Fully rational agents are allowed to optimize over expectations formation technologies in an environment where it is costly to collect and process information. It is shown in a general equilibrium framework that optimization over expectations by rational and forward-oriented agents can lead to...

The paper develops a model of sudden reversals of in foreign investment flows. The paper suggests that microlevel incentives and microlevel decisions stand at the root of investment crises. Specifically, we argue that if high quality projects are in limited supply and foreign investors are not...