The corporate finance literature documents that managers tend to overinvest into physical assets. A number of theoretical contributions have aimed to explain this stylized fact, most of them focussing on a fundamental agency problem between shareholders and managers. The present paper shows that...

Existing theories of a firm’s optimal capital structure seem to fail in explaining why many healthy and profitable firms rely heavily on equity financing, even though benefits associated with debt (like tax shields) appear to be high and the bankruptcy risk low. This holds in particular for...

What is the strategic role of membership in an intergovernmental group with unanimity requirements if the group negotiates with an external player in a setting with incomplete information? Being in such a group has a strategic effect compared to negotiating as a stand-alone player and reduces...

In a major setback for the EU, only two of four Eastern Partnership countries actually initialed Association Agreements at the Vilnius Summit in November 2013. This paper asks what went wrong and what can be done about it. Using a gravity model to estimate the effects of deep and shallow free...

According to the Framework Convention on Climate Change, global collective action is needed to stabilize “greenhouse gas concentrations in the atmosphere at a level that would prevent dangerous [our emphasis] anthropogenic interference with the climate system.” The Framework Convention thus...

Previous research shows that collective action to avoid a catastrophic threshold, such as a climate “tipping point,” is unaffected by uncertainty about the impact of crossing the threshold but that collective action collapses if the location of the threshold is uncertain. Theory suggests...

In some important multi-player situations, such as efforts to supply a global public good, players can choose the game they want to play. In this paper we conduct an experimental test of the decision to choose between a “tipping” game, in which every player wants to contribute to the public...

Nash proposed an interpretation of mixed strategies as the average pure-strategy play of a population of players randomly matched to play a normal-form game. If populations are finite, some equilibria of the underlying game have no such corresponding “mass-action” equilibrium. We show that...

Under appropriate assumptions (private values and uniform punishments), the Nash equilibria of a Bayesian repeated game without discounting are payoff-equivalent to tractable, completely revealing, equilibria and can be achieved as interim cooperative solutions of the initial Bayesian game. This...

In repeated normal-form (simultaneous-move) games, simple penal codes (Abreu, 1986, 1988) permit an elegant characterization of the set of subgame-perfect outcomes. We show that the logic of simple penal codes fails in repeated extensive-form games. By means of examples, we identify two types of...