This paper develops a model of the credit market where the equilibrium lending mechanism, as well as the economy's aggregate investment and output, are endogenously determined. It focuses on two crucial elements. One is the micro theory of optimal lending mechanism. Instead of imposing a...

This paper shows that in a perfectly stationary physical environment of the labor market, moral hazard and competition in long-term contracts can generate cycles in the tightness of the market, which in turn may induce job creation and destruction, and two periods or much longer cycles in...