We model the vulnerability of an economy to a financial crisis as arising from the interaction of the degree of economic specialization and bank debt financing. The probability of a financial crisis is shown to increase in the degree of economic specialization. Bank debt financing has the...

Under incomplete contracting, limited liability creates differential valuations of investments from private and government perspectives. Managers in the private sector tend to over-invest in risky technologies, compared to levels of investment that are optimal from the standpoint of the society...

This paper surveys the empirical and theoretical literature on the mechanisms of corporate governance. We focus on the internat mechanisms of corporate governance (e.g., arising from conflicts of interests between managers and equityholders, equityholders and creditors, and capital contributors...

This paper examines the incentive structure underlying the current features of bank regulation. We show that capital regulation has limited effectiveness, given the observed high leverage ratios of banks. We propose instead a more direct and effective mechanism of influencing incentives through...