We show how product variety affects asset prices in a general-equilibrium model. We analytically characterize the unique equilibrium and estimate the model to match asset pricing and product market moments. The equity premium and risk-free rate can be reconciled for risk aversion levels around 4...

We show that finance influences innovation by young private firms, an important source of long-term economic growth. We develop a simple theoretical model that predicts that a decrease (increase) in banks' bargaining power vis-a-vis entrepreneurs increases (decreases) both the volume and...

We develop a structural industry equilibrium model to show how competitive CEO-firm matching and product markets jointly determine firm value and CEO pay. We analytically derive testable implications for the effects of product market characteristics on firm size, CEO pay, and CEO impact on firm...

We analyze a continuous-time stochastic control problem that arises in the study of several important issues in financial economics. An agent controls the drift and volatility of a diffusion output process by dynamically selecting one of an arbitrary (but finite) number of projects and the...

We develop a theory to show how external corporate governance mechanisms, such as the market for corporate control, and internal governance mechanisms interact to affect innovation by firms. Our model generates the novel testable implication that there is a non-monotonic U-shaped relation...

We develop a model to show how agency conflicts between shareholders and managers, information processing and learning about project quality, manager synergies and bargaining power interact to affect a firm's internal organizational structure and the incentive compensation structures of its...

We develop a model to show how agency conflicts, free rider effects and monitoring costs interact to affect optimal team size and workers' incentive contracts. Team size increases with project risk, decreases with profitability, and decreases with monitoring costs as a proportion of output. Our...

We provide a novel explanation for the low volume of securitization in catastrophe risk transfer. Insurers' risk transfer choices trade off the lower signaling costs of reinsurance against the additional costs of reinsurance stemming from reinsurers' market power, higher costs of capital, and...