Internal and sovereign debt crises occur together and happen more frequently in economies with weak bankruptcy institutions. This paper provides a novel explanation. Internal crises arise because of the inability to liquidate private debtors when many default. In an optimal contract, a...

In this paper, I consider the problem of optimal unemployment insurance in a world in which the unemployed agent's job-finding effort is unobservable and his level of savings is unobservable. I show that the first-order approach is not always valid for this problem, and I argue that the...

This paper provides a new rationalization for deposit insurance and systemic disintermediations. I consider an environment in which borrowers face no penalty for failing to repay obligations except the loss of their collateral. I assume that this collateral has aggregate risk. For a subset of...

This paper proves two theorems about economies with a finite number of infinitely lived agents who trade a complete set of one-period Arrow securities and several infinitely lived securities at each date, subject to short-sales constraints. The first theorem in the paper considers an equilibrium...

We compare the empirical performance of a standard incomplete markets asset pricing model with that of a novel model with constrained Pareto-optimal allocations. We represent the models' stochastic discount factors in terms of the cross-sectional distribution of consumption and use these...

We assume that individuals can fully insure themselves against cross-country shocks, but not against individual-specific shocks. We consider two particular models of limited risk-sharing: domestically incomplete markets (DI) and private information-Pareto optimal (PIPO) risk-sharing. For each...

In this paper, we consider economies in which agents are privately informed about their skills, which are evolving stochastically over time. We require agents' preferences to be weakly separable between the lifetime paths of consumption and labor. However, we allow for intertemporal...