Automobile Prices, Gasoline Prices, and Consumer Demand for Fuel Economy

The relationship between gasoline prices and the demand for vehicle fuel efficiency is important for environmental policy but poorly understood in the academic literature. We provide empirical evidence that automobile manufacturers price as if consumers respond to gasoline prices. We derive a reduced-form regression equation from theoretical micro-foundations and estimate the equation with nearly 300,000 vehicle-week-region observations over the period 2003-2006. We find that vehicle prices generally decline in the gasoline price. The decline is larger for inefficient vehicles, and the prices of particularly efficient vehicles actually rise. Structural estimation that ignores these effects underestimates consumer preferences for fuel efficiency.Automobiles, Gasoline, Consumer Preference, Demand, Fuel Efficiency

The Entry Incentives of Complementary Producers: A Simple Model with Implications for Antitrust Policy

We model competition between two firms in a vertical upstream-downstream relationship. Each firm can pay a sunk cost to enter the other’s market. For equilibria in which both firms enter, the downstream price can be lower than the joint profit maximizing level, and coordination (e.g., through merger) is anticompetitive.

Competition When Consumers Value Firm Scope

I model multimarket competition when consumers value firm scope across markets. Such competition is surprisingly common – consumers in many industries prefer firms that operate in more geographic and/or product markets. I show that these preferences permit firms of differing scopes to coexist in equilibrium. Within markets, firms of greater scope have higher prices and market shares. I turn to the commercial banking industry for the empirical implementation. Structural estimation of the model firmly supports the assumptions on consumer preferences, and empirical predictions specific to the model hold in the data. The results suggest that theoretical model is empirically relevant.Firm Scope, Consumer Preferences, Multimarket Competition, Banks

Debt maturity, risk, and asymmetric information

We test the implications of Flannery’s (1986) and Diamond’s (1991) models concerning the effects of risk and asymmetric information in determining debt maturity, and we examine the overall importance of informational asymmetries in debt maturity choices. We employ data from more than 6,000 commercial loans from 53 large U.S. banks. Our results for low-risk firms are consistent with the predictions of both theoretical models, but our findings for high-risk firms conflict with the predictions of Diamond’s model and with much of the empirical literature. Our findings also suggest a strong quantitative role for asymmetric information in explaining debt maturity.

Why do borrowers pledge collateral? new empirical evidence on the role of asymmetric information

An important theoretical literature motivates collateral as a mechanism that mitigates adverse selection, credit rationing, and other inefficiencies that arise when borrowers hold ex ante private information. There is no clear empirical evidence regarding the central implication of this literature—that a reduction in asymmetric information reduces the incidence of collateral. We exploit exogenous variation in lender information related to the adoption of an information technology that reduces ex ante private information, and compare collateral outcomes before and after adoption. Our results are consistent with this central implication of the private-information models and support the empirical importance of this theory.

Does Function Follow Organizational Form? Evidence From the Lending Practices of Large and Small Banks

Theories based on incomplete contracting suggest that small organizations may do better than large organizations in activities that require the processing of soft information. We explore this idea in the context of bank lending to small firms, an activity that is typically thought of as relying heavily on soft information. We find that large banks are less willing than small banks to lend to informationally 'difficult' credits, such as firms that do not keep formal financial records. Moreover, controlling for the endogeneity of bank-firm matching, large banks lend at a greater distance, interact more impersonally with their borrowers, have shorter and less exclusive relationships, and do not alleviate credit constraints as effectively. All of this is consistent with small banks being better able to collect and act on soft information than large banks.

Does Function Follow Organzizational Form? Evidence From the Lending Practices of Large and Small Banks

Theories based on incomplete contracting suggest that small organizations may do better than large organizations in activities that require the processing of soft information. We explore this idea in the context of bank lending to small firms, an activity that is typically thought of as relying heavily on soft information. We find that large banks are less willing than small banks to lend to informationally “difficult†credits, such as firms that do not keep formal financial records. Moreover, controlling for the endogeneity of bank-firm matching, large banks lend at a greater distance, interact more impersonally with their borrowers, have shorter and less exclusive relationships, and do not alleviate credit constraints as effectively. All of this is consistent with small banks being better able to collect and act on soft information than large banks. The opinions in this paper do not necessarily reflect those of the Federal Reserve Board or its staff. This work has been supported by the National Science Foundation (Rajan, Stein), and the George J. Stigler Center for Study of the State and Economy (Rajan). Thanks also to seminar participants at Yale, the Federal Reserve Bank of New York, Tulane, Babson, the University of Illinois, the Federal Reserve Bank of Chicago Bank Structure Conference, the NBER and the Western Finance Association meetings, as well as to Abhijit Banerjee, Michael Kremer, David Scharfstein, Andrei Shleifer, Greg Udell, Christopher Udry and James Weston for helpful comments and suggestions.

The novel mu-opioid antagonist, GSK1521498, reduces ethanol consumption in C57BL/6J mice.

RATIONALE Using the drinking-in-the-dark (DID) model, we compared the effects of a novel mu-opioid receptor antagonist, GSK1521498, with naltrexone, a licensed treatment of alcohol dependence, on ethanol consumption in mice. OBJECTIVE We test the ability of GSK1521498 to reduce alcohol consumption and compare its intrinsic efficacy to that of naltrexone by comparing the two drugs at doses matched for equivalent receptor occupancy. METHODS Thirty-six C57BL/6J mice were tested in a DID procedure. In 2-day cycles, animals experienced one baseline, injection-free session, and one test session when they received two injections, one of test drug and one placebo. All animals received GSK1521498 (0, 0.1, 1 and 3 mg/kg, i.p., 30 min pre-treatment) and naltrexone (0, 0.1, 1 and 3 mg/kg, s.c. 10 min pre-treatment) in a cross-over design. Receptor occupancies following the same doses were determined ex vivo in separate groups by autoradiography, using [3H]DAMGO. Binding in the region of interest was measured integrally by computer-assisted microdensitometry and corrected for non-specific binding. RESULTS Both GSK1521498 and naltrexone dose-dependently decreased ethanol consumption. When drug doses were matched for 70-75 % receptor occupancy, GSK1521498 3 mg/kg, i.p., caused a 2.5-fold greater reduction in alcohol consumption than naltrexone 0.1 mg/kg, s.c. Both GSK1521498 and naltrexone significantly reduced sucrose consumption at a dose of 1 mg/kg but not 0.1 mg/kg. In a test of conditioned taste aversion, GSK1521498 (3 mg/kg) reduced sucrose consumption 24 h following exposure to a conditioning injection. CONCLUSIONS Both opioid receptor antagonists reduced alcohol consumption but GK1521498 has higher intrinsic efficacy than naltrexone

The Polarization of the Cosmic Microwave Background Due to Primordial Gravitational Waves

We review current observational constraints on the polarization of the Cosmic Microwave Background (CMB), with a particular emphasis on detecting the signature of primordial gravitational waves. We present an analytic solution to the Polanarev approximation for CMB polarization produced by primordial gravitational waves. This simplifies the calculation of the curl, or B-mode power spectrum associated with gravitational waves during the epoch of cosmological inflation. We compare our analytic method to existing numerical methods and also make predictions for the sensitivity of upcoming CMB polarization observations to the inflationary gravitational wave background. We show that upcoming experiments should be able either detect the relic gravitational wave background or completely rule out whole classes of inflationary models.Comment: 25 pages, 4 figures, review published in IJMP