We present a model for the equilibrium movement of capital between asset markets that are distinguished only by the levels of capital invested in each. Investment in that market with the greatest amount of capital earns the lowest risk premium. Intermediaries optimally trade off the costs of...

In dynamic models driven by di usion processes, the smoothness of the value function plays a crucial role for characterizing properties of the solution. However, available methods to ensure such smoothness have limited applicability in economics, and economists have often relied on either...