In a banking model with imperfect information, I find that more precise information increases the economy's vulnerability to bank runs. For low transparency levels, depositors cannot distinguish bad from good states based on their private signals and, absent liquidity shocks, have no incentives...

I develop a dynamic model of optimal funding to understand why financial assets are used as collateral instead of being sold to raise funds. Firms need funds to invest in risky projects with non-observable returns. Since holding these assets allows firms to raise these funds, investing firms...

This paper studies the social value of closing price differentials in financial markets. We show that arbitrage gaps (price differentials between markets) exactly correspond to the marginal social value of executing an arbitrage trade. We further show that arbitrage gaps and measures of price...

Infrastructure projects involve multiple parties: a government, private sector firms that build and manage, and outside investors who supply financing. Private sector firms need incentives to implement and maintain the projects well; governments may lack commitment not to extort cash flows (for...

Money Market Funds (MMFs), which are crucial to short-term funding markets, rely on voluntary support of fund sponsors to maintain stable share values. I develop a general equilibrium model of MMFs to study how sponsor support affects the industry's fragility and regulation. Adverse...

In a banking model with imperfect information, I find that more precise information increases the economy's vulnerability to bank runs. For low transparency levels, depositors cannot distinguish bad from good states based on their information and, absent liquidity shocks, have no incentives to...

I develop a model of money market funds (MMFs) to study the ability of sponsor support to provide stability to the industry. I find that strategic complementarities in the sponsors' support decisions can make MMFs vulnerable to runs different from the canonical bank-runs: it may lead to runs of...

We study the determinants of asset market fragmentation in a model with strategic investors that disagree about the value of an asset. Investors' choices determine the market structure. Fragmented markets are supported in equilibrium when disagreement between investors is low. In this case,...

Using highly detailed data on the loan portfolios of large U.S. banks, we document that these banks "specialize" by concentrating their lending disproportionately into one industry. This specialization improves a bank’s industry-specific knowledge and allows it to offer generous loan terms to...

We develop a tractable framework to study the optimal design of stress scenarios. A principal wants to manage the unknown risk exposures of a set of agents. She asks the agents to report their losses under hypothetical scenarios before mandating actions to mitigate the exposures. We show how to...