The authors develop a model in which governmental subsidies to banks produce greater benefits for banks than they cost the taxpayers. In exchange, the government dictates private-sector credit allocation to produce political benefits that exceed the cost of subsidies. As long as banks' losses...

We develop an economic theory of “flexibility”, which we interpret as the discretion orability to make a decision that others disagree with. We show that flexibility is essentiallyan option for the decisionmaker, and can be valued as such. The value of the flexibilityoption is decreasing in...

This paper examines the determinants of organizational scale and scope, with applications to various industries, including financial services. We build a model in which new opportunities arise for firms, but the skills needed to exploit them effectively are unknown. Early investments in these...

In this paper we analyze an entrepreneur /manager's choice between private and public ownership in a setting in which management needs some "elbow room" or autonomy to optimally manage the firm. In public capital markets, the corporate governance regime in place exposes the firm to exogenous...

This paper develops a theory of strategic information disclosure with disagreement. Managers of firms are voluntarily communicating subjective information, and prior beliefs about the strategy to maximize project value are rational but heterogeneous, potentially generating fundamental...

In this paper I begin with a model that generates quantity credit rationing by banks in the spot credit market when the stock market is not doing well, i.e., asset prices are low. Then I provide a theoretical rationale for a bank loan commitment as partial insurance against such future...