We explore the constrained efficient observational learning model - as when individuals care about successors, or are so induced by an informationlly-constrained social planner. We find that when the herding externality is correctly internalized in this fashion, incorrect herds still obtain. To...

This paper systematically analyzes and enriches the observational learning paradigm of Banerjee (1992) and Bikhchandani, Hirshleifer, and Welch (1992).

This paper applies options theory to the model of equilibrium credit rationing developed by Stiglitz and Weiss (1981) by noticing that, given a standard debt contract and limited liability, the payoffs to the lender and the borrower when a loan is make involve a put option and a call option...

Even though self-fulfilling currency attacks lead to multiple equilibria when fundamentals are common knowledge, we demonstrate the uniqueness of equilibrium when speculators face a small amount of noise in their signals about the fundamentals. This unique equilibrium depends not only on the...