This is the first paper to test the asset pricing implication of leverage in a laboratory. We show that as theory predicts, leverage increases asset prices: When an asset can be used as collateral (that is, when the asset can be bought on margin), its price goes up. This increase is significant,...

We develop a model of leverage that is amenable to laboratory implementation and gather experimental data. We compare two identical economies: in one economy, agents cannot borrow; in the other, they can leverage a risky asset to issue debt. Leverage increases asset prices in the laboratory....

We develop a model of leverage that is amenable to laboratory implementation and gather experimental data. We compare two identical economies: in one economy, agents cannot borrow; in the other, they can leverage a risky asset to issue debt. Leverage increases asset prices in the laboratory....

This is the first paper to test the asset pricing implication of leverage in a laboratory. We show that as theory predicts, leverage increases asset prices: When an asset can be used as collateral (that is, when the asset can be bought on margin), its price goes up. This increase is significant,...

This is the first paper to test the asset pricing implication of leverage in a laboratory. We show that as theory predicts, leverage increases asset prices: when an asset can be used as collateral (i.e., when the asset can be bought on margin), its price goes up. This increase is significant,...