Official development assistance is a key source of external finance in many developing countries. A striking feature of these aid flows is their positive correlation with the business cycle of recipient countries. This pattern is puzzling in that it reinforces recipients' already strong and...

Existing estimates of the welfare cost of business cycles suggest that it is quite low and might well be minuscule. Many of these estimates are based on aggregate U.S. consumption data. Arguably, because markets are incomplete and risk-sharing is imperfect, the welfare costs computed with...

We build a political economy model of state policy choice highlighting the challenges to breaking barriers to the adoption of inclusive policies in Africa. We highlight necessary and sufficient conditions for a political leader to gain from implementing exclusive policies: (i) Implementing...

In the presence of even small moral hazard, Hansen & Imrohoroglu (1992) show that the unemployment insurance should be much less generous than without moral hazard. This has important implications in the light of recent reforms. We question this result by adding a social component to the model:...

We empirically investigate the participation and transactional liquidity provided by algorithmic vs. human traders during “abnormally” stressful periods, relative to what they do in “normal” periods, and the resultant implications for the quality and fragility of markets. We find strong...

We investigate empirically the impact of electronic market-makers on the reliability and the consistency with which financial markets provide transactional liquidity services. Our analysis is based on proprietary intraday data from U.S. futures markets. We document results of considerable...

A popular view of limited liability in financial contracting is that it is the result of societal preferences agnainst excessive penalties. the view of most financial economists is instead that limited liability emerged as an optimal institution when, in the absence of a clear limit on economic...