I study the allocation of human capital in an economy with production externalities, financial constraints and career choices. Agents choose to become entrepreneurs, workers or financiers. Entrepreneurship has positive externalities, but innovators face borrowing constraints and require the...

We develop a model of the joint capital structure decisions of banks and their borrowers. Strikingly high bank leverage emerges naturally from the interplay between two sets of forces. First, seniority and diversification reduce bank asset volatility by an order of magnitude relative to that of...

When Russia launched mass privatization, it was widely believed that it would create a powerful constituency for the rule of law. That didn't happen. We present a dynamic equilibrium model of the political demand for the rule of law and show that beneficiaries of mass privatization may fail to...

A central requirement in the design of a legal system is the protection of law enforcers from coercion by litigants through either violence or bribes. The higher the risk of coercion, the greater the need for protection and control of law enforcers by the state. This perspective explains why, in...

In the last decade, economists have produced a considerable body of research suggesting that the historical origin of a country's laws is highly correlated with a broad range of its legal rules and regulations, as well as with economic outcomes. We summarize this evidence and attempt a unified...

Group lending has been widely adopted in the past thirty years by many microfinance institutions as a means to mitigate information asymmetries when delivering credit to the poor. This paper proposes an empirical method to address the potential omitted variable problem resulting from unobserved...

Observed fiscal policy varies greatly across time and countries. How can we explain this variation across time and countries? This paper surveys the recent literature that has tried to answer this question. We adopt a unified approach in portraying public policy as the equilibrium outcome of an...

The fiscal gains from, and hence the political incentives to, an increase in inflation rate of ten percentage points may be substantial: with Swedish data from 1994, these gains would have been an annual real flow of 3-4 percent of GDP, or a capitalized value of nearly 100 percent of GDP. They...

Does taxation for public goods generally involve a distortionary cost? Are Pigouvian taxes desirable because they raise revenue without having to resort to distortionary taxes? Should decisions concerning public goods or Pigouvian taxes depend on whether their incidence is regressive? The answer...

The recent literature on endogenous economic growth allows for effects of fiscal policy on long-term growth. If the social rate of return on investment exceeds the private return, then tax policies that encourage investment can raise the growth rate and levels of utility. An excess of the social...