In this article we propose a security-design problem in which risk neutral entrepreneurs make unobservable investment decisions while employing the investment funds of risk-neutral outside investor/creditor(s). Contracts are restricted to satisfy limited liability and monotonicity of the payment...

Motivated by the informational 'opacity' that often characterizes small firms, this article studies a security design problem in which outside investors are unable to observe entrepreneurs' investments decisions and their firms' net-worth, both before and after contracts are signed. The...

Department: Economics.

Econometric studies have produced conflicting results on the relevance of precautionary saving. This ambiguity has been often ascribed to i) the difficulty of measuring key variables, like households' subjective risk in income and permanent income; ii) the occurrence of certain kinds of...

We investigate the welfare effects of proportional income taxation in a standard general equilibrium model with incomplete markets (GEI). Formally, our analysis is on the allocative effects of state-contingent income tax reforms. Tax reforms are restricted to be anonymous, publicly and...

In this paper, we provide a characterization of interim inefficiency in stochastic economies of overlapping generations under possibly sequentially incomplete markets. With respect to the established body of results in the literature, we remove the hypothesis of two-period horizons, by...