We analyse the role of debt in persuading an entrepreneur to pay out cash flows, rather than to divert them. In the first part of the paper we study the optimal debt contract - specifically, the trade-off between the size of the loan and the repayment - under the assumption that some debt...

Adverse selection may thwart trade between an informed seller, who knows the probability p that an item of antiquity is genuine, and an uninformed buyer, who does not know p. The buyer might not be wholly uninformed, however. Suppose he can perform a simple inspection, a test of his own: the...

We analyse the role of debt in persuading an entrepreneur to pay out cash flows, rather than to divert them. In the first part of the paper we study the optimal debt contract - specifically, the trade-off between the size of the loan and the repayment - under the assumption that some debt...

We view a contract as a list of outcomes. Ex ante, the parties commit not to consider outcomes not on the list, i.e., these are "ruled out". Ex post, they freely bargain over outcomes on the list, i.e., the contract specifies no mechanism to structure their choice; in this sense outcomes on the...

We analyze the role of debt in persuading an entrepreneur to pay out cash flows, rather than to divert them. In the first part of the paper we study the optimal debt contract-specifically, the trade-off between the size of the loan and the repayment-under the assumption that some debt contract...

We view a contract as a list of outcomes. Ex ante, the parties commit not to consider outcomes not on the list, i. e. , these are “ruled out”. Ex post, they freely bargain over outcomes on the list, i. e. , the contract specifies no mechanism to structure their choice; in this sense outcomes...