Who does, and who should initiate costly certification by a third party under asymmetric quality information, the buyer or the seller? Our answer - the seller - follows from a nontrivial analysis revealing a clear intuition. Buyer-induced certification acts as an inspection device,...

This paper studies the role of transfers among groups within a country as well as among countries in a two level game of international trade negotiations. We show that in order to realize the intended transfer in the presence of asymmetric information on the states of recipients (and donors), a...

When demand is uncertain and it is costly for the retailer to forecast demand information more accurately, the supplier faces a moral hazard problem. The supplier wishes to induce the retailer to forecast more accurate information which will improve the total profit of the supply chain. This...

We study the effect of bank loan announcements on the borrowing firms' bond and equity prices. Our sample consists of 896 loan deals signed between 1997 to 2003 involving 364 different US firms. Wereport the first comprehensive evidence that also firm bond prices react to bank loan...

We consider a model of external financing under ex ante asymmetric information and profit manipulation (non verifability). Contrary to conventional wisdom, the optimal contract is not standard debt, and it is not monotonic. Instead, it resembles a contingent convertible (CoCo) bond. In...

Explaining exchange rates has long been an important but vexing issue in international economics and nance. In recent years, a number of studies have shown that investors' private information plays a central role in determining exchange rates. We demonstrate in this paper that the private...

An ‘efficiency wage’ model developed for Western economies is reinterpreted in the context of Stalin’s Russia, with imprisonment – not unemployment – acting as a ‘worker discipline device’. The threat of imprisonment allows the state to pay a lower wage outside the Gulag than...

Are labels good or bad for consumers and firms? The answer may seem straightforward since labels improve information, yet economic theory reveals situations where their introduction reduces the welfare of at least some market participants. This essay reviews the theoretical literature on labels...

<Para ID="Par1">We study the gain of an insider having private information which concerns the default risk of a counterparty. More precisely, the default time τ is modelled as the first time a stochastic process hits a random threshold L. The insider knows this threshold (as it can be the case for the manager...</para>

This theoretical paper intends to provide an explanation of the implementation of behind-the-border policies, border policies, and of the inefficiency of trade negotiations. We consider a general equilibrium model of international trade with two identical countries, two commodities, a...