Modern banking systems are highly interconnected. Despite their various benefits, the linkages that exist between banks carry the risk of contagion. In this paper we investigate how banks decide on direct balance sheet linkages and the implications for contagion risk. In particular, we model a...

Banks provide risky loans to firms which have superior information regarding the quality of their projects. Due to asymmetric information the banks face the risk of adverse selection. Credit Value-at-Risk (CVaR) regulation counters the problem of low quality, i.e. high risk, loans and therefore...

This paper focuses on the stability aspects of cross-border banking. We first argue that cross-border banking brings about various benefits and costs for financial stability. Based on this, we draw conclusions for the desirability of cross-border banking in the EU, and derive implications for...

We analyze the optimal pricing of government-sponsored bank debt guarantees within the context of an asset substitution framework. We show that the desirability of fair pricing of guarantees depends on the degree of transparency of the banking sector: in relatively opaque banking systems, fair...

It is widely recognized that the shape of networks influences both individual and aggregate behavior. This raises the question which types of networks are likely to arise. Our paper fits into the literature that addresses this question. The paper continues on the work of Galeotti, Goyal and...

This paper studies network formation in settings where players are heterogeneous with respect to benefits as well as the costs of forming links. Our results demonstrate that centrality, center-sponsorship and short network diameter are robust features of equilibrium networks. We find that in a...

This paper characterizes the set of equilibrium networks in the two-way flow model of network formation with small decay, and this for all increasing benefit functions of the players. We show that as long as the population is large enough, this set contains large- as well as small-diameter...

In this paper, I study the wage a firm sets to attract high ability workers (hipo's) in situations of unemployment. I show that the higher unemployment, the larger a firm's incentives to sort high and low ability workers. Moreover, workers will signal their (high) ability in situations of (high)...

A physician performs two tasks: making diagnoses and determining treatments. To reduce medical error, residents are supposed to consult their supervisors when they face uncommon circumstances. However, recent research shows that residents are reluctant to do so. This paper presents a model that...

Transparent decision-making processes are widely regarded as a prerequisite for the working of a representative democracy. It facilitates accountability, and citizens may suspect that decisions, if taken behind closed doors, do not promote their interests. Why else the secrecy? We provide a...