When agents hold non-common priors over an unverifiable state of nature which affects the outcome of their future actions, they have an incentive to bet on the outcome. We pose the following question: what are the limits on the agents' ability to realize gains from speculative bets when their...

Firms' incentives to form research joint ventures (RJVs) are analysed in an incomplete information framework when technological know-how is private information. Firms first decide on cooperation and information revelation and then compete for a patent. Provided that spillovers exist in the case...

This paper analyzes the impact of labor market competition and skill-biased technical change on the structure of compensation. The model combines multitasking and screening, embedded into a Hotelling-like framework. Competition for the most talented workers leads to an escalating reliance on...

Two producers offer differentiated goods to a representative consumer. The buyer has distinct marginal valuations for the quality of the products. Each producer knows perfectly the consumer’s taste for its own product, but remains uninformed about its taste for the rival’s product. When each...

We provide a framework for analysing bilateral mergers when there is two-sided asymmetric information about firms’ types. We introduce the concepts of essentially monotone decreasing (EMD) and increasing (EMI) functions, which generalize the respective mono-tonicity properties. If the profit...

A finite number of sellers (n) compete in schedules to supply an elastic demand. The costs of the sellers have uncertain common and private value components and there is no exogenous noise in the system. A Bayesian supply function equilibrium is characterized; the equilibrium is privately...

We characterize the divergence between in informational and economic efficiency in a rational expectations competitive market with asymmetric information about the costs of production. We find that prices may contain too much or too little information with respect o incentive efficient...

A version of the herding prediction model with a rational expectations flavor is reexamined in the light of incentive theory. The welfare loss at the market solution with respect to the incentive efficient solution can be decomposed into an information externality term minus an incentive cost...

The favorite-longshot bias describes the longstanding empirical regularity that betting odds provide biased estimates of the probability of a horse winning—longshots are overbet, while favorites are underbet. Neoclassical explanations of this phenomenon focus on rational gamblers who overbet...

This paper analyses competition between direct and intermediated trade. We show that middlemen’s supply and demand depend on both their bid and ask prices if sellers and buyers have the alternative of trading directly. Multiplicity also prevails. Direct trade does not constrain the market...