Both the academic literature and the policy debate on systematic bailout guarantees and Government subsidies have ignored an important effect: in industries where firms may go out of business due to idiosyncratic shocks, Governments may increase the likelihood of (tacit) coordination if they set...

We study cheap talk communication in a simple two actions-two states model featuring ambiguous priors. First, we find that in equilibrium, S typically mixes between messages triggering different behavior by R while R himself mixes after some message. Technically, the mixing performed by S is...

Market distress can be the catalyst of a deleveraging wave, as in the 2007/08 financial crisis. This paper demonstrates how market distress and deleveraging can fuel each other in the presence of adverse selection problems in asset markets. At the core of the detrimental feedback loop is agents'...