We study simultaneous investment and financing decisions made by incumbent owners in the presence of capital market imperfections. We present a theory for how the optimal combination of debt and equity financing depends on the firm's internal funds. We identify complementarities between the two...

We analyze the optimal procurement of labor, which can be supplied either internally, based on wage negotiations, or acquired at terms negotiated with an external subcontractor. The novel feature of our model is that the subcontractor's bargaining power is a function of the proportion of output...