How can banks and similar institutions design optimal compensation systems? Would such systems conflict with the goals of society? This paper considers a theoretical framework of how banks structure job contracts with their employees to explore three points: the structure of a socially optimal...

Banks are vulnerable to self-fulfilling panics because their liabilities (such as demand deposits and certificates of deposit) are short term and unconditional, and their assets (such as mortgages and business loans) are long term and illiquid. To prevent wider financial fallout from such...

Banks are prone to panic-induced runs due to their traditional structure of short-term, unconditional liabilities and long-term, illiquid assets. To avoid systemic crises caused by such panics, governments tend to bail out failing banks. Traditional banking systems thus impose external costs....

To gain access to its markets, the Chinese government sometimes requires high-technology foreign firms to transfer partial property rights to their technology. Because the Chinese market is large and potentially lucrative, major multinationals typically agree to this quid pro quo policy, often...

Some have proposed wealth taxation as a means of reducing economic inequality, but such proposals are premature. While economic theory and data measurement have solid grounding when analyzing other forms of taxation, such as income or sales taxes, this is not the case for wealth Total estimates...

Knowing that bailouts are inevitable because governments will rescue firms whose collapse may cause systemic failure, financial institutions fail to internalize risks their investments impose on society, thereby creating a “risk externality.” This paper proposes that just as taxes are...

How can banks and similar institutions design optimal compensation systems? Would such systems conflict with the goals of society? This paper considers a theoretical framework of how banks structure job contracts with their employees to explore three points: the structure of a socially optimal...

How can banks and similar institutions design optimal compensation systems? Would such systems conflict with the goals of society? This paper considers a theoretical framework of how banks structure job contracts with their employees to explore three points: the structure of a socially optimal...

Most economic models used by central banks prior to the recent financial crisis omitted two fundamental elements: financial markets and liquidity measures. Those models therefore failed to foresee the crisis or understand the policy reaction that followed. In contrast to more orthodox models, we...

In this paper, we argue that the anticipation of bailouts creates incentives for banks to herd in the sense of making similar investments. This herding behavior makes bailouts more likely and potential crises more severe. Analyses of bailouts and moral hazard problems that focus exclusively on...