We model the link between inequality and excessive risk taking. In the presence of increasing returns to tax avoidance, the middle class is willing to take non rewarded financial risk despite risk aversion. Electoral pressure may lead an incumbent politician to endorse this excessive risk taking...

We model the link between inequality, lack of political commitment, and ex-cessive risk taking. If politicians cannot commit to a long-term tax schedule, increasing returns to tax avoidance induce the middle class to take on non rewarded ?nancial risk despite risk aversion. Electoral pressure...

We model the link between inequality, lack of political commitment, and ex-cessive risk taking. If politicians cannot commit to a long-term tax schedule, increasing returns to tax avoidance induce the middle class to take on non rewarded ?nancial risk despite risk aversion. Electoral pressure...

Afluent households can respond to taxation with means that are not economically viable for the rest of the population, such as sophisticated tax plans and international tax arbitrage. This paper studies an economy in which an inequality-averse social planner faces agents who have access to a...

The structure of securitization deals, referred to as tranching , is standard. In those transactions, claims on cash flows generated by the collateral are split into several classes of notes, at least 3 and possibly more than 5. Each class is called a tranche and has absolute priority in the...

Liquidity, deÞned as the ease with which an asset may be marketed, has a self-fulfilling dimension. If investors in the primary market for a new asset fear an illiquid secondary market, the issuance does not take off, thereby vindicating the initial concern about an illiquid secondary market....

We explore price dynamics in a `cash in the market' asset pricing model, where the price of an asset is the ratio of the amount of cash chasing the asset to the available supply of the asset. Traders base their current trading strategies on their beliefs about future cash inflows/outflows in the...

An entrepreneur with limited liability needs to finance an infinite horizon investment project. An agency problem arises because she can divert operating cash flows before reporting them to the financiers. We first study the optimal contract in discrete time. This contract can be implemented by...