This paper proposes that both the first‐come, first‐served rule and information externalities are important in causing contagious bank runs. The first‐come, first‐served rule creates a negative payoff externality among depositors. This payoff externality forces depositors to respond to early noisy information such as failures of other banks. Therefore, failures of a few banks may trigger runs on other banks. Contagious runs may occur even if (i) depositors choose the Pareto‐dominant equilibrium when there are multiple equilibria and (ii) the deposit contract is chosen to maximize depositor welfare. The feasibility of reforming the FDIC to impose market discipline is also investigated.

This paper tests a model in which group identity in the form of religious intensity functions as ex post insurance. I exploit relative price shocks induced by the Indonesian financial crisis to demonstrate a causal relationship between economic distress and religious intensity (Koran study and Islamic school attendance) that is weaker for other forms of group identity. Consistent with ex post insurance, credit availability reduces the effect of economic distress on religious intensity, religious intensity alleviates credit constraints, and religious institutions smooth consumption shocks across households and within households, particularly for those who were less religious before the crisis.

Our understanding of monetary policy is complicated by an indeterminacy problem: the same path for the nominal interest rate is consistent with multiple equilibrium paths for inflation and output. We offer a potential resolution by showing that small frictions in social memory and intertemporal coordination can remove this indeterminacy. Under our perturbations, the unique equilibrium is the same as that selected by the Taylor principle, but it no more relies on it; monetary policy is left to play only a stabilization role; and fiscal policy needs to be Ricardian even when monetary policy is passive.

This paper incorporates rational expectations, full price flexibility, and currency substitution into the usual small-economy model, taking explicit account of inflation abroad. Not only will the steady-state terms of trade be affected by an increase in the rate of monetary expansion when the inflation rate abroad is assumed to be nonzero, but its dynamic path may also be different from the usual case in which inflation abroad is ignored. It has been shown that if the import demands are relatively inelastic, the terms of trade will undershoot their equilibrium value; if the import demands are elastic, the terms of trade will overshoot. The key to these diametrically opposite results is the degree of ultimate deterioration in the terms of trade, which, in turn, turn on the size of the two import demand elasticities.

This paper incorporates rational expectations, full price flexibility, and currency substitution into the usual small-economy model, taking explicit account of inflation abroad. Not only will the steady-state terms of trade be affected by an increase in the rate of monetary expansion when the inflation rate abroad is assumed to be nonzero, but its dynamic path may also be different from the usual case in which inflation abroad is ignored. It has been shown that if the import demands are relatively inelastic, the terms of trade will undershoot their equilibrium value; if the import demands are elastic, the terms of trade will overshoot. The key to these diametrically opposite results is the degree of ultimate deterioration in the terms of trade, which, in turn, turn on the size of the two import demand elasticities.

Each year approximately 10 million high school seniors in China compete for 6 million seats through a centralized college admissions system. Within the last decade, many provinces have transitioned from a "sequential" to a "parallel" mechanism to make their admissions decisions. In this study, we characterize a parametric family of application-rejection assignment mechanisms, including the sequential, deferred acceptance, and parallel mechanisms in a nested framework. We show that all of the provinces that have abandoned the sequential mechanism have moved toward less manipulable and more stable mechanisms. We also show that existing empirical evidence is consistent with our theoretical predictions.

Behavioral economics has demonstrated systematic decision‐making biases in both lab and field data. Do these biases extend across contexts, cultures, or even species? We investigate this question by introducing fiat currency and trade to a colony of capuchin monkeys and recovering their preferences over a range of goods and gambles. We show that capuchins react rationally to both price and wealth shocks but display several hallmark biases when faced with gambles, including reference dependence and loss aversion. Given our capuchins’ inexperience with money and trade, these results suggest that loss aversion extends beyond humans and may be innate rather than learned.

This is the first systematic experimental study of the comparative performance of two incentive‐compatible mechanisms for public goods provision: the basic quadratic mechanism by Groves and Ledyard and the paired‐difference mechanism by Walker. Our experiments demonstrate that the performance of the basic quadratic mechanism under a high punishment parameter is far better than that of the same mechanism under a low punishment parameter, which, in turn, is better than that of the paired‐difference mechanism. We estimate three individual behavioral models: an exponentialized relative payoff sum model outperforms the generalized fictitious play model. We also provide a sufficient condition for convergence under the basic quadratic mechanism.