This paper proposes a new instrument for institutional quality—the salary of colonial governors—to investigate whether variations in the quality of British colonial rule continue to have an impact on the economic performance of former colonies. Governors' salaries provide a good source of exogenous variation because the ranking of salaries across the British Empire remained relatively fixed from the late nineteenth century onwards. Perhaps most important, this instrument varies widely across colonies with historically low rates of European settlement—that is, most countries in today's developing world. Using a two-stage least squares estimation procedure, I find that colonies with higher paid governors developed better institutions (and higher per capita income) than colonies with lower paid governors.

We develop a classroom experiment on exchange rate determination appropriate for undergraduate courses in macroeconomics and international economics. Students represent citizens from different countries and need to obtain currency to purchase goods. By participating in a sealed bid auction to buy currency, students gain a better understanding of currency markets and the determination of exchange rates. The implicit framework for exchange rate determination is one in which prices are perfectly flexible (in the long run) so that purchasing power parity (PPP) prevails. Additional treatments allow students to examine the impact of transport costs, nontradable goods and tariffs on the exchange rate and to explore possible deviations from PPP.

In 1982, the US Congress established the Court of Appeals for the Federal Circuit (CAFC) as the sole appellate court for patent cases. Ostensibly, this court was created to eliminate inconsistencies in the application and interpretation of patent law across federal courts, and thereby mitigate the incentives of patentees and alleged infringers to "forum shop" for a preferred venue. We perform the first econometric study of the extent of non-uniformity and forum shopping in the pre-CAFC era and of the CAFC's impact on these phenomena. We find that in patentee-plaintiff cases the pre-CAFC era was indeed characterized by significant non-uniformity in patent validity rates across circuits and by forum shopping on the basis of validity rates. We find weak evidence that the CAFC has increased uniformity of validity rates and strong evidence that forum shopping on the basis of validity rates ceased several years prior to the CAFC's establishment. In patentee-defendant cases, we find that validity rates are lower on average, but do not find either significant non-uniformity of validity rates across circuits or significant forum shopping.

In June 2005, the Supreme Court made one of its least popular decisions in recent history. In Kelo v. New London, the Court missed a simple point: that local decision makers make local decisions.

The use of patent citations as a measure of patent "quality" increased dramatically in recent years. I estimate the hazard of patent citation, and find evidence of unobserved heterogeneity. Hazard estimation provides a means to separate patent quality from citation "inflation."

Using a sample of patents litigated between 1977 and 1997, I estimate stock market reactions to patent litigation decisions and to patent grants. I find that the resolution of uncertainty over validity and infringement is worth as much to the firm as the initial patent right. Each is worth about 1 to 1.5% excess returns. Additionally, I find that there are significant differences pre and post-1982 with the establishment of the Court of Appeals for the Federal Circuit. I also find that there are significant differences in reactions for plaintiff patent-holders and defendant patent-holders. Interestingly, there is no similar effect for appellate court decisions relative to the district court. To my knowledge, this is the first study that measures the stock market reactions to legal outcomes of patent cases.

In this note we investigate the infringement (entry) decision for a firm facing an incumbent patent holder with uncertain patent rights. The entrant risks a dispute by entering, resulting in either a settlement (licensing) or litigation and trial. Using the litigation model described by Priest and Klein, we investigate the expected dispute resolution and its impacts on the entrant's pre-dispute behavior. The primary contribution is to show that the entrant's expectations about the patent holder's beliefs about patent enforceability are a driving factor behind the entry decision. We develop a simple taxonomy of entrant and incumbent types to explain the entry decision.

This paper argues that, in economies heavily dependent on imported inputs, the responsiveness of price and output to cost and demand factors are altered by foreign exchange bottlenecks if the government resorts to nonmarket allocation of import licenses. A model of price and output determination that captures this stipulation is presented. Estimation results for the Turkish manufacturing industry over the 1952-80 period support the hypothesis that price and output elasticities are different between the import crisis and noncrisis periods. Most importantly, monetary expansion is inflationary when there are important bottlenecks but has real output effects otherwise.

There are numerous examples of assets with identical payout streams being priced differently. These violations of the law of one price result from two factors. First, investors have heterogeneous asset valuations so that if two groups of investors trade in segmented markets they are likely to set different prices because they have different expectations as to the value of the identical assets. Second, such discrepancies can only persist if arbitrage activities are limited. There appear to be two major limitations, short sales constraints and noise trader risk. Those assets facing short sales constraints have an asymmetric distribution of pricing violations because short sales constraints only bind when asset prices are too high. By contrast, assets facing noise trader risk have symmetric violation distributions because noise trader risk must be born by arbitrageurs both when prices are too low as well as too high.

Retail sales of prescription drugs totaled $154.5 billion in 2001. The National Institute for Health Care Management estimates annual sales will exceed $400 billion by the year 2010. This paper analyzes the welfare and distributional effects of two policy families that could be used to cope with high and rising pharmaceutical costs. We employ a general-equilibrium approach to contrast the current patented-monopoly system with a) a price ceiling imposed on the pharmaceutical sector of the economy; and b) a universal insurance program covering pharmaceutical purchases. We use a version of the Kelton and Wallace (1995) monopoly production environment: a two-good general-equilibrium model in which a license is required to produce one of the goods. Individuals in the model are heterogeneous with respect to preferences, but have identical production technologies and labor resources. Results indicate potential welfare gains for both the price-ceiling and universal-insurance policies, with very distinct distributional effects.