Project with negative expected value cannot obtain financing in competitive capital markets if all potential investors are risk neutral and have identical beliefs about the distribution of the project’s net revenue. We present a series of examples with heterogeneous beliefs in which it is...

Transferring physical capital and transferring production and sales activities from one country to the other, typically entails large adjustment costs. The model of this paper features two homogeneous stocks of physical capital located in two different countries, separated by an "ocean." The two...

In automobile insurance the premium rate which the insured must pay increases whenever he files a claim. Here we present the optimal claims strategy of the insured. It is shown that the insured will file a claim only if the damage exceeds some critical value which depends on his premium rate and...

A comparative static analysis of a competitive equilibrium under heterogeneous earn-ings expectations and constant absolute risk aversions demonstrates that unsystem-atic trading volume in response to a public information release is proportional to the change in relative heterogeneity of beliefs...