We explore the pricing of variance risk by decomposing stocks' total variance into systematic and idiosyncratic return variances. While systematic variance risk exhibits a negative price of risk, common shocks to the variances of idiosyncratic returns carry a large positive risk premium. This...

Communal responsibility, a medieval institution studied by Greif (2006), supported the use of credit among European merchants in the absence of modern enforcement technologies. This paper shows how this mechanism helps to overcome enforcement problems in anonymous buyer/seller transactions. In a...

Most of the economic literature on bargaining has focused on situations where the set of possible outcomes is taken as given. This paper is concerned with situations where decision-makers first need to identify the set of feasible outcomes before they bargain over which of them is selected. Our...

We examine how interaction choices depend on the interplay of social and physical distance, and show that agents who are more central in the social network, or are located closer to the geographic center of interaction, choose higher levels of interactions in equilibrium. As a result, the level...

Some booms in housing prices are followed by busts. Others are not. In either case it is difficult to find observable fundamentals that are correlated with price movements. We develop a model that is consistent with these observations. Agents have heterogeneous expectations about long-run...

We survey three distinct types of financial crises which took place in the 1990s and the 2000s: 1) The credit implosion leading to severe banking crisis in Japan; 2) The foreign reserves’ meltdown triggered by foreign hot money flight from frothy economies with fixed exchange rate regimes of...

Preferences and attitudes to illicit drug policy held by individuals are likely to be an important influence in the development of illicit drug policy. Amongst the key factors impacting on an individual’s preferences over substance use policy are their beliefs about the costs and benefits of...

This paper uses the old-Keynesian representative agent model developed in Farmer (2010) to answer two questions: 1) do increased government purchases crowd out private consumption? 2) do increased government purchases reduce unemployment? Farmer compared permanent tax financed expenditure paths...

We study a model of film production, distribution and consumption. The studio can release two goods, a theatrical and a video version, and has to decide on its versioning and sequencing strategy. In contrast with the previous literature, we allow for the possibility that consumers watch both...

This paper investigates whether the arrival of managers with export experience, i.e. experience acquired through participation in the export activity of previous employers, is related to firms' international trade status and to what extent this relationship is of a causal nature. We construct a...