An important goal of financial risk regulation is promoting coordination. Law's coordinating function minimizes costly conflict and encourages greater uniformity among market participants. Likewise, privately developed market standards, such as standard-form contracts and rules incorporated into...

The principal agent problem is one of the major issues of the credit rating agency market. Is it possible to solve the prevailing incentive problem of the market and contemporaneously satisfy the reputation demand of the investors? This paper presents an option for regulating the credit rating...

We develop a dynamic network model whose links are governed by banks' optimizing decisions and by an endogenous tâtonnement market adjustment. Banks in our model can default and engage in firesales: risk is trasmitted through direct and cascading counterparty defaults as well as through...

A tractable model of the formation of financial networks is developed, allowing the use of concepts from portfolio theory. The optimal financial network maximizes a Sharpe ratio defined for financial networks, whereas the equilibrium financial network emerges from banks bargaining over future...

A tractable model of the formation of financial networks is developed, allowing the use of concepts from portfolio theory. The optimal financial network maximizes a Sharpe ratio defined for financial networks, whereas the equilibrium financial network emerges from banks bargaining over future...

We analyze a canonical binary-action coordination game under the global games framework. To reduce coordination failure, we propose a novel intervention program that screens agents based on their heterogeneous interim beliefs. Compared with conventional government-guarantee type of programs, it...

We present a model in which an insider (i.e., manager or CEO) and an informed outsider (i.e., analyst or professional) have heterogeneous beliefs on their shared information about a risky asset and analyze the insider's incentive to voluntarily disclose this information to the public. We find...

Blockchains are distributed ledgers, operated within peer-to-peer networks. If reliable and stable, they could offer a new, cost effective way to record transactions, but are they? We model the proof-of-work blockchain protocol as a stochastic game and analyse the equilibrium strategies of...

Blockchain technology breathes new life into the classical analysis of money as a substitute for a ledger of all past transactions. While it involves updating the ledger through a decentralized consensus on the unique truth, the robustness of the equilibrium that supports this consensus depends...

A discussion is given of the problems involved in the formal modeling of the innovation process. The link between innovation and finance is stressed. The nature of how the circular flow of funds is broken and the role of finance in evaluation and control is discussed