This paper tests two assumptions made in previous demand for studies. The first assumption concerns role assigned to interest rate in demand for function. Common practice identifies rate of interest with the opportunity cost of holding money. In Section I, this formulation is shown to blur an important distinction between the price of money and the price of substitutes and to implicitly assume that relevant price variable is difference between these two distinct prices. A second assumption is that current ban on interest payments on demand deposits is fully effective. In Section II, I operationally define these price variables and estimate perfectly competitive interest payments on commercial bank deposits. This is done by crudely measuring commercial bank marginal costs and assuming that all excess profit is passed on to depositors in indirect ways. Section III presents estimates of a more complete longrun demand for relationship which explicitly includes an own price and a cross price as separate influences, and assumes that prohibition of payment of interest on deposits is totally ineffective. Although no firm conclusion is reached concerning proper functional specification of demand function, results significantly improve upon previous demand for estimates which assumed that interest payment prohibition is totally effective. In Section IV, results are summarized and implications of analysis for monetary theory are presented. My competitive demand for formulation leads to a reinterpretation of existing evidence on what is generally referred to as the interest elasticity of demand for money. This estimate is shown to be significantly biased downward. It also implies that demand for and supply of are more interdependent than is usually assumed.

This paper investigates the importance of uncertainty regarding the rate of rice change as an argument in the long-run money demand function. Increased inflation uncertainty is assumed to lower the stream of monetary services yielded by a given level of real cash balances. The effects on money demand of such changes in the "quality" of money are, in general, theoretically indeterminate. If it is assumed, however, that the monetary service flow is proportional to the real money stock and that the demand for money is interest inelastic, then the predicted relationship between price uncertainty and money demand is unambiguously positive. The empirical findings of this paper, where price uncertainty is operationally measured by the variability of the rate of price change, strongly confirm this positive relationship. These results have important implications for the theory of inflation, the optimum quantity of money, and the potential government tax revenue from money creation.

This paper investigates the importance of uncertainty regarding the rate of rice change as an argument in the long-run money demand function. Increased inflation uncertainty is assumed to lower the stream of monetary services yielded by a given level of real cash balances. The effects on money demand of such changes in the "quality" of money are, in general, theoretically indeterminate. If it is assumed, however, that the monetary service flow is proportional to the real money stock and that the demand for money is interest inelastic, then the predicted relationship between price uncertainty and money demand is unambiguously positive. The empirical findings of this paper, where price uncertainty is operationally measured by the variability of the rate of price change, strongly confirm this positive relationship. These results have important implications for the theory of inflation, the optimum quantity of money, and the potential government tax revenue from money creation.

An incentive problem exists in franchise relationships because of the failure of franchisees to take account of franchisor profit. Franchise contracts ameliorate this malincentive not by specifying a proxy for desired franchisee performance, but by creating a premium stream that facilitates a self-enforcing agreement. The structure of credible commitments within this self-enforcing arrangement is elucidated, with initial franchisee investments shown to serve no performance guaranteeing purpose. Franchisors do not demand large initial lump sum payments from franchisees because doing so makes it more difficult to terminate franchisees for nonperformance. Franchisors use vertical integration when the premium necessary to assure franchisee performance is large.

The conditions under which transactors can use the market (repeat-purchase) mechanism of contract enforcement are examined. Increased price is shown to be a means of assuring contractual performance. A necessary and sufficient condition for performance is the existence of price sufficiently above salvageable production costs so that the nonperforming firm loses a discounted steam of rents on future sales which is greater than the wealth increase from nonperformance. This will generally imply a market price greater than the perfectly competitive price and rationalize investments in firm-specific assets. Advertising investments thereby become a positive indicator of likely performance.

The conditions under which transactors can use the market (repeat-purchase) mechanism of contract enforcement are examined. Increased price is shown to be a means of assuring contractual performance. A necessary and sufficient condition for performance is the existence of price sufficiently above salvageable production costs so that the nonperforming firm loses a discounted steam of rents on future sales which is greater than the wealth increase from nonperformance. This will generally imply a market price greater than the perfectly competitive price and rationalize investments in firm-specific assets. Advertising investments thereby become a positive indicator of likely performance.