A wealth shift to emerging countries may lead to instability in developed countries. Investors from emerging countries exposed to expropriation risk are willing to pay a safety premium to invest in countries with good property rights. Intermediaries compete for such cheap funding by carving out absolutely safe claims, which requires demandable debt. While these safety-seeking inflows allow developed countries to expand credit, risk-intolerant foreign investors withdraw even under minimal uncertainty. More foreign funding causes larger and more frequent runs.

As excess liquidation causes social losses, a domestic planner may seek prudential measures on the scale of foreign inflows.

The trade-off between liquidity provision and value preservation in a run shapes redemption rules. While banking models assume banks maximize liquidity provision by selling all assets, in reality mandatory stay is triggered once the bank runs out of liquidity. We show this removes queue priority and reduces run incentives. Orderly resolution favors value over liquidity provision so strict sequential service dominates when assets are liquid (Treasury MMFs). Strikingly, run frequency under sequential service is nonmonotonic in asset liquidity. For intermediate asset and liquidity benefits a stay followed by immediate liquidation is best, rationalizing new rules on gates on Prime MMFs.

We show how a bank run may be driven by asset liquidity risk, even under minimal fundamental risk. We obtain a unique equilibrium in a realistic setting, where demandable debt serves transaction needs and bank runs trigger a mandatory stay once all liquid assets are paid out. As result, some illiquid assets are not available to running creditors. A novel result is that liquidity risk has a concave effect on run incentives, quite unlike fundamental risk. In this context secured repo debt can improve welfare, but private incentives favor more repo and lower rollover rewards than socially optimal.

Can the risk of losses upon premature liquidation produce bank runs? We show how a unique run equilibrium driven by asset liquidity risk arises even under minimal fundamental risk. To study the role of illiquidity we introduce realistic norms on bank default, such that mandatory stay is triggered before all illiquid assets are sold. Since illiquid assets are not available in a run, asset liquidity risk has a concave effect on run incentives, quite unlike fundamental risk. Runs are rare when asset liquidity is abundant, become more frequent as it falls and decrease again under very low asset liquidity. The socially optimal demandable debt contract limits inessential runs by targeting a high rollover yield. However, the private choice minimizes funding costs, tolerating more frequent runs when illiquid states are sufficiently rare.

We analyze the strategic interaction between undercapitalized banks  and a supervisor who may intervene by preventive recapitalization.

Supervisory forbearance emerges because of a commitment problem, reinforced by fiscal costs and constrained capacity. Private incentives to comply are lower when supervisors have lower credibility, especially for highly levered banks. Less credible supervisors (facing higher cost of intervention) end up intervening more banks, yet producing higher forbearance and systemic costs

of bank distress. Importantly, when public intervention capacity is constrained, private recapitalization decisions become strategic

complements, leading to equilibria with extremely high forbearance and high systemic costs of bank failure. Ex ante, banks may choose a correlated risk strategy, a form of "serial gambling" that enhances regulatory and fiscal weakness.

We propose a new framework for intangible capital creation by the joint investment of firm resources and skilled human capital, subject to a double moral hazard. First, key employees are free to leave with some intangibles, so firms must reward them in deferred form, creating uninsurable risk. Thus high-intangible firms require less upfront funding and have larger free cash ow, yet still follow a prudent financial policy to insure unvested claims. Second, firm spending on intangible investment is easily diverted. Promising large payoffs to human capital exacerbates moral hazard, as diversion prompts skilled employees to depart and forfeit unvested claims. Balancing incentives requires firms to have more cash in good states (to reduce the cost of compensation), and more inside equity to avoid diversion risk. The model can explain several puzzling trends and generates new implications for measuring investment, rm value, and returns to labor.

Can technological change explain long term trends associated with secular stagnation? We show how a savings surplus may develop when innovation boosts the productivity of intangible capital. Skilled human capital co-invests in the creation of intangible capital, and its commitment is rewarded over time so it requires less financing. As intangibles displace physical assets, innovators earn rising rents while firm demand for external financing drops. Since deferred human capital income is not tradeable, the supply of investable assets falls, leading to a gradual fall in interest rates and higher asset valuations. Rising house prices in combination with growing wage inequality leads to higher household leverage. Analytically, only a redistributive productivity shift can account for the combination of trends since 1980 in investment, leverage and interest rates, as well as wage inequality, asset prices and mortgage default risk.

Established firms often fail to maintain leadership following disruptive market or technology changes. We argue that this may be due to internal resistance by skilled labor. A radical adjustment of assets creates winners and losers. When output is not contractible, losers may choose passive resistance to retain more control benefits. Passive resistance produces a smaller loss in high goodwill firms, where losers can credibly threaten to resist change. Established  firms may be forced to implement partial adjustment as a compromise. In case of a radical shift, the firm  collapses as agents with winning skills leave to form new firms As new  firms have no accumulated goodwill, they can be reconfigured optimally as internal resistance is not credible.

This paper studies the political economy of monetary unification among countries that differ in their quality of institutions. Better institutions result in better public governance, which is characterized by greater fiscal accountability, lower taxes, lower interest rates a stronger currency and more private investment. An institutionally diverse monetary union increases social welfare in an institutionally strong country by weakening its currency, increasing the incentives to invest. It also benefits the weak country by lowering borrowing costs and mitigating sovereign debt constraints. However, institutional quality is persistent. Since monetary unification takes away the possibility to devalue, ensuring the stability of a diverse monetary union may require a re-distributive monetary transfer. We show under what conditions diverse monetary unification can remain beneficial for both countries.

We model how statutory codes for contract standardization emerge as a solution to distorted legal enforcement among unequal parties. Choosing for a codified contract limits the ability of the parties to taylor it to a specific transaction, but also restrain admissible evidence. The effect is a reduced role for judicial interpretation which reduces the litigation advantage of the stronger party. Codification creates an option that expands the scale of contracting and investment among more unequal parties. However it also crowds out contingent contracting, hindering judicial learning and legal innovation. This interpretation sheds light on the commercial codification movement in the 19th century in both Common Law and Civil Law countries, and the role of standardization in security market development.