The paper studies the institution of bankruptcy when exclusive contracts cannot be enforced ex ante, e.g., a bank cannot monitor whether the borrower enters into contracts with other creditors. The institution of bankruptcy enables the bank to enforce its claim to any funds that the borrower has...

This paper develops a dynamic model of the capital structure based on the need to collateralize loans with tangible assets. The model provides a unified theory of optimal firm financing in terms of the optimal capital structure, investment, leasing, and risk management policy. Tangible assets...

Household risk management, that is, households' insurance against adverse shocks to income, assets, and financing needs, is limited and often completely absent, in particular for poor households. We explain this basic pattern in household insurance in an infinite horizon model in which...

This paper studies the choice between investment in new and used capital. We argue that used capital inherently relaxes credit constraints and thus firms which are more credit constrained invest more in used capital. Used capital is cheap relative to new capital in terms of its purchase price...

Behavioral economics presents a "paternalistic" rationale for government intervention. Current literature focuses on benevolent government. This paper introduces politicians who may indulge/exploit these behavioral biases. We present an analysis of the novel features that arise when the...

multiplier) at equilibrium of a class of static economies (complete and incomplete information and with different social structures, eg. overlapping groups, simple networks) of social interactions, derive comparative statics analysis of such properties and study identification with respect to...

We study the wealth distribution in Bewley economies with idiosyncratic capital income risk (entrepreneurial risk). We find, under rather general conditions, a unique ergodic distribution of wealth which displays fat tails (a Pareto distribution in the right tail).

A vast empirical evidence in experimental psychology on time discounting has documented various behavioral anomalies which cast doubts on the empirical support for exponential discounting, to date the most widely used assumption on time preference in economic theory. The most important of such...