Miriam Krausz

Financial advising in the presence of conflict of interests

Abstract In this paper we study the conflict faced by a financial advisor in allocating an investor’s wealth between a risky asset and the riskless asset. The investor is dependent on the financial advisor’s information for making an allocation decision while the financial advisor can give deceptive information according to her interests in these assets. The results show how the level of deception is affected by the investor’s characteristics, represented by wealth and attitude towards risk, by the characteristics of assets, represented by riskiness and by the market structure represented by level of competition.

PUBLIC SAFETY AND THE MORAL DILEMMA IN THE DEFENSE AGAINST TERROR

The economic theory of defense has traditionally described public safety as achieved through investments that deter adversaries. Deterrence is, however, ineffective and pre‐emptive defense is required when a population of intended victims confronts supreme‐value suicide terror. A moral dilemma then arises, since pre‐emption may impose collective punishment, while in the absence of pre‐emption the population of intended victims is exposed to acts of terror. We consider how a population of intended terror victims confronts the moral dilemma, and compare the threatened populations response with the public‐safety recommendations of external judges who are not personally affected by the threat of terror.

Which Institution Best Decreases Banks' Liquidity Risk: A Securities Market or a Lender of Last Resort?

The joint existence of a lender of last resort and of a stock market is usually considered the sign of a developed financial infrastructure. This paper analyzes whether a securities market may play a role similar to that of a lender of last resort by being of assistance to a bank which faces possible liquidity shortages. It is examined which of these two institutions best prevents a banks liquidity shortages while allowing the optimal allocation of the banks resources. Our results suggest that securities markets matter more for the liquidity of banks than a lender of last resort.