The paper by Cohen, Maier, Schwartz, and Whitcomb (CMSW) presents the authors' comments on previous literature about bid-ask spreads in securities markets and the way in which they are formed and also gives a number of the authors' own ideas on the topic. I have a few comments on what they have to say in both of these categories, but I will emphasize the latter, since I find it more interesting to comment on their own assertions than to comment on their comments about others. In this and previous versions of their paper and previous papers on the same topic, CMSW have explained that they view price movements over time in securities markets as being partly the result of underlying economic changes and partly a reflection of the impact of idiosyncratic orders that come in from individual investors. On the latter point, I do not find their view very convincing. Individuals decide to trade a security, I believe, for essentially one of two reasons: a desire to change their cash balances or a result of a change in probability beliefs about future returns. I do not believe that either of these situations will result in an impact on security price unless they influence to action at the same time large numbers of investors, in which case they represent exactly the source of underlying economic changes which ought to affect price.

The Edelstein and Follain papers are not as different as they may appear at first. The two are linked through the income elasticity of housing. Follain is concerned with this measure explicitly, while Edelstein1s analysis hinges on the value he assumes for it. Both papers are also policy papers, and their conclusions are of immediate importance for ongoing policy decisions.

Sudipto Bhattacharya's paper, “An Exploration of Nondissipative Dividend–Signaling Structures,” is in two parts. The first develops a nondissipative “quota–based” signaling model. Optimal contingent (wage) contracts are shown to induce workers, whose productivity is not directly observable, to “self–select” by the choice of level of committed productivity. However, the most novel feature of the paper is the attempt to apply the quota–based signaling model to the problem of dividend signaling in the capital– –market that is, the modeling of the “information content” of corporate dividends as an ex–ante signal of future earnings. As Bhattacharya notes, the “information content” of hypothesis of dividend payment is somewhat ill–defined to date, so such an application of the quota–based signaling model, if successful, would be a definite contribution to dividend theory.

I have always considered it unfair for a discussant to criticize an author for writing a paper differently than he would have written it had he been addressing that topic. However, since the topic of the Brueggeman and Peiser paper is so important and the paper is so different from what I would have written, I am going to indulge myself for a moment.

What I have attempted to do in this paper and a companion paper [1] on dividend-signaling is to delineate two “polar cases” of signaling in which firms either can or cannot (at all) directly communicate the ex-post profitability of their business without moral hazard. In this paper, we assume that they can, and signaling through dividends or earnings forecasts “merely” serves to bring forward the timing of communication of insiders' expectation of profitability to the outside market. The model is “nondissipative” because the incentivestructure that leads to self-selection using the signal is based on market value revisions which are themselves based on the discrepancy between the signal and the ex-post indicator, not on any exogenous or “third party” costs, unlike the model in the companion paper [1].

No conviction has been more a part of the standard interpretation of American history in the twentieth century than the belief that the U.S. Supreme Court, in a series of late-nineteenth-century decisions bearing on government-business relations, reflected the conservative reaction that seemed to mark the depression of the 1890s. But Professor McCurdy demonstrates that in its 1895 decision in the case of United States v. E. C. Knight Company, which drew a distinction between manufacturing and trade in defining interstate commerce, the Court was not trying to shield a vast, monopolistic aggregation of wealth (Henry O. Havemeyer's “Sugar Trust”) from the will of the people that it be broken up under the Sherman Antitrust Act of 1890. The decision, in fact, was not the beginning of a conservative reaction, but the last effort in a thirty-year attempt to maintain a role for state jurisdiction over the behavior of chartered enterprises.

It is a truism of American constitutional history that the federal judiciary was expected to facilitate interstate commerce. The right of individuals to remove cases to a federal court from locally prejudiced state courts was recognized under a wide range of circumstances. But it seemed less and less natural, as more and more of the nation's business came to be transacted by the “trusts” on a national basis, for corporations to be accorded the same rights. Professor Freyer shows that a major campaign, which had some success in the 1880s, was mounted to deny corporations the right of escape to federal courts. In the end, however, the nation's lawmakers recognized that the problem of the growing concentration of capital would have to be solved by something more sophisticated than frontier justice.