The paper presents a simple model of financial contracting for a long-term investment project in which early project termination may be an optimal response to information asymmetries. The paper characterizes when this constellation leads to inefficient short- term investment. It is shown that in...

This paper studies the design and valuation of debt contracts in a general dynamic setting under uncertainty. By incorporating some insights of the recent corporate finance literature into a valuation framework, we obtain a model which seems promising for the empirical study of pricing of risky...

This paper analyses bidding behaviour in the Mexican Treasury debt auction for the period 1986-9. Auction rules closely resemble those of the US Treasury auction: bidders submit multiple bids for multiple units. The majority of purchased quantities are immediately resold. Results suggest...

Creditors often share their information about their customers' credit record, directly or via information brokers such as credit bureaus and rating agencies. Besides helping them to spot bad risks, this informational exchange acts as a disciplinary device. If creditors are known to exchange data...

This paper studies the effect of debt renegotiation on the design of optimal loan arrangements in a model of borrowing and lending with asymmetric information. The optimal form of finance is a standard debt contract with a bankruptcy clause that acts as a payment incentive. Debt renegotiation...

The residence-based principle has been proposed as a second-best measure to the full international coordination of capital tax policies. A basic requirement for this system to work is that tax authorities have full information about the foreign investments of their residents. The degree of...

This paper uses ML and GMM techniques to estimate systems of stochastic differential equations that describe the behaviour of stock returns. We test restrictions implied by a continuous time asset pricing model that builds on the work of Chamberlain (1988). The stochastic differential equations...

A dynamic market for a risky asset with a continuum of risk averse heterogeneously informed investors and a risk neutral competitive market sector is examined. The market is (semi-strong) informationally efficient due to competitive market making activity. The paper analyzes the effect of...

The paper explains why an issuer may wish to raise external capital by selling multiple financial claims that partition its total asset cash flows, rather than a single claim. It is shown that in an asymmetric information environment, the issuer's expected revenue is enhanced by such cash flow...

The industrial structure of an intermediation industry is analysed in brokerage markets, where intermediaries help to reduce search frictions. The aspect of competition in intermediated markets is analysed in an `island economy', in which intermediaries invest in information networks, which...