We show that financial innovations that change the collateral capacity of assets in the economy can affect investment even in the absence of any shift in utilities, productivity, or asset payoffs. First we show that the ability to leverage an asset by selling non-contingent promises can generate...

We show that all the fundamental properties of competitive equilibrium in Marshall's cardinal theory of value, as presented in Note XXI of the mathematical appendix to his Principles of Economics (1890), derive from the Strong Law of Demand. That is, existence, uniqueness, optimality, and global...

Consumers purchase multiple types of goods and services, but may be able to examine only a limited number of markets for the best price. We propose a simple model which captures these features, conveying some new insights. A firm's price can deflect or draw attention to its market, and...

We consider the design of an optimal auction in which the seller can determine the allocation and the disclosure rule of the mechanism. Thus, in contrast to the standard analysis of a optimal auctions, the seller can explicitly design the disclosure of the information received by each bidder as...

We analyze the welfare consequences of a monopolist having additional information about consumers' tastes, beyond the prior distribution; the additional information can be used to charge different prices to different segments of the market, i.e., carry out "third degree price discrimination."We...

The equilibrium prices in asset markets, as stated by Keynes (1930), "...will be fixed at the point at which the sales of the bears and the purchases of the bulls are balanced." We propose a descriptive theory of finance explicating Keynes' claim that the prices of assets today equilibrate the...

We examine a repeated interaction between an agent, who undertakes experiments, and a principal who provides the requisite funding for these experiments. The repeated interaction gives rise to a dynamic agency cost – the more lucrative is the agent's stream of future rents following a failure,...

A new recursive regression methodology is introduced to analyze the bubble characteristics of various financial time series during the subprime crisis. The methods modify a technique proposed in Phillips, Wu and Yu (2010) and provide a technology for identifying bubble behavior and consistent...

A recursive test procedure is suggested that provides a mechanism for testing explosive behavior, date-stamping the origination and collapse of economic exuberance, and providing valid confidence intervals for explosive growth rates. The method involves the recursive implementation of a...