The paper examines the allocation of consumption and investment in a three-date binomial model in order to determine the sign of the real term structure premium in general equilibrium. When production functions are concave, markets are complete, and future production possibilities are the same irrespective of which state of the world occurs, the term structure premium will be positive. In incomplete markets, constant or increasing absolute risk aversion is sufficient to guarantee a positive term structure premium, although in the (more likely) case of decreasing absolute risk aversion a negative premium cannot be ruled out.

We study the dynamics of IPOs by examining the tradeoff between an entrepreneur's private benefits, which are lost whenever the firm is publicly traded, and the gains from diversification. We characterize the timing dimension of the decision to go public and its impact on firm value and the evolution of firm risk over time. By endogenizing the timing of the decision to go public, we explain the clustering of IPOs and buyouts in time, the industry concentration of IPO waves, the high incidence of reprivatization of recent IPOs, and the long-run underperformance of recently issued stock relative to the shares of longer-listed companies.