On Efficient Distribution with Private Information

Why does capital structure choice vary with macroeconomic conditions?

“…Second, models that relate risk sharing with agency problems, in settings that allow for dynamic contracts, generally find that agents (managers) receive a riskier compensation stream (hold riskier positions in their firm) than they would with no agency problems (see Atkeson and Lucas (1992) or Green (1987)). As above, in such a setting, when output is high, managers in my model receive a higher share of wealth which reduces moral hazard problems and allows for better risk sharing (lower leverage).…”

“…2 This literature generally focuses on firms that rely on debt financing and face severe agency problems in accessing external capital. 3 It explains how agency problems in accessing external capital at the firm level result in exaggerated swings in economic activity as feedback effects propagate and magnify aggregate shocks.…”

“…5 In general, these studies are motivated in a Myers and Majluf 2 See for example Bernanke and Gertler (1989), Bernanke, Gertler and Gilchrist (1998), Carlstrom and Fuerst (1997), Cooley and Quadrini (1999), Fisher (1998), Greenwald and Stiglitz (1993) and Kiyotaki and Moore (1997). For a review and a distinction between the different channels see Bernanke and Gertler (1995).…”

A dynamic model of settlement

“…2 The use of a dynamic framework is essential since some of the questions that optimal payment system design poses are inherently dynamic and, therefore, very hard or impossible to study within the existing literature, which is almost exclusively static. 3 Agents in our model need to engage in transactions that are subject to a private information friction. Thus, incentives are needed in order to induce truthful revelation.…”

“…2 See, for example, Green (1987). Other classic references include Spear and Srivastava (1987) and Atkeson and Lucas (1993). 3 See Roberds (1998, 2004) for two papers in this literature.…”