This paper provides an empirical description of the relationshipbetween the trading system operated by a stockexchange and the transaction costs faced by heterogeneous investors who use the exchange. Therecent introduction ofSETS in the London Stock Exchange provides an excellent opportunity...

Uncertainty about the future preferences of the government may induce policy makers to run excessive budget deficits. As a solution to this problem, economists have proposed to impose a binding debt rule. In this paper we argue that a binding debt rule does not eliminate the distortions due to...

In this paper we test for (Generalized) AutoRegressive Conditional Heteroskedasticity [(G)ARCH] in daily data on 22 exchange rates and 13 stock market indices using the standard Lagrange Multiplier [LM] test for GARCH and a LM test that is resistant to patches of additive outliers. The data span...

A key application of long memory time series models concerns inflation. Long memory implies that shocks have a long-lasting effect. It may however be that empirical evidence for long memory is caused by neglecting one or more level shifts. Since such level shifts are not unlikely for inflation,...

After decades of government growth, Western countries have witnessed major policy reversals. Prominent examples include the far-reaching policy reversals implemented by Thatcher, Reagan, and Douglas. This paper offers an explanation for these policy reversals. Our key argument rests on the...

Collective decision procedures should balance the incentives they provide toacquire information and their capacity to aggregate private information. In a decisionproblem in which a project can be accepted or rejected once information about its qualityhas been acquired or not, we compare the...

It is conceivable that the whether to buy and how much tobuy decisions in the purchasing process of households areinfluenced by the inventory process. In this paper we thereforeput forward a model for consumption, where we rely on establishedeconomic theory. We incorporate this model in a model...

In models of sequential decision making herd behaviour occurs if the signals smart(dumb) agents receive are (un)correlated and if agents have reputational concerns. We show thatintroducing costly effort to become informed about project payoffs (i) eliminates herdbehaviour and (ii) shifts...

Can vanity do any good? It may seem obvious to answer this question in the negative, as economists have shown how reputational concerns lead agents e.g. to ignore valuable information, to herd, and to become overly risk averse. We explore how proud agents may be a social blessing. An agent may...

This paper studies the selection of information collecting agents by policy makers in the light of two agency problems. First, it is often hard to ascertain how much effort agents have put in acquiring information. Second, when agents have an interest in the policy outcome, they may manipulate...