This paper characterizes optimal income tax and audit schemes in the presence of costly enforcement when the agent is risk averse and not necessarily risk neutral. It is shown that the results under risk-neutrality (Chander and Wilde (1998)) largely hold under risk aversion. We first show that...

Buyers frequently delegate purchase decisions to sellers who are better informed about supply options and the cost of service. This paper analyzes how buyers optimally contract with sellers who vary in their expertise at prescribing service. We show that the most expert suppliers offer the...

We examine in this paper the role of an economy's social interaction structure, defined as a graph. Individuals care about the decisions of their neighbors. We extend the behavioral discrete-response rules along the lines of the interactive discrete choice model of Brock and Durlauf (2001) to...

We analyze the importance of information about individual skills for understanding economic growth and income inequality. The paper uses the framework of an OLG economy with endogenous investment in human capital. Agents in each generation differ by random individual ability, or talent, which...

The “mushroom treatment� is a common metaphor for the practice of “keeping employees in the dark and feeding them a steady diet of bull manure.� We develop a model of this practice of information suppression and misrepresentation within organizations,...

We examine the impact of R&D intensity and agency costs on the value of firms across 13 economies. We find that R&D adds value while high agency costs reduce value. R&D adds value, however, even when agency costs are high. We show that in those firms where agency costs are high and R&D intensity...

Unexpected variation in emissions can have an enormous impact on the prices of emission permits and the efficiency achieved in tradable permit markets. Shocks to emission levels can be correlated across firms; for example, most firms require more emission permits than planned for following a...

This paper presents a participation game experiment to study the impact of uncertainty and costly political participation on the incidence of reform. Fernandez and Rodrik (1991) show that uncertainty about who will ultimately gain or lose as a result of a reform can prevent its adoption. We...

In many markets consumer biases do not affect prices, since competition forces firms to price their products close to marginal cost; competition protects the consumer. We show that noisy consumer product evaluations undermine the force of competition, enabling firms to charge high mark-ups in...

This work introduces a rigorous set-theoretic foundation of bilateral matching mechanisms and studies their properties in a systematic manner. By providing a unified framework to study ilateral matching mechanisms, we formalize how different spatial/informational constraints can be implemented...