Do external finance constraints affect the timing of large investment projects? Simulations of a model with fixed capital-stock adjustment costs establish the hypothesis that external finance constraints lower a firm's investment hazard: the probability of undertaking a large project today as a function of the time since the last project. Hazard model estimation that controls for productivity and adjustment costs supports this hypothesis. Small firms that distribute cash to shareholders have higher hazards than small firms that do not; very small firms have lower hazards than small firms; small stand-alone firms have significantly lower hazards than small segments of conglomerates.

This article shows how the market coskewness model of Rubinstein (1973) and Kraus and Litzenberger (1976) is altered when a nonredundant call option is optimally traded. Owing to the option’s nonredundancy, the economy’s stochastic discount factor (SDF) depends not only on the market return and the square of the market return but also on the option return, the square of the option return, and the product of the market and option returns. This leads to an asset pricing model in which the expected return on any risky asset depends explicitly on the asset’s coskewness with option returns. The empirical results show that the option coskewness model outperforms several competing benchmark models. Furthermore, option coskewness captures some of the same risks as the Fama–French factors small minus big (SMB) and high minus low (HML). These results suggest that the factors that drive the pricing of nonredundant options are also important for pricing risky equities.

We propose a coherent unified approach to the study of the linkages among economic growth, financial structure, and inequality, bringing together disparate theoretical and empirical literature. That is, we show how to conduct model-based quantitative research on transitional paths. With analytical and numerical methods, we calibrate and make tractable a prototype canonical model and take it to an application, namely, Thailand 1976–1996, an emerging market economy in a phase of economic expansion with uneven financial deepening and increasing inequality. We look at the expected path generated by the model and conduct robustness experiments. Because the actual path of the Thai economy is imagined here to be just one realization of many possible histories of the model economy, we construct a covariance-normalized squared error metric of closeness and find the best-fit simulation. We also construct a confidence region from a set of simulations and formally test the model. We broadly replicate the actual data and identify anomalies.

We develop and compare two theories of professional forecasters’ strategic behavior. The first theory, reputational cheap talk, posits that forecasters endeavor to convince the market that they are well informed. The market evaluates their forecasting talent on the basis of the forecasts and the realized state. If the market expects forecasters to report their posterior expectations honestly, then forecasts are shaded toward the prior mean. With correct market expectations, equilibrium forecasts are imprecise but not shaded. The second theory posits that forecasters compete in a forecasting contest with pre-specified rules. In a winner-take-all contest, equilibrium forecasts are excessively differentiated.

We analyze a “golden rule” that separates capital and ordinary account budgets and allows a government to finance only capital items with debt. Many national governments followed this rule in the eighteenth and nineteenth centuries, and most U. S. states do today. We study an overlapping-generations economy where majorities choose durable and nondurable public goods in each period. When demographics imply even moderate departures from Ricardian equivalence, the golden rule substantially improves efficiency. Examples calibrated to U. S. demographics show greater improvements at the state level or with nineteenth century demographics than under current national demographics.

This article studies the pricing of options in an extended Black Scholes economy in which the underlying asset is not perfectly liquid. The resulting liquidity risk is modeled as a stochastic supply curve, with the transaction price being a function of the trade size. Consistent with the market microstructure literature, the supply curve is upward sloping with purchases executed at higher prices and sales at lower prices. Optimal discrete time hedging strategies are then derived. Empirical evidence reveals a significant liquidity cost intrinsic to every option.

In many countries throughout the world, regulators are struggling to determine whether and how to introduce competition into regulated industries. This essay examines the complexities involved in the liberalization process. While stressing the importance of case-specific analyses, this essay distinguishes liberalization policies that generally are procompetitive from corresponding anticompetitive liberalization policies.

This paper studies the assignment of people to projects over time in a model with private information. The combination of risk neutrality with incomplete contracts that restrict the ability of an agent to report on interim states is a force for long-term assignments. More generally, however, rotating agents can be valuable because it conceals information from agents, which mitigates incentive constraints. With complete contracts that communicate interim states, rotation allows for even more concealment possibilities and better-targeted incentives. Furthermore, it allows for the reporting of interim shocks at no cost to the principal. Properties of the production technology are also shown to matter. Substitutability of intertemporal effort is a force for long-term assignments, while coordination with Nash equilibrium strategies is a force for job rotation.

Our study examines whether ownership structure and boardroom characteristics have an effect on corporate financial fraud in China. The data come from the enforcement actions of the Chinese Securities Regulatory Commission (CSRC). The results from univariate analyses, where we compare fraud and no-fraud firms, show that ownership and board characteristics are important in explaining fraud. However, using a bivariate probit model with partial observability we demonstrate that boardroom characteristics are important, while the type of owner is less relevant. In particular, the proportion of outside directors, the number of board meetings, and the tenure of the chairman are associated with the incidence of fraud. Our findings have implications for the design of appropriate corporate governance systems for listed firms. Moreover, our results provide information that can inform policy debates within the CSRC.