We study the problem of financial contracting and renegotiation between a firm and outside investors when the firm cannot commit to future payouts, but assets can be contracted upon. We show that a capital structure with multiple investors specializing in short-term and long-term claims is superior to a structure with only one type of claim, because this hardens the incentives for the entrepreneur to renegotiate the contract ex post. Depending on the parameters, the optimal capital structure also differentiates between state-independent and state-dependent longterm claims, which can be interpreted as long-term debt and equity.

This paper investigates the shift in demand away from unskilled and toward skilled labor in U. S. manufacturing over the 1980s. Production labor-saving technological change is the chief explanation for this shift. That conclusion is based on three facts: (1) the shift is due mostly to increased use of skilled workers within the 450 industries in U. S. manufacturing rather than to a reallocation of employment between industries, as would be implied by a shift in product demand due to trade or to a defense buildup; (2) trade- and defense-demand are associated with only small employment reallocation effects; (3) increased use of nonproduction workers is strongly correlated with investment in computers and in R&D.

The tax haven affiliates of American corporations account for more than 20 percent of U. S. foreign direct investment, and nearly a third of the foreign profits of U. S. firms. American companies report extraordinarily high profit rates on their tax haven investments in 1982. This behavior implies that the revenue-maximizing tax rate for a typical haven is around 5–8 percent. American (and foreign) investment in tax havens has an uncertain effect on U. S. tax revenue, but since low tax rates encourage American companies to shift profits out of high-tax foreign countries, it is possible that low foreign tax rates ultimately enhance U. S. tax collections.