The development of financial systems is very often characterised by the development of innovative financial contracts which allow a more efficient allocation of resources and a higher level of capital productivity and economic growth. By exploiting the microeconomic theory of the optimal...

In an overlapping generations economy, households (lenders) fund risky investment projects of firms (borrowers) by drawing up loan contracts on the basis of asymmetric information. An optimal contract entails either the issue of only debt or the issue of both debt and equity according to whether...