Financial and economic theory

Financial and economic theory strives to provide rigorous foundations for the models used by applied researchers and policy makers. Developments in theory illuminated many important issues. Examples include agency costs in corporate governance, revenue comparisons between different fund raising schemes, as well as the factors affecting optimal capital structure of a firm.

Research in this area covers a broad array of topics in economics and finance that make use of modern economic theory, in particular the theory of general equilibrium, game theory, and mechanism design. Researchers in this area are specialized in the theoretical investigation of speculative trade, design of optimal financial and employment contracts, auction theory, and interaction of social norms and incentives.