creator: Alger, Ingela
0-7 of 7
Liquid Assets in Banks: Theory and Practice
description- – This paper summarizes theoretical findings on the determinants of liquid assets held by banks. The findings are summarized in a series of predictions, some of which are tested using a panel data set on Mexican banks. Surprisingly, we find that banks with relatively more demand deposits have relatively less liquid assets, in contrast with the theoretical prediction. We further exploit a period characterized by a prolonged aggregate liquidity shock on the Mexican banking system to shed light on the question: are there banks that rely more than others on liquid assets to meet their liquidity needs? We find that only small banks seem to rely on liquid assets to meet severe liquidity shocks.
- – 1999-11-01
- – application/pdf
Optimal Debt Contracts when Credit Managers are (Perhaps) Corruptible
description- – The paper derives the optimal organizational response of a bank (the principal) which faces a risk of collusion between the credit manager (the agent) and the credit-seeking firms. The bank can deter collusion either through internal incentives or by distorting the credit contracts. The model thus explicitly takes into account the interaction between internal (collusion) risks and external (default) risks in the optimal design of the internal organization as well as of the credit contracts. We investigate this question in two settings. In the first one, we adopt the standard assumption that the agent is always willing to collude (is corruptible) if that increases his monetary payoff. In the second one, he is corruptible with some probability only, and honest otherwise. A novel feature of our approach is to allow for screening among corruptible and honest agents. We find that if the probability that the agent is honest is sufficiently large, collusion occurs in equilibrium.
- – WP648
- – 1999-08-01
- – application/pdf
Moral Hazard, Insurance, and Some Collusion
description- – A risk-averse consumer purchases an insurance policy; if she suffers a loss, she may receive services from a provider to recover some of the loss. Only the consumer and the provider know if the loss has actually occurred. The provider's behavior is uncertain. With some positive probability, the provider is honest, reporting the loss information truthfully to the insurer; with the complementary probability, the provider reports the information strategically, by writing a side-contract with the consumer to maximize the joint surplus of the provider-consumer coalition. We show that there is a loss of generality in considering only collusion-proof contracts, and characterize equilibria implemented by collusion-proof and noncollusion-proof contracts. When the probability of a provider acting collusively is small, the equilibrium contract is not collusion-proof but approximately first-best. When the probability of a provider acting collusively is large, the equilibrium contract is independent of this probability and identical to the equilibrium collusion-proof contract when the provider is collusive with probability 1.
- – WP496
- – 2001-02-01
- – application/pdf
Screening Ethics when Honest Agents Keep their Word
description- – Using the canonical principal-agent setting with adverse selection, we study the implications of honesty when it requires pre-commitment. Within a two-period hidden information problem, an agent learns his match with the assigned task in period 2 and, if honest, reveals it to the principal if he has committed to it. The principal may offer a menu of contracts to screen ethics. Both honest and dishonest agents are willing to misrepresent their ethics. Equilibrium ethics screening occurs if both honesty and a good match are sufficiently likely: the principal leaves a smaller rent to an honest while screening matches for a dishonest by inducing a message reversal by the dishonest. Otherwise, if dishonesty is likely, the principal offers the standard second-best contract, while if both dishonesty and a good match are unlikely, she offers the first-best contract, implying that no match screening occurs for a dishonest.
- – WP562
- – 2004-11-01
- – application/pdf
Screening Ethics when Honest Agents Care about Fairness
description- – We explore the potential for discriminating between honest and dishonest agents, when a principal faces an agent with private information about the circumstances of the exchange (good or bad). When honest agents reveal circumstances truthfully independently of the contract offered, the principal leaves a rent only to dishonest agents (even if honest agents are willing to lie about their ethics); the principal is able to screen between good and bad circumstances. In contrast, if honest behavior is conditional on the contract being fair, the principal cannot screen along the ethics dimension. If the probability that the agent is dishonest is large, the optimal mechanism is as if the agent were dishonest with certainty (standard second best). Otherwise, it is as if the agent were honest with certainty (first best). In the latter case, the principal is unable to screen between circumstances if the agent is dishonest.
- – WP489
- – 2004-08-01
- – application/pdf
A Theory of Fraud and Over-Consumption in Experts Markets
description- – Consumers often have to rely on an expert's diagnosis to assess their needs. If the expert is also the seller of services, he may use his informational advantage to induce over-consumption. Empirical evidence suggests that over-consumption is a pervasive phenomenon in experts markets. We prove the existence of equilibrium over-consumption in an otherwise purely competitive model. This market failure results from the freedom of consumers to turn down an expert's recommendation: experts defraud consumers in order to keep them uninformed, as this deters them from seeking a better price elsewhere. Our model also yields predictions on the diagnosis price that are in line with stylized facts, and provides a theory for why risk-neutral consumers would demand extended warranties on durables.
- – WP495
- – 2004-07-01
- – application/pdf
Altruism and Climate
description- – Recognizing that individualism, or weak family ties, may be favorable to economic development, we ask how family ties interact with climate to determine individual behavior and whether there is reason to believe that the strength of family ties evolves differently in different climates. For this purpose, we develop a simple model of the interaction between two individuals who are more or less altruistic towards each other. Each individual exerts effort to produce a consumption good under uncertainty. Outputs are observed and each individual chooses how much, if any, of his or her output to share with the other. We analyze how the equilibrium outcome depends on altruism and climate for ex ante identical individuals. We also consider (a)"coerced altruism,"that is, situations where a social norm dictates how output be shared, (b) the effects of insurance markets ,and (c) the role of institutional quality. The evolutionary robustness of altruism is analyzed and we study how this depends on climate.
- – WP643
- – 2006-07-10
- – application/pdf
0-7 of 7