Random assignment is insufficient for measured treatment responses to recover causal effects (comparative statics) in dynamic economies. We characterize analytically bias probabilities and magnitudes. If the policy variable is binary there is attenuation bias. With more than two policy states,...

We illustrate how a rational agent's motivation changes as one moves from RCTs to settings with discretionary choice. A distinguishing characteristic of discretion is due diligence: Before choosing treatment status, agents acquire information (signals). This alters motivation, with due diligence...

We analyze debt choice in light of taxes and moral hazard. The model features an infinite sequence of nonzero-sum stochastic differential games between equity and debt. Closed-form expressions are derived for all contingent-claims. If equity can increase volatility without reducing asset drift,...

We develop a theory of primary market discounts demanded by ex ante identical strategic uninformed investors facing heterogeneous carrying cost realizations. Such investors demand primary market discounts equaling expected secondary market trading losses plus carrying costs. Security design is...

We examine optimal provision of riskless government bonds under asymmetric information and safe asset scarcity. Paradoxically, corporations have incentives to issue junk debt precisely when intrinsic demand for safe debt is high since uninformed investors then migrate to risky overheated debt...

What determines securitization levels, and should they be regulated? To address these questions we develop a model where originators can exert unobservable effort to increase expected asset quality, subsequently having private information regarding quality when selling ABS to rational investors....

In recent years, policy experiments using large microeconomic datasets have gained ground in macroeconomics. Imposing rational expectations, we examine robustness of evidence derived from ideal natural experiments applied to atomistic agents in dynamic settings. Paradoxically, once experimental...