We analyze optimal trading mechanisms in environments where each trader owns some units of a good to be traded and may be either a seller or a buyer, depending on the realization of privately observed valuations. First, the concept of virtual valuation is extended to ex ante unidentified...

I consider the problem of the design of an optimal self-selecting contract scheme for a principal who is buying a good from an agent which has the opportunity of making a cost-reducing unobservable investment prior to the contracting stage. Because of a hold-up problem, the agent will randomize...

This paper analyzes abuse of authority in a principal-supervisor-agent hierarchy under moral hazard. We characterize the optimal contracts when the supervisor takes advantage of his authority by blackmailing the agent. We show that the optimal policy for the principal is to deter abuse of...

This paper looks at the dynamic properties of insurance contracts when insurers have better technology at preventing catastrophic losses than the insured. The prevention technology is owned by the insurers and is permanent. If long-term contracts are not possible, the insured is faced with a...

We characterize the distortions in environmental liability sharing between firms and banks that the imperfect implementation of government policies implies. These distortions stem from three factors: the presence of moral hazard, the use of objective functions by firms and banks that differs...

This paper examines the pattern of intertemporal trade between countries with different distribution of wealth. We also examine the consequences of redistribution policies in this framework. The driving force of our model are risk aversion, capital market imperfections, and costs associated with...

We analyze a two-task work environment with risk-neutral but inequality averse individuals. For the agent employed in task 2 effort is verifiable, while in task 1 it is not. Accordingly, agent 1 receives an incentive contract which, due to his wealth constraint, leads to a rent that the other...