We develop a double moral hazard model that predicts that the use of project finance increases with both the political risk of the country in which the project is located and the influence of the lender over this political risk exposure. In contrast, the use of project finance should decrease as...

Should the European Union grant state aid through an institution like the European Investment bank? This paper evaluates the efficiency of different measures for granting state aid. We use a theoretical model with firms that differ in their creditworthiness and compare different types of...

The current economic policy discussion on financial integration in the European Union concentrates on cross-border mergers. We study the impact of cross-border lending in a theoretical model where banks acquire either hard or soft information on borrowing firms and predict that the closer firms...

In many developing countries, we observe rather high levels of corruption. This is surprising from a political economy perspective, as the majority of people generally suffers from high corruption levels. We explain why citizens do not exert enough political pressure to reduce corruption if...

The current crisis raises the question whether loans to SMEs in emerging markets are inherently more risky. We use a unique unbalanced panel of nearly 700 loans made to SMEs in Slovakia between 2000 and 2005. Several probit and panel probit models show that liquidity and profitability factors...

In the current recession, politicians grant state aid of yet unknown dimensions. But what is the most efficient measure for granting such aid? We use a theoretical model with firms that differ in their creditworthiness and compare different types of direct subsidies with indirectly subsidized...

Do empires affect human values and behavior long after their demise? We hypothesize that the Habsburg Empire, which was characterized by a localized and well-respected administration, increased people’s trust in local state services. In several Eastern Euro-pean countries, communities on both...