The real effects of reserve requirements : [Version February 1998]

We review arguments for and against reserve requirements and conclude that the main question is whether a distinction between money creation and intermediation can be made. We argue that such a distinction can be made in a money-in-advance economy and show that if the money-in-advance constraint is universally binding then reserve requirements on checkable accounts have no effect on intermediation. We then proceed to show that in a model in which trade is uncertain and sequential, a fractional reserve banking system gives rise to endogenous monetary shocks. These endogenous monetary shocks lead to fluctuations in capacity utilisation and waste. When the moneyin-advance constraint is universally binding, a 100% reserve requirement on checkable accounts can eliminate this waste

Do Factor Shares Reflect Technology?

This note demonstrates that it is easily possible to compute technological parameters out of national income accounting data in the presence of bargaining in the labor market. Applying the method to US data, we obtain that the output elasticity with respect to capital exceed 0.5.Factor Shares, Nash Bargaining

Institutions, Bargaining Power and Labor Shares

We use a static framework characterized by both moral hazard and holdup problems. In the model the optimal allocation of bargaining power balances these frictions. We examine the impact of improved monitoring on that optimal allocation and its impact upon effort, investment, profits and rents. The model’s predictions are consistent with the recent evolution of labor shares, wages per efficiency units and the ratio of labor in efficiency units to capital in several OECD countries. The model suggests further that improvement in monitoring may also play a key role in understanding opposition to institutional reforms in the labor market.moral hazard, hold up, bargaining, labor share

Should We Have or Should We Have Not, and Who Should Have Paid?

We analyze an overlapping generations model which explicitly includes a secondary asset market. The economy is affected by a onetime shock which causes some of these assets to become toxic. As a response the government may intervene by buying these assets at market value and removing them from trade. When the shock is not anticipated we find that government intervention cannot improve upon the laissez-faire equilibrium. However, when agents anticipate that a crisis may occur, removing the toxic assets dominates laissez-faire, particularly when the toxic asset holders are financing the intervention scheme. Finally, we show that curbing incentives which drive investors to find high yield opportunities decreases the severity of a crisis once it occurs, but also output.Crisis; Toxic Assets; Intervention

Incentive Contracts and Total Factor Productivity

This paper focuses on the endogenous determination of effort as a source of productivity growth. The economy is populated by infinitely lived households. Every period, members of each household may choose whether to be self-employed or become employees in a "corporate sector". Labor relations in the corporate sector are characterized by a double-moral hazard problem. To induce effort, the optimal labor contract stipulates for a bonus. Nevertheless, due to double moral hazard, employees extract some rents. As the economy grows, employees' rents increase, thereby raising the marginal benefit of monitoring. The ensuing changes in the optimal labor contract induce higher effort along the growth path. The model creates an endogenous association between growth and total factor productivity, and demonstrates that substantial cross-country productivity differences may be ascribed to differences in incentive structures.Incentive contracts, Total factor productivity, Economic growth

Incentive Contracts and Total Factor Productivity

This paper proposes a transactions cost theory of total factor productivity. In a world with asymmetric information and transactions costs, effort, and thus productivity, must be induced by incentive schemes. Labor contracts trade off the marginal benefits and the marginal costs of effort. The latter include, in addition to the workers? marginal disutility of effort, also organizational costs and rents. As the economy grows, the optimal contracts change endogenously, inducing higher effort and measured productivity. Transactions costs are also affected by societal characteristics that determine the power of incentive contracts. Therefore, differences in these characteristics may explain cross-economy productivity differences. Numerical experiments demonstrate that the model is consistent both with time series and cross-country observations. --incentive contracts,total factor productivity,economic growth

Recognising the design decisions in Prolog programs as a prelude to critiquing

This thesis presents an approach by which an automated teaching system can analyse the design of novices' Prolog programs for tutorial critiquing. Existing methodologies for tutorial analysis of programs focus on the kind of small pro¬ gramming examples that are used only in the early stages of teaching. If an automated teaching system is to be widely useful, it must cover a substantial amount of the teaching syllabus, and a critiquing system must be able to analyse and critique programs written during the later stages of the syllabus.The work is motivated by a study of students' Prolog programs which were written as assessed exercises towards the end of their course. These programs all work (in some sense), yet they reveal a wide range of design (laws (bodges) for which some form of tutoring would be useful. They present problems for any automated analysis in terms of the size of the programs, the number of individual decisions that must be made to create each program and the range of correct and incorrect decisions that may be made in each case.This study identifies two areas in the analysis of students' program in which further work is needed. Existing work has focussed only on the design and implementation decisions that relate closely to the programming language. That is not sufficient for these slightly more advanced programs, for which decisions in the problem domain must also be recognised. Existing work has focussed on the different ways to implement code, but in these programs the students also make decisions about which data structures are to be used. These decisions must also be part of an analysis.The thesis provides an approach which represents both decisions in the domain of the problem being solved and decisions about how to implement them in Prolog. Decisions in the problem domain are represented by tasks (for code) and by domain objects (for data structures). Decisions that are specific to the Prolog implementation are represented by prototypes which encapsulate standard programming techniques (for code) and by a polymorphic data type language (for data structures). Issues in devising these representations are discussed.An analysis-by synthesis approach is used for code recognition. This is aug¬ mented by a procedure called "clausal split" which isolates novel or poorly de¬ signed parts of an implementation. Following an incomplete analysis of the program by synthesis, the results of this analysis provide the basis for making inferences about the parts of the program that have not been understood. For analysing data structures, a type inference mechanism is combined with inference about the parts of domain objects. Inferred data type information is also used to limit search, both for synthesis and analysis.An architecture using this approach has been implemented. The success of the architecture is assessed on student's programs. From this assessment it is clear that much further work remains to be done, but the results are hopeful

Searching for Investment Opportunities: A Micro Foundation for Endogenous Growth

Preliminary draft. Recent literature on the phenomenon of sustained growth has emphasized the role of increasing returns to scale technologies. We suggest in this paper a microeconomic foundation for the existence of increasing returns technologies. Production is assumed to require a combination of capital and labor in a standard, constant returns to scale technology. However, this technology is affected multiplicatively by a productivity factor. This factor is assumed to be a result of a research and development process. The R&D process is modeled as a search problem. Firms face a known distribution of productivity factors from which they can sample. Sampling is costly in terms of capital, and therefore firms, which possess a certain amount of capital, have to decide when to stop sampling, hire labor in a competitive labor market, and invest the remainder of their capital in the CRS technology multiplied by the productivity factor they have uncovered. The paper analyzes the search problem faced by the firms, and shows that under certain assumptions about the probability distribution function which governs the behavior of the productivity factor, output is likely to display increasing returns to scale with respect to capital (in a probabilistic sense). This result is embeded in a Diamond-like growth model. It is argued that the model can possess sustained growth paths with interesting stochstaic features. In particular, poorer economies are likely to grow faster on average but also to suffer from higher variability in their growth rate. 1