A Bargaining-Based Model of Security Design

This paper studies how security design affects project outcomes. Consider a firm that raises capital for multiple projects by offering investors share of the revenues. The revenue each is determined ex post through bargaining with buyer output. Thus, choice feasible payoffs game. We characterize securities achieve firm’s maximal equilibrium payoff in bilateral and multilateral negotiations. In large class securities, optimal contract remarkably simple. finances separately defaultable debt. Welfare empirical implications are discussed. (JEL C78, D21, D86, G12, G32)