Over the last three decades there has been a dramatic increase in the size of the financial sector and in the compensation of financial executives. This increase has been associated with greater risk-taking and the use of more complex financial instruments. Parallel to this trend, the...

We study a general equilibrium model in which entrepreneurs finance investment with optimal financial contracts. Because of enforceability problems, contracts are constrained efficient.We show that limited enforceability amplifies the impact of technological innovations on aggregate output. More...

Over the last three decades we have observed a dramatic increase in the concentration of income at the very top of the distribution. This increase in income inequality has been especially steep in the managerial occupations in financial industries, where it has often been associated with greater...

In this paper we develop a general equilibrium model in which firms finance investment by signing long-term contracts with a financial intermediary. Due to enforceability problems, financial contracts are constrained optimal, that is, they maximize the surplus of the contract subject to...

In this paper we develop a general equilibrium model in which firms finance investment by signing long-term contracts with a financial intermediary. Due to enforceability problems, financial contracts are constrained optimal, that is, they maximize the surplus of the contract subject to...

In this paper we develop a general equilibrium model with heterogeneous, long-lived firms where financial factors play an important role in their production and investment decisions. When the economy is hit by monetary shocks, the response of small and large firms differs substantially, with...

We study a general equilibrium model in which entrepreneurs finance investment with optimal financial contracts. Because of enforceability problems, contracts are constrained efficient. We show that limited enforceability amplifies the impact of technological innovations on aggregate output....