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...

We use a classic Merton credit risk framework to argue that Islamic Banking Institutions (IBIs) face less incentive to take on risks than Conventional Banking Institutions (CBI). IBIs have less incentive for risk shifting both in and outside of distress situations. We test and confirm this...

We use a classic Merton credit risk framework to argue that Islamic Banking Institutions (IBIs) face less incentive to take on risks than Conventional Banking Institutions (CBI). IBIs have less incentive for risk shifting both in and outside of distress situations. We test and confirm this...

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...

This discussion paper resulted in a forthcoming article in the <I>Journal of Economic Behavior & Organization</I>.<P> 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...</p></i>

We investigate contributions to the provision of public goods on a network when efficient provision requires the formation of a star network. We provide a theoretical analysis and study behavior in a controlled laboratory experiment. In a 2x2 design, we examine the effects of group size and the...

This discussion paper resulted in a publication in the 'Review of Network Economics' (forthcoming).<P> Agents involved in the formation of a social or economic network typically face uncertainty about the benefits of creating a link. However, the interplay of such uncertainty and risk attitudes has...</p>

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 discussion paper resulted in a publication in the <I>International Game Theory Review</I> (2007). Vol. 9(4), pp. 599-635.<P> 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...</p></i>