We develop a model of equilibrium entry, trade, and price formation in over-the- counter (OTC) markets. Banks trade derivatives to share an aggregate risk subject to two trading frictions: they must pay a fixed entry cost, and they must limit the size of the positions taken by their traders...

The widespread and growing use of equity-based compensation has transformed high-skilled labor from a pure labor input to a class of ``human capitalists.''We show that high-skilled labor earns substantial income in the form of equity claims to firms' future dividends and capital...