This paper evaluates the challenges facing developing countries when there is uncertainty about the policy maker type. We consider a country characterized by volatile output, inelastic demand for fiscal outlays, high tax collection costs, and sovereign risk, where future output depends on the...

A widely known theory of predation holds that firms with ample financial resources may prey on their financially weak rivals to drive them out of the market. Yet, rational weak firms should take this predatory threat into account when designing its financial liabilities. In this paper, we...

This paper analyzes a mixed oligopoly in which firms may hire managers and delegate their decisions to them for strategic reasons. Unlike previous research, we examine the case in which a public firm competes with a foreign firm and a domestic firm, both of them private. We show that these two...

This paper characterizes the precautionary demand for international reserves driven by the attempt to reduce the incidence of costly output decline induced by sudden reversal of short-term capital flows. It validates the main predictions of the precautionary approach by investigating changes in...

This paper studies financial integration in the presence of moral hazard, where banks may mitigate excessive risk by costly monitoring. We show that a drop in banks' cost of funds, less efficient intermediation technology, higher macroeconomic volatility, and a more generous deposit insurance...

This paper characterizes the effects of reserve requirements on financial loans in the presence of moral hazard on the lender side and sovereign risk on the borrower side. The impacts of such reserve requirements on the equilibrium default risk and borrowing are analyzed and their welfare...