A corporation's securities provide the holder with particular claims on the firm's income stream and particular voting rights. These securities can be designed in various ways: one share of a particular class may have a claim to votes which is disproportionately larger or smaller than its claim...

Consider an economy subject to two kinds of shocks: (a) an observable shock to the relative demand for final goods which causes dispersion in relative prices, and (b) shocks, unobservable by workers, to the technology for transforming intermediate goods into final goods. A worker in a particular...

A general equilibrium model of an economy is presented where people hold money rather than bonds in order to economize on transaction costs. In any such model it is not optimal for individuals to instantaneously adjust their money holdings when new information arrives. The (endogenous) delayed...

In Part 1 the dynamics of an open market operation were analyzed for the case of logarithmic utility. Though such a utility function is useful for illustrative purposes, the implication that current prices are independent of current and future monetary injections is unsatisfactory. This...

Recent advances in financial theory have created an understanding of the environments in which a real security can be synthesized by a dynamic trading strategy in a risk free asset and other securities. We contend that there is a crucial distinction between a synthetic security and a real...

We analyze noncontractible investments in a model with shading. A seller can make an investment that affects a buyer's value. The parties have outside options that depend on asset ownership. When shading is not possible and there is no contract renegotiation, an optimum can be achieved by giving...

In this article I argue that it has been hard to make progress on Coase's theory of the firm agenda because of the difficulty of formalizing haggling costs. I propose an approach that tries to move things forward using the idea of aggrievement costs, and apply it to the question of whether a...

This paper investigates the relationship between stock market trading volume and the autocorrelations of daily stock index returns. The paper finds that stock return autocorrelations tend to decline with trading volume. The paper explains this phenomenon using a model in which risk-averse...

Market liquidity is modeled as being determined by the demand and supply of immediacy. Exogenous liquidity events coupled with the risk of delayed trade create a demand for immediacy. Market makers supply immediacy by their continuous presence. and willingness to bear risk during the time period...

We analyze a model of optimal consumption and portfolio selection in which consumption services are generated by holding a durable good. The durable good is illiquid in that a transaction cost must be paid when the good is sold. It is shown that optimal consumption is not a smooth function of...