This paper examines whether financial constraints affect firms’ investment decisions for older (larger) firms. We compare a group of unbanked firms to firms that rely on formal financing. Specifically, we combine data from the Spanish Mercantile Registry and the Bank of Spain Credit Registry...

We formulate and solve a range of dynamic models of information-constrained credit markets that allow for moral hazard and unobservable investment. We compare them to the exogenously incomplete markets environments of autarky, saving only, and borrowing and lending in a single asset. We use...

We formulate and solve a range of dynamic models of constrained credit/insurance that allow for moral hazard and limited commitment. We compare them to full insurance and exogenously incomplete financial regimes (autarky, saving only, borrowing and lending in a single asset). We develop...

We present and estimate a model in which the choice between entrepreneurship and wage work may be influenced by financial market imperfections. The model allows for limited liability, moral hazard, and a combination of both constraints. The paper uses structural techniques to estimate the model...

We analyze dynamic risk-sharing contracts between profit-maximizing insurers and risk-averse agents who face idiosyncratic income uncertainty and can self-insure through savings. We study Markov-perfect insurance contracts in which neither party can commit beyond the current period. We show that...

We analyze the role of commitment in a dynamic principal-agent model of optimal insurance with hidden effort and observable but non-contractible assets. We argue that the optimal contract under full commitment is time-inconsistent. Consequently, we solve for and analyze the optimal insurance...

We develop a model to study the choice between formal and informal sources of credit in a setting with strategic default due to limited enforcement. Informal loans (e.g., from friends or relatives) are enforced by the threat of both parties losing the friendship relation. In contrast, formal...

We analyze optimal contractual forms and equilibrium matching in a double-sided moral hazard model of sharecropping similar to Eswaran and Kotwal (1985). We show that, with endogenous matching, the presence of moral hazard can reverse the matching pattern relative to the first best, and that...

Financial constraints and entrepreneurship are key factors affecting economic performance in developing countries. I formulate and solve a model of occupational choice with moral hazard under three alternative financial market environments: savings only, borrowing and lending with default and...