We present an overlapping generations model in which aspirationalagents face uncertainty about the returns to human capital. Investment in human capital requires external funding, implying a probability of bankruptcy that is greater the lower the human capital endowment of an agent. We show that...

This paper documents the statistical properties of the contemporary business fluctuations in the United Kingdom. The authors study the period 1956-90 using quarterly, detrended data on key aggregate variables. They compute selected moments of the data, compare their results with those for the...

In an overlapping generations economy households (lenders) fund risky investment projects of firms (borrowers) by drawing up loan contracts on the basis of asymmetric information. An optimal contract entails either the issue of only debt or the issue of both debt and equity according to whether...

We study the relationship between the underground economy and financial development in a model of tax evasion and bank intermediation. Agents with heterogenous skills seek loans in order to undertake risky investment projects. Asymmetric information between borrowers and lenders implies a menu...

Empirical observation suggests that not all countries of the world have suffered as a result of widespread corruption. Whilst many countries have undoubtedly been damaged considerably, others appear to have coped well - in some cases, very well - with the problem. The analysis that follows seeks...

We develop a model of occupational choice in which private agents have the option of either working in some costless, but low-yielding, activity (subsistence production), or undertaking a costly, but potentially more rewarding, venture (entrepreneurship). In the case of the latter, loans must be...