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Deposit insurance in general equilibrium
(2016)Economics Working Paper SeriesWe study the consequences and optimal design of bank deposit insurance in a general equilibrium model. The model involves two production sectors. One sector is financed by issuing bonds to risk–averse households. Firms in the other sector are monitored and financed by banks. Households fundbanks through deposits and equity. Deposits are explicitly insured by a deposit insurance fund. Any remaining shortfall is implicitly guaranteed by the ...Working Paper -
On banking regulation and lobbying
(2019)Economics Working Paper SeriesWe study the political economy of bank capital regulation from a positive and normative perspective. In a general equilibrium setting, capital requirements and lobbying contributions are determined as the outcome of bargaining between banks and politicians. We show that bankers and politicians agree on lobbying contributions and capital regulation that renders banks fragile, reducing efficiency and fairness. Consideration of all general ...Working Paper -
Economic rationales for investments in science
(2018)Economics Working Paper SeriesWorking Paper -
Default risk in stochastic volatility models
(2010)Economics Working Paper SeriesWe consider a stochastic volatility model of the mean-reverting type to describe theevolution of a firm’s values instead of the classical approach by Merton with geometricBrownian motions. We develop an analytical expression for the default probability. Oursimulation results indicate that the stochastic volatility model tends to predict higherdefault probabilities than the corresponding Merton model if a firm’s credit quality isnot too ...Working Paper -
Basic research, openness, and convergence
(2010)Economics Working Paper SeriesWe study a model where economic growth is fueled by public basic-research investment and the importation of leading technology from foreign countries. In each period, the government chooses the amount of basic research, balancing the cost and benefits of stimulating growth through both channels. We establish the existence of steady states and the long-run share of technologically advanced sectors in the economy. Then, we explore how ...Working Paper -
Campaigns, political mobility, and communication
(2011)Economics Working Paper SeriesWe present a model of elections in which interest group donations allow candidates to shift policy positions. We show that if donations were prohibited, then a unique equilibrium regarding the position choices of candidates would exist. With unrestricted financing of political campaigns two equilibria emerge, depending on whether a majority of interest groups runs to support the leftist or rightist candidate. The equilibria generate a ...Working Paper -
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Costs of change, political polarization, and re-election hurdles
(2015)Economics Working Paper SeriesWe develop and study a two-period model of political competition with office- and policy-motivated candidates, in which (i) changes of policies impose costs on all individuals and (ii) such costs increase with the magnitude of the policy change. We show that there is an optimal positive level of costs of change that minimizes policy polarization and maximizes welfare. One interpretation of this finding is that societies with intermediate ...Working Paper -
Incentive pay for policy-makers
(2018)Economics Working Paper SeriesWe study how to efficiently motivate policy-makers to solve political multitask problems. Political multi-task problems typically have outcomes that are difficult to measure. Moreover, there are conflicts among citizens about optimal policies and the agents have the power to tax the citizens to invest in better outcomes of some tasks. We develop a political agency model with two tasks and only one measurable outcome. In such an ...Working Paper -