We analyze a standard environment of adverse selection in credit markets. In our environment, entrepreneurs who are privately informed about the quality of their projects need to borrow in order to invest. Conventional wisdom says that, in this class of economies, the competitive equilibrium is...

We analyze a standard environment of adverse selection in credit markets. In our environment, entrepreneurs who are privately informed about the quality of their projects need to borrow from banks. Conventional wisdom says that, in this class of economies, the competitive equilibrium is...

In some markets, such as the market for drugs or for financial services, sellers have better information than buyers regarding the matching between the buyer's needs and the good's actual characteristics. Depending on the market structure, this may lead to conflicts of interest and/or the...

Professional experts offer advice with the objective of appearing well informed. Their ability is evaluated on the basis of the advice given and the realized state of the world. We model this situation as a reputational cheap-talk game with continuous signal, state, and ability type spaces....

We consider the agency problem of a staff member managing microfinancing programs, who can abuse his discretion to embezzle borrowers' repayments. The fact that most borrowers of microfinancing programs are illiterate and live in rural areas where transportation costs are very high make staff's...

This paper studies equilibria for economies characterized by moral hazard (hidden action), in which the set of contracts marketed in equilibrium is determined by the interaction of financial intermediaries. The crucial aspect of the environment that we study is that intermediaries are restricted...

Excess entry – or the high failure rate of market-entry decisions – is often attributed to overconfidence exhibited by entreprene urs. We show analytically that whereas excess entry is an inevitable consequence of imperfect assessments of entrepreneurial skill, it does not imply...

The use of debt to finance risky entrepreneurial-firm projects is rife with informational and contracting problems. Nonetheless, we document widespread lending to startups in three innovation-intensive sectors and in early stages of development. At odds with claims that the secondary patent...

In this paper, we discuss pros and cons of different models for financial market regulation and supervision and we present a proposal for the re-organisation of regulatory and supervisory agencies in the Euro Area. Our arguments are consistent with both new theories and effective behaviour of...