In an overlapping generations economy with (incomplete) financial markets but no intermediaries, there is underinvestment in safe assets. In an economy with intermediaries and no financial markets, accumulating reserves of save assets allows returns to be smoothed, nondiversifiable risk to be eliminated, and an ex ante Pareto improvement compared to the allocation in the market equilibrium to be achieved. In a mixed financial system, however, competition from financial markets constrains intermediaries so that they perform no better than markets alone.

This paper develops a theory of the allocation of formal and real authority within organizations. Real authority is determined by the structure of information, which in turn depends on the allocation of formal authority. An increase in an agent's real authority promotes initiative but results in a loss of control for the principal. The paper analyzes the allocation of formal authority as well as some determinants of the subordinates' real authority: overload, lenient rules, urgency of decision, reputation, performance measurement, and multiplicity of superiors. Finally, the amount of communication in an organization is shown to depend on the allocation of formal authority

We test whether the time-series positive correlation of inflation and intermarket relative price variability is also present in a cross section of U.S. cities. We find this correlation to be a robust empirical regularity: cities that have higher than average inflation also have higher than average relative price dispersion, ceteris paribus. This result holds for different periods of time, for different classes of goods, and across different time horizons. Our results suggest that at least part of the relationship between inflation and relative price variability cannot be explained by monetary factors.

This paper examines the claim that expansion of the voting franchise has been an important factor in the growth of government. State government spending and state and local spending are explained using a panel of 46 states for 1950-88. Elimination of poll taxes and literacy tests led to higher turnout, particularly among the poor, and a poorer pivotal voter. As predicted, we find that these changes, a fall in the income of voters relative to state income, and the ouster of Republicans from state government led to a sharp rise in welfare spending but no change in other spending

In this paper, I structurally estimate a stochastic bargaining model of government formation in a multiparty parliamentary democracy, and I conduct policy experiments to evaluate the effects of changes in the bargaining procedure. I show that the model fits well data on the duration of negotiations and government durations in postwar Italy. Also, I show that changes in the proposer selection process would not affect either the duration of negotiations or government durations, whereas the imposition of a strict deadline would in general reduce the incentives to delay agreement as well as government durations

While it is widely believed by academics, politicians, and the popular press that incumbent members of Congress are rewarded by the electorate for bringing federal dollars to their district, the empirical evidence supporting that claim is extremely weak. One explanation for the failure to uncover the expected relationship between federal spending and election outcomes is that incumbents who expect to have difficulty being reelected are likely to exert greater effort in obtaining federal outlays. Since it is generally impossible to adequately measure this effort, the estimated impact of spending is biased downward because of an omitted variable bias. We address this estimation problem using instrumental variables. For each House district, we use spending outside the district but inside the state containing the district as an instrument for spending in the district. Federal spending is affected by a large number of actors (e.g., governors, senators, mayors, and other House members in the state delegation), leading to positive correlations in federal spending across the House districts within states. However, federal spending outside of a district is unlikely to be strongly correlated with the strength of that district's electoral challenge. In contrast to previous studies, we find strong evidence that federal spending benefits congressional incumbents: an additional $100 per capita in spending is worth as much as 2 percent of the popular vote. The only category of federal spending that does not appear to yield electoral rewards is direct transfers to individuals.

The relationship between Milton Friedman's monetary economics and the views espoused by Chicago and non-Chicago quantity theorists during the years 1930-36 is examined. Contrary to recent interpretations, Chicago economists advanced the efficacy of monetary policy as the means of escaping from the Great Depression, provided that such a policy was implemented by the use of budget deficits to generate monetary expansion. The use of the quantity theory of money to provide a theoretical rationale for budget deficits distinguished the Chicago economists from other quantity theorists and left them less susceptible to the Keynesian revolution. The claim that Harvard was an important center for monetary research in the early 1930s is refuted.

This paper develops a theory of the allocation of formal authority (the right to decide) and real authority (the effective control over decisions) within organizations, and it illustrates how a formally integrated structure can accommodate various degrees of "real" integration. Real authority is determined by the structure of information, which in turn depends on the allocation of formal authority. An increase in an agent's real authority promotes initiative but results in a loss of control for the principal. After spelling out (some of) the main determinants of the delegation of formal authority within organizations, the paper examines a number of factors that increase the subordinates' real authority in a formally integrated structure: overload, lenient rules, urgency of decision, reputation, performance measurement, and multiplicity of superiors. Finally, the amount of communication in an organization is shown to depend on the allocation of formal authority

Regulation regimes subject to the influence of interest groups are compared. It is shown that the allocation of the regulated commodity varies with the implemented control and that the advantage of prices (vs. quotas) increases with the elasticity of the demand for or the supply of the commodity and decreases with the number of organized producers in the regulated industry. Control regimes can be ranked for negative, but not positive, externalities. Finally, a control regime leading to a more efficient commodity allocation also entails using fewer resources in rent-seeking activities.