We develop an economic theory of “flexibility”, which we interpret as the discretion or ability to make a decision that others disagree with. We show that flexibility is essentially an option for the decisionmaker, and can be valued as such. The value of the flexibility option is decreasing...

In this paper we introduce flexibility as an economic concept and apply it to the firm’s security issuance decision and capital structure choice. Flexibility is the ability to make decisions that one thinks are best even when others disagree. The firm’s management values flexibility because...

We analyze a publicly-traded firm's decision to stay public or go private when managerial autonomy from shareholder intervention affects the supply of productive inputs by management. We show that both the advantage and the disadvantage of public ownership relative to private ownership lie in...

In organizations, ideas are often delegated for evaluation as a means of efficiently aggregating multiple information signals. However, those who delegate often find it impossible to separate the evaluation of the ideas they delegate from the evaluation of abilities of those delegated the task...

This paper examines the determinants of organizational scale and scope, with applications to various industries, including financial services. We build a model in which new opportunities arise for firms, but the skills needed to exploit them effectively are unknown. Early investments in these...

In this paper we analyze an entrepreneur /manager's choice between private and public ownership in a setting in which management needs some elbow room or autonomy to optimally manage the firm. In public capital markets, the corporate governance regime in place exposes the firm to exogenous...

In this paper we analyze an entrepreneur /manager's choice between private and public ownership in a setting in which management needs some "elbow room" or autonomy to optimally manage the firm. In public capital markets, the corporate governance regime in place exposes the firm to exogenous...

We assess the influence of competition and capital regulation on the stability of the banking system. We particularly ask two questions: i) how does capital regulation affect (endogenous) entry; and ii) how do (exogenous) changes in the competitive environment affect bank monitoring choices and...

In this article, we provide a novel rationale for credit ratings. The rationale that we propose is that credit ratings serve as a coordinating mechanism in situations where multiple equilibria can obtain. We show that credit ratings provide a "focal point" for firms and their investors, and...