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The financial crisis of 2007-08 has underscored the importance of adverse selection in financial markets. This friction has been mostly neglected by macroeconomic models of financial frictions, however, which have focused almost exclusively on the effects of limited pledgeability. In this paper,...
Persistent link: https://www.econbiz.de/10008784733
We show that direct investments by consumers without the use of financial intermediaries can efficiently allocate financial capital to firms seeking funding for production of a novel consumption good. In our setting, consumers are also investors, and their privately known consumption preferences...
Persistent link: https://www.econbiz.de/10011201361
This paper argues that the U.S. financial crisis is a new type of crisis: a "financial black hole." Financial black holes are characterized by the breaking-up of credit market discipline and the large-scale financing of negative NPV projects. In a theoretical model, we explain how the...
Persistent link: https://www.econbiz.de/10008854497
How do countries hold their financial wealth? We construct a new database of countries' claims on capital located at home and abroad, and international borrowing and lending, covering 68 countries from 1966-97. We find that a small amount of capital flows from rich countries to poor countries....
Persistent link: https://www.econbiz.de/10005498181
This paper develops a dynamic two-country neoclassical stochastic growth model with incomplete markets. Short-term credit flows can be excessive and reverse suddenly. The equilibrium outcome is constrained inefficient due to pecuniary externalities. First, an undercapitalized country borrows too...
Persistent link: https://www.econbiz.de/10011145431
Recent global imbalances and large gross external financial movements have raised interest in modeling the relationship between international financial market structure and capital flows. This paper constructs a model in which the composition of national portfolios is an essential element in...
Persistent link: https://www.econbiz.de/10005123673
What are the welfare effects of a policy that facilitates for insurance customers to privately and covertly learn about their accident risks? We endogenize the information structure in Stiglitz's classic monopoly insurance model. We first show that his results are robust: For a small information...
Persistent link: https://www.econbiz.de/10011083449
Recent empirical work finds that surprisingly little variation in the demand for insurance is explained by heterogeneity in risks. I distinguish between heterogeneity in risk preferences and risk perceptions underlying the unexplained variation. Heterogeneous risk perceptions induce a systematic...
Persistent link: https://www.econbiz.de/10011083454
In a vertical market in which downstream firms have private information about their productivity and compete for consumers, an upstream firm posts public bilateral contracts. When downstream firms are risk-neutral without wealth constraints, the upstream firm offers the input to all retailers....
Persistent link: https://www.econbiz.de/10011083463
This paper analyzes the impact of labor market competition and skill-biased technical change on the structure of compensation. The model combines multitasking and screening, embedded into a Hotelling-like framework. Competition for the most talented workers leads to an escalating reliance on...
Persistent link: https://www.econbiz.de/10011083769