Financial Structure and Economic Organization

This volume focuses on how groups of economic agents organize themselves, with a special interest in the financial arrangements they adopt. This is achieved primarily through the development and refinement of neoclassical models incorporating transactions costs and impediments to trade, but also through parallels with the organization of real economies drawn from the history of early Europe. The author demonstrates that the key elements determining financial structure and economic organiation in history are key features in the described environments of modern economic models. These include the facts that economic agents are separated in time and space; economic life is full of uncertainty; there is often private information among agents; there are sometimes difficulties of communication among agents; and there can be problems in getting agents to commit to arrangements, the difficulties of costly and limited enforcement. Analyzing these central issues both in theory and in history, Professor Townsend makes a highly original contribution to the understanding of the diverse forms of economic and financial organization.

Acknowledgments 1 PART I Introduction 1 Key Elements and Patterns in History 3 PART II Spatial Separation 2 Financial Arrangements Models of Money 53 3 Circulating Private Problem: An Example with Coordination with Neil Wallace 101 4 Financial Structure and Economic Activity 118 PART III Private Information as a Key Element in Theories of Contract - Mechanism Design 5 Optimal Contracts and Competitive Markets with Costly State Verification 145 6 Allocation Mechanisms for Asymmetrically Informed Agents with Milton Harris 175 7 Resource Allocation under Asymmetric Information with Milton Harris 212 8 Optimal Multiperiod Contracts and the Gain from Enduring Relationships under Private Information 252 PART IV Limited Communication as a Key Element in Economic Organization 9 Economic Organization with Limited Communication 277 PART V Core Theories of Intermediation 10 Intermediation with Costly Bilateral Exchange 307 11 Theories of Intermediated Structures 321 PART VI Limited Asset Markets with Spatial Separation 12 Asset Return Anomalies in a Monetary Economy 369 PART VII Equilibrium Theories of Volatile Markets With Rational Learning and Optimal Signal Extraction 13 Market Anticipations, Rational Expectations Bayesian Analysis 403 14 Forecasting the Forecasts of Other 419 15 Equilibrium Theory with Learning and Desperate Expectations: Some Issues and Methods 463 PART VIII Equilibrium Theory with Competitive Markets in Complete, Information-constrained Contacts 16 Pareto Optima and Competitive Equilibria with Adverse Selection and Morale Hazard with Edward C. Prescott 495 17 General Competitive Analysis in an Economy with Private Information with Edward C. Prescott 524 Index 547