In spite of the fact that they can draw on a larger, more liquid and more diversified pool of capital than the equity of reinsurance companies, financial markets have failed to displace reinsurance as the primary risk-sharing vehicle for natural catastrophe risk. We show that this failure can be...

Over the period 2002 to 2003, Switzerland and the European Union (EU) were engaged in negotiations regarding banking secrecy. The EU's stated goal was for Switzerland to abolish banking secrecy. Switzerland refused and offered to impose a withholding tax on interest income instead. The two...

When information is costly, a seller may wish to prevent prospective buyers from acquiring information, for the cost of information acquisition is ultimately borne by the seller. A seller can achieve the desired prevention of information acquisition through posted-price selling, by offering...

We investigate the suitability of securitization as an alternative to reinsurance for the purpose of transferring natural catastrophe risk. We characterize the conditions under which one or the other form of risk transfer dominates using a setting in which reinsurers and traders in financial...

Active fund managers implicitly promise to research profitable portfolio selection. But active management is an experience good subject to moral hazard. Investors cannot tell high from low quality up front and therefore fear manager shirking. We show how the parties mitigate the moral hazard by...

When not every facet of a transaction can be contracted upon and transacting parties' payoffs are asymmetric, low-powered incentives for those facets of the transaction that can be contracted upon may be necessary to avoid too large a distortion in those facets that cannot be contracted upon...

Shareholder agreements govern the relations among shareholders in privately held firms, such as joint ventures and venture capital-backed companies. We provide an economic explanation for key clauses in such agreements—namely, put and call options, tag-along and drag-along rights, demand and...

Shareholder agreements govern the relations among shareholders in privately-held companies, such as joint ventures or venture capital-backed …rms. We provide an explanation for the use of put and call options, pre-emption rights, drag-along rights, demand rights, tag-along rights, and catch-up...