Previous research has argued that debt financing affects equity-holders' investment decisions, producing substantial inefficiency. This paper shows that the size of this inefficiency depends on the degree of investment reversibility. In a dynamic model of financing and investment, the paper provides an upper bound for the inefficiency produced by debt financing. The upper bound is decreasing in the degree of investment reversibility and is zero when investment is perfectly reversible. Copyright The Econometric Society 2008.

Previous research has argued that debt financing affects equity-holders ’ investment decisions, producing substantial inefficiency. This paper shows that the size of this inefficiency depends on the degree of investment reversibility. In a dynamic model of financing and in-vestment, the paper provides an upper bound for the inefficiency pro-duced by debt financing. The upper bound is decreasing in the degree of investment reversibility and is zero when investment is perfectly reversible.

We solve for the equilibrium dynamics of Information sharing in a large population Each agent is endowed with signals regarding the likely outcome of a random variable of common concern Individuals choose the effort with which they search for others from whom they can gather additional information. When two agents meet, they share their information The Information gathered is further shared at subsequent meetings, and so on. Equilibria exist in which agents search maximally until they acquire sufficient information precision and then search minimally A tax whose proceeds are used to Subsidize the costs of search improves information sharing and can, in some cases, increase welfare on the other hand, endowing agents with public signals reduces Information sharing and can, in some cases, decrease welfare