We present a static general equilibrium model of an economy with agents with heterogenous wealth and endogenous credit constraints due to moral hazard. Credit constraints give rise to inefficiencies which are larger if wealth is distributed more unequally. We show that increases in the loan...

This paper shows that the eects of financial liberalization on the credit market of a small and capital constrained economy depend on the market structure of domestic banks prior to liberalization. Specifically, under perfect competition in the domestic credit market prior to liberalization,...

This paper studies firm-provided training in the presence of the following labor market institutions: minimum wages, assistance unemployment benefits, firing costs, unions and severance payments. It shows that minimum wages, severance payments and unemployment benefits may either increase or...

This paper develops a new rationale for the emergence of pay-for-performance contracts. The labor market is competitive, workers are risk averse and firms risk neutral. The paper shows that in stable environments more productive workers self-select into pay-for-performance jobs because risk is...

In this paper we develop an asymmetric information model that provides a rationale for the existence of pay-for-performance contracts in the absence of incentive for effort and explains when and in which occupations pay-for-performance is more likely to be observed. In our model competition...

In this paper a model based on conflicts of interest between shareholders, the CEO and divisional managers is developed to explain why corporate diversification is good for some firms and bad for others. It is shown that when the decision to diversify is endogenous, whether diversification...

The present paper proposes a simple model for studying the interplay between self-enforcing cooperation and network formation. In particular, the model provides an answer to the ancient question of how cooperative behavior emerges in different communities and how the possibility of behaving...

In this paper a simple model of mergers in which synergies, private benefits and CEO power play a crucial role is proposed. A merger is modeled as a bargaining process between the acquiring and target board with the gains from a merger divided according to Rubinstein’s alternating-offer game...