This paper examines an adverse selection economy in which efficient resource allocation is supported by intermediary contracts (coalitions). Agents differ along an ex ante publicly observable dimension, so that the equilibrium arrangement yields a diverse set of financial arrangements among...

Alternative payment instruments are studied in an economy with private information, delayed communication, and limited commitment. Attention is restricted to checks and bank drafts, which differ in resource cost and communication characteristics. Checks are less costly but settlement delays...

The payment system is a communications industry in which Federal Reserve Banks, in their check collection activities, provide communication services. The history of government intervention in other communications industries offers lessons for the Fed in its efforts at payment system innovation....

Banks are broadly prohibited from tying the sale of their own nontraditional banking products or the products of their nonbank affiliates to the sale of traditional banking services (credit and deposit services). This prohibition grows out of a concern that such tied pricing practices constitute...

The Federal Reserve competes with private providers in markets for payment services. The Fed's pricing behavior in these markets should be guided by the goal of efficiency in the provision and distribution of services. The notion of sustainable pricing provides a framework for pursuing that goal

A considerable body of evidence suggests differences between large and small firms in financial and investment behavior. Many observers have taken this evidence to suggest the existence of market imperfections that put small firms at a disadvantage in raising capital. This “market failure”...

We reexamine the core in the adverse selection insurance economy first studied by Rothschild and Stiglitz (1976). Defining blocking in a way that takes private information into account, the core is sometimes empty. We define the coalition-proof core as the set of allocations which are blocked...

This paper examines an economy in which agents with private information about their own productive capabilities seek to raise capital to fund their investment projects. We employ an equilibrium concept which is closely related to Coalition Proof Nash Equilibrium. In equilibrium, all agents who...

There is now a large literature documenting the statistical relation between stock prices and dividends at the aggregate level. A robust finding is that stock prices are too volatile to be explained by subsequent changes in dividends. Observations of large market swings, like the crash of...

Previous research indicates that the differences between large and small firms should be more pronounced during economic down turns. However, although many studies have emphasized equilibrium models with heterogeneous firms and financial frictions, little research has focused on the separate...