Damien S. Eldridge

Bank Capital Regulation with Asymmetric Countries

When financial markets are global, the impacts of national banking regulations extend beyond national borders. While lax regulatory enforcement improves the profitability of home banks, it also increases loan supply, which in turn reduces the global interest rate spreads. In a two-country model we show that each regulators enforcement choice is affected by the relative size of the national financial market. An authority regulating a smaller market has a smaller impact on global interest rates and therefore a stronger incentive to relax regulatory enforcement.

Multiple Interactions and the Management of Local Commons

We provide a model in which small and relatively isolated communities can successfully manage local commons informally in circumstances where larger or less isolated communities could not do so. The reason for this is the non-anonymous nature of many interactions between the members of a small and isolated community. Such communities may be able to use these multiple interactions to enforce informal restrictions on the usage of local commons. To the extent that the process of economic development reduces the number of non-anonymous interactions among community members, it will reduce the ability of the community to successfully manage the local commons informally. The resulting need for either explicit regulation or the introduction of private property rights represents a hidden cost of development.

Sharing the Greenhouse: Inducing Cooperation in a Global Common

Global warming is an example of a global tragedy of the commons. The atmosphere is a global common property resource. The global nature of this resource makes global warming a particularly difficult problem to solve. The reason for this is that there is no world government that can introduce and enforce the standard solutions for common property resource problems in this case. Any solution will need to be voluntary, in the sense that each country must choose to participate in it. This raises the important issue of just how such voluntary cooperation might be obtained. In this paper, we explore the potential for repeated interaction between countries to induce them to cooperate in combating global warming.

A Learning Theory of Referrals

Many service industries, including the medical and legal professions in some countries, display a gated structure. Rather than approaching a final producer directly, a consumer will first seek a referral from an intermediary. Such an industry structure might help to alleviate adverse selection problems between parties that interact infrequently. Intermediaries aggregate many short-run transactions between various consumers and a particular producer. As such, they might be able to learn a producers level of proficiency more rapidly than an individual consumer. However, the presence of a positive information externality means that too few consumers will seek a referral. As such, some form of regulation to encourage consumers to seek a referral might be warranted.

A Shirking Theory of Referrals

Many service industries, including the medical and legal professions in some countries, display a gated structure. Rather than approaching a final producer directly, a consumer will first seek a referral from an intermediary. In this paper, we provide one possible explanation for such an industry structure. If the outcome of a transaction depends on producer effort, which is unobservable and unverifiable, then the market may fail to generate a Pareto optimal outcome. This is the standard moral hazard problem. If consumers had a long-run relationship with producers, this type of market failure might be avoided. However, in some industries, consumers will only have a short-run relationship with producers. A gate-keeping intermediary may provide an opportunity for reputation effects to apply in such a setting. By aggregating many potential consumers, gate keeping intermediaries can create an artificial long-run relationship between a consumer and a producer. This long-run relationship reduces the incidence of shirking on the part of the producer.

A Comment on Siegfried's First Lesson in Econometrics

In an insightful, and delightfully short, paper that was published in the Journal of Political Economy in 1970, Siegfried provided an im- portant lesson about econometric methodology for all budding young econometricians. Unfortunately, there is a mistake in that paper. This short comment provides a simple correction for that mistake. This correction will hopefully enable econometrics students to obtain the fundamental insights from Siegfrieds paper with less confusion than might otherwise have been the case.