This article develops a model that studies how the presence of a lender of last resort (LOLR) affects the ex ante investment incentives of banks. We show that a perfectly informed LOLR induces a first-best outcome for small and medium sized banks but causes moral hazard in larger banks given the...

We examine how the banking sector may ignite the formation of asset price bubbles when there is access to abundant liquidity. Inside banks, to induce effort, loan officers are compensated based on the volume of loans. Volumebased compensation also induces greater risk-taking; however, due to...

This article analyzes the impact of IMF (International Monetary Fund) conditionality on the intertemporal allocation of resources in an emerging market economy. The study identifies a principal-agent problem between the government of the emerging market and its citizens and shows that...

This paper develops a continuous time asset pricing model of debt and equity in a framework where equityholders decide when to default but creditors decide when to liquidate. This framework is relevant for environments where creditors exert a significant influence on the timing of liquidation,...