We develop a stochastic dynamic model of bank value maximization under limited liability and in which bankruptcy can occur. Main issues are banks’ optimal responses to regulation and credit-losses. We show that risk-neutral banks behave as if they were risk-averse when they are...

Is it a sheer coincidence that the egalitarian Scandinavian countries have significantly larger government employment shares than the much less egalitarian United States? A positive correlation between equality and government employment share in the OECD indicates that it is not a coincidence....