Uncertainty about a possible harm is obviously relevant in deciding how much to regulate. More surprisingly, however, risks that are completely unrelated to the subject of the regulation can also be important. In particular, uncertainties about the future trajectory and distribution of economic...

We introduce financial frictions in a two sector model of international trade with heterogeneous agents. The level of specialization in the economy (economic development) depends on the quality of financial institutions. Underdeveloped financial markets prohibit an economy to specialize in...