When a seller gives a buyer a right of first refusal, although it reduces the competing buyers' profits and creates an inefficiency, it always increases the joint profit of the seller and the right holder. Right of first refusal with a consideration (e.g., a payment from the right holder to the...

Two main results have been obtained on the literature on contractual solutions to the hold-up problem. First, a contract specifying a price and quantity of the final good to be traded will, fairly generally, induce efficient investments if these are `selfish' in nature, i.e., each party's...

The present article provides an economic analysis to examine how contract damages affects both breach and investment decisions over time. Unlike the standard static model, this article studies a model in which, upon signing a contract, a seller invests over two periods, and a buyer may breach at...

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...

We study legal restrictions on private contracting in the form of limitations on the severity of non-monetary punishments. We locate the rationale for such restrictions in externalities that parties impose on future relationships: punishments that lower an agent's future productivity may lower...

If country and currency risk premiums are positively correlated, a negative international liquidity shock harms twice the economy, thereby substantially increasing interest rates. This harmful positive correlation between country and currency risk premiums observed in some countries is called...

The importance of currency and maturity mismatches in the debt structure of emerging markets is an issue that can hardly be overemphasized. Yet, while many papers have explained how imbalances in the asset and liability structure of emerging markets can cause currency and financial crises, the...

Are lending contracts between international financial institutions (IFIs) and sovereign borrowers optimal? To address this question this paper builds on two ideas. First, the prospect of future debt relief can make it profitable for an IFI to continue lending even if lending contracts are...

This paper examines whether recent international policy initiatives to facilitate financial rescues in emerging market countries have influenced debtors' incentives to access official sector resources. The paper highlights a country's systemic importance as a key characteristic that drives...

This paper examines how the choice of exchange rate regime can signal financial rectitude and, in so doing, influcence a country's ability to borrow internationally in domestic currency. We develop a model in which the constant probability of a 'type change' creates incentives for disciplined...