Private and Public Supply of Liquidity (Journal of Political Economy, Vol. 106, No. 1, February 1998)
by Bengt Holmstrom and Jean Tirole
How do you get around the moral hazard problem, or at least reduce the severity of that problem? In Holmstrom-Tirole, this is done by seeing that the owners of a bank investing in risky projects bear some of the risk themselves.
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Economic Theory and the Financial Crisis: A Reading List
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