We analyze the effects of CEOs' layoff risk on their risk choice while overseeing a firm. A CEO, whose managerial ability is unknown, is fired if her expected ability is below average. Her risk choice changes the informativeness of output and market's belief about her ability. She can decrease...

The theory of institutional traps, i.e. ineffective but stable institutions or behavior norms, is develope din connection with economic reforms. Mechanisms are described that cause a system to get into a trap and ways of going out of it are analyzed. Concepts of transformation costs and...

Employment contracts give a principal the authority to decide flexibly which task his agent should execute. However, there is a tradeoff, first pointed out by Simon (1951), between flexibility and employer moral hazard. An employment contract allows the principal to adjust the task quickly to...

One of the main obstacles for successful economic development is the formation of institutional traps, inefficient yet stable norms of behaviour. Domination of barter exchange, arrears, corruption and black market activities are examples of institutional traps that have hampered reforms in...

Corporations discover that social responsibility pays off. However, sometimes doing what is ethical will prove costly to a company. The purpose of this article is to clarify this trade-off by developing an economic model that describes the choice between profits and principles. The model is used...

Reputation systems that rely on feedback from traders are important institutions for helping sustain trust in markets, while feedback information is usually considered a public good. We apply both theoretical models and experiments to study how raters' feedback behavior responds to different...

Two myths have harmed many economies throughout the world. One is the theory of absolute advantage of central planning over the market mechanism, and the other is the belief that efficient markets develop spontaneously and quickly enough if appropriate economic legislation is established....

Purpose In enhancing the market operation of the building sector, transparency is of great importance. The objective of this article is to propose an inventory of aspects of the relationships between public clients and executing parties that have the most urgent need for greater transparency....

In November 2001, a TV program showed that many large Dutch construction companies participated in price fixing. We analyze how one such company, Heijmans, reacted to the reputation crises after the TV program by introducing a code of conduct. We present the outcomes of a questionnaire survey...