[This paper analyzes a simple mean-variance model of an imperfect capital market in which trade in assets involves costs. Fixed transactions costs, which result in investors only partially diversifying their portfolios, are shown to imply equilibrium asset prices substantially different from the Sharpe-Lintner prices. An improvement in the markets, in the form of lowering the trading costs, is shown to result in an increase in the number of assets held by each investor, in lowering equilibrium risk premia, and also in increasing the number of active investors.]

This paper analyzes a simple mean-variance model of an imperfect capital market in which trade in assets involves costs. Fixed transactions costs, which result in investors only partially diversifying their portfolios, are shown to imply equilibrium asset prices substantially different from the Sharpe-Lintner prices. An improvement in the markets, in the form of lowering the trading costs, is shown to result in an increase in the number of assets held by each investor, in lowering equilibrium risk premia, and also in increasing the number of active investors.

The conventional theory about the origin of the state is that the adoption of farming increased land productivity, which led to the production of food surplus. This surplus was a prerequisite for the emergence of tax-levying elites and, eventually, states. We challenge this theory and propose that hierarchy arose as a result of the shift to dependence on appropriable cereal grains. Our empirical investigation, utilizing multiple data sets spanning several millennia, demonstrates a causal effect of the cultivation of cereals on hierarchy, without finding a similar effect for land productivity. We further support our claims with several case studies.