Contributions in Merlin

We suggest a simple asset market model in which we analyze competitive and strategic behaviornsimultaneously. If for competitive behavior two-fund separation holds across periods then itnalso holds for strategic behavior. In this case the relative prices of the assets do not dependnon whether agents behave strategically or competitively. Those agents acting strategically willnhowever invest less in the common mutual fund. Constant relative risk aversion and absencenof aggregate risk are shown to be two alternative sufficient conditions for two-period fundnseparation. With derivatives further strategic aspects arise and strategic behavior is distinctnfrom competitive behavior even for those utility functions leading to two-fund separation.

Terrorism will be high on the political agenda for many years to come. Various policies are open to a government fighting terrorism but, in any case, considerable costs are involved. In the competition for politicalnsupport, the costs and benefits of anti-terrorism policies will be debated. Better information about terrorism and its consequences can improve policy outcome if there is electoral competition. Over the last few years, economic scholars have analysed the effects terrorist acts have on various aspects of the economy. The findings of these impact studies are summarised in this paper. They capture, however, only part of the overall utility losses.nHence, several approaches to value public goods and conceptual issues concerning their application to terrorismnare discussed. In particular, the hedonic market approach, the averting behaviour method, the contingent valuation method and vote and popularity functions are reviewed. Further, an exploratory analysis of estimating individuals' utility losses using life satisfaction or happiness data is presented. This paper also discusses ansubstantially different approach combining measurement and decision-making, namely popular referenda.

This paper reports on a re-evaluation of the German health care reform of 1997. A previous evaluation found a limited effect of a 4.4 percent reduction of the number of doctor visits in a sample of pharmacy customers. The re-evaluation based on a representative household survey, the German Socio-Economic Panel, yields a much larger effect. The paper uses this case study to discuss the methods and benefits of modern techniques of program evaluation.

"A crucial aspect of constitutional design is the provision of rules on how anconstitution is to be amended. If procedures for constitutional amendment are very restrictive,nchanges will take place outside the constitution. These changes are likely to be against thencitizens’ interests and their ability to influence the political process. We argue that thendevelopment of the constitution must be based on the rule of law. We propose directndemocratic rights that allow citizens to participate in the amendment process. The directndemocratic process of institutional change is theoretically and empirically analyzed. Annumber of counter arguments and issues for a gradual introduction are discussed."

The apprenticeship system is the most important source of formal post-secondary training in Germany. Using German register data - the IAB Employment Sample - we find that apprentices staying with their training firm after graduation have longer first-job durations but not higher wages than apprentices leaving the training firm. Retention rates, first job durations, and post-apprenticeship wages are all increasing functions of training intensity. Some implications for the ongoing debate as to why firms are willing to invest in general training are discussed.

Theoretical arguments and empirical evidence are advanced to bolster the claim that direct political participation via referenda and initiatives constitutes an advanced form of democracy with beneficial effects on Transition Countries.nDirect democracy raises trust and honesty and improves social outcomes. Per capita incomes and subjective well-being are raised.nStandard arguments against direct democracy (citizens' incompetence and lacking interest, danger of manipulation and emotionality, hindering progress and destroying civil rights, high cost) are rejected.nElements of direct democracy can be introduced at the national and local levels, and then proceeding further. Citizens should have the right to govern this process.n

This paper analyzes a sequential game where firms decide about outsourcing the production of a non-specific input good to an imperfectly competitive input market. We apply the taxonomy of business strategies introduced by Fudenberg and Tirole (1984) to characterize the different equilibria. We find that outsourcing generally softens competition in the final product market. If firms anticipate the impact of their outsourcing decisions on input prices, there may be equilibria where firms outsource so as to collude or to raise rivals’ costs. We illustrate our analysis using a linear Cournot model.

In this paper we study the inefficiencies of the monetary equilibrium and optimal monetary policies in a search economy. We show that the same frictions that give fiat money a positive value generate an inefficient quantity of goods in each trade and an inefficient number of trades (or search decisions). The Friedman rule eliminates the first inefficiency and the Hosios rule the second. A monetary equilibrium attains the social optimum if and only if both rules are satisfied. When the two rules cannot be satisfied simultaneously, which occurs in a large set of economies, optimal monetary policy achieves only the second best. We analyze when the second-best monetary policy exceeds the Friedman rule and when it obeys the Friedman rule. Furthermore, we extend the analysis to an economy with barter and show how the Hosios rule must be modified in order to internalize all search externalities.

"with Divisible Money *nAleksander Berentsen†nEconomics Department (WWZ), University of Basel, SwitzerlandnGuillaume Rocheteau‡nSchool of Economics, Australian National University, AustralianApril 14th, 2003nAbstractnThis paper studies the validity of the Friedman rule in a search model with divisi-blenmoney and divisible goods where the terms of trades are determined endogenously.nWe show that ex post bargaining generates a holdup problem similar to the one em-phasizednin the labour-market literature. Buyers cannot obtain the full return that annadditional unit of money provides to the match, which makes the purchasing power ofnmoney ine .ciently low in equilibrium. Consequently, even though the Friedman rulenmaximizes the purchasing power of money, it fails to generate the first-best allocationnof resources unless buyers have all the bargaining power."

"Money *nAleksander BerentsennEconomics Departement, University of Basel, SwitzerlandnJune 10, 2003nAbstractnThis paper considers a monopolist’s supply of outside paper money in a random-matchingnmodel with divisible money and divisible goods. When binding supplynannouncements are feasible, the revenue-maximizing policy is characterized by anninitial period where the monopolist initiates a currency reform which destroys thenvalue of any old currency, and then issues new money, which the issuer taxes thereafternwith a constant gross growth rate of money. It is shown that this policy is time-consistentnif the trading history of the issuer is public information and if moneyndemanders respond to the relevation of defection by playing autarky."