We develop a general equilibrium model of interest rates based on a continuous-time production economy populated by heterogeneous shareholders with logarithmic preferences. It allows us to study the impact of belief heterogeneity on bonds, the risk-free rate, and the yield curve. In particular,...

Consider a firm owned by shareholders with heterogeneous beliefs and run by a manager. Shareholders can trade contingent claims in a complete asset market. The manager is given a contract so that at equilibrium she chooses the plan preferred by shareholders. We show that the contract should...