We study a dynamic contracting problem in which size is relevant. The agent may take on excessive risk to enhance short-term gains, which exposes the principal to large, infrequent losses. To preserve incentive compatibility, the optimal contract uses size as an instrument; there is downsizing...

Making use of a structural model that allows for optimal liquidity management, we study the role that repos play in a bank's financing structure. In our model the bank's assets consist of illiquid loans and liquid reserves and are financed by a combination of repos, long–term debt, deposits...

We study a continuous time contracting problem with risk taking in which size plays a role. The agent may take on excessive risk to enhance short-term gains; doing so exposes the principal to large, infrequent (poisson) losses. The optimal contract must use size as an instrument; there is...