In this paper we study the incentives for basic-research investments by governments in a globalized world. For this purpose, we develop a two-country Schumpeterian growth model in which each country chooses its basic-research investments. We find that a country's basic-research investments...

We augment a Schumpeterian growth model with a public basic-research sector to examine how much a country should invest in basic research. We find that the closer the country is to the world’s technological frontier the more the government should invest in basic research. Basic-research...

What is the economic rationale for investing in science? Based on an open economy model of creative destruction, we characterize four key factors of optimal investment in basic research: the stage of economic development, the strength of the manufacturing base, the degree of openness, and the...

We examine the impact of so-called "Crisis Contracts" on bank managers' risktaking incentives and on the probability of banking crises. Under a Crisis Contract, managers are required to contribute a pre-specified share of their past earnings to finance public rescue funds when a crisis occurs....

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...