Firms operating in corrupt environments routinely face an ethical dilemma. On the one hand, bribery can be used as an efficient strategy to “get things done”. On the other hand, corruption is unethical, illegal, and a social ill that people detest. A corrupt environment is also...

Financial crises appear to have long-lasting effects, even after the crisis itself has past. This paper offers a simple explanation through Bayesian learning from rare events. Agents face a latent and time-varying probability of economic disaster. When a disaster occurs, learning results in...

Rational expectation models generally suggest that assets with more exposure to systematic risks should carry higher risk premia. However, several empirical findings challenge this result. I propose a novel generalized recursive smooth aversion model that allows agents to show different levels...