Showing 1 - 10 of 20
We analyze debt choice in light of taxes and moral hazard. The model features an infinite sequence of nonzero-sum stochastic differential games between equity and debt. Closed-form expressions are derived for all contingent-claims. If equity can increase volatility without reducing asset drift,...
Persistent link: https://www.econbiz.de/10013111975
Persistent link: https://www.econbiz.de/10003777224
Random assignment is insufficient for measured treatment responses to recover causal effects (comparative statics) in dynamic economies. We characterize analytically bias probabilities and magnitudes. If the policy variable is binary there is attenuation bias. With more than two policy states,...
Persistent link: https://www.econbiz.de/10013027267
We illustrate how a rational agent's motivation changes as one moves from RCTs to settings with discretionary choice. A distinguishing characteristic of discretion is due diligence: Before choosing treatment status, agents acquire information (signals). This alters motivation, with due diligence...
Persistent link: https://www.econbiz.de/10014357787
We develop a theory of primary market discounts demanded by ex ante identical strategic uninformed investors facing heterogeneous carrying cost realizations. Such investors demand primary market discounts equaling expected secondary market trading losses plus carrying costs. Security design is...
Persistent link: https://www.econbiz.de/10013017035
We examine optimal provision of riskless government bonds under asymmetric information and safe asset scarcity. Paradoxically, corporations have incentives to issue junk debt precisely when intrinsic demand for safe debt is high since uninformed investors then migrate to risky overheated debt...
Persistent link: https://www.econbiz.de/10013008789
What determines securitization levels, and should they be regulated? To address these questions we develop a model where originators can exert unobservable effort to increase expected asset quality, subsequently having private information regarding quality when selling ABS to rational investors....
Persistent link: https://www.econbiz.de/10013092549
In recent years, policy experiments using large microeconomic datasets have gained ground in macroeconomics. Imposing rational expectations, we examine robustness of evidence derived from ideal natural experiments applied to atomistic agents in dynamic settings. Paradoxically, once experimental...
Persistent link: https://www.econbiz.de/10012855945
We document the importance of loan covenants to observed hedging outcomes, by studying lending agreements and derivative positions of U.S. oil and gas producers. The emergence of fracking technology was accompanied by sharp increases in capital spending and borrowing. The contracts involved...
Persistent link: https://www.econbiz.de/10013251159
We build a dynamic cash and risk management model of a firm maximizing financing for its investment projects. Because of the option to abandon investment at low profitability and to expand investment at high profitability, hedging can be suboptimal. The model predicts that firms will engage in...
Persistent link: https://www.econbiz.de/10012905934