We consider a variety of vintage capital models of a firm’s choice of technology under uncertainty in the presence of adjustment costs and technology-specific learning. Similar models have been studied in a deterministic setting. Part of our objective is to examine the robustness of the implications of the certainty models to uncertainty. We find that the answer crucially depends on the specifi...

Many basic economic theories with perfectly functioning markets do not predict the existence of the vast number of microenterprises readily observed across the world. We put forward a model that illuminates why financial and managerial capital constraints may impede experimentation, and thus limit learning about the profitability of alternative firm sizes. The model shows how lack of informatio...

How important are differences in owner personal characteristics (risk tolerance or optimism) versus the environment in which a firm operates (bankruptcy institutions or access to credit) for firm financial structure, size, owner net-worth and welfare? To answer this question we construct a dynamic, computable model with heterogeneous agents and endogenous default in which entrepreneurs weigh th...

Article history: Received 31 August 2009 Received in revised form 24 May 2010 Accepted 2 June 2010 Available online 10 June 2010 We analyze whether the organizational structure of firms (i.e., whether a firm is diversified or focused) affects their cash holdings. Using Compustat firm level and segment-level data, we find that diversified firms hold significantly less cash than their focused cou...

This paper presents a model where agents decide on the timing of replacement of ageing machines. The optimal replacement policy for an agent is influenced by other agents’ decisions because the productivity of a particular vintage displays network externalities that set in with a lag. In equilibrium, agents follow innovation cycles with a frequency that is lower than optimal, so there is too mu...

This paper examines the impact of the volatility of foreign portfolio investment on the financial constraints of small firms. Utilizing a dataset of over 195,000 firm-year observations across 53 countries, I examine the impact of foreign portfolio investment instability on capital issuance and firm growth across countries and firm characteristics, in particular size. After controlling for the e...

We consider a variety of vintage capital models of a firm’s choice of technology under uncertainty in the presence of adjustment costs and technology-specific learning. Similar models have been studied in a deterministic setting. Part of our objective is to examine the robustness of the implications of the certainty models to uncertainty. We find that the answer crucially depends on the specifi...

We examine the nature of debt contracts when repayment of debt cannot be fully enforced. We study outcomes an infinite-horizon economy in which some individuals have access to a productive, intertemporal technology. Individuals without access to the technology must lend their savings to the rest. Borrowers can default on their debt at any time: lenders can capture a fraction of their investment...

The existence of some 2 billion unused EU Allowances (EUAs) at the end of Phase II of the EU’s Emissions Trading System (EU ETS) has sparked considerable debate about structural shortcomings of the EU ETS. However, there has been a surprising lack of interest in considering the accumulation of EUAs in light of the theory of intertemporal permit trading, i.e. allowance banking. In this paper we ...

This paper represents a first attempt at a tractable analysis of how monetary policy influences the income distribution in an economy. It presents a monetary growth model in which inflation affects credit market efficiency, and via this link, influences capital accumulation, and the income distribution. In the model, a fraction of the population is capitalists, who have access to a risky but hi...