On the left: the cradle of civilization. (One can still see today why-click on it for magnification).

On the right:  regime switches when agents with different preferences about a regime demonstrate if their expectation of a switch is sufficiently high compared to their individual cost of demonstration. All agents rationally infer other's preference from the mass of demonstrators in each period. "Demonstration" may be replaced by "investment" in a macro-economic model. Regime switches occur as surprises but seem "obvious" ex post. On the left, the density of costs from public information with the true value in red. (See how the probability distribution sharpens after a switch). On the right, the expected payoff of demonstration with a cost c when all agents  with a cost less than c demonstrate is pictured on the right. Red under perfect information, blue under imperfect information. (See "Coordinating Regime Switches").

"Usus Horatii consilio,... dabam iis [libris] otium, ut refrigerato inventionis amore diligentius repetitos, tamquam lector, perpenderem." (Quintilian)

Changing the view on the public finance system of Philip II (and on the asientos)

More details in the page "Castile". All the works are done with Carlos Álvarez-Nogal (Universidad Carlos III).

The asiento between Philip II of Spain and Tomás Fiesco (April 3, 1591) is a textbook contract for steady monthly disbursements (mesadas) towards the army of Flanders in foreign currency (escudos), and reimbursements by the Crown in domestic currency (ducats). There is in the contract (available on the internet) no contingent debt, excusable default or penalty, contrary to the claim by Drelichman and Voth (2015, “Risk sharing with the monarch: contingent debt and excusable defaults in the age of Philip II, 1556-1598”). An option enables the king, presumably after good news upon the arrival of the fleet, to reduce, with no penalty whatsoever, the size of the contract (both receipts and payments by the Crown, pari passu). The interest charge was of 1 percent per month in domestic currency (ducats), as in other contracts. Special attention is devoted to the exchange rate that played a critical role in the contract’s profitability. It was set at the signature of the contract, and according to some market evidence, with a commission of 4.4 percent.

On asientos and finances of Philip II

 At this stage, it seems that almost all the work on the finances of Philip II that has been published in the economic journals for the past thirty years has been deeply flawed for two reasons: Templates have been taken of the shelf from some theoretical economic models to be misplaced on historical events, leading to incorrect interpretations. Second, most of the data collection has not been verifiable and  thus departs from the requirements in other areas of scientific investigation. Much quantitative information that has recently been published has turned out to be contradicted by the archival documents. All the data that Carlos and I are using is publicly available. The role of asientos in the finances of Philip II, who led the superpower of his time, has to be reevaluated.