We study the allocation of commodities through a two-stage hierarchy of competitive markets. Groups or countries trade at global prices while individuals within a group trade at local prices. We identify the free trade and the autarky equilibrium as polar cases. We show that no other two-stage...

We study how bankers can elicit lower capital requirements via lobbying: Bankers pledge to politicians a lobbying rate as a fraction of bank revenues, thus relating politicians' welfare to the size of banks. This induces politicians to lower capital requirements, which causes high leverage...

In this paper we examine the potential of democratic constitutions for the provision of divisible public goods in a large economy. Our main insights are as follows: When aggregate shocks are absent, the combination of the following rules yields first-best allocations: a supermajority rule, equal...

We examine banking competition when deposit or loan contracts contingent on macroeconomic shocks become feasible. We show that the risk allocation is efficient, provided that banks are not bailed out. In this case, banks may shift part of the risk to depositors. The private sector insures the...

We study the consequences and optimal design of bank deposit insurance in a general equilibrium model. The model involves two production sectors. One sector is financed by issuing bonds to risk-averse households. Firms in the other sector are monitored and financed by banks. Households fund...