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...

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...

Constrained efficient allocation (CE) is characterized in a model of adverse selection and directed search (Guerrieri, Shimer, and Wright (2010)). CE is defined to be the allocation that maximizes welfare, the ex-ante utility of all agents, subject to the frictions of the environment. When...

In a market with several independent cities, two firms with private information about their production costs decide whether to open a store in each city or restrict their activity to some cities. In cities where a single rm opens a store, this firm is a monopolist. In cities where both firms...

We determine the optimal contract for the regulation of a bureaucratic firm in the case in which the bureaucratic bias is firm's private information. We find that output is distorted upward when the bureaucratic bias is low, downward when it is high, and equals a reference output when it is...

We study regulation of a bureaucratic provider of a public good in the presence of moral hazard and adverse selection. By bureaucratic we mean that it values output in itself, and not only profit. Three different financing systems are studied - cost reimbursement, prospective payment, and the...

The notion of uncertain delivery is extended to study exchange economies in which agents have different abilities to distinguish between goods (for example a car in good condition versus a car in bad condition). In this setting, it is useful to distinguish goods not only by their physical...