While standard contract theory suggests that a CEO should be paid relative to a benchmark that removes the effects of sector performance, there is evidence that CEO pay is strongly and positively related to such sector performance. Many have coined this relationship as pay for luck. In this...

We study how financial system architecture evolves through the development of banks and financial markets. The predominant existing view is that banks and markets compete, which often contradicts actual patterns of development. We show that banks and markets exhibit three forms of interaction:...

This paper develops a theory in which heterogeneity in bank capital choices arises in a general equilibrium despite ex ante identical banks. In a future state, the credit market is partially frozen in a crisis - high-capital banks have continued access to funding liquidity but low-capital banks...