We survey several key mechanisms that explain the composition of international capital flows: foreign direct investment, foreign portfolio investment and debt flows (bank loans and bonds). In particular, we focus on the following market frictions: asymmetric information in capital markets and...

This paper studies the interaction between adverse selection, liquidity risk and beliefs about systemic risk in determining market liquidity, asset prices and welfare. Even a small amount of adverse selection in the asset market can lead to fire-sale pricing and possibly to a market breakdown if...

I model financial markets that structure decision-making into discrete points separating contract offers, applications, and acceptance/denial decisions. Endogenous beliefs about applicants' risk types emerge as the institutional process extracts private information allowing uninformed firms...

This paper analyzes the optimal provision of incentives in a sequential testing context. In every period the agent can acquire costly information that is relevant to the principal's decision. Neither the agent's effort nor the realizations of his signals are observable. First, we assume that the...

The Introduction to the Symposium Issue on “Dynamic Contract and Mechanism Design” of the Journal of Economic Theory provides an overview of the dynamic mechanism design literature. We then introduce the papers that are contained in the Symposium issue and finally conclude by discussing...

We study a discrete-time model of repeated moral hazard without commitment. In every period, a principal finances a project, choosing the scale of the project and a contingent payment plan for an agent, who has the opportunity to appropriate the returns of a successful project unbeknownst the...

In mechanism design with (partially) verifiable information, the revelation principle obtains in full generality if allocations are modelled as the product set of outcomes and verifiable information. Incentive constraints fully characterize the implementable set of these product-allocations. The...

We analyze price transparency in a dynamic market with private information and correlated values. Uninformed buyers compete inter- and intra-temporarily for a good sold by an informed seller suffering a liquidity shock. We contrast public versus private price offers. In a two-period case all...

Constrained efficiency is characterized in an asset market, subject to search frictions, where sellers are privately informed about the type of their asset. The type determines the opportunity cost of the asset for sellers and the quality of the asset for buyers. The constrained efficient...

A model of over-the-counter markets is proposed. Some asset buyers are informed in that they can identify high quality assets. Heterogeneous sellers with private information choose what type of buyers they want to trade with. When the measure of informed buyers is low, there exists a unique and...