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            \begin{Large}
    {\bf   A THEORY OF TRUSTEES, AND OTHER THOUGHTS
  } \\
             \end{Large}
           \vspace*{12pt}  
 March 29, 1998\\
                    \bigskip
                    Eric Rasmusen \\
                        \vspace*{.3 in} 
                    {\bf Abstract} 
                    \end{center}
     Independent central bankers and judges  can both be  more usefully viewed as   {\it trustees} than as {\it agents}.  A trust is a  legal institution with rules set up by a {\it settlor}, administered by a {\it trustee} on behalf of {\it beneficiaries}.   Public trustees often are motivated more by Pride, Policy, Place, and Power than by money, and economists should take this into account.  
    
           \vspace {.3in} 

\begin{small}
          \noindent 
\hspace*{20pt}	  	  Indiana University,
Kelley School of Business,    BU 456,   
  1309 E 10th Street,
  Bloomington, Indiana, 47405-1701.
  Office: (812) 855-9219.  Fax: 812-855-3354. Email: Erasmuse@Indiana.edu.  Web: Php.indiana.edu/$\sim$erasmuse.  Copies of this paper can be found at 
       Php.indiana.edu/$\sim$erasmuse/@Articles/Unpublished/trustees.pdf. 

 This   paper will be published in the conference  volume for  the October 10, 1997 Antalya conference  organized by the Bank of Turkey.    
  I would like to thank Claudio Shikida and   Lloyd  Thomas  for  their comments, and Paul Sharkey for research assistance. 

            \end{small}
 
%%-----------------------------%------------------------------------------
 \newpage

  
\noindent
INTRODUCTION
  
       I will make use of the freedom provided by this volume to write
something different from the usual style of the journal article.
Rather, I will give a brief summary of the paper I presented at the
conference, comment on the other papers presented, and, at the end--  
rather than at the beginning as my title implies-- I will outline a
theory of trustees inspired by the conference.
 

\noindent
{\bf 1. A Theory of Negotiation, not Bargaining}

  At the conference I presented a model of negotiation, as opposed to bargaining.  Most economists have modelled what I call bargaining: the decision about how to split a surplus between two parties.  Much of what goes on between parties in the real world, though, is what I call negotiation--  changing the terms of a contract in ways that might actually help both parties. 

 To model negotiation, I use   
  an auditing model  in which the Offeror chooses between a Sincere clause which helps both sides and a Misleading clause which helps him and hurts the other party, the Acceptor. The Acceptor, however, cannot tell which kind of clause it is except by costly reading, and might decide to accept or reject without reading.   This goes on for two rounds of possible extra clauses. 

   This is thus a model of contractual incompleteness  due to contract- {\it reading} costs, not contract- {\it writing}  costs.           

 One of the many equilibria involves each player using mixed strategies. The Offeror randomizes between offering Sincere and Misleading clauses. The Acceptor randomizes between reading the contract and accepting without reading.  


 Another  equilibrium involves no offers being made and none accepted. The reason is that out of equilibrium, the Acceptor would reject any offer made without going to the trouble of reading it, since he believes it is probably a Misleading offer anyway.  The Offeror knows this, and so does not make any offer. 

 Thus, expectations are highly important.  If the two parties are pessimistic, they will never negotiate  a contract with Pareto-improving clauses. 

 This also has an application to labor economics. 
 In a union setting, if management and worker do not trust each other,  then even if both would  benefit from  abolishing  Inefficient Rule X and splitting the dollar gains between them, management would not bother to propose such a change. If management did, the union would  reject the offer, believing that the rule change has a high probability of just benefiting management. 

         An implication is that forcing the two parties to sit down together and make and read offers could benefit both of them.   If the union is committed to reading carefully, management will make Sincere offers and will not bother to make Misleading offers that would certainly get rejected. 

    For further details, I refer the reader to Rasmusen (1997a).


%---------------------------------------------------------------

\bigskip

\noindent
{\bf  2. Inflation Objectives}

 A major theme at the Tekirova conference was the goals of central banks. 
     We often talk of the goal of a central bank as being price stability, but what do we mean by that?  Even distinguishing between price and inflation stability, as is commonly done, is not enough.  Consider the following four possible goals   a country might have  whose price level  was 100 on January 1 and is now 140, and which had 60 percent inflation  over the past twelve months and 40 percent in the 12 months before that.  
 
\begin{enumerate}
\item [{\it  Target price }.   ]     Return  the price level to 100  and keep it there.
 
\item  [{\it Target inflation}. ] Return the inflation rate to 40 percent  and   keep it there. 
 
\item  [{\it Stable price }. ]  Keep the price level at 140.  If you fail, do not try to return it to 140;  just keep it  from changing again.  
 
\item [{\it Stable inflation}. ]  Keep the inflation rate at 60 percent.  If you fail and it rises to 90 percent, keep it at 90 percent. 
 \end{enumerate}
 
        Which of these goals is best?  The Target Price policy is    good for  long-range planning, because under that policy,  contracts can   specify prices with the assurance that they will not change much.  Target  Inflation  would require somewhat more complexity, because the contract would have to  specify that prices rise each year, but future prices would still be predictable, and  this allows the government to    earn seigneurage.   The policy of Target Inflation is also desirable if  prices are sticky and deflation causes unemployment.   But we should wonder if prices will be sticky if the central bank really is following a Target Price policy and has convinced the public that it is doing so.    

    The Stable Price  policy is better for  short-term planning.  In making new contracts, this policy allows people to use current prices, without having to  predict the price changes that  target prices mandate.  If, for example, prices rise from 100 to 120 and a Stable Price policy is followed, people can  write contracts based on an expected price of 120, but under a Target Price  policy  they would have to  calculate that the price would fall to 100.  Those people who were writing long-term contracts a year ago, however, did not have to think about price changes under the Target Price  policy.  

          Is there anything to be said for  Stable Inflation?  Well, it does reduce memory costs, since one does not have to remember what the target rate of inflation is, but it increases  the need for information acquisition, since one must learn what current inflation is. The best argument for Stable Inflation is not based on transaction costs, but on  the difficulty of changing expectations.  If, for whatever reason, public expectations are that the inflation rate follows a random walk, then the central bank might do best by following those expectations. This  is not entirely  satisfactory as a story, since, like my model of negotiation,  it does not explain the origins of the expectations, but  it does have a plausible ring to it. 

   
%---------------------------------------------------------------


\bigskip
\noindent
{\bf 3. Setting Up Institutional Objectives}
 
         Another  issue that came up at the conference was how to model   social welfare  as a function of  output, inflation, and government spending.  Kipici and Ozgan weighted   the cost of divergences from the target levels of those variables equally, in contrast to the  central bank's and  government's possibly unequal weights    and the central bank's  zero weight   on government spending.  One alternative would be to     set up a model with a representative agent and base welfare on his utility function.   That would be unnecessarily complex for many models, however, and what we really want is  a reduced form that  captures the tradeoffs between these desirable variables in a   simple  way.  
 
   
   Weighting the  arguments of the welfare  function  is  arbitrary.  I  suggest assuming that   the social  welfare function is the
same as the government's  except for a lower discount rate  because of the limited term of office that elected officials have. 
The  central bank, on the other hand, might well be set up to have a zero weight on government spending but the same discount rate as the public (or even  a lower discount rate-- an intriguing   application of Ulysses at the mast).  

    Several questions could then be addressed. First, if a cooperative arrangement between government and central bank is feasible, how should each of their objectives be optimally weighted? Second, if the central bank is independent,  is that an improvement over subservience to the government, given that that the envisaged central bank has different welfare weights than the public?  Third, would it be desirable to have a central bank with a discount rate even lower than the one in the social weflare function?  
  


%---------------------------------------------------------------




\noindent
{\bf 4. A Theory of Trustees}

 We now  come to trustees-- almost. First, though, I must talk about   agents.  

    Agency is an old concept in Anglo-Saxon law that has been widely used in economics since the  1970's.  One party, the  principal, hires another, the agent, to act for him.  The principal can issue orders of varying specificity  and can compensate the agent in various ways. He  can fire the agent at any time unless they have a contract that forbids it, and even if  the contract requires him to keep paying the agent, he can  end the status as ``agent'' by  removing all the authority delegated to the agent.  In law, the main questions involving agents concern  the effect on third parties of misbehavior such as negligent harm or making unauthorized contracts, something I have written about in Rasmusen (1997b).  In economics, the main questions involve how  the agent's compensation can be designed to  make him follow orders properly rather than shirking.   All of the problems  economists usually study, though, would disappear if the principal had the same information as the agent, knowing the state of the world at every moment and knowing what actions the agent has taken. 

      Thus, this paradigm does not fit   governments  and independent  central bankers.   If the central bank is independent, it is acting on behalf of the government, but not under its orders.   The government may very well know that the central bank is keeping interest rates high, but it cannot fire the central bank.   Not agency, but a  different legal paradigm is appropriate: the trust.  

   A trust is created when one party, the  Settlor,  grants some property to be controlled by a second party, the Trustee, on behalf of a third party, the Beneficiary.  In the law,  one person can fill more than one of these roles, and indeed could perhaps fill all three-- I would have to do more research to discover that.  A father can, for example, put    ten thousand dollars in trust for his son's education, with himself as trustee.     If he changes his mind later, he cannot take back the money (unless the trust is ``revocable''), but as trustee he can control how it is invested. 

  The purpose of a trust is to make a commitment.  Once the trust is set up, the Settlor no longer has   control over the assets.  Nor does the Beneficiary have control; the Beneficiary may be unhappy about how the trust is managed, but the Trustee  is not obliged to obey the Beneficiary's orders, and often a trust is set up precisely because the Beneficiary's desires are to be thwarted. The father in my example could have given the money directly to his son, but he chose to tie it up a trust for a specific purpose instead. 

       Trusts are better for commitment than either contracts or promises.  Promises, as opposed to contracts,   generally cannot be enforced in Anglo-Saxon law, and when they can be enforced, it is often on the logic that the promise has implicitly set up a trust for the one to whom the promise was made.  Contracts are enforceable, of course, but  not if both parties decide to  waive enforcement   (see Section  IIIe  of  Rasmusen \& Stake (1997) for references).  A Trustee is bound to carry out the terms of the trust, however, even if     the Beneficiary objects.\footnote{Note, however, that if    the Settlors and  Beneficiaries unanimously agree, then   the Trust can generally be dissolved, even against the will of the Trustee, and probably  against the explicit terms of the Trust.  See the Restatement, Second, of  Trusts, Section 337, the Reporter's Notes to which say that in England the Beneficiaries can terminate the trust even if that defeats the Settlor's purpose, citing   {\it  Saunders v.  Vautier}, 4 Beav. 115 (1841), though in America this is not allowed.    }



  Let us now return to  government institutions. These are often usefully viewed   as  trusts. Consider elected officials. Generally they  are completely free of the control of the citizens between elections, though they can be sued for malfeasance in the courts.  Thus, they are not agents, but trustees.  As Rousseau said in  {\it The Social Contract}, Book III, Chapter 15,   ``The English people believes itself to be  free; it is gravely mistaken; it is free only  during the election of Members of Parliament; as soon as the Members are elected, the people is enslaved.''    Only if  elected officials can be recalled-- as  they can in certain American jurisdictions-- are they properly agents rather than trustees with limited terms.  In fact,  the American system was set up to have federal officials with diverse degrees of independence. ``Representatives''  were elected every two years by popular vote, but ``Senators'' were deliberately chosen only every six years, and then by the state assemblies rather than by the voters. (This was later replaced by direct election by the voters, but still only every six years.)   The purpose of the six-year term is explicitly so that the senators will be unresponsive to the popular will.  

  Federal judges are the extreme. They are appointed for life, and can be removed only  by  special impeachment proceedings of Congress.  There is    a  literature    that  looks at the advantages and disadvantages of this independence.\footnote{See Cooter (1983) and Posner  (1994)  on judicial objectives,  Ramseyer (1994) on  the Japanese judiciary,   Spiller \& Gely (1995) on  the interaction between Congress and the U.S. Supreme Court,  Rasmusen  (1994) on precedent as a control,   and Ramseyer \& Rasmusen  (1997) on  political influence on judges in Japan. }   The seminal article is Landes \& Posner (1975),  which notes that independent judges help solve a commitment problem.  If judges were agents of Congress, then Congress could pass laws repudiating its previous agreements. Consequently, nobody would make agreements with the government.  By delegating the power to enforce agreements to  independent courts as trustees, Congress induces others to trust its agreements.  

 Many such cases exist, in which a Settlor government  gives  some of its powers  to a Trustee institution because the government knows it would be tempted to abuse those powers otherwise.  A more specific example is the way in which the U.S. Congress votes to give ``fast track authority'' to the President to make trade agreements.  Under fast track authority,  Congress agrees not to amend any agreements the President makes with foreign countries, but only to vote the agreement up or down.  Congress delegates this power because it knows that otherwise it will be irresistably tempted to amend the agreement, and this will make foreign  negotiations futile.  

         Independent central banks are also Trustees, with the elected government as Settlor and the citizenry as Beneficiaries.  The property in trust is the power to inflate the currency, a power with which the elected government  does not trust itself.  Central banks that are not independent, on the other hand, are Agents, carrying out the orders of the Principal, the elected government,  whether that be to inflate the currency or not.   This is the well-known idea of Barro \& Gordon (1983) and Rogoff  (1985) rephrased.\footnote{See also Miller (1997), which, like this paper, analogizes central bankers to judges, and  follows the paradigm of Landes \& Posner's 1975 article on judges to argue that the purpose of an independent central bank is to enforce contracts made by the government. }   The fundamental problem is the government's desire to inflate the currency.  This has three advantages for the elected officials. First,  it generates short-term macroeconomic gains by reducing interest rates and stimulating investment. Second, it  earns seigneurage which can replace tax revenue. Third, it reduces the value of the national debt, reducing the government's liabilities.      None of these  mechanisms, however, have desirable long-term effects,   and the inflation that results is costly in itself.    Thus, it may be desirable to give this power to a Trustee.   

     Not all central banks  are Trusts, of course, only  independent ones. The central banks of the United States and Germany have a high degree of independence, and can viewed as Trusts. The central bank of Turkey and many other countries are better viewed as Agencies.  The  effects of each organizatonal form  are what the vigorous discussion in academia is all about.\footnote{Institutional details clearly matter tremendously in this discussion. See Goodhart (1995) for a book-length treatment of these.}
 

             The biggest problem that arises with Trustees, a problem for both judges and central banks, is that the Trustee might not act on behalf of the Beneficiary or according to the terms of the Trust.   If the Trustee is independent, how will he  decide how to use  his  power?  Driffill (1997)  and Miller (1997)   survey  the large literature that has developed to look at that question in macroeconomics and political science, a literature that includes much discussion of how to design optimal incentives  for central bankers.  Before we can reach the question of optimal contracts, though, we must address the question of  what bankers care about, what they would maximize in the absence of  external constraints. 


           So what do Trustees care about? The usual arguments of a utility
function in principal-agent models are effort and money. Those are
important for many Trustees, too. When a bank acts as a Trustee for a
spendthrift trust  created to give an income to an heir, for example,
the bank values the fees it collects and will minimize its effort
subject to the constraint of its legal duties, its reputation in the
market for becoming a trustee, and, one hopes,    a 
sense of moral  duty. The problem of trustee misbehavior, whether in
collecting overgenerous fees, exerting too little effort, or stealing
from the trust are well worth studying.

             Here, however, we will concentrate on more metaphorical trustees--
   judges, politicians, and central bankers.  The proper way to
model their utility functions is different.   Effort and money are minor
concerns.     It is rare for abuse of power by  these trustees to take
the form of low effort. Nor can varying their compensation be
expected to make much difference.\footnote{Hence,    the literature represented by Walsh (1995) and Goodhart \& Huang  (1995), in which central bankers'  compensation is linked to inflation and unemployment rates,  is misguided.  I have not yet seen a copy of Bruno Frey's new book, {\it Not Just for the Money: An Economic Theory of Personal Motivation}, but it would seem useful for this kind of task. }   I have suggested elsewhere that
politicians should be paid generously because their salaries are
trivial compared with the amount  of wealth that their decisions
affect, and we would like to reduce their marginal utility of income to reduce the temptation to steal 
(Rasmusen [1992]).  But all three of these occupations select for
people who care less for money than for other things. Most
politicians could increase their income by quitting politics for the private sector, and this is true
of the vast majority of judges (above the local level) and central
bankers in most countries.  This is no less true because of the fact
that their high alternative income often arises from their having
held those positions-- once they hold the positions, if they value
money much, they will resign quickly.   

           The Chairman of the Untied States  Board of Governors of the Federal
Reserve, for example,  earned a salary of \$133,600 in
1995, while the lowest-paid president of the twelve
Federal Reserve District Banks earned \$177,550, and
even the  head   of the  Research and
Statistics department  at the Board of Governors earned
more than Chairman Greenspan.\footnote{See Thomas (1997) at 299 and    Cassidy (1996) 
  at 41.  Also,  it seems that in 1996 the head of custodial services was earning  \$163,800 per year (Ralph Vartabedian,  ``Tightfisted Fed Generous to Own Staff, Panel Reports,''  {\it Los Angeles Times} , September 12, 1996, p. D1). }  Compare this with   \$2,989,832,   the   1995 annual salary plus bonus of  the CEO of the Bank of Boston Corp. , or the  \$494, 615 for the fifth-highest-paid officer of that bank.\footnote{Salaries from   p. 19 of www.sec.gov/Archives/edgar/data/36672/0000950135-97-001232.txt,  on November 7, 1997. }  When Board members leave office, their
salaries rise. This was true even of    Board member Alan
Blinder, a professor of economics,  who increased his
salary when he returned to academia in 1994, and who  must
have increased his earnings far more with  the consulting
activities Princeton allows him ( Cassidy (1996), at 46 ). 


The position of  federal  judges in the United States   is similar:   virtually all of them could earn more if they lost their jobs.  Elsewhere in the world this is also true; this is why in our  forthcoming paper on the Japanese judiciary, Mark Ramseyer and I felt comfortable in proceeding without salary data to look at judicial rewards in terms of  location and  court hierarchy. 


  So what do trustees want?  I suggest a ``Four P's'' approach,
hijacking a slogan from marketing.  The ``Four P's of
Marketing'' are Price, Product, Promotion, and Place.  My  ``Four P's of Trustees''   are
Policy, Pride, Place, and Power.  

 

       POLICY refers to the trustee's desire to see particular policies in
place, usually because of his political or moral principles. A
central banker has a personal preference for the inflation rate. A
judge has a personal preference for whether abortion is legal or not.
A politician has a personal preference for  the rate of income tax. 
A good way to model this is to label the trustee's policy choice $x$,
his personal preference $x_i$, and the settlor's preference $x^*$,
where all these variables lie in the interval $[0,1]$.
The Trustee wants the policy to be as close to his desired policy as
possible, so let us have $\frac{1}{(x_-x_i)^2}$  enter his utility
function. 
 
    PRIDE  refers to the trustee's reputation for competence. A central
banker wants to be known as someone who understands the economy and
the effects of the instruments at his disposal. A judge wants to be
known to the legal profession as someone who can argue cogently for
his positions and who knows the law. A politician wants to be known
as someone who can get things done. Let us denote Pride by the
variable $y_i$ for Trustee i's perceived ability, a variable lying on
the $[0, \infty]$ continuum. 

      PLACE is the  Trustee's job. He likes being a trustee, and does
not like being fired, quite apart from the losses in the other
variables. Central bankers, judges, and elected officials all  are
granted deference and perks based solely on their positions, and
instantly lose most of this when they leave their positions. 
Let us denote Place by $Z_i$, which take the value 0 if the
Trustee loses his job and 1 if he keeps it. 


  POWER is a different dimension than Place. A trustee can keep
his position but have no discretion to do anything. Or, the trust
could separate out position and power; the emperor is worshipped as a
god, but the shogun makes all the decisions. Power is here considered
as a good in itself, not as a means to influence Policy. A simple way
to model Power is as the number of decisions the Trustee is free to
make. Here, let us denote it by $D$, an integer from 0 to $M$. In the
modelling of Policy above, the Trustee was limited to one decision
variable, $x$. We can easily make this a vector with $N \geq M$
elements, where $N$ could be larger than $M$ because it may be useful
to model the Trustee as having preferences over some policy variables
that he cannot possibly affect by his actions. Also, note  that we
can keep the model simple by continuing to model Policy as
unidimensional; this implies that the Trustee likes having more
decisions to make because of Power, but he only cares about the
outcome of one of them for Policy. 

%---------------------------------------------------------------
 

 We can thus  write   the Trustee's utility function as
 \begin{equation} \label{e1}
    U_i = U( \frac{1}{(x -x_i)^2}, y_i, Z_i, D), 
\end{equation}
 with $U$ increasing in all its arguments. 

       Let me now return to Pride. How
does a Trustee improve his reputation for competence? That depends on
the setting. Let us consider a central banker. One possibility is
that he is rated on his ability to achieve his Policy, Place, and
Power objectives. If that is so, then Pride will have  little
independent effect, perhaps even having no effect on his decisions. A
second possibility is that Pride depends only on how well he achieves
one of the other objectives-- on his Power, for example, but not on
his Policy. In that case, the effect of Pride is just to magnify the
effect of Power relative to Policy and Place, increasing the
importance of Power as an incentive tool.  

A third possibility is the most interesting. Suppose the central
banker's competence is rated on how close he comes to achieving the
beneficiary's desired Policy.  This can be modelled as 
 $$
 y_i=\frac{1}{ (x-x^*)^2}
 $$
   
In the example of a central banker, the story would be that if the
banker's personal preference is for 0 percent inflation, but the
electorate's ex ante, informed preference  is for 10 percent, then
the banker will not choose 0 percent, but rather something in
between. If he chooses 0 percent inflation, people perceive his
ability to be low-- they think that he tried for higher inflation,
but couldn't manage to get what he wanted. The belief is
self-confirming. 
     

       Pride is interesting because  there are multiple equilibria in it. It
all depends on what people think is the signal of ability. If the
Settlor of the trust can set up expectations a certain way, he can
use this tool to move the Trustee to the Settlor's preferred Policy
and away from the Trustee's.   

       The Four P's Theory also allows us to explain certain other aspects of central banking.    One question is why a central bank should have authority over banking regulation as well as over interest rates.  It is certainly desirable to have an independent Trustee supervising banking regulation, given the experience of the United States (and no doubt other countries) with elected officials pressuring regulators to go easy on  troubled and criminal banks.  But why  not set up a separate Trustee? The answer may be in  the central bank's love of Power.  In the United States, the Federal Reserve has resisted attempts to  take away the control it has over certain bank  regulations and rationalize regulation within a single agency.  An obvious explanation is the utility of Power. 
 
    We can also explain the low salaries of Federal Reserve governors.  The salaries of Board members are set by Congress, and it may be advantageous to set them low.  This reduces the value of Place, and 
Board members commonly leave before their 14-year terms are up. They
clearly have independence from Congressional bribery, and they do not   care  about  reappointment  simply because the law forbids them to be reappointed-- an interesting aid to independence.      Moreover, there is a beneficial selection effect.  Paying public servants a low salary to attract only those with particular utility functions-- who wish to serve the public rather than earn money-- is an old idea, though usually applied to elected officials.  We have deliberately selected for Trustees who are unusually unresponsive to monetary incentives. 

   The theory  has implications for the dimensionality of  central bank  objectives.  A Trustee whose Trust has many objectives   has much greater discretion, since he can  choose which objectives to favor. This allows  great scope for satisfying his personal Policy preferences (as we see with independent American federal judges, whose objectives have very high dimensionality, besides being quite vague).   If, on the other hand, the central bank is given one objective-- low inflation, for example-- it is much easier to monitor how it is doing, and much easier to  use Pride by  showing that the bank has failed to meet its formal objective. 
     

       It is equally important to  give the Trustee only
objectives which are under his control.   Ordering a
central bank to  deliver  ``a healthy economy''  is futile.
Moreover,  if some objectives are out of the bank's
control, the banker already loses some utility from
Pride,  or gains some from successes not  really due to
his own effort,   making it harder to use that instrument
to control his behavior in more relevant areas. 
Combining the ideas of these last two paragraphs:  if the
central banker has    10 targets,  of which only inflation is
truly  under his control,   then inflation will be so small a
part of his reputation that  he will use it to satisfiy his
personal Policy preferences instead of to gratify his
Pride by improving his reputation for effectiveness. 

  
       
 I hope that these thoughts may be useful in organizing our
thinking about government institutions.           The Four P's
Theory hardly deserves the name of theory, since it has
been largely taxonomic. I have, in fact, committed a sin
of which I frequently accuse graduate students:
constructing a model without coming to any
propositions.   I hope  this taxonomy, though,  will
be useful to shift from thinking of   agents  to thinking of 
trustees.   The shift of emphasis has quite different
implications for how to structure their incentives.     
 
  %---------------------------------------------------------------

  
  \begin{center}
   REFERENCES 
 \end{center}


American Law  Institute (1958) {\it   Restatement of the Law, Second: Agency} (St. Paul, Minnesota: American Law Institute, 1958). 


American Law  Institute (1959) {\it   Restatement of the Law, Second, Trusts}  (St. Paul, Minnesota: American Law Institute, 1959). 


 Barro, Robert and D. Gordon (1983) ``A Positive Theory of Monetary Policy in a Natural Rate Model,'' {\it Journal of Political Economy}, 91: 589-610.  

 Cassidy, John  (1996) ``Fleeing the Fed: Why Did Bill Clinton's Appointee Leave Alan Greenspan?'' {\it The New Yorker}, Feb. 19, 1996, pp.   38-46. 

 
Cooter, Robert (1983)  ``The Objectives of Private and Public Judges,''   {\it Public Choice}, 41: 107-132. 

 Driffill, John (1997) ``Institutions and Monetary Policy,'' Working paper, Dept. of Economics, University of Southampton, October 8, 1997.  Www.soton.ac.uk./$\sim$econweb. 

  Frey, Bruno (1997)  {\it Not Just for the Money: An Economic Theory of Personal Motivation}  (Elgar, 1997).  

Gely, Rafael and        Pablo Spiller  (1990)   ``A Rational Choice Theory of Supreme Court Statutory Decisions with Applications to the {\it State Farm} and {\it Grove City} Cases,''   {\it Journal of Law, Economics, and        Organization},  6: 263--300.

Goodhart, Charles (1995) {\it The Central Bank and the Financial System}, (London: MacMillan Press, 1995). 

Goodhart, Charles   and Haizhou  Huang (1995) ``What is the Central Banks' Game?''  Working paper, Financial Markets Group, London School of Economics, Huang@lse.ac.uk. 

Kipici,  Ahmet and Gulcin Ozkan (1997)  ``Public Debt and Its Finance in a Model of a Macroeconomic Policy Game,''   working paper, Central Bank of Turkey, October 1997. Kipici@tr-net.net.tr. 


Landes, William and Richard Posner.  1975.  ``The Independent
Judiciary in an Interest-Group Perspective,''   {\it Journal of Law and
Economics}, 18: 875---901.

  
 Miller, Geoffrey (1997) ``An Interest-Group Explanation of Central Bank Independence,'' working paper, New York University Law School.  

   Posner, Richard (1994)    ``What do Judges and Justices Maximize?   The Same Thing Everybody Else Does),''   chapter 2 of {\it Overcoming Law}.   Also,     {\it Supreme Court Economic Review}  3:1-42 (1994). 


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