We analyze a standard environment of adverse selection in credit markets. In our environment, entrepreneurs who are privately informed about the quality of their projects need to borrow from banks. Conventional wisdom ...

This paper analyzes the role of retaliation in trade agreements. It shows that, in the presence of private information, retaliation can always be used to increase the welfare derived from such agreements by the participating ...

Conventional wisdom views the problem of sovereign risk as one of insufficient penalties. Foreign creditors can only be repaid if the government enforces foreign debts. And this will only happen if foreign creditors can ...

We present a simple model of sovereign debt crises in which a country chooses its optimal mix of short and long-term bonds subject to standard contracting frictions: the country cannot commit to repay its debts nor to a ...