We develop a model of rational bubbles based on leverage and the assumption of an imprecisely known maximum market size … lend to traders with limited liability in a bubble is endogenous. Bubbles reduce welfare of future investors. We provide … general conditions for the possibility of bubbles depending on uncertainty about market size, traders' degree of leverage and …

This paper analyzes the effects of several policy instruments to mitigate financial bubbles generated in the banking … policy instruments in counteracting financial bubbles. We find that an endogenous capital requirement reduces the impact of a …

We construct a model of bubbles where an asset can be used as collateral primarily due to higher-order uncertainty … fool” exists who will purchase it at a much higher price. We show that such bubbles can lead to inefficient overinvestment …

This paper examines how monetary expansion causes asset bubbles. When there is no monetary expansion, a bubbly asset is …

spending - combined with investment theory - to estimate the discount rates used by managers. The standard story predicts that … between 15.1% and 45.2% too much capital. These estimates suggest that, even before they burst, bubbles adversely affect … economic activity by misallocating capital. -- bubbles ; investment ; stock markets ; real effects of financial markets …