This paper tests the hypothesis that horizontal mergers generate positive abnormal returns to stockholders of the bidder and target firms because they increase the probability of successful collusion among rival producers. Under the collusion hypothesis, rivals of the merging firms benefit from the merger since successful collusion limits output and raises product prices and/or lower factor prices. This proposition is tested on a large sample of horizontal mergers in mining and manufacturing industries, including mergers challenged by the government with violating antitrust laws, and a ‘control’ sample of vertical mergers taking place in the same industries. While we find that the antitrust law enforcement agencies systematically select relatively profitable mergers for prosecution, there is little evidence indicating that the mergers would have had collusive, anticompetitive effects.

No abstract provided.

Optimal monetary policy rules are derived in a rational expectations cum contracting framework. Monetary policy is redundant if wage setters exploit the incomplete current information embodied in today's nominal interest rate. However, the monetary authorities can save wage setters the costs of “indexing†to the interest rate. A contemporaneous money supply feedback rule is as effective as wage indexation. A lagged rule, relevant under a regime of money supply targeting, is also as effective if investors use the interest rate. Both rules have the same implications for the real interest rate as Poole's combination policy. However, the two rules have strikingly different implications for the nominal interest rate.

BANKRUPTCY COSTS are the deadweight economic costs of firms going bankrupt. They include both ex post bankruptcy costs incurred after a firm's bankruptcy filing, such as transactions costs, and ex ante bankruptcy costs incurred before the filing, such as those resulting from creditors' attempts to reduce their losses if bankruptcy occurs and/or managers' attempts to raise the expected return to equity by increasing the firm's risk.1 This paper has two purposes. First it proposes a model of bankruptcy costs which focuses on the costs of inefficient decision making before the firm's actual bankruptcy filing. The model implies upper bound expressions for total bankruptcy costs. Second, the new U.S. Bankruptcy Code2 went into effect late in 1979 and made important changes in bankruptcy reorganization procedures. The paper poses the question of whether the changes made under the new Code tend to raise or lower aggregate U.S. bankruptcy costs. We approach this question by calculating the upper bound expressions suggested by the model, using parameter values from both before and after the new Code took effect.

In this paper we extend the recent work on the choice of input mix under uncertainty. In particular, we demonstrate that the qualitative nature of the disturbance term, along with the decision sequence, is a crucial determinant of the overall effect of uncertainty on the optimal input mix of a firm. Using general demand and production functions in conjunction with a mean-variance framework for financial valuation, we demonstrate the differential effects of systematic and non-systematic risk on the firm's choice of an optimal input mix. Consistent with earlier work in economics, this analysis demonstrates that uncertainty, regardless of the source, has important implications for the firm's choice of technology.