In a competitive-equilibrium analysis of giving to charity, we show that strategic complementarity between individual giving and aggregate giving can lead to multiple equilibria. This provides a possible explanation for observed heterogeneity in giving. It is possible, but not necessary, that at...

In this paper we begin by stressing the empirical importance of non-linear weighting of probabilities, which expected utility theory (EU) is unable to accommodate. We then go on to outline three stylized facts on non-linear weighting that any alternative theory of risk must address. These are...

Consider a large number of small individuals contributing to a charity or to a public good. We study the properties of a competitive equilibrium in giving and allow for multiple equilibria. Our proposed condition, aggregate strategic complementarity, is a necessary condition for multiple...

Given the recent experience, there is growing interest in the liquidity trap; which occurs when the nominal interest rate reaches its zero lower bound. Using the Dixit-Lambertini (2003) framework of strategic policy interaction between the Treasury and the Central Bank, we find that the optimal...

In a seminal paper, Becker (1968) showed that the most efficient way to deter crime is to impose the severest possible penalty (to maintain adequate deterrence) with the lowest possible probability (to economize on costs of enforcement). We shall call this the Becker proposition (BP). The BP is...

All models in Law and Economics use punishment functions (PF) that incorporates a trade-off between probability of detection, p, and punishment, F. Suppose society wishes to minimize the total costs of enforcement and damages from crime, T (p; F). For a given p, an optimal punishment function...

A critical element in all discounted utility models is the specification of a discount function. We extend the standard model to allow for reference points for both out- comes and time. We consider the axiomatic foundations and properties of two main classes of discount functions. The first, the...

Standard equilibrium concepts in game theory find it difficult to explain the empirical evidence in a large number of static games such as prisoners’ dilemma, voting, public goods, oligopoly, etc. Under uncertainty about what others will do in one-shot games of complete and incomplete...

We consider a discounted utility model that has two components. (1) The instan- taneous utility is of the prospect theory form, thus, allowing for reference dependent outcomes. (2) The discount function embodies a ‘reference time’ to which all future outcomes are discounted back to, hence,...

Many diverse problems in economics can only be reasonably explained by assuming that people have social preferences, i.e., in addition to their own payoffs they are altruistic towards those who are poorer and envious towards those who are richer. How do people with social preferences choose...