[aɹyada barðɪ]

Ponzi schemes

 "The Strategic Role of Public Information in the Rise and Growth of Ponzi Schemes: The Case of Albania, 1993-1997."

This paper examines how the strategic production of misguiding public information could have contributed to the unhindered flourishing of large-scale Ponzi schemes in Albania during the period 1993-1997. Using a global game framework, I study the pre-electoral incentives of an incumbent seeking reelection to under-investigate the quality of a project which benefits voter-investors in the short run. The incumbent  balances the likelihood of a regulatory mistake with that of gaining electoral support among voter-investors. Such voters, who in the absence of the investment might disapprove of the incumbent, vote in her favor so as to ensure the continuation of the project. Under sufficiently strong electoral concerns, the incumbent benefits from highly uninformative public investigation followed by dampened regulatory action. In turn, lack of public information encourages excessive investment in the project. Historical evidence is brought to bear in arguing the relevance of this framework for the case of Albania and the implausibility of alternative historical explanations.