Motivated the European debt crisis, we construct a tractable theory of sovereign debt and structural reforms under limited commitment. The government of a sovereign country which has fallen into a recession of an uncertain duration issues one-period debt and can renege on its obligations by...

We characterize optimal incentive contracts in a moral hazard framework extended in two directions. First, after effort provision, the agent is free to leave and pursue some ex-post outside option. Second, the value of this outside option is increasing in effort, and hence endogenous. Optimal...

We examine a "Rotten Kid" model (Becker 1974) where a player with social preferences interacts with an egoistic player. We assume that social preferences are intention-based rather than outcome-based. In a very general multi-stage setting we show that any equilibrium must involve mutually unkind...

The promising prospect of a ‘New Economy’ in the US attracted substantial equity inflows in the late 1990s, helping to finance the country’s burgeoning current account deficit. After peaking in 2000, however, US stocks fell by some 8 trillion dollars in value. To assess the welfare effects...

This Paper studies the relationship between political wealth redistribution and the allocation of firm-ownership when production requires an unobservable input. The economy's wealth distribution affects the equilibrium interest rate and the allocation of entrepreneurial rents because wealth...

Performance indicators are increasingly used to regulate quality in health care and other areas of the public sector. We develop a model of contracting between a purchaser (principal) and a provider (agent) under the following scenarios: a) higher ability increases quality directly and...

This paper analyses the impact of public disclosure of banks’ risk exposure on banks’ risk taking incentives and its implications in terms of soundness of the banking system. We find that, when banks have a complete control over the volatility of their loan portfolio, public disclosure...