In this paper, we put forward a theory of the optimal capital structure of the firm based on Jensen's (1986) hypothesis that a firm's choice of capital structure is determined by a trade-off between agency costs and monitoring costs. The problem of determining the optimal capital structure of...

We examine the possibility of a Pareto-improving pay-as-you-go social security system, using an ex-ante welfare criterion. Our objective is to identify the conditions under which a suitably designed pay-as-you-go social security system is welfare improving, when markets are complete and...

In this paper we present circumstances under which the possibility of high leverage can lead to widespread default and national crises. In models with incomplete markets, default and production, there will almost always be a mismatch between firm output across states of nature and asset...