This project consists of two parts. The first is a theoretical and empirical investigation of the role of endogenous debt constraints in determining consumption, and the impact of such constraints on asset market pricing. The second part is a theoretical investigation of learning in games. There is a loose connection between the two parts in the sense that learning is potentially an important explanation for such asset market phenomena as speculative bubbles. This research is very significant because it bridges two very different literatures on credit markets: the incomplete markets literature and contract theory. The synthesis of these two literatures produces models that capture both approaches as special cases. The preliminary theoretical and empirical results give different efficiency and policy implications than the more traditional approaches.
