We analyze the incentives of investment banks to develop innovative products. We show that client characteristics and market structure affect these incentives significantly. Investment banks with larger market shares have greater incentives to innovate and smaller banks are likely to share their...

We develop a model of trading by an informed fund manager compensated on the basis of her fund's Net Asset Value (NAV). We show that she has an incentive to pump her portfolio by buying securities she already holds. Pumping leads to excessive trading and hurts long-term fund performance. It also...

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...

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 even though it is common knowledge that the asset...

Contractual arrangements involving revenue/profit sharing are often based on fairly simple, often linear, rules. In addition, in many contexts these contracts are not finely adjusted to the particular circumstances of individual agents or markets, nor do they vary over time to the extent current...

This article integrates strategic product market analysis with price-taking asset pricing theory. We demonstrate that a firm's market power can lead to scale-dependent and potentially infinite required returns. Scale dependency, which we relate to risk spillovers between expansionary and...