An extension of a model of financial contracts and labor contracts

Using an artiele by Garvey and Swan (GS) 1992 as a benchmark, we extend their model to deal with the issue of the optimal financial structure for a firm when the interaction between labor and fmancial contracts is considered. The GS artiele coneludes that debt financing is Pareto superior to equity financing. We show that once we introduce a model, with more "complete" contracts, and sorne dynamic features, their results are no longer valido

Keywords

Labor Contracts, Equity, Financial contracts, Debt, Empresa

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