Abstract: We provide a general sufficient theorem to solve the delegation problem with and without money burning.  For interval allocations, our main theorem relaxes the conditions obtained in previous literature. Significantly, our theorem extends beyond this, successfully addressing cases with discontinuous allocations. We demonstrate the theorem's power through examples, connecting with existing results and uncovering novel optimal allocation structures.

Abstract: This paper presents a model of endogenous credit lines in the overnight interbank market (hereafter "the interbank network") and analyzes implications for monetary policy. We first characterize the unique equilibrium of banks' liquidity holdings for any fixed interbank network. We then endogenize the network and show that every equilibrium displays a complete core-periphery graph. Next, we solve a stylized optimization problem of a central bank that sets its policy rates and chooses between implementing a corridor and a floor regime. The central bank optimally chooses a floor regime when target interbank market rates are low and a corridor regime when target interbank market rates are high. We determine the optimal interest rate corridor, which involves the following novel trade-off: a narrow corridor allows for more precise targeting of the interbank rate, but it may lead to higher central bank balance sheet cost due to a sparser equilibrium interbank network. Finally, we provide comparative statics results for the optimal corridor.

Abstract: We study the stability of social networks when agents are allowed to monitor the decisions of certain players to create or sever links within the network. Suppose that each agent can monitor their direct neighbors. A network is Peer-Monitored Stable if any unilateral deletion or mutual addition of a link negatively affects at least one neighbor. We prove that for two widely studied payoff structures, distance-based and degree-based, any Pareto--Efficient network is Peer-Monitored Stable.  We then extend our framework by allowing agents to monitor indirect connections within a defined radius of distance, introducing a measure of network stability based on the minimal radius of monitoring required to stabilize the network. We apply this measure to mixed externalities models by deriving (non-trivial) upper bounds for the stability of Pareto-Efficient networks within the class of degree-distance-based payoffs.

Abstract: We study the problem of allocating a scarce good or service to individuals using a network to describe the allocative externalities among them. The policymaker seeks an allocation mechanism that maximizes agents’ total utilities, which equals the sum of private values and externalities. We show that this problem is NP-hard as it generalizes a version of the Max-Cut Problem with size restrictions. In cases where the policymaker has complete information on agents' values and externalities, we design an approximation algorithm that guarantees at least 75% of the optimal. This algorithm is based on a method of rounding linear relaxations and the connection to the Max-Cut problem. Additionally, we derive conditions under which allocating in a greedy manner is close to optimal. For scenarios in which the policymaker has no information, we provide a truthful-in-expectation (1-1/e)-approximation mechanism that is based on the convex rounding scheme presented at Dughmi (2011). Moreover, we analyze a simple (non-truthful) item bidding mechanism with VCG payments and show that there always exists an optimal pure strategy Nash equilibrium. We also provide efficiency guarantees for both pure strategy and Bayes-Nash equilibria.

Abstract: Despite the fall in the interest rate observed in Brazil in recent decades, and specific regulations on the private pension segment that encourage long-term risk taking, institutions in this segment appear to be considerably sensitive to short-term factors, while avoiding exposure to long-term risk factors. With portfolio allocation data from large entities, we implemented a VAR model to evaluate the impact of interest rate changes on portfolio management decisions and performed a counterfactual analysis to define the causal effect of regulation on additional risk taking. Results indicate that interest rate increases lead to significant and persistent reduction of investment in riskier assets with longer maturities, while the implemented regulation was not able to force greater risk-taking by institutions, in addition to generating distortions in segments of the Brazilian financial market.