We study a rational expectations partial equilibrium model of a market for a single storable commodity whose output each period is a function of previous period effort on production and a realization of a shock that affects equally all producers. The final demand is non-random and depends only on each period's price. Risk-neutral producers make production and storage decisions based on forecasts of future price distributions. Existence of equilibrium is proved, and for the case of i.i.d. shocks several comparative statics results are established as well as the existence and stability of a unique stationary distribution.

A model of aggregate economic activity is formulated which enmphasizes the effects of borrowing constraints in the presence of uninsurable risk. An important determinant of current income level is shown to be the cross-sectional distribution of wealth. As this distribution evolves endogenously, the model is capable of producing rich dynamics from a simple specification of exogenous shocks. The model shows that this phenomena can contribute to observed price volatility. IT IS COMMONLY THOUGHT that individuals have only limited opportunities to borrow against future labor income and cannot totally insure all types of risk. It has also been suggested that such departures from the presumptive norm of frictionless, complete information capital markets may have implications for aggregate economic activity. AlthLough there has been some work analyzing the implications of borrowing constraints for individual savings behavior (18, 2, 8), there has been no systematic analysis of how such borrowing constraints will affect the time series properties of output, prices, and interest rates. In this paper, we present a completely specified infinitely lived two agent equilibrium model which emphasizes the roles of borrowing constraint and uninsured risk for affecting aggregate outcomes. Specifically we assume that agents are prohibited from ever having negative nonhuman wealth. The model has the central feature that there is no aggregate uncertainty, but each agent's own productive opportunities are stochastic. If there were a full set of Arrow- Debreu contingent claim markets each agent could attain a certain consumption stream and the resulting allocation and (implicit) relative prices would be constant through time. However, we assume that such markets do not exist. Rather, we assume that at each point in time agents may trade only the single durable asset for the single perishable consumption good. This may be interpreted either as fiat mon ay with a fixed own nominal return of zero, or as claims to productive capital which emits a fixed exogenous flow of the consumption good. We assume also that output may be produced by labor. However, only one of the two agents is productive at any instant in time. The duration of time over which a single agent is productive is assumed to be random, and, for analytical simplicity, is assumed to be generated by a Poisson counting process. The resulting allocation has the property that the agent who is not productive exchanges some of his

This paper examines the role of industry capacity in enforcing collusion in the context of repeated games. For a fixed capacity per firm it is shown that changes in the number of firms have a non-monotone effect on the best enforceable cartel price. This is due to the fact that while an additional firm lowers the share that each of the other firms enjoys at the collusive price it also increases the losses to each firm should the cartel fail.

Futures exchanges and other financial intermediaries assume counterparty risks and demand in return guarantees that these counterparties will deliver on their promises. It is often argued that to attract volume, financial intermediaries would settle for excessively low contractual guarantees. In Tano Santos and José Scheinkman (2001) we model financial intermediation in an environment where traders may choose to default, and we examine the characteristics of the equilibrium. In particular, we investigate whether competition implies excessively low standards. We show that in fact, when society punishes default and intermediaries can impose collateral requirements to effectively limit the size of positions, competition leads to a (constrained) optimal amount of contractual guarantees. In Santos and Scheinkman (2001) we assume that exchanges cannot control the size of the positions taken by individuals, but we preclude investors from participating in more than one exchange. This ignores the effect that trading with one financial intermediary may have on the risks faced by other intermediaries. Financial intermediaries typically cannot control the amount of risk that counterparties will take with other intermediaries. In this paper we examine the effect of dropping this exclusivity assumption. We show that the constrained optimum can no longer be implemented as a standard Nash equilibrium with free entry. Nonetheless this allocation is the only one that can be sustained as an anticipatory equilibrium (Charles Wilson (1977)). To break a candidate anticipatory

We present a menu-cost pricing model with a large but finite number n of firms. A firm’s nominal price increase lowers other firms’ relative prices, thereby inducing further nominal price increases. The distribution of these “repricing avalanches” converges as n→∞ to a mixture of generalized Poisson distributions with an indexofdispersion=1/(1−θ)2, where θ is determined by the equilibrium of the continuous limit. We calibrate the model to the US experience during 1988–2005 and obtain a θ surprisingly close to unity. Our model accounts for the positive relationship between inflation level and volatility observed in the data.

This paper examines how well the basic properties of the traditional 2 × 2 model of a competitive economy, commonly used in much of the pure theory of international trade, generalize when more goods and factors are considered. The notion of factor intensity and the Hekscher-Ohlin, Stolper-Samuelson, and Rybczynski theorems are discussed. The role played by the no-joint-production assumption as opposed to small dimensionality in the latter two results is stressed. The mathematical appendix provides a compact and formal statement of the properties discussed in the text.

This paper examines how well the basic properties of the traditional 2 × 2 model of a competitive economy, commonly used in much of the pure theory of international trade, generalize when more goods and factors are considered. The notion of factor intensity and the Hekscher-Ohlin, Stolper-Samuelson, and Rybczynski theorems are discussed. The role played by the no-joint-production assumption as opposed to small dimensionality in the latter two results is stressed. The mathematical appendix provides a compact and formal statement of the properties discussed in the text.

This paper considers a multisector Gorman-Lancaster linear characteristics model of earnings in which workers cannot unbundle their skills. Conditions are presented under which characteristics are uniformly priced across sectors. Empirical evidence is presented for the U.S. labour market that rejects the hypothesis of uniform pricing of characteristics.

In this article, we measure and interpret the common “factors” that describe money market returns. Results are presented for both three‐and four‐factor models. We find that the three‐factor model explains, on average, 86 percent of the total variation in most money market returns while the four‐factor model explains, on average, 90 percent of this variation. Using mimicking portfolios, we provide an interpretation of the systematic risks represented by these factors.