This paper studies the incentives for fiscal adjustment for a debtor government under the risk of defaulting on its external debt. An externality arises from the bargaining process that follows default: higher tax revenues levied by the debtor lead to higher repayment to the creditor, and thus...

We investigate the links between capital cities, conict, and the quality of governance, starting from the assumption that incumbent elites are constrained by the threat of insurrection, and that this threat is rendered less e_ective by distance from the seat of political power. We develop a...

We investigate the links between capital cities, conict, and the quality of governance, starting from the assumption that incumbent elites are constrained by the threat of insurrection, and that this threat is rendered less e_ective by distance from the seat of political power. We develop a...

Motivated by a novel stylized fact - countries with isolated capital cities display worse quality of governance - we provide a framework of endogenous institutional choice based on the idea that elites are constrained by the threat of rebellion, and that this threat is rendered less effective by...

This paper studies a dynamic model of crises with timing frictions that combines the main aspects of Morris and Shin (1998) and Frankel and Pauzner (2000). The usual arguments for existence and uniqueness of equilibrium cannot be applied. It is shown that the model has a unique equilibrium...

This paper studies equilibrium selection in intertemporal coordination problems with delay options. The risk-dominant action of the underlying one-shot game is selected when frictions are arbitrarily small. Larger frictions introduce real option effects in the model and inhibit coordination.

This paper analyses whether sovereign default episodes can be seen as contingencies of optimal international lending contracts. The model considers a small open economy with capital accumulation and without commitment to repay debt. Taking first order approximations of Bellman equations, I...

This paper analyses predictions of a simple model of currency crises in which the peg will be abandoned when the currency overvaluation hits a certain threshold, unknown to the agents. Due to learning about the threshold, some features usually observed in the data and identified with models with...