Standard banking theory suggests that there exists an optimal level of credit risk that yields maximum bank profit. We identify the optimal level of risk-weighted assets that maximizes banks’ returns in the full sample of US banks over the period 1996–2011. We find that this optimal level is cyclical for the average bank, being higher than the realized credit risk in relatively stable periods with high profit opportunities for banks but quickly decreasing below the realized in periods of turmoil. We place this cyclicality into the nexus between bank risk and monetary policy. We show that a contractionary monetary policy in stable periods, where the optimal credit risk is higher than the realized credit risk, increases the gap between them. An increase in this gap also comes as a result of an expansionary monetary policy in bad economic periods, where the realized risk is higher than the optimal risk.

This paper uses a novel dataset of commodity-linked notes (CLNs) to examine the impact of the flows of financial investors on commodity futures prices. Investor flows into and out of CLNs are passed to and withdrawn from the futures markets via issuers' trades to hedge their CLN liabilities. The flows are not based on information about futures price movements but nonetheless cause increases and decreases in commodity futures prices when they are passed through to and withdrawn from the futures markets. These finding are consistent with the hypothesis that non-information-based financial investments have important impacts on commodity prices.

We present a model that explains why investment bankers struggle to manage conflicts of interest. Banks can build a type reputation for technical competence by performing complex deals that may not serve their clients' interest; on the other hand, banks can sustain a behavioral reputation by refraining from doing so. A behavioral reputation is a luxury reserved for banks that have proven their abilities. The model sheds light on conflicts between the trading and advisory divisions of investment banks, as well as the consequences of technological change for time variation in the relative strength of behavioral- and type-reputation concerns.

This paper studies regulated health insurance markets known as exchanges, motivated by the increasingly important role they play in both public and private insurance provision. We develop a framework that combines data on health outcomes and insurance plan choices for a population of insured individuals with a model of a competitive insurance exchange to predict outcomes under different exchange designs. We apply this framework to examine the effects of regulations that govern insurers' ability to use health status information in pricing. We investigate the welfare implications of these regulations with an emphasis on two potential sources of inefficiency: (i) adverse selection and (ii) premium reclassification risk. We find substantial adverse selection leading to full unraveling of our simulated exchange, even when age can be priced. While the welfare cost of adverse selection is substantial when health status cannot be priced, that of reclassification risk is five times larger when insurers can price based on some health status information. We investigate several extensions including (i) contract design regulation, (ii) self‐insurance through saving and borrowing, and (iii) insurer risk adjustment transfers.

We study the evolution of a social norm of “cooperation” in a dynamic environment. Each agent lives for two periods and interacts with agents from the previous and next generations via a coordination game. Social norms emerge as patterns of behaviour that are stable in part due to agents' interpretations of private information about the past, influenced by occasional commonly observed past behaviours. For sufficiently backward-looking societies, history completely drives equilibrium play, leading to a social norm of high or low cooperation. In more forward-looking societies, there is a pattern of “reversion” whereby play starting with high (low) cooperation reverts towards lower (higher) cooperation. The impact of history can be countered by occasional “prominent” agents, whose actions are visible by all future agents and who can leverage their greater visibility to influence expectations of future agents and overturn social norms of low cooperation.

In this study, we test for the possible contagion effects of the 10-year Greek government bond yield. We first employ the well-documented adjusted correlation coefficient of Forbes and Rigobon (2002) and then we estimate an exponential generalized autoregressive conditional heteroskedasticity model extended for volatility spillovers. Finally, we propose an extension of the corrected Dynamic Conditional Correlation (cDCC) model, which allows for structural breaks in the correlation dynamics. The suggested cDCC specification provides a natural testing framework for the correlation contagion hypothesis. Compared with other similar approaches, the proposed structural break cDCC approach allows for consistent inferences. The results do not confirm any contagious effects stemming from the 10-year Greek sovereign bond.

Following corporate spinoffs, unit boards are formed from scratch. We find that these "de novo" boards are smaller, more independent, include more outside directors with relevant industry expertise, and derive more industry expertise from outsiders than do industry- and size-matched peers. These differences are observed only when the unit CEO was not the CEO or a director of the pre-spinoff parent firm—that is, when there is a greater need to assess the CEO's ability and match with the firm. We conclude that the need for CEO assessment is an important element of the structure of newly formed boards.

Following corporate spinoffs, unit boards are formed from scratch. We find that these “de novo” boards are smaller, more independent, include more outside directors with relevant industry expertise, and derive more industry expertise from outsiders than do industry- and size-matched peers. These differences are observed only when the unit CEO was not the CEO or a director of the pre-spinoff parent firm—that is, when there is a greater need to assess the CEO's ability and match with the firm. We conclude that the need for CEO assessment is an important element of the structure of newly formed boards.

Marriage institutions have changed over time, evolving from polygyny to monogamy, and then to serial monogamy (as defined by divorce and remarriage). We propose a unified theory of such institutional changes, where the dynamics of income distribution are the driving force. We characterize the marriage-market equilibrium in each of the three alternative regimes, and determine which one emerges as a political equilibrium, depending on the state of the economy. In a two-class society, a rise in the share of rich males drives the change from polygyny to monogamy. The introduction of serial monogamy follows from a further rise in the proportion of either rich females or rich males. Monogamy eases the transition to serial monogamy, since it promotes social mobility.