This essay considers dynamic security design and corporate financing, with particular emphasis on informational microfoundations. The central idea is that firm insiders must retain an appropriate share of firm risk, either to align their incentives with those of outside investors (moral hazard)...

This paper characterizes equilibrium outcomes of extensive form games with incomplete information in which players can sign renegotiable contracts with third-parties. Our aim is to understand the extent to which third-party contracts can be used as commitment devices when it is impossible to...