This paper studies a closed economy with a continuum of agents and moral hazard. Economic agents in the economy operate a stochastic production technology with capital and labor inputs in which the latter is private information. I characterize efficient allocations of capital, labor, and...

This paper studies a closed economy with a continuum of agents and moral hazard. Economic agents in the economy operate a stochastic production technology with capital and labor inputs in which the latter is private information. I characterize efficient allocations of capital, labor, and...

Collective action clauses (CACs) are provisions specifying that a supermajority of bondholders can change the terms of a bond. We study how CACs determine governments' fiscal incentives, sovereign bond prices and default probabilities in environments with and without contingent debt and IMF...

The complete insurance hypothesis is soundly rejected by the data (e.g. Attanasio and Davis, 1996). On the other hand, the permanent income model assumes that the only mechanism available to the agents to smooth consumption is personal savings (self insurance). Those are clearly two extreme...

The impact of imperfections in financial markets on firm-level investment varies greatly across industries. In particular, it appears that the choices of firms producing capital goods are more likely to be constrained by financial factors. We argue that this is the case because the intrinsic...