We study the optimal design of a menu of funds by a manager who is required to use linear pricing and does not observe the preferences of investors regarding one of the risky assets. The optimal menu involves bundling of assets and can be explicitly constructed from the solution to a calculus of...

Limited liability creates a conflict of interests between policyholders and shareholders of insurance companies. It provides shareholders with incentives to increase the risk of the insurer's assets and liabilities which, in turn, might reduce the value policyholders attach to and premiums they...

We analyze the risk levels chosen by agents who have private information regarding their quality, and whose performance will be judged and rewarded by outsiders. Assume that risk choice is observable. Even risk-neutral agents will choose risk strategically to enhance their expected reputation....

This paper identifies simple conditions for monotone comparative statics of a unique equilibrium in the Akerlof-Wilson model. Separate conditions apply to trade volume and price. Trade volume increases when supply becomes both stronger and more elastic. In contrast, price decreases when supply...

We study bailouts of banks that suffer from debt overhang problems and have private information about the quality of their assets-in-place and new investment opportunities. Menus of bailout plans are used as a screening device. Constrained-optimality involves over capitalization and nonlinear...

Information asymmetry is a necessary prerequisite for testing adverse selection. This paper applies this sequence of tests to Mauritian slave auctions. Dynamic auction theory with private value highlights more aggressive bidding by uninformed bidders and higher prices when an informed...

We develop a principal-agent model based on a sequential game played by a representative investor and a fund manager in an asymmetric information framework. The model shows that investors' perceptions of the fund market play the key role in the fund's fee-setting mechanism. The managers' true...

We study the general problem of information design for a policymaker—a central bank—that communicates its private information (the ``state") to the public. We show that it is optimal for the policymaker to partition the state space into a finite number of ``clusters” and to communicate to...

We model a two-tiered market structure in which an investor can trade an asset on a trading platform with a set of dealers who in turn have access to an interdealer market. The investor's order is informative about the asset's payoff and dealers who were contacted by the investor use this...

I develop a dynamic model of financing decisions and optimal debt maturity choice in which creditors face adverse selection and learn about the firm's quality from news. In equilibrium, shareholders may choose to postpone debt issuance to reduce adverse selection and improve the pricing of newly...