We develop a dynamic nonlinear, noisy REE model of credit risk pricing un- der dispersed information that can theoretically and quantitatively account for the credit spread puzzle. The first contribution is a sharp analytical characteri- zation of the dynamic REE equilibrium and its comparative...

We analyze investment incentives and risk-taking by firms when equity markets aggregate information with noise. Noisy information aggregation drives a wedge between the expected social value and the market value of investments, inducing inefficient rent-seeking by incumbent shareholders and...

Prices aggregate the information in the economy by sending signals about the scarcity of the goods traded. However prices can be expressed in terms of different units of account. Does the choice of the unit of account matter for informational efficiency? I develop a model where the choice of...