To understand the consequences of the presence of international safety nets on governments' incentives to undertake reforms, we model IFIs´ interventions as country insurance policies. We find that country insurance (especially when made contingent on negative external shocks) is more likely...

Using a generalized cross-spectral approach, we propose a model-free omnibus statistical procedure to check whether the direction of changes in an economic variable is predictable using the history of its past changes. A class of separate inference procedures are also given to gauge possible...

The recent wave of financial crises has fueled the debate on the effect of IFIs intervention on governments' incentives to undertake reforms. In this paper we treat this intervention more generally as a country insurance contract, and examine its implications in a stylized set-up. More...

The large wealth and consumption inequality in the U.S. is usually attributed to two market frictions: debt constraints and incomplete markets. Recent literature has argued that debt constraints are the critical friction while market incompleteness plays only a secondary role. We evaluate the...

Standard models of moral hazard predict a negative relationship between risk and incentives, but the empirical work has not confirmed this prediction. In this paper, we propose a model with adverse selection followed by moral hazard, where effort and the degree of risk aversion are private...

This paper explores the case of a sovereign indebted country facing a choice of economic policy today that will determine the country's ability to continue its debt servicing in the future. If the sovereign undertakes an unsound economic policy it will repudiate its debt with certainty;...

We explain why organizations that limit the voice of their agents can benefit from granting them an exit option. We study a hierarchy with a principal, a productive supervisor and an agent. Communication is imperfect in that only the supervisor can communicate with the principal, while the agent...

It is known that stock returns are affected by monetary policy. This paper theoretically and empirically investigates whether asymmetric information between the Federal Reserve and the public causes the relation between stock returns and monetary policy actions. The paper concludes that...

This paper analyzes how the gossip process can be manipulated by biased people and the impact of such manipulation on information transmission. In this model, a single piece of information is transmitted via a chain of agents with privately known types. Each agent may be either objective or...

Buyers frequently delegate purchase decisions to sellers who are better informed about supply options and the cost of service. This paper analyzes how buyers optimally contract with sellers who vary in their expertise at prescribing service. We show that the most expert suppliers offer the...