Capital requirements linked solely to credit risk are shown to increase equilibrium credit rationing and lower aggregate lending. The model predicts that the bank's decision to lend will cause an abnormal run-up in the borrower's stock price and that this reaction will be greater the more capital-constrained the bank. The author provides empirical support for this prediction. The model explains the recent inability of the Federal Reserve to stimulate bank lending by increasing the money supply. He shows that increasing the money supply can either raise or lower lending when capital requirements are linked only to credit risk.

Targeted tax-based saving incentives can be a powerful tool for promoting household and national saving. This study examines the effect of the cancellation of the Registered Home Ownership Savings Plan (RHOSP), a Canadian tax-subsidized saving program, on household saving. The cancellation provides exogenous variation in eligibility for the subsidy that is uncorrelated with householdspecific heterogeneity in saving behavior. The empirical analysis suggests that the subsidy had a substantial impact on saving: each dollar contributed to the program represented 56-93 and 20-57 cents of new household and national saving, respectively.

We study a barter economy in which each good is produced in two qualities and no trader can distinguish between the qualities of those goods he neither consumes nor produces. We show that in competitive equilibrium there exists a (unique) good—the one for which the discrepancy between qualities is smallest—that serves as the medium of exchange: this good mediates every trade. Equilibrium is inefficient because production of the medium would be lower if it were not for its mediating role. Introducing fiat money enhances welfare by eliminating this distortion. However, high inflation drives traders back to the commodity medium.

In this article we test whether the introduction of social insurance has led to a reduction in private insurance purchases and precautionary saving by examining the introduction of workers' compensation. Our empirical analysis is based on the financial decisions of over 7,000 households surveyed for the 1917-19 Bureau of Labor Statistics Cost-of-Living study. We find that the presence of workers' compensation at least partially crowded out private accident insurance and led to a substantial reduction in precautionary saving. The introduction of workers' compensation caused private saving to fall by approximately 25 percent, with other factors held constant.

In this article we test whether the introduction of social insurance has led to a reduction in private insurance purchases and precautionary saving by examining the introduction of workers' compensation. Our empirical analysis is based on the financial decisions of over 7,000 households surveyed for the 1917-19 Bureau of Labor Statistics Cost-of-Living study. We find that the presence of workers' compensation at least partially crowded out private accident insurance and led to a substantial reduction in precautionary saving. The introduction of workers' compensation caused private saving to fall by approximately 25 percent, with other factors held constant.

The double auction trading institution (DA) has been highly efficient across diverse marginal-cost market structures, whether human subjects or "zero-intelligence" robots populated those markets. Accordingly, many researchers suspect that DA performance transcends market structure and agent strategy. But we show that (1) large avoidable costs undermine the efficiency and stability of human subject DAs, and (2) these low human efficiencies are simultaneously well above zero-intelligence efficiencies. Our results dramatically illustrate the potential havoc wrought by highly competitive institutions when they must cope with nonconvex technologies.