interbank market liquidity and central bank intervention we develop a simple model of the interbank market where banks trade a long term safe asset when there is a lack of opportunities for banks to hedge idiosyncratic and aggregate liquidity shocks the interbank market is characterized by excessive price volatility in such a situation a central bank can implement the constrained efficient allocation by using open market operations to fix the short term interest rate it can be constrained efficient for banks to hoard liquidity and stop trading with each other if there is sufficient uncertainty about aggregate liquidity demand compared to idiosyncratic liquidity demand

sulfur dioxide control by electric utilities what are the gains from trade title iv of the 1990 clean air act amendments caaa established a market for transferable sulfur dioxide so2 emission allowances among electric utilities this market offers firms facing high marginal abatement costs the opportunity to purchase the right to emit so2 from firms with lower costs and this is expected to yield cost savings compared to a command and control approach to environmental regulation this paper uses econometrically estimated marginal abatement cost functions for power plants affected by title iv of the caaa to evaluate the performance of the so2 allowance market specifically we investigate whether the much heralded fall in the cost of abating so2 compared to original estimates can be attributed to allowance trading we demonstrate that for plants that use low sulfur coal to reduce so2 emissions technical change and the fall in prices of low sulfur coal have lowered marginal abatement cost curves by over 50 percent since 1985 the flexibility to take advantage of these chan

credit default swaps has the gfc influenced perceptions of their utility for banks credit default swaps cdss are considered as one of the most versatile financial innovations of the 21st century since its inception the credit derivatives market has grown to a peak of 64 trillion in 2008 in terms of gross notional values cont 2010 however after the onset of the gfc this market has decreased to a large extent while there is evidence that promotes the risk reduction properties of cdss there is a growing body of research post gfc that identifies destabilising effects of these instruments in this paper i review the relevant scholarly literature and provide evidence of how the views on cdss have changed post gfc due a deeper investigation of issues such as systemic risk regulatory arbitrage information asymmetry and risk taking among others in the banking industry this paper provides a survey of the literature of views for and against the use of cdss during pre and post gfc periods and finally concludes that in comparison to the pre gfc period post gfc there is a significant increase in the literature that highlights the detrimental nature of cdss

designing testing and implementing a trial dryland salinity credit trade scheme this article describes implementation and outcomes of a credit trading trial focussed on dryland salinity in victoria australia in lieu of extant specified property rights participants were invited to agree to obligations to provide groundwater recharge credits in exchange for pecuniary compensation participants were able to meet their obligations to supply groundwater recharge credits through land management actions resulting in monitored outcomes consistent with contractual obligations to reduce recharge alternatively those in deficit were provided the option to obtain sufficient credits through market exchange surplus transferable recharge credits were produced by those participants who exceeded their own contractual obligations through improved land management the paper describes the process of contract design and implementation the trial involved a design and testing phase and an on ground implementation phase we describe composite methodologies deployed in the design and testing of alternative policy instruments and institutional arrangements conducted prior to implementation these involved community consultation an attitudinal and behavioural survey experimental economics and the development of a transparent and credible monitoring protocol the conclusions drawn as a result of this analysis provided an empirical basis to implement the on ground trial phase results of on ground implementation are described finally the methods and results of a benefit cost analysis bca of the on ground trial implementation are outlined the bca accounted for salinity damage reduction forgone river flow carbon sequestration production benefits and costs the result of bca was an estimated net benefit

from cash in the market pricing to financial fragility we review some recent research that explores the relationship between asset price volatility and financial fragility when markets and contracts are incomplete jel e5 g2

are consumers concerned about palm oil evidence from a lab experiment abstract a lab experiment evaluates the consumers willingness to pay wtp for food products made with and without palm oil palm oil production induces environmental damages and its consumption presents a health risk however the production of alternative oils raises land use issues in the experiment successive messages emphasizing the characteristics of palm oil and palm oil free products are delivered to participants information has a significant influence on wtp when it underlines the negative impact of the related product this effect is stronger for the palm oil product than for the palm oil free product the experiment also compares the welfare effects of two regulatory instruments namely a consumer information campaign versus a per unit tax because of the respective attributes of both palm oil and palm oil free products the information campaign improves welfare with a much larger impact than the tax

contagion and risk sharing on the inter bank market abstract increasing inter bank lending has an ambiguous impact on financial stability using a computational model with endogenous bank behavior and interest rates we identify the conditions under which inter bank lending promotes stability through risk sharing or provides a channel through which failures may spread in response to large economy wide shocks more inter bank lending relationships worsen systemic events for smaller shocks the opposite effect is observed as such no inter bank market structure maximizes stability under all conditions in contrast deposit insurance costs are always reduced under greater numbers of inter bank lending relationships a range of regulations are considered to increase system stability

on the contagion effect in the us banking sector by using the spatial econometrics methodology this paper investigates the contagion of the risk taking by banks in the us banking sector during 2001 to 2012 in addition the contagion signals up to the subprime crisis in 2008 are analyzed and different channels of contagion are studied in order to identify fragile groups of banks our analysis reveals that there is no significant contagion transmitted to the whole banking system however we observe that the bank contagion is significantly spread locally and for the group of banks that share similar characteristics related to size and bank regulations

anomalies in intertemporal choice evidence and an interpretation research on decision making under uncertainly has been strongly influenced by the documentation of numerous expected utility eu anomalies behaviors that violate the expected utility axioms the relative lack of progress on the closely related topic of intertemporal choice is partly due to the absence of an analogous set of discounted utility du anomalies we enumerate a set of du anomalies analogous to the eu anomalies and propose a model that accounts for the anomalies as well as other intertemporal choice phenomena incompatible with du we discuss implications for savings behavior estimation of discount rates and choice framing effects

credit derivatives in banking useful tools for managing risk abstract we model the effects on banks of the introduction of a market for credit derivatives in particular credit default swaps a bank can use such swaps to temporarily transfer credit risks of their loans to others reducing the likelihood that defaulting loans trigger the bank s financial distress because credit derivatives are more flexible at transferring risks than are other more established tools such as loan sales without recourse these instruments make it easier for banks to circumvent the lemons problem caused by banks superior information about the credit quality of their loans however we find that the introduction of a credit derivatives market is not necessarily desirable because it can cause other markets for loan risk sharing to break down

has the cds market lowered the cost of corporate debt abstract many have claimed that credit default swaps cdss have lowered the cost of debt financing to firms by creating new hedging opportunities and information for investors this paper evaluates the impact that the onset of cds trading has on the spreads that underlying firms pay to raise funding in the corporate bond and syndicated loan markets employing a range of methodologies we fail to find evidence that the onset of cds trading lowers the cost of debt financing for the average borrower further we uncover economically significant adverse effects on risky and informationally opaque firms

securitization and bank performance theory suggests that securitization provides financial institutions with an opportunity to lower the cost of funding improve credit risk management and increase profitability in practice however it might lead to adverse consequences through a number of indirect channels therefore the net impact of securitization on bank performance is ambiguous this study aims to evaluate whether banks improve their performance through the use of the securitization market by applying a propensity score matching approach in other words we build a counterfactual group of banks to assess what would have happened to the securitizing banks had they not securitized using us commercial banking data from 2001 to 2008 we first test these hypotheses using univariate analysis and find that securitizing banks are on average more profitable institutions with higher credit risk exposure and higher cost of funding however the propensity score matching analysis does not provide evidence of significant causal effects of securitization on the performance of banks therefore securitization does not seem to outperform alternative funding risk management and profitability improvement techniques used by banks that have ex ante similar characteristics to those securitizing our evidence raises important questions about the motives for banks increasing securitization activities and consequent implications for the banking system

synthetic or real the equilibrium effects of credit default swaps on bond markets we provide a model of nonredundant credit default swaps cdss building on the observation that cdss have lower trading costs than bonds cds introduction involves a trade off it crowds out existing demand for the bond but improves the bond allocation by allowing long term investors to become levered basis traders and absorb more of the bond supply we characterize conditions under which cds introduction raises bond prices the model predicts a negative cds bond basis as well as turnover and price impact patterns that are consistent with empirical evidence we also show that a ban on naked cdss can raise borrowing costs

a model of a systemic bank run abstract this paper provides a model of the view that the 2008 financial crisis is reminiscent of a bank run focussing on six stylized key features in particular core financial institutions have invested their funds in asset backed securities rather than committed to long term projects in distress these can potentially be sold to a large pool of outside investors at steep discounts i consider two different motives for outside investors and their interaction with banks trading asset backed securities uncertainty aversion versus adverse selection i shall argue that the version with uncertainty averse investors is more consistent with the stylized facts than the adverse selection perspective in the former the crisis deepens the larger the market share of distressed core banks while a run becomes less likely instead as a result in the adverse selection version therefore the outright purchase of troubled assets by the government at prices above current market prices may both alleviate the financial crises as well as provide tax payers with returns above those for safe securities

technology and the dynamics of industrial structures an empirical mapping of dutch manufacturing this paper explores the empirical link between on the one hand innovation and on the other hand industrial structure and dynamics in the netherlands we use the concept of technological regimes as the guiding framework to interpret this relationship the data are drawn from the production statistics and the business register of manufacturing firms in the netherlands and the second community innovation survey a classification of technological regimes that refines pavitt s taxonomy is applied to the data our analysis is aimed at identifying the variables that are best able to discriminate between technological regimes for our dutch case we find that a mix of innovation related and market structure related variables account for most variability and broad differences across regimes dynamic market structure variables account for an additional share of variability and finer differences across regimes overall we conclude that the concept of technological regimes provides a useful framework that helps to shed further light on the relationship between innovation and market structure

advertising competition and market share instability this paper tests the hypothesis that advertising reduces leading firm market share instability a proxy for interfirm rivalry by creating market power if advertising increases product differentiation and brand loyalty then it also reduces demand cross elasticities and stabilizes shares changes over time in the combined market shares of the top four firms are examined for a large sample of four digit standard industrial classification manufacturing indust ries for 1963 82 multiple regression equations are used to explain s hare instability measured as deviations both about the simple mean a nd about a linear time trend the results indicate that advertising d oes not reduce market share instability copyright 1987 by the university of chicago

humans environment and economies from vicious relationships to virtuous responsibility abstract the debates questioning the meaning of growth point to a need for a more holistic understanding of human beings and of the economic actor fundamental to economic theory and practice this contribution turns to virtue ethics in order to reframe the self in more reflexive relational and environmental terms we explore the significance of understanding humans sense of responsibility that is quintessentially relational and of their capacity and need to relate to nature as well as community and society we begin by reviewing the main arguments in the thriving debate in ecological economics around what the characteristics of the human being can contribute to implement an ecologically sustainable development our aim is then to draw a link between this debate and that of virtue ethics that leads to a different understanding of the human being of what can contribute to individual wellbeing and a good life responsibility we argue is not only a value but a virtue that enables individuals to find meaning in acting responsibly towards the environment emphasising the multiple benefits that arise from framing good lives in active terms we conclude reflecting on the challenges to and implications of our proposition for government institutions particularly education

optimal financial crises empirical evidence suggests that banking panics are related to the business cycle and are not simply the result of sunspots panics occur when depositors perceive that the returns on bank assets are going to be unusually low we develop a simple model of this in this setting bank runs can be first best efficient they allow efficient risk sharing between early and late withdrawing depositors and they allow banks to hold efficient portfolios however if costly runs or markets for risky assets are introduced central bank intervention of the right kind can lead to a pareto improvement in welfare from the earliest times banks have been plagued by the problem of bank runs in which many or all of the bank s depositors attempt to withdraw their funds simultaneously because banks issue liquid liabilities in the form of deposit contracts but invest in illiquid assets in the form of loans they are vulnerable to runs that can lead to closure and liquidation a financial crisis or banking panic occurs when depositors at many or all of the banks in a region or a country attempt to withdraw their funds simultaneously prior to the twentieth century banking panics occurred frequently in europe and the united states panics were generally regarded as a bad thing and the development of central banks to eliminate panics and ensure financial stability has been an important feature of the history of financial systems it has been a long and involved process the first cerntral bank the bank of sweden was established more than 300 years ago the bank of england played an especially important role in the development of effective stabilization policies in the eighteenth and nineteenth centuries by the end of the nineteenth century banking panics had been eliminated in europe the last true panic in england was the overend gurney company crisis of 1866

contagion across us and european financial markets evidence from the cds markets abstract this study investigates whether contagion occurred during the recent global financial crisis across european and us financial markets the methodologies used to test for contagion are based on changes in correlation coskewness cokurtosis and covolatility these tests are applied to a set of bank sector cds insurance sector cds sovereign bonds equity and volatility indices the findings indicate significant evidence of contagion especially through the channels of higher order moments

welfare effects of financial innovation in incomplete markets economies with several consumption goods abstract we show that in almost every incomplete markets economy with more than one consumption good and with sufficiently many uninsured states of nature at any general equilibrium of this economy it is possible to arbitrarily perturb the equilibrium utilities merely by introducing the appropriate asset making for example all agents worse off this result demonstrates that the examples given by hart on the optimality of equilibrium when the market structure is incomplete j econ theory11 1975 418 443 and others are actually general phenomena and is in sharp contrast to the intuition that innovation since it expands financial opportunities should benefit all agents journal of economic literature classification numbers d52 d60 g10

money financial stability and efficiency most analyses of banking crises assume that banks use real contracts however in practice contracts are nominal and this is what is assumed here we consider a standard banking model with aggregate return risk aggregate liquidity risk and idiosyncratic liquidity shocks we show that with non contingent nominal deposit contracts the first best efficient allocation can be achieved in a decentralized banking system what is required is that the central bank accommodates the demands of the private sector for fiat money variations in the price level allow full sharing of aggregate risks an interbank market allows the sharing of idiosyncratic liquidity risk in contrast idiosyncratic bank specific return risks cannot be shared using monetary policy alone real transfers are needed

financial integration and liquidity crises this paper analyzes the effects of financial integration on the stability of the banking system financial integration allows banks in different regions to smooth local liquidity shocks by borrowing and lending on a world interbank market we show under which conditions financial integration induces banks to reduce their liquidity holdings and to shift their portfolios toward more profitable but less liquid investments integration helps reallocate liquidity when different banks are hit by uncorrelated shocks however when a correlated systemic shock hits the total liquid resources in the banking system are lower than in autarky therefore financial integration leads to more stable interbank interest rates in normal times but to larger interest rate spikes in crises these results hold in a setup in which financial integration is welfare improving from an ex ante point of view we also look at the model s implications for financial regulation and show that in a second best world financial integrati

the role of fairness norms the household based natural forest conservation the case of wolong china the shadow of the tragedy of the commons with its popularized assumption of selfish individual behavior concerns policy makers and consequently the cooperative capability of local communities in common resource management is usually underrated nevertheless here we propose a hypothesis based on a game theory model that the social norm of fairness rather than self interest might motivate cooperation in natural resource conservation by discounting the utility gain from illegal logging at the cost of another household s subsidy loss in wolong nature reserve of china a recent household based natural forest conservation program has led to remarkable progress in protecting the habitat of giant pandas ailuropoda melanoleuca with low monitoring pressure we undertook experiments based on a one shot ultimatum game to test the prevalence of the norm of fairness in the local communities most proposers in the experiments showed strong preferences for fair offers in spite of the responders reluctance to reject low offers and the result contradicted the expectation of pure self interest taking into account the norm of fairness the prediction of the model is consistent with the local performance of the household based conservation policy it highlights the potential of local social norms to facilitate participation and cooperation by the local community in common natural resource conservation c 2010 published by elsevier b v

malthus vs wordsworth perspectives on humankind nature and economy a contribution to the history and the foundations of ecological economics abstract in this paper the view of humankind and nature upon which the thinking of malthus is founded will be reflected on and contrasted with the opposed understanding of his contemporary wordsworth we show that the economic considerations of both are based decidedly on the premise of these views and that their alternative interpretations of the contemporary economy and the relationship between economy and nature may thus be explained from the comparison of malthus and wordsworth we draw conclusions for modern ecological economics identifying its malthusian understanding of nature and reflecting on the capacities and limits implied for further research we ascribe a central role in the conceptual history of ecological economics to wordsworth and present his philosophical presumptions as a fruitful alternative for ecological economics finally attention will be drawn to the principle importance of the philosophical foundations underpinning this field of research

changes in concentration turbulence and the dynamics of market shares most previous studies of the dynamics of industry structure by emphasizing changes in concentration conceal much of the nature of underlying competitive processes here we employ a stochastic fir

forecasting the fragility of the banking and insurance sectors linkages between banks and insurance companies are important when forecasting the fragility of the banking and insurance sectors we propose a novel empirical framework that allows us to estimate unobserved linkages in panel data sets that contain observed regressors we find that taking unobserved common factors into account reduces the root mean square forecasts error of firm specific forecasts by up to 9 of system forecasts by up to 14 and by up to 39 for systemic forecasts of more distressed firms relative to a model based on observed variables only estimates of the factor loadings suggest that the correlation of financial institutions has been relatively stable over the forecast period

institutional ecological economics abstract new institutional economics and its forerunners have we argue made important contributions to the evolving agenda of ecological economics the conceptualisation of environmental problems as instances of interdependence and the acknowledgement of positive transaction costs are key insights into the nature of environmental problems we also discuss how plurality of behavioural motivations and limited cognitive capacity have important implications for environmental decision making and its analysis we show how evolutionary and collective action theories offer complementary takes on the choice and change of environmental governance institutions and how the concept of social capital can enrich analyses of environmental governance we conclude that an emerging institutional ecological economics has the greatest relative advantage in analysing the design implementation and effectiveness of environmental governance solutions

financial fragility liquidity and asset prices we define a financial system to be fragile if small shocks have disproportionately large effects in a model of financial intermediation we show that small shocks to the demand for liquidity cause either high asset price volatility or bank defaults or both furthermore as the liquidity shocks become vanishingly small the asset price volatility is bounded away from zero in the limit economy with no shocks there are many equilibria however the only equilibria that are robust to the introduction of small liquidity shocks are those with non trivial sunspot activity

towards sustainable consumption economic modelling of mobility and heating for austria abstract the paper focuses on economic modelling and empirical analysis of sustainable structures in private consumption and strives to extend conventional economic consumption models the model analysis of sustainable consumption in the areas heating and transport for austria attempts to depart from traditional measurement of consumption in national accounts and economic consumption models the focus of the analysis is laid on consumer services derived from a combination of stocks e g building stock transport systems and flows mainly energy this approach intends to illustrate that a concentration on flows in consumption models lacks important aspects of sustainable consumption the economic analysis of sustainable consumption patterns aims to highlight the effects related to the substitution of flows by stocks in the consumption areas transport and heating e g improvements in thermal quality of buildings more energy efficient transport systems relevant too in this respect is the role that can be played by technological innovation improvements in energy efficiency of stocks the potential for specific incentives to promote new technologies two essential factors are crucial in the context of sustainable consumption the demand shifts concerning the consumer services desired and the composition of the stock flow mix necessary for the service provision

the effects of advertising prices and distribution on market share volatility although the influence of marketing decision variables on market share has received ample attention in the literature less is known about their effects on volatility this study attempts to shed light on this issue by empirically examining the effects of advertising pricing and distribution not only on market share but also on its volatility using an egarch model we argue that establishing a link between management controlled actions such as advertising pricing and distribution and market share volatility may benefit firms seeking to reduce uncertainty in their market share performance application of the proposed model to data on two markets suvs and minivans suggested that advertising pricing and distribution significantly influence market share volatility

competing at home to win abroad evidence from japanese industry the study explores the influence of domestic competition on international trade performance using data from a broad sample of japanese industries domestic rivalry is measured directly using market share instability rather than employing structural variables such as seller concentration we find robust evidence that domestic rivalry has a positive and significant relationship with trade performance measured by world export share particularly when r d intensity reveals opportunities for dynamic improvement and innovation conversely trade protection reduces export performance these findings support the view that local competition not monopoly collusion or a sheltered home market pressures dynamic improvement that leads to international competitiveness

beyond homo economicus evidence from experimental economics environmental policies are generally based on a model of the human actor taken from neoclassical economic theory this paper reports on laboratory experiments suggesting weaknesses in this model and describes alternative models correcting these weaknesses one finding is that economic actors tend to be hyperbolic as opposed to exponential discounters who discount the immediate future at a higher rate than the more distant future another finding is that economic actors are not self regarding but rather in many circumstances are strong reciprocators who come to strategic interactions with a propensity to cooperate respond to cooperative behavior by maintaining or increasing cooperation and respond to free riders by retaliating against the offenders even at a personal cost and even when there is no reasonable expectation that future personal gains will flow from such retaliation we discuss some implications for policy analysis 2000 elsevier science b v all rights reserved

financial innovation the bright and the dark sides based on data from 32 countries over the period 1996 2010 this paper is the first to assess the relationship between financial innovation on the one hand and bank growth and fragility as well as economic growth on the other hand we find that different measures of financial innovation capturing both a broad concept and specific innovations are associated with faster bank growth but also higher bank fragility and worse bank performance during the recent crisis these effects are stronger in countries with larger securities markets and more restrictive regulatory frameworks in spite of these seemingly ambiguous findings our evidence points to a positive net effect of financial innovation on economic growth financial innovation is associated with higher growth in countries and industries with better growth opportunities

testing a model of exploration and exploitation as innovation strategies we suggest a structural model that specifies firm growth as a function of firm specific parameters market specific parameters and competition for purchasing power the model distinguishes between two firm innovation strategies exploration and exploitation on the basis of a set of simulations of this model we derive a number of empirically testable hypotheses a subset of these have already found support in the empirical literature we take these as evidence in favor of the explanatory power of the model in addition we are able to derive further testable propositions on the interaction of firm demographic processes innovative behavior and market structure that go beyond the existing literature and that we suggest for further research we conclude that the approach chosen here provides a fruitful pathway for further research

the persistence of market leadership evidence from japan this article explores the persistence of market leadership in japanese manufacturing industries over the period 1975 2004 by applying survival data techniques we examine how long market leadership persists and how the duration of market leadership varies according to industry specific characteristics our findings indicate that market leaders maintain their leadership positions for on average 20 years from 1975 in japanese manufacturing industries we provide evidence that market leadership tends to persist in capital intensive and legally cartelized industries whereas it is less likely to persist in demand volatile r d intensive and import intensive industries copyright 2009 the author 2009 published by oxford university press on behalf of associazione icc all rights reserved oxford university press

anticipation and the valuation of delayed consumption this paper presents a model of intertemporal choice that incorporates savoring and dread i e utility from anticipat ion of delayed consumption the model explains why an individual with positive time preference may delay desirable outcomes or get unpleas ant outcomes over with quickly contrary to the prediction of convent ional formulations of intertemporal choice implications of savoring and dread for savings behavior empirical estimation of discount rate s and public policy efforts to combat myopic behavior are explored the model provides an explanation for common violations of the indepe ndence axiom as applied to intertemporal choice copyright 1987 by royal economic society

credit default swaps and the empty creditor problem the empty creditor problem arises when a debtholder has obtained insurance against default but otherwise retains control rights in and outside bankruptcy we analyze this problem from an ex ante and ex post perspective in a formal model of debt with limited commitment by comparing contracting outcomes with and without insurance through credit default swaps cds we show that cds and the empty creditors they give rise to have important ex ante commitment benefits by strengthening creditors bargaining power they raise the debtor s pledgeable income and help reduce the incidence of strategic default however we also show that lenders will over insure in equilibrium giving rise to an inefficiently high incidence of costly bankruptcy we discuss a number of remedies that have been proposed to overcome the inefficiency resulting from excess insurance jel g30 g32 g33 one of the most significant changes in the debtor creditor relationship in the

short term safety or long term failure empirical evidence of the impact of securitization on bank risk based on a sample of u s commercial banks from 2002 to 2012 this paper shows that bank loan securitization has a significant and positive impact on both z scores and the likelihood of bank failure indicating a short term risk reduction and a long term risk increase effect we also find disparate impacts between mortgage and non mortgage securitization loan sale activities are found to have a similar impact to securitization

do workers prefer increasing wage profiles we present survey data challenging the assumption implicit in analyses of labor supply that all else being equal workers prefer declining over increasing wage profiles we test several explanations for our results including that a there is something special about wages e g their association with productivity as opposed to other types of payments that induces the preference for increasing wages b utility depends not only on absolute levels of consumption but also on changes in consumption over time and c respondents who prefer increasing wage profiles are irrational and would change their behavior if the rationale for preferring declining wages were explained

counterparty risk in financial contracts should the insured worry about the insurer we analyze the efiect of counterparty risk on insurance contracts using the case of credit risk transfer in banking in addition to the familiar moral hazard problem caused by the insured s ability to in uence the probability of a claim this paper uncovers a new moral hazard problem on the other side of the market we show that the insurer s investment strategy may not be in the best interests of the insured the reason for this is that if the insurer believes it is unlikely that a claim will be made it is advantageous for them to invest in assets which earn higher returns but may not be readily available if needed this paper models both of these moral hazard problems in a unifled framework we flnd that instability in the insurer can create an incentive for the insured to reveal superior information about the risk of their investment in particular a unique separating equilibrium may exist even in the absence of any signalling device this provides one of the main contributions of the paper an example in which cheap talk can achieve separation in an insurance market

credit risk transfer and contagion some have argued that recent increases in credit risk transfer are desirable because they improve the diversification of risk others have suggested that they may be undesirable if they increase the risk of financial crises using a model with banking and insurance sectors we show that credit risk transfer can be beneficial when banks face uniform demand for liquidity however when they face idiosyncratic liquidity risk and hedge this risk in an interbank market credit risk transfer can be detrimental to welfare it can lead to contagion between the two sectors and increase the risk of crises

financial innovation macroeconomic stability and systemic crises we present a general equilibrium model of intermediation designed to capture some of the key features of the modernnancial system the model incorporatesnan cial constraints and state contingent contracts and contains a clearly dened pe cuniary externality associated with assetre sales during periods of stress if a sufciently severe shock occurs during a credit expansion this externality is capa ble of generating a systemicnancial crisis that may be self fullling our model suggests thatnancial innovation and greater macroeconomic stability may have madenancial crises in developed countries less likely than in the past but poten tially more severe

explaining the energy efficiency gap expected utility theory versus cumulative prospect theory abstract energy efficiency is one of the key factors in mitigating the impact of climate change and preserving non renewable resources although environmental and economic justifications for energy efficiency investments are compelling there is a gap between the observable and some notion of optimized energy consumption the so called energy efficiency gap behavioral biases in individual decision making have been resonated by environmental research to explain this gap to analyze the influence of behavioral biases on decisions upon energy efficiency investments quantitatively we compare expected utility theory with cumulative prospect theory on basis of a real world example we illustrate how the extent of the gap is influenced by behavioral biases such as loss aversion probability weighting and framing our findings indicate that cumulative prospect theory offers possible explanations for many barriers discussed in literature for example the size of the gap rises with increased risk and investment costs because behavioral biases are systematic and pervasive our insights constitute a valuable quantitative basis for environmental policy measures such as customer focused and quantitatively backed public awareness campaigns financial incentives or energy savings insurances in this vein this paper may contribute to an accelerated adaption of energy efficiency measures by the broader public