This paper investigates a negative externality of new business creation. When being perceived as a good manager is a necessary condition to establish a firm in the future, we show that a priori talented managers may indulge in undertaking risky projects now. Indeed, such a choice renders more...

Financial contagion is modeled as an equilibrium phenomenon in a dynamic setting with incomplete information and multiple banks. The equilibrium probability of bank failure is uniquely determined. We explore how the cross holding of deposits motivated by imperfectly correlated regional liquidity...

This paper contains a general equilibrium model of an economy with incomplete markets (GEI) with money and default. The model is a simplified version of the real world consisting of a non-bank private sector, banks, a central bank, a government and a regulator. The model is used to analyse...

This paper presents a case study of credit transactions in Palanpur, a north Indian village. Drawing on detailed informtion from all borrowers and lenders in the village, we examine a number of issues related to the functioning of rural credit markets. These include the segmentation of the...

We propose a dynamic equilibrium model of a multi-asset market with stochastic volatility and transaction costs. Our key assumption is that investors are fund managers, subject to withdrawals when fund performance falls below a threshold. This generates a preference for liquidity that is...

This paper studies corporate risk management in a context with financial constraints and imperfect competition on the product market. We show that the interactions between firms heavily affect their hedging demand. As a general rule, the firms’ hedging demand decreases with the correlation...

Lack of access to finance is often cited as a key reason why poor people remain poor. This paper uses data on the Indian rural branch expansion program to provide empirial evidence on this issue. Between 1977 and 1990, the Indian Central Bank mandated that a commercial bank can open a branch in...

The purpose of our work is to explore contagious financial crises. To this end, we use simplified, thus numerically solvable, versions of our general model [Goodhart, Sunirand and Tsomocos (2003)]. The model incorporates heterogeneous agents, banks and endogenous default, thus allowing various...

Various markets, particularly NASDAQ, have been under pressure from regulators and market participants to introduce call auctions for their opening and closing periods. We investigate the performance of call markets at the open and close from a unique natural experiment provided by the...

Multi-year insurance has been proposed as a tool to incentivise policy-holders to invest in property-level adaptation. In a world of rising natural catastrophe risks, such autonomous adaptations could have significant benefits for the property owner, the insurer and society. We review some...