Why Do Banks Exist? An Incomplete Contracts Perspective

Bank lending has proven to be quite resilient. The onset of digital financial markets has not upended the fact that most small- and medium-sized companies seek financing from banks, not via the issuance of bonds. And if game-theoretic literature from the 80s and 90s is any guide, this will not change anytime soon. Decentralized bond … Continue reading Why Do Banks Exist? An Incomplete Contracts Perspective →

Coase on ‘the role of stupidity in human affairs’

I have to admit that I derive particular pleasure when economists are outright grumpy in their academic writing. Not all wisdom is tame. The following is an excerpt from an article written by 87-year-old Ronald H. Coase, who, when asked why a market-based allocation mechanism for spectrum licenses he had advocated for—decades later raising treasury … Continue reading Coase on ‘the role of stupidity in human affairs’ →

Monopolistic Competition: The Quality-Variety Trade-off in the Market for Advertisement-Financed Media

Numerous papers have examined the transformation of legacy media following the spread of social media in 2008. I will return to this topic. This post deals with an earlier period: the 80s and the advent of private, advertisement-financed television. There exists a prevailing notion that the introduction of private, advertisement-financed television led to a decline … Continue reading Monopolistic Competition: The Quality-Variety Trade-off in the Market for Advertisement-Financed Media →

Is Market Power Self-limiting? Secret Contracting in Upstream Markets

Many courses in economics begin with the first welfare theorem. This theorem states that a decentralized market, if left to its own devices, will reach an allocation that cannot be changed to further improve the economic welfare of all market participants. A proof of this result is as simple as it is intuitive: If there … Continue reading Is Market Power Self-limiting? Secret Contracting in Upstream Markets →