Papers

WORKING PAPERS

  • "Disputes, Debt and Equity", with Charles Nolan. University of Glasgow Economics Discussion Paper 2014-21. (Submitted)

  • "Objectives and Challenges of Macroprudential Policy", with Charles Nolan. University of Glasgow Economics Discussion Paper 2015-22.

  • "Tackling Trends in Inequality - an International Perspective", with Anton Muscatelli. David Hume Institute 2014 Presidential Address.

  • "Policy Considerations for the New Zealand Natural Gas Industry", with Stanford Levin. NZISCR Working Paper, July 2011.

 

WORKS IN PROGRESS

  • "Systemic Risk Markets and the Financial Accelerator", with Charles Nolan. Preliminary draft available by request. 

  • "Financial frictions and unemployment", with Charles Nolan. Preliminary draft available by request. 

  • "Monetary Policy and Herding". Preliminary draft available by request.

  • "Private Information and Systemic Risk Sharing". Preliminary draft available by request.

Disputes, Debt and Equity

with Charles Nolan

We show how the prospect of disputes over firms' revenue reports promotes debt financing over equity. These findings are presented within a costly state verification model with a risk averse entrepreneur. The prospect of disputes encourages incentive regimes which limit penalties and avoid stochastic monitoring, even when the lender can commit to stochastic enforcement strategies. Consequently, optimal contracts shift away from equity and toward standard debt. For a useful special case of the model, closed form solutions are presented for leverage and consumption allocations under efficient debt contracts.

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