This paper analyzes the optimal choices of an entrepreneur who operates in a regulated sector, under uncertainty and asymmetric information. The entrepreneur chooses the firm's capital structure and the provision of effort, while the regulator sets a price rule that establishes the firm's...

This paper questions the idea that the deduction of debt interest is always a good policy instrument in order to spur investment. Particularly, it analyzes the investment choice in a "financing hierarchy" framework with an exogenous constraint on the amount of the debt that the firm can...