Tirole (1982) is commonly interpreted as proving that bubbles are impossible with finitely many rational traders with common priors. We study a simple variation of his model in which bubbles can occur, even though traders have common priors and common knowledge that the asset has no fundamental...

We hypothesize that established firms with innovative projects and technologies will make relatively greater use of arm's length financing (such as public debt and equity); whereas less innovative firms will tend to use relationship based borrowing (such as bank borrowing). The hypothesis is...