In a model of financial networks that admits both debt and equity interdependencies, we show that financial organizations have incentives to choose excessively risky portfolios, and overly correlate their portfolios with those of their counterparties. We show how optimal regulation depends on...

We analyze how interdependencies in financial networks can lead to self-fulfilling insolvencies and multiple possible equilibrium outcomes. We show that multiplicity arises if and only if there exists a certain type of dependency cycle in the network, and characterize banks' solvency in any...

We consider a mechanism design setting in which agents can acquire costly information on their preferences as well as others'. The choice of the mechanism generates informational incentives as it affects what information is acquired before play begins. A mechanism is informationally simple if...