Many if not most markets with network externalities are two-sided. To succeed, platforms in industries such as software, portals and media, payment systems and the Internet, must “get both sides of the market on board”. Accordingly, platforms devote much attention to their business model,...

We study innovative industries subject to two risks. First, it is uncertain whether the innovation is strong or fragile. Second, it is difficult to monitor managers, which creates moral hazard and agency rents. As time goes by and profits are observed, beliefs about the industry are updated. As...

The classical doctrine of the Lender of Last Resort, elaborated by Thornton (1802) and Bagehot (1873), asserts that the Central Bank should lend to “illiquid but solvent” banks under certain conditions. Several authors have argued that this view is now obsolete: when inter-bank markets are...

There has been a recent surge of interest in open source software development, which involves developers at many different locations and organizations sharing code to develop and refine programs. To an economist, the behavior of individual programmers and commercial companies engaged in open...

The euro crisis remains unresolved even as financial markets may seem calm for now. The current euro regime is inherently flawed. Recent reforms have failed to turn the dysfunctional euro regime into a viable one. The investigation is informed by the “cartalist” critique of traditional...

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The Federal German Constitutional Court has made it clear that it considers the OMT program to be in violation of the ECB’s mandate. This paper argues that the Court’s decision reflects an endorsement of the efficient-market hypothesis. If financial markets are efficient, interference of any...

Following the crisis of 2007, regulatory authorities either are or should be engaging in a fundamental reconsideration of how they approach financial regulation and supervision. This paper briefly summarizes the present international consensus on regulation as embodied in the Basel framework,...

Mainstream macro-models have assumed away financial frictions, in particular default. The minimum addition in order to introduce financial intermediaries, money and liquidity into such models is the possibility of default. This, in turn, requires that institutions and price formation mechanisms...