We develop a model which accounts for the observed equity premium and average risk free rate, without implying counterfactually high risk aversion. The model also does well in accounting for business cycle phenomena.

This paper, instead of focusing on agency cost, analyzes the role of risk-sharing under problems of enforceability (default) to explain the optimal determination of capital structure. Optimal contract structure presents equity and debt.

In this paper we analyse the consequences of Knightian uncertainty for partnerships with symmetric linear production functions are analysed in a CEU framework. We propose an extension of Nash equilibrium in pure strategies for CEU-games with strategic uncertainty. We find that the presence of...

Exclusions are part of any property insurance. A prototypically simple contract covers losses from a single peril but excludes losses from all other perils and, typically, from the insured peril in some instances. Demand for insurance is impacted by exlcuded risks. There are two tendencies here:...

This paper studies optimal property insurance in the presence of equity risk and conversion risk. Equity risk is randomness of the value of a property. It tends to raise demand for conventional insurance on the property effectively increasing the risk aversion of the property owner. In contrast,...

Failures of government policies often provoke opposite reactions from citizens; some call for a reversal of the policy while others favor its continuation in stronger form. We offer an explanation of such polarization, based on a natural bimodality of preferences in political and economic...