Should the European Union grant state aid through an institution like the European Investment bank? This paper evaluates the efficiency of different measures for granting state aid. We use a theoretical model with firms that differ in their creditworthiness and compare different types of...

Is the reputation of a firm tradable when the change in ownership is observable? We consider a competitive market in which a share of owners must retire in each period. New owners bid for the firms that are for sale. Customers learn the owner’s type, which reflects the quality of the good...

Risk management, although of major importance in the banking industry in practice, plays only a minor role in the theory of banking. We reduce this gap by putting forward a model in which risk managers - specialists that can find out correlations between risky assets - endogenously take over...

If capital is an essential input, the neoclassical growth model has a steady state with zero capital. From this, one is inclined to conclude that an economy starting without capital can never grow. We challenge this view and claim that, if the production function satisfies the Inada conditions,...

The severity and depth of the recent financial crisis hit many by surprise. Despite warning signs, the financial system seems to have been unable to aggregate existing information. As the events of Fall 2008 showed, many investors were caught off guard by the large number of banks collapsing...

We show that team formation can serve as an implicit commitment device to overcome problems of self-control. In a situation where individuals have present-biased preferences, any effort that is costly today but rewarded at some later point in time is too low from the perspective of an...

To maximize their impact, socially responsible households can invest responsibly (SRI), consume responsibly (SRC), or do both. The key question of this paper is, which mix of SRI and SRC leads to a desired impact with the lowest loss of utility for responsible households. In a closed...