The effectiveness of monetary policy hinges on the central bank's ability to influence market expectations. Central bank transparency is a means toward this end. However, the more effective the central bank is at influencing the market's expectations, the greater is the potential for market...

We illustrate the corrosive effect of even small amounts of adverse selection in an asset market and show how it can lead to the total breakdown of trade. The problem is the failure of "market confidence," defined as approximate common knowledge of an upper bound on expected losses. Small...

Contract theory claims that renegotiation prevents attainment of the efficient solution that could be obtained under full commitment. Assessing the cost of renegotiation remains an open issue from an empirical viewpoint. We fit a structural principal-agent model with renegotiation on a set of...

Do large investors increase the vulnerability of a country to speculative attacks in the foreign exchange markets? To address this issue, we build a model of currency crises where a single large investor and a continuum of small investors independently decide whether to attack a currency based...

We consider the role of the common prior for robust implementation in an environment with interdependent values. Specifically, we investigate a model of public good provision which allows for negative and positive informational externalities. In the corresponding direct mechanism, the agents'...

Even though self-fulfilling currency attacks lead to multiple equilibria when fundamentals are common knowledge, we demonstrate the uniqueness of equilibrium when speculators face a small amount of noise on their signals about the fundamentals. This unique equilibrium depends not only on the...

This paper characterizes the equilibrium sets of common agency games with direct externalities between principals when they compete with nonlinear prices. Direct externalities arise when the contracting variable of one principal directly affects the other principal's payoff. First, we...

We explore the strategic value of quantity forcing contracts in a manufacturer-retailer environment under both adverse selection and moral hazard. Manufacturers dealing with (exclusive) competing retailers may prefer to leave contracts silent on retail prices, whenever other aspects of the...

This paper investigates optimal mechanisms in a principal–agent framework with a two-dimensional decision space, quadratic payoffs and no monetary transfers. If the conflicts of interest between the principal and the agent are different on each dimension, then delegation is always strictly...