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We study asset prices in an economy where investors derive direct utility not only from consumption but also from fluctuations in the value of their financial wealth. They are loss averse over these fluctuations, and the degree of loss aversion depends on their prior investment performance. We find that our framework can help explain the high mean, excess(More)
We present an equilibrium theory of the organization of work in an economy where knowledge is an essential input in production and agents are heterogeneous in skill. Agents organize production by matching with others in knowledge hierarchies designed to use and communicate their knowledge efficiently. Relative to autarky, organization leads to larger(More)
We propose a general equilibrium model with multiple securities in which investors' risk preferences and expectations of dividend growth are time-varying. While time-varying risk preferences induce the standard positive relation between the dividend yield and expected returns , time-varying expected dividend growth induces a negative relation between them.(More)
We consider organizations that optimally choose the level of adaptation to a changing environment when coordination among specialized tasks is a concern. Adaptive organizations provide employees with flexibility to tailor their tasks to local information. Coordination is maintained by limiting specialization and improving communication. Alternatively, by(More)
Estimating the value of top managerial talent is a central topic of research that has attracted widespread attention from academics and practitioners. Yet, testing for the importance of chief executive officers (CEOs) on firm outcomes is challenging. In this paper we test for the impact of CEOs on performance by assessing the effect of (1) CEO deaths and(More)
Does competition among financial intermediaries lead to excessively low standards? To examine this question, we construct a model where financial intermediaries design contracts to attract trading volume, taking into consideration that traders may default and that traders differ in credit quality. When credit quality is observable, the competitive(More)