This article considers the role of reputation in a competitive market where product quality is unobservable. It is shown, among other things, that there can exist equilibria where price is equal to average cost but greater than marginal cost. No. firm cuts its price because this would make it...

Competition policy in the banking sector is complicated by the necessity of maintaining financial stability. Greater competition may be good for (static) efficiency, but bad for financial stability. From the point of view of welfare economics, the relevant question is: what are the efficient...

We review some recent research that explores the relationship between asset-price volatility and financial fragility when markets and contracts are incomplete. (JEL: E5, G2) Copyright (c) 2005 The European Economic Association.

Empirical evidence suggests that banking panics are a natural outgrowth of the business cycle. In other words panics are not simply the result of "sunspots" or self-fulfilling prophecies. Panics occur when depositors perceive that the returns on the bank's assets are going to be unusually low....

In standard asset pricing theory, investors are assumed to invest directly in financial markets. The role of financial institutions is ignored. The focus in corporate finance is on agency problems. How do you ensure that managers act in shareholders' interests? There is an inconsistency in...

Flawed government policies have been offered as an explanation for currency crises in most of the previous literature. With few exceptions, the role of the banking system is ignored. Empirical evidence suggests that in recent decades banking crises and currency crises have been linked. A model...

A limitation of the existing financial pricing models is the implicit or explicit assumption that insurers produce only one type of insurance, even though most insurers produce multiple types of coverage with differing risk characteristics and liability growth rates. The purpose of this paper is...