By introducing a labor market into the neoclassical asset pricing model, limited capital market participation can be an equilibrium outcome. Labor contracts are derived endogenously as part of a dynamic equilibrium in a production economy. Firms write labor contracts that insure workers, allowing agents to achieve a Pareto optimal allocation even when the span of asset markets is restricted to just stocks and bonds. Capital markets facilitate this risk sharing because it is there that firms offload the labor market risk they assumed from workers. In effect, by investing in capital markets, investors provide insurance to wage earners who then optimally choose not to participate in capital markets. (JEL G11, G12)

While bank capital requirements permit a bank to freely substitute between equity and subordinated debt, lenders and investors view debt and equity as imperfect substitutes. It follows that, after controlling for the level of regulatory capital, the mix of debt in capital isolates the role that the market plays in disciplining banks. I document that the mix of debt in capital affects bank behavior, but only when investors can impose real constraints. In particular, the mix of debt reduces the probability of failure and future distress for BHC-affiliated institutions (where the investor has control rights through an equity position) and for stand-alone banks before the Basel Accord (when debt issues included restrictive covenants). However, substituting equity for subordinated debt at the bank holding company level or in stand-alone banks since the Basel Accord (where the investor has few protections) only increases the probability of distress and failure.

This paper offers a model of intermediation in the Diamond-Dybvig tradition in which both fiat currency and bank deposits are present. The behavior of the economy's price level, deposit-currency ratio, and money supply is compared across equilibria in which bank runs do and do not occur. It is shown that the behavior of these variables in the presence and absence of runs is consistent with that observed in the United States during the period from 1929 to 1933.

Prior studies have identified systematic and time persistent differences in analysts’ earnings forecast accuracy, but have not explained why the differences exist. Using the I/B/E/S Detail History database, this study finds that forecast accuracy is positively associated with analysts’ experience (a surrogate for analyst ability and skill) and employer size (a surrogate for resources available), and negatively associated with the number of firms and industries followed by the analyst (measures of task complexity). The results suggest that analysts’ characteristics may be useful in predicting differences in forecasting performance, and that market expectations studies may be improved by modeling these characteristics.

Beginning in 1997, the price of concert tickets took off and ticket sales declined. From 1996 to 2003, for example, the average concert price increased by 82%, while the CPI increased by 17%. Explanations for price growth include (1) the possible crowding out of the secondary ticket market, (2) rising superstar effects, (3) Baumols and Bowen's disease, (4) increased concentraion of promoters, and (5) the erosion of complementarities between concerts and album sales because of file sharing and CD copying. The article tentatively concludes that the decline in complementarities is the main cause of the recent surge in concert prices.

In the absence of perfect annuity markets, individual consumers generally undertake precautionary saving to provide resources for their future consumption in the event that they live longer than expected. Kotlikoff, Shoven, and Spivak (in this issue) (hereafter KSS) have provided us with a well-conceived and well-executed study of the effects of various annuity arrangements on individual and aggregate saving in the presence of lifetime uncertainty. Each of these authors has had a long-standing interest in this area, and their current paper reflects their accumulated expertise. Their results indicate that a potentially sizable fraction of U.S. household wealth represents precautionary saving resulting from the absence of perfect annuity market.

Except in special cases, market work and household membership are jointly chosen. A Nash bargaining model of family behavior is used to specify stochastic structural relationships (two indirect utility functions and a market and a reservation wage function) that jointly determine work, consumption, and household membership. The maximum likelihood estimates of the implied trinomial probit model differ sharply from those obtained when either market work or household membership is taken as exogenous. This application to white male youths from the National Longitudinal Surveys shows the insurance function of families: parents insure their sons against poor market opportunities.