We propose a tractable framework that incorporates endogenous default in a continuous time setting and assesses the interaction of default and leverage. In our heterogeneous agent model, productive experts face leverage constraints and aggregate risk, borrow from less productive households and...

We consider contracts to purchase assets by means of streams of payments over time, with the asset as security. These give the purchaser an option not present if all payment is made up front, the option of stopping payments and delivering the asset in satisfaction of the remaining debt. We argue...