Related ideas have been expressed by Yellen (1998), Rajan and Zingales (1998), and Caballero and Krishnamurthy (1998). Yellen argues that `a &relationships' model of capital allocation is extraordinarily susceptible to a deterioration in perceptions about the quality of investment decisions.a Rajan and Zingales explain the problems that can occur when a relationship-based financial system is opened up to capital inflows. Caballero and Krishnamurthy emphasize the under-investment in appropriate collateral that occurs due to incentive problems.