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...

It is shown that the evolution of modern developed societies results into reduction of the role of centralized governance as well as economic and political competition, whereas the role of collaboration mechanisms is growing. This process is supported by cultural changes: increasing trust,...

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...

Several recent papers argue that contracts provide reference points that affect ex post behavior. We test this hypothesis in a canonical buyer-seller relationship with renegotiation. Our paper provides causal experimental evidence that an initial contract has a highly significant 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...

Several recent papers argue that contracts provide reference points that affect ex post behavior. We test this hypothesis in a canonical buyer-seller relationship with renegotiation. Our paper provides causal experimental evidence that an initial contract has a highly significant and...

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...

Chapter written for the Handbook of Reciprocity, Gift-Giving and Altruism

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....