The switch from equity to debt in venture capital-backed entrepreneurial firms is rare, but uniquely informative. Using a novel dataset of financing decisions, we find that entrepreneurial firms that raise debt financing suffer from an average 40% post-debt valuation drop and a 26% lower...

Building on Goodfriend and McCallum (2007), the paper presents a theory of money and banking in which the interbank Treasury-Bill (TED) spread (and other spreads) reflect the valuation of government bond collateral services in banking. Government debt held by households defrays the cost of...

We develop a theory of systemic financial crises. We obtain conditions under which a single bank optimally chooses a fragile capital structure that is subject bank runs. When depositors are unable to commit to long-term lending arrangements, they optimally finance the bank using short-term debt....

Group formation is important in many economic contexts. The current literature on group formation assumes that individuals may join any existing group. In this paper, I consider the implications of social, geographic, and informational constraints to group membership decisions. I embed the...

Empirical data suggests that the relative price of goods and services may play a role in individual labor supply decisions. Data shows that individuals spend a significant amount of their time at home engaged in activities such as child care, education, and elderly care, among others, which are...

We characterize the long run outcome of a dynamic private information economy with public capital accumulation. The economy is typical of those assumed in the new dynamic public finance literature. We establish that almost all agents converge to misery or luxury and bound the fraction who are...

Models of dynastic households have been traditionally used to analyze persistence in earnings and wealth across generations, more recently to study patterns of wealth and fertility, transfers to children and education choices. Using data of two generations from the PSID, this paper develops and...

We consider the role of product market competition in disciplining managers in a moral hazard setting. Competition has two effects on a firm. First, the expected revenue or the marginal benefit of effort declines, leading to weakly lower effort. Second, the cost of inducing high effort increases...