Due diligence is common practice prior to the execution of large transactions. We propose a model of due diligence and analyze its effect on prices, payoffs, and deal completion. In our model, if the seller accepts an offer, the acquirer...

In a banking model with imperfect information, I find that more precise information increases the economy's vulnerability to bank runs. For low transparency levels, depositors cannot distinguish bad from good states based on their private signals and, absent liquidity shocks,...

We examine the optimal financing of infrastructure when governments can expropriate rents from private sector firms that manage infrastructure. While private firms need incentives to implement projects well, governments need incentives to limit expropriation. This double moral hazard limits the willingness of...

We study how competition between asymmetrically informed banks, one specialized and one non-specialized, affects loan prices. Both banks possess “general” signals regarding the borrower’s quality, which they use to screen loans. The specialized bank also has access to a “specialized”...

Recent technological change in lending converts previously subjective assessments into structured, easily accessible data. We study this transformation in a credit market competition model that distinguishes between information span (breadth) and signal precision (quality). Borrower quality depends on multidimensional fundamentals,...

We propose a simple model of the evolution of institutions, where leaders’ actions have a persistent effect by shaping the norms of the institutions they lead. This can lead to different long-run behaviors even for institutions with the same formal...