We study a firm in which the marginal productivity of agents' effort increases with the effort of others. We show that the presence of an agent who overestimates his marginal productivity may make all agents better off, including the biased agent himself. This Pareto improvement is obtained even...

The last few years have been characterized by great turmoil in the world’s financial markets; starting from the collapse of housing prices in the US, followed by the meltdown of leading financial institutions in the US and Europe, and then the ongoing challenge to the European monetary...

The financial crisis has generated fundamental reforms in the financial regulatory system in the U.S. and internationally. Much of this reform was in direct response to the weaknesses revealed in the precrisis system. The new “macroprudential” approach to financial regulations focuses on...

Government guarantees to financial institutions are intended to reduce the likelihood of runs and bank failures, but are also usually associated with distortions in banks’ risk taking decisions. We build a model to analyze these trade-offs based on the global-games literature and its...

Market prices are thought to contain a lot of useful information. Hence, government regulators (and other economic agents) are often urged to use market prices to guide decisions. An important issue to consider is the endogeneity of market prices and how they are affected by the prospect of...

We analyze a model where the value of a traded security is affected by two different fundamentals, e.g., the quality of the firm's technology and the demand for its products, and where there are two groups of informed traders, each one informed about a different fundamental. We analyze the...

We show that the amount of information in equilibrium increases in the expected profitability of the firm’s investments, and that this creates an amplification mechanism from changes in fundamentals to real value. Uncertainty about future performance has a non-trivial effect on information...

actions of heterogeneously informed agents.

We study the real-efficiency implications of public information in a model where relevant decision makers learn from the financial market to guide their actions. Whether disclosure is "good" or "bad" depends on the interactions between two effects on real decision makers' forecast. Disclosure...