We develop an agency model of financial contracting. We derive long-term debt, a line of credit, and equity as optimal securities, capturing the debt coupon and maturity; the interest rate and limits on the credit line; inside versus outside equity; dividend policy; and capital structure dynamics. The optimal debt-equity ratio is history dependent, but debt and credit line terms are independent...

Within uncertain technological progress, a firm has to decide when to update its technology and select a new one among a non-decreasing range over time. Under constant return to scale, the best existing technology is implemented. Replacement is triggered not only when the firm operated technology is sufficiently obsolete but also the wedge between the latest and the state of the arts grades is ...

We describe the evolution of productivity growth in a competitive industry with free entry and exit. The exogenous wage rate determines the firms’ engagement in labor productivity enhancing process innovation. There is a unique steady state of the industry dynamics, which is globally asymptotically stable. In the steady state, the number of active firms, their unit labor cost and supply depend ...

In this paper we aim at studying to what extent spillovers between firms may foster economic growth. The attention is addressed to the spillovers connected with the R&D activity that improves the quality of the goods firms supply. Our model develops a growth theory framework and we assume that firms spread around a circle. Our study assesses that spillovers between neighbors affect the probabil...

Retirement flexibility and inability to borrow against future labor income can significantly affect optimal consumption and investment. With voluntary retirement, there exists an optimal wealth-to-wage ratio threshold for retirement and human capital correlates negatively with the stock market even when wages have zero or slightly positive market risk exposure. Consequently, investors optimally...

Wages and Productivity Growth in a Dynamic Monopoly* This Paper studies the intertemporal problem of a monopolistic firm that engages in productivity-enhancing innovations to reduce its labour costs. If the level of wages is sufficiently low, the firm’s rate of productivity growth approaches the rate of wage growth and eventually the firm reaches a steady state where its unit labour cost remain...

A dynamic approach is proposed for the analysis of the Cournot oligopoly game with hyperbolic demand, showing that the adoption of capital accumulation dynamics either à la Solow-Swan or à la Ramsey eliminate the indeterminacy problem characterising the static model when marginal costs are nil. It is proved that the steady state equilibria produced by both models are stable in the saddle point ...

Does Forced Solidarity Hamper Investment in Small and Micro Enterprises? Sharing is a norm in many societies. We present a theoretical model on the trade-off between sharing and investment which we test on data from tailors in Burkina Faso. The empirical results support the idea that there are two behavioural patterns: entrepreneurs following an ‘insurance regime’ comply with sharing norms, are...

When firms make a decision about irreversible investment, they may not have complete confidence about their perceived probabilitymeasure describing future uncertainty. Theymay think other probabilitymeasures perturbed from the original one are also possible. Such uncertainty, characterized by not a single probability measure but a set of probability measures, is called “Knightian uncertainty.” ...

Improving technologies create a “buy or wait?” dilemma. In this paper, we consider repeat purchases when the consumer faces an infinite stream of new technologies. We develop a probabilistic model and focus on the role of “more variability” on the process of technological innovation. Similar to real options models, we find that variability in the technological process increases value for the co...