A two-period model is considered in which ex ante identical firms invest in period one, and in period two, after they learn their costs, the lowest cost firm is chosen as the winner of the contract. It is found that even though firms are racing against one another, they end up underinvesting...

The authors develop a signaling model to show how adverse selection and moral hazard interact to determine a firm's ownership structure and financing and investment decisions endogenously. Testable implications are derived regarding the relationship between insider ownership, performance...

This article provides a theory of interfirm partial ownership. We consider a setting in which an upstream firm can make two alternative types of investment: either specific investment that only a particular downstream firm can use or general investment that any downstream firm is capable of...

This paper shows how a firm might optimally choose debt to affect the outcome of bilateral bargaining with workers or other input suppliers. It is shown that debt may alleviate the well-known underinvestment problem associated. with the inability to write precommitment contracts. Also, in such...