This study outlines a new theory linking industry structure to optimal employment contracts and executive short-termism. Firms hire their executives using optimal contracts derived within a competitive labour market. To motivate effort firms must use some variable remuneration. Such remuneration...

Intuition and leading equilibrium models are at odds with the empirical evidence that expected returns are barely related to volatility at the market level. This paper proposes a closed-form general equilibrium model, which connects the investors' expectations of fundamentals with those of...

Intuition and leading equilibrium models are at odds with the empirical evidence that expected returns are barely related to volatility at the market level. This paper proposes a closed-form general equilibrium model, which connects the investors' expectations of fundamentals with those of...

In infinite horizon economies only local equivalence of beliefs is needed to ensure the existence of an Arrow-Debreu equilibrium. In fact, agents can even disagree completely in the long run in the sense that asymptotically, their beliefs are singular. -- Heterogeneous expectations ;...

In this paper I analyze a simple example of a debt contract based on an extension of the debt overhang problem. I assume incomplete contracts and introduce the possibility of refinancing an existing debt by an outside investor. Although the refinancing is never implemented in the equilibrium, it...

In this note we generalize the Negishi approach to equilibrium. We embed a standard one-period exchange economy into a two-period model, where agents' first-period utility functions can be any strictly increasing and concave functions satisfying the lower Inada condition, and prove the existence...

This paper provides a general framework to model bounded rationality in dynamic stochastic general equilibrium models with infinitely lived heterogeneous agents. A boundedly rational agent is associated with an information set $I$ and an extra parameter $\epsilon$, which can be interpreted as...