Asset pricing models have only partially captured the true inflation risk of equities. The contribution of this paper is to identify and quantify the extra inflation tax on equities that results when ownership of physical capital is separated from nominal ownership of the firm in a production...

Financial instruments are subject to inflation taxes on the wealth they represent and on the nominal income flows they provide. This paper explicitly introduces financial instruments into the standard stochastic growth model with money and production and shows that the value of the firm in this...

Agency problems within the firm are a significant hindrance to efficiency. We propose trust between coworkers as a superior alternative to the standard tools used to mitigate agency problems: increased monitoring and incentive-based pay. We show how trust induces employees to work harder,...

The literature on the economic effects of electronic money and banking lacks organization and a common analytical framework. This paper identifies the main issues raised by e-money and e-banking and presents them as six puzzles. Our solutions to the puzzles build a framework for analyzing the...

This paper uses the economics of altruism to show how the presence or absence of trust between employees of the firm affects economic efficiency. We develop a simple model in which trust is defined as reciprocal altruism between two employees and show that the presence of trust improves...

This paper uses the economics of altruism to show how the presence or absence of trust between employees of the firm affects economic efficiency. We develop a simple model in which trust is defined as reciprocal altruism between two employees and show that the presence of trust improves...

We use information from the television game show with the highest guaranteed average payoff in the United States, Hoosier Millionaire, to analyze risktaking in a high-stakes experiment. We characterize gambling decisions under alternative assumptions about contestant behavior and preferences,...

Many believe that a bubble was behind the high prices of Internet stocks in 1999-2000, and that short-sale restrictions prevented rational investors from driving Internet stock prices to reasonable levels. Using intraday options data from the peak of the Internet bubble, we find no evidence that...

Theory suggests that reputations, developed in repeated face-to-face interactions, allow non-anonymous, floor-based trading venues to attenuate adverse selection in the trading process. We identify instances when stocks listed on the New York Stock Exchange (NYSE) relocate on the trading floor....

The National Association of Security Dealers alleges that professional-trader use of the Small Order Execution System (SOES) causes greater security price volatility. We document bidirectional Granger causality between a proxy for professional SOES trading (the frequency of maximum-sized SOES...