassical models with money notably previous studies also find that financial intermediation is not welfare improving when money is costless to hold this paper departs from previous studies by highlighting the importance of participation costs in financial markets for the participation in financial intermediation and monetary policy as in previous work the friedman rule is optimal however i demonstrate that the welfare gains from disinflation are much higher when savings are intermediated if direct participation costs in financial markets are significant consequently financial intermediation can still be optimal at the friedman rule

trafficking networks and the mexican drug war abstract drug trade related violence has escalated dramatically in mexico since 2007 and recent years have also witnessed large scale efforts to combat trafficking spearheaded by mexico s conservative pan party this study examines the direct and spillover effects of mexican policy toward the drug trade regression discontinuity estimates show that drug related violence increases substantially after close elections of pan mayors empirical evidence suggests that the violence reflects rival traffickers attempts to usurp territories after crackdowns have weakened incumbent criminals moreover the study uses a network model of trafficking routes to show that pan victories divert drug traffic increasing violence along alternative drug routes jel d72 d85 k42 o17 z13

costly monitoring loan contracts and equilibrium credit rationing this paper develops a model with asymmetrically informed agents and costly monitoring of loan contracts where an equilibrium can exhibit credit rationing borrowers are identical ex ante but some receive loans and others do not in contrast to existing credit rationing theories rationing does not occur here due to inflexible prices adverse selection or moral hazard optimizing behaviour produces a standard debt contract in equilibrium the aggregate quantity of loans and equilibrium interest rates respond differently depending on whether there is rationing in equilibrium

a myopic adjustment process leading to best reply matching we analyze a myopic strategy adjustment process in strategic form games it is shown that the steady states of the continuous time limit which is constructed assuming frequent play and slow adjustment of strategies are exactly the best reply matching equilibria as discussed by droste kosfeld and voorneveld 2000 mimeo tilburg university in a best reply matching equilibrium every player matches the probability of playing a pure strategy to the probability that this pure strategy is a best reply to the pure strategy profile played by his opponents we derive stability results for the steady states of the continuous time limit in 2 2 bimatrix games and coordination games analyzing the asymptotic behavior of the stochastic adjustment process in discrete time shows convergence to minimal curb sets of the game moreover absorbing states of the process correspond to best reply matching equilibria of the game

clever agents in adaptive learning abstract saez marti and weibull j econom theory 86 1999 268 investigate the consequences of letting some agents play a myopic best reply to the myopic best reply in young s j econom theory 59 1993 145 bargaining model which is how they introduce cleverness of players i analyze such clever agents in general finite two player games and show young s individual strategy and social structure princeton university press princeton nj 1998 prediction to be robust adaptive learning with clever agents does select the same minimal curb set as in the absence of clever agents if their population share is less than one however the long run strategy distribution in such a curb set may vary with the share of clever agents

equilibrium selection in a merger game abstract a merger game is modeled as a non cooperative simultaneous moves exclusive membership game of coalition formation in the three player case in the equilibrium selected by refinements the merger is such that the participants prefer it to other mergers involving them

self enforcing democracy author s fearon james abstract if democracy is to have any of the good effects said to justify it it must be self enforcing those who control the government must want to hold regular competitive elections for the highest offices and all parties must be willing to comply with the results i consider a model in which citizens can always protest or rebel against the current ruler but can unseat the ruler only if enough people rebel when individuals privately observe a signal of the government s performance e g their own welfare they face a difficult problem of how to coordinate to pose a credible threat of rebellion necessary to keep the ruler from stealing further if the signals are noisy inefficient rebellions must occur in equilibrium to keep the ruler honest allowing for the possibility of elections makes for equilibria that eliminate both problems the convention of holding elections at particular times provides a public signal for coordinating rebellion in the event that elections are suspended of blatantly rigged the electoral results themselves aggregate private information about the ruler s performance providing the ruler an incentive to stick to the terms int he case of noisy signals of government performance the electoral results act as a cheap talk signal that allows the public to commit to rebel if a losing ruler does not step down avoiding the need for costly rebellions these arguments pose an explanation for self enforcing democracy whereas the several models in the literature do not because they do not explain why anyone would want to use elections to allocate power

stochastic adaptation in finite games played by heterogeneous populations we analyze stochastic adaptation in finite n player games played by heterogeneous populations containing best repliers better repliers and imitators individuals select strategies by applying a

endogenous timing in the presence of non monotonicities the aim of this paper is to generalize the endogenous timing game proposed by hamilton and slutsky games and economic behavior 1990 2 pp 29 46 by allowing the payoff or the marginal payoff of a player to become non monotonic with respect to the strategy of the opponent we propose a taxonomy of the subgame perfect nash equilibria based on the characteristics of the payoff functions proposed by eaton canadian journal of economics 2004 37 pp 805 29 we determine under which conditions of the initial payoff functions commitment has a social value and when the simultaneous move nash equilibrium is commitment robust and discuss its pareto efficiency

transactions costs technological choice and endogenous growth abstract hicks a theory of economic history clarendon press oxford 1969 argues that an important aspect of industrial development is the adoption of technologies requiring highly illiquid capital investments the adoption of such technologies becomes economically viable in the presence of low cost financial markets that provide liquidity to investors this observation provides a mechanism by which the costs of transacting in financial markets affect the equilibrium choice of technology productive efficiency and by implication growth we analyze how the costs of financial market transactions affect the set of technologies in use and the equilibrium growth rate transactions cost reductions may depending on the capital structure enhance or reduce growth journal of economic literature classification numbers d90 e13 g14

evolution in games with endogenous mistake probabilities abstract j bergin and b lipman econometrica 64 1996 943 956 show that the selection effect from the random mutations in the adaptive population dynamics in m kandori g mailath and r rob econometrica 61 1993 29 56 and p young econometrica 61 1993 57 84 is due to restrictions on how these mutation rates vary across population states we here model mutation rates as endogenously determined mistake probabilities by assuming that players with some effort can control the probability of implementing the intended strategy this is shown to corroborate the results in kandori mailath rob 1993 and under certain regularity conditions those in young 1993 journal of economic literature classification number c72

learning from schelling s strategy of conflict thomas schelling s strategy of confl ict is a masterpiece that should be recognized as one of the most important and infl uential books in social theory this paper reviews some of the important ideas in strategy of confl ict and considers some of the broader impact that this book has had on game theory economics and social theory by his emphasis on the critical importance of information and commitment in strate gic dynamics schelling played a vital role in stimulating the development of non cooperative game theory more broadly schelling s analysis of games with multiple equilibria has redefi ned the scope of economics and its place in the social sciences jel d74 f51 h56

regulations market structure institutions and the cost of financial intermediation this paper examines the impact of bank regulations market structure and national institutions on bank net interest margins and overhead costs using data on over 1400 banks across 72 countries while controlling for bankspecific characteristics the data indicate that tighter regulations on bank entry and bank activities boost the cost of financial intermediation inflation also exerts a robust positive impact on bank margins and overhead costs while concentration is positively associated with net interest margins this relationship breaksdownwhencontrolling for regulatory impediments to competition and inflation furthermore bank regulations become insignificant when controlling for national indicators of economic freedom or property rights protection while these institutional indicators robustly explain cross bank net interest margins and overhead expenditures thus bank regulations cannot be viewed in isolation they reflect broad national approaches to private property and competition

do non intermediation services tell us more in the finance growth nexus causality evidence from eight oecd countries abstractthis paper provides new evidence on a traditional finance growth nexus through dividing financial services into financial intermediation and non intermediation services and examining their

individual learning and social rationality abstract classical game theory assumes that players have a coherent model of the game in which they are engaged that they make optimum plans assuming that everyone else makes optimum plans and that all of this is common knowledge evolutionary game theory postulates instead that players have limited understanding of their environment only modest reasoning ability and no common knowledge surprisingly a fair amount of classical solution theory survives with this change of perspective we show how high rationality solutions can emerge in low rationality environments provided the evolutionary process has sufficient time to unfold

online ascending auctions for gradually expiring items abstract we consider dynamic auction mechanisms for the allocation of multiple items items are identical but have different expiration times and each item must be allocated before it expires buyers are of dynamic nature and arrive and depart over time our goal is to design mechanisms that maximize the social welfare we begin by showing that dominant strategy incentive compatibility cannot be used in this case since any such auction cannot obtain any constant fraction of the optimal social welfare we then design two auctions that perform well under a wide class of semi myopic strategies for every combination of such strategies the auction is associated with a different algorithm or allocation rule and so we have a family of semi myopic algorithms we show that any algorithm in this family obtains at least 1 3 of the optimal social welfare we also provide some game theoretic justification for acting in a semi myopic way we suggest a new notion of set nash equilibrium where we cannot pinpoint a single best response strategy but rather only a set to which best response strategies belong we show that our auctions have a set nash equilibrium which is all semi myopic

inflation investment and economic performance the role of internal financing abstract this paper studies a link between inflation and economic activity that is built on two hypotheses first firms mitigate informational frictions in financial markets by accumulating retained earnings over a period of time second firms allocate earnings among three competing uses dividends current investment and the accumulation of internal funds and inflation directly distorts this allocation decision as well as the real value of accumulated internal funds the model predicts that the level of inflation both unanticipated and expected inflation as well as the variability of inflation distort firms internal financing decisions increases frictions in financial markets reduces the level and efficiency of investment and reduces aggregate output the marginal effects of inflation are increasing in the inflation rate

the cyclicality of price cost margins in banking an empirical analysis of its determinants i introduction in this paper we study the cyclical behavior of price cost margins in banking calculated as the difference between the interest rate on loans and deposits using time series quarterly data for the period 1979 2005 in the united states this cyclical behavior of banks price cost margins a key fact about business fluctuations has received little attention before dueker and thornton 1997 find evidence that in cyclical downturns banks opt for a relatively high price cost margin however they focus exclusively on the markup of the bank prime lending rate over the marginal cost of funds for banks mandelman 2006 presents evidence on the cyclicality of margins for a large sample of countries and uses foreign bank penetration to explain the behavior of margins 1 in olivero 2005 aliaga diaz 2006 and aliaga diaz and olivero 2010a we document the countercyclicality of banks price cost margins in the united states in that paper we do so using an atheoretical methodology based on var forecast errors to measure comovement between variables 2 in this paper we build on this atheoretical evidence and take a step further by constructing an empirical model of the determinants of the cyclical behavior of margins here we take a theory based approach to decide on the inclusion of the relevant regressors that belong to this model doing so allows us to contribute to the literature by providing potential explanations for the previously documented countercyclical nature of margins monetary policy and credit risk could be suggested as the main and potentially the only determinants of the cyclical behavior of margins on the one hand the bank lending channel of monetary transmission predicts that the federal funds rate as a monetary policy indicator and margins are directly related therefore if policy rates exhibit a particular cyclical behavior not controlling for monetary policy could bias the estimations on the cyclical behavior of margins on the other hand credit risk is expected to be countercyclical and to raise margins so that default should help explain the countercyclicality of the latter based on these two observations our empirical methodology consists of two steps in a first step we test whether the negative and significant contemporaneous sample correlations between margins and a business cycle indicator are robust to the inclusion of controls related to monetary policy default risk and banking regulation results show it is so that there seems to be other channels through which fluctuations in the economy give rise to the observed countercyclicality of margins in a second step we look for these channels and offer several potential explanations for the observed behavior interest rate risk the economy s financial depth banks liquidity and capitalization and the share of total assets held by large banks all exert a significant impact on the behavior of margins over the business cycle these conclusions are consistent across alternative definitions of the margins and the business cycle indicator our work is linked to two strands of research in macroeconomics first our countercyclicality results are linked to the large literature on countercyclical markups in goods markets and its effects on aggregate demand started by rotemberg and saloner 1986 and rotemberg and woodford 1992 second price cost margins that vary endogenously and countercyclically in response to the state of the economy are a necessary condition for the existence of a financial accelerator as an amplifier of business fluctuations see for example bernanke and gertler 1989 and bernanke gertler and gilchrist 1998 therefore the countercyclical nature of price cost margins that we study here provides empirical support to the large body of literature in macroeconomic theory on this financial accelerator with price cost margins in the market for credit being countercyclical credit becomes more expensive in bad times firms may delay investment and production as a result and recessions may be exacerbated

introduction context issues and contributions from the asian financial crisis the russian default and the brazilian devaluation argentina s president menem recommended that his country officially replace the peso with the u s dollar motivating this proposal was a desire to strengthen the credibility of argentine monetary arrangements although argentina had maintained a currency board since 1991 interest rate differentials between peso denominated and dollar denominated debt widened during periods of financial turmoil indicating that the market perceived a significant probability of devaluation menem s proposal which closely followed the successful inauguration of the european monetary union stirred interest throughout the americas particularly in mexico and a year later in ecuador to some dollarization in mexico offered a guarantee against periodic peso devaluation and seemed a reasonable adjunct to the north american free trade agreement others howevel cited four years of relatively low exchange rate volatility and a reduction in the mexican inflation rate as support for current arrangements an independent central bank and a floating peso ecuador s president jamil mahuad announced his intentions to dollarize in january 2000 as a means of restoring monetary credibility to a battered economy although 80 percent of ecuadorian assets are already dollar denominated the decision prompted rioting these events illustrate the importance of a perennial question in open economy macroeconomics what type of monetary and exchange rate arrangements best promote the economic welfare of a country robert mundell 1961 first posed the question when he attempted to define an optimal currency area oca his work produced a rich debate within the economics profession ishiyama 1975 but seemed to have only a tangential influence on the policy debates of the 1960s and 1970s a period of limited international capital mobility as capital mobility in

a characterization of the class of rationalizable equilibria of oligopoly games abstract the set of rationalizable strategies of a firm in a quantity setting oligopoly is characterized it is shown that as the number of firms in the industry increases the rationalizable solution converges to the interval from zero to the monopoly output

estimations of the economic model of crime using aggregate and individual level data much has happened in the economics of crime since becker s 1 seminal paper of two decades ago the theory has been refined by among others ehrlich 10 11 12 block and lind 4 5 block and heinke 3 and schmidt and witte 30 attempts to test the model empirically began immediately the most cited including ehrlich 10 11 12 sjoquist 31 carr hill and stern 7 phillips and votey 26 witte 38 and myers 22 23 interest continues with recent work including layson 19 sandelin and skogh 29 ehrlich and brower 13 cover and thistle 9 viscusi 36 and tauchen witte and griesinger 33 there has been some controversy however concerning the type of data more suitable to the estimation of the economic model of crime most of the work has used aggregate data in which the unit of observation is a political jurisdiction but the use of aggregate data has been sharply criticized the alternative is individual data few attempts have been made to use individual data probably because an ideally constructed data set representative of a general population would be far too costly for most research budgets most of the studies that have been done have used data on releasees from prison or other criminal justice programs they are in effect recidivism studies based on the economic model of crime

but who will guard the guardians a pre recorded version of leonid hurwicz prize lecture was presented on 8 december 2007 at aula magna stockholm university the lecture was introduced by professor jorgen weibull chairman of the economics prize committee this abstract was borrowed from another version of this item

dollarization and the inflation threshold this paper analyzes the relationship among inflation dollarization financial intermediation and real activity empirical evidence suggests non linearity in the eects of inflation on financial intermediation and real activity i e the existence of an inflation threshold evidence also suggests that one way in which inflation aects financial intermediation in high inflation economies is through the substitution of dollars under the mattress for savings in domestic banks our model captures these empirical regularities inflation and real activity are positively related at low levels of inflation when the inflation rate exceeds certain threshold however agents substitute in their portfolios dollars a non productive asset of constant value that also provides liquidity services for deposits issued by domestic banks this substitution reduces the scale of financial intermediation and the capital investment in the economy as a consequence at high levels of inflation the levels of capital stock and output become negatively related to the inflation rate

nash equilibrium and welfare optimality if is a set of social alternatives a social choice rule scr assigns a subset of a to each potential profile of individuals preferences over a where the subset is interpreted as the set of welfare optima a game form or mechanism implements the social choice rule if for any potential profile of preferences 1 any welfare optimum can arise as a nash equilibrium of the game form implying in particular that a nash equilibrium exists and 2 all nash equilibria are welfare optimal the main result of this paper establishes that any scr that satisfies two properties monotonicity and no veto power can be implemented by a game form if there are three or more individuals the proof is constructive

financial development and economic growth views and agenda this critique argues that the preponderance of theoretical reasoning and empirical evidence suggests a positive first order relationship between financial development and economic growth the body of work would push even most skeptics toward the belief that the development of financial markets and institutions is a critical and inextricable part of the growth process and away from the view that the financial system is an inconsequential sideshow responding passively to economic growth many gaps remain however and the paper highlights areas in acute need of additional research