This paper reports an experiment that evaluates three regimes for triggering the conversion of contingent capital bonds into equity: (a) a “regulator” regime, where socially motivated regulators make conversion decisions based on observed prices, (b) a “fixed trigger” regime where a...

We present a sequence of two-period models of incentive-based compensation in order to understand how the properties of optimal compensation structures vary with changes in the model environment. Each model corresponds to a different occupation within a bank, such as credit line managers, loan...

Price triggers in contingent capital bonds are analyzed. Pervasiveness of multipleequilibria and nonexistence of equilibrium in theoretical models is illustrated. Evidence of these problems from market experiments is summarized. Possible solutions are evaluated.

Models of banks operating under limited liability with deposit insurance and employee incentive problems are used to analyze how banker compensation contracts can contribute to bank risk shifting. The first model is a multi-agent, moral-hazard model, where each agent (e.g. a loan officer)...

This mechanism design paper studies the assignment of people to projects over time. Inability to communicate interim shocks is a force for long-term assignments, though exceptions exist for high risk aversion. In contrast, costless reporting of interim shocks makes switching powerful for...

Linear programming is an important method for computing solutions to private information problems. The method is applicable for arbitrary specifications of the references and technology. Unfortunately, as the cardinality of underlying sets increases the programs quickly become too large to...

Alternative payment instruments are studied in an economy with private information, delayed communication, and limited commitment. Attention is restricted to checks and bank drafts, which differ in resource cost and communication characteristics. Checks are less costly but settlement delays...

Using private information and club theories, this paper develops a theory of firms in general equilibrium. Firms are defined to be assignments of technologies and agents to clubs. In equilibrium, firms form endogenously and multiple types may co-exist. We formulate the general equilibrium...

Various laws and policy proposals call for regulators to make use of the information reflected in market prices. We focus on a leading example of such a proposal, namely that bank supervision should make use of the market prices of traded bank securities. We study the theoretical underpinnings...