We study an economy where agents are heterogeneous in terms of observablewealth and unobservable talent. Adverse selection forces creditors to ask forcollateral. We study the two-way interaction between rationing in the creditmarket and the wages offered in the labor market. Both pooling and...

We study market inefficiencies and policy remedies when agents choose their occupations, and entrepreneurialtalent is subject to private information. Untalented entrepreneurs depress the returns to entrepreneurshipbecause of adverse selection. The severity of this problem depends on the outside...

While systemic risk—the risk of wholesale failure of banksand other financial institutions—is generally consideredto be the primary reason for supervision and regulation of thebanking industry, almost all regulatory rules treat such risk inisolation. In particular, they do not account for...