The q-theory explanations of asset pricing anomalies are quantitatively important. We perform a new asset pricing test by using GMM to minimize the difference between average stock returns in the data and average investment returns constructed from observable firm characteristics. Under various...

We study the optimal long-term contract offered to workers when firms are financially constrained in their investment plans. To alleviate the tightness of the financial constraints, firms promise an increasing wage profile to workers, that is, they pay lower wages today in exchange of higher...

Investment is often irreversible, especially at the aggregate level. This paper proposes and solves a general equilibrium model of technology adotpion when investment in the new technlogy is irreversible. In contrast to prior research, we consider a setup where the returns on technology adoption...

The power to enforce rights and obligations in a society is essential. For simplicity, economists have focused on two extreme forms of enforcement: perfect ex-post enforcement of contracts by an exogenous un-modeled authority (a ``court'') or contracts that are ``self-enforcing.'' Models that...

This paper studies the role of leasing of productive assets. When capital is leased (or rented), it is more easily repossessed and hence leasing has higher debt capacity and relaxes financing constraints. However, leasing gives rise to an agency problem with regard to the care with which the...

This paper develops an agency model of executive compensation in dynamic industry equilibrium. Firms differ in the quality of their products, and managers can make a difference as higher effort brings about product improvement. I show that there is an inverse relationship between the magnitude...

This paper provides a general framework for pricing of real options in continuous time for wide classes of payoff streams that are functions of Levy processes. As applications, we calculate the option values of multi-stage investment/disinvestment problems (sequences of embedded options, which...

This paper investigates whether the financial markets are relatively more efficient than banks in the UK than in continental Europe. The UK channels a larger fraction of the financial flow to the firms through financial markets than continental Europe but this is explained by larger firms in the...

This paper evaluates quantitatively the macroeconomic implications of corporate governance institutions within a model where the size and distribution of firms and the structure of financial markets are jointly determined. If firms adapt their financing modes to economic conditions, aggregate...

The main contribution of this work is to provide a dynamic general equilibrium model of asset allocation, allowing to reconcile economic theory with several puzzling contradictions recently pointed out in the literature: (i) the asset allocation puzzle, (ii) the observed time-variation in...