This paper studies the stability of competitive equilibria in a model of aggregate employment when the representative agent uses a least-squares forecasting procedure. It is shown that the Pareto inferior low employment steady state is always unstable under least-squares learning, even if it is stable under perfect foresight. The high employment steady state is stable under learning if and only if it is saddle point stable under perfect foresight. This weakens multiple equilibrium theories of coordination failure that purport to explain persistently high unemployment. The Pareto superior high employment steady state will be the focal point of individual forecasting.

Product liability ideally should promote efficient levels of product safety, but misdirected liability efforts may depress beneficial innovations. This paper examines these competing effects of liability costs on product R & D intensity and new product introductions by manufacturing firms. At low to moderate levels of expected liability costs, there is a positive effect of liability costs on product innovation. At very high levels of liability costs, the effect is negative. At the sample mean, liability costs increase R & D intensity by 15 percent. The greater linkage of these effects to product R & D rather than process R & D is consistent with the increased prominence of the design defect doctrine.