Many researchers have used a cointegration approach to test for the Fisher effect. This note argues that the cointegration of the nominal interest rate and the inflation rate is consistent with any theory implying a stationary real interest rate and so is not a sufficient condition for ex post the Fisher effect to hold. The sufficient condition is the unpredictability of the inflation forecast error implied by the nominal interest rate and this condition may be tested using the signal extraction framework of Durlauf and Hall (1988, 1989).

Arbitrage pressures that could equalize closed-end fund share prices with fund portfolio values appear to be largely absent in an extensive data set. Observed fund behavior violates the static arbitrage bounds of Gemmill and Thomas (2002) and is inconsistent with the dynamic arbitrage bounds of Pontiff (1996). Furthermore, Fama and French (1992) regressions run on arbitrage portfolios designed to profit from closed-end fund mispricings generate excess returns that are either significantly negative or insignificantly different from zero, suggesting that arbitrageurs lack a profit incentive. If arbitrage is absent, observed fund pricing behavior likely reflects changing investor sentiment about fund prospects.

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.

In orthodox economics, honesty or integrity is treated as either part of the constraint function or the objective function. This is at the origin of the statement, "every man has his price." However, if integrity has a price, why do agents experience shame when they sell it while they do not when they sell other possessions? If agents are rational, why do they resort to self-rationalization to avoid shame? The proposed view, called "quantum," avoids these anomalies. Further, the quantum view avoids another set of anomalies that face heterodox models based on the multiple-self framework. The quantum view sheds light on heroism, self-identity, self-cheating (procrastination), etiquettes, taboos, and identity switch.

Using a continuous state space approach, this note extends Feyrer's [2003] study of the proximate determinants of the shape of the long-run distribution of income per capita. Contrary to Feyrer's finding of the primacy of TFP, the results here imply that traps in both TFP growth and capital accumulation may matter.

This paper develops a model to test whether World Bank lending caters to U.S. interests. We use country-level panel data to examine the geographic distribution of World Bank lending to 110 countries from 1968 to 2002. After controlling for country characteristics expected to influence the distribution of lending in a manner consistent with the World Bank's charter and stated allocation mechanisms, we introduce variables reflecting U.S. interests. The empirical results are consistent with a significant U.S. influence, but one which varies across presidential administrations. These findings have important implications because donor influence may reduce the credibility, and hence the development effectiveness, of multilateral aid organizations.

In this paper I present a real options model of patent litigation when patents are not perfectly enforceable. I consider both finite horizon and infinite horizon models. The theoretical results demonstrate that patent value depends not only on the underlying technology, but also on the degree of uncertainty over the property right. Additionally, uncertain property rights create an effective patent term that is less than the statutory term. Using simulation methods and patent data, I estimate the hazard rate of patent litigation. I find that, contrary to previous results, the most valuable patents are not the primary candidates for litigation.

This paper attempts to ascertain which of the convergence hypotheses – absolute, conditional, or club – best describes the economic development of the U.S. states since 1950. We use regression tree analysis to identify convergence clubs among the states and argue that the club characterization of the data dominates the other two. We find three convergence clubs with a state's age and it's initial densities of post offices and telephone cable determining club membership. Abstracting from catch-up effects, those states with higher densities tend to grow faster.

Using a unique set of publicly-traded litigation certificates, we measure the wealth effects of (largely) unanticipated damage awards in the ongoing supervisory goodwill litigation between thrifts and the federal government. Estimating abnormal returns for portfolios of litigation certificates and retained supervisory goodwill claims, we find that the estimated net wealth effect of four litigation-related events between October 1998 and April 1999 was roughly twice as large for the portfolio of publicly-traded litigation certificates as for the portfolio of retained litigation claims. This disparity is puzzling given that the aggregate amount of supervisory goodwill in each portfolio was roughly equivalent. This study provides some evidence that financial markets do not always value assets and liability retained within firms efficiently.