The standard version of 'q' theory, in which investment is positively related to marginal 'q', breaks down in the presence of fixed costs of adjustment. With fixed costs, 'q' is a non-monotonic function of investment. Therefore its inverse, which is the traditional investment function, does not...

We scrutinize the conceptual framework commonly used in the incomplete contract literature. This literature usually assumes that contractual incompleteness is due to the transaction costs of describing - or of even foreseeing - the possible states of nature in advance. We argue, however, that...

In a self-confirming equilibrium, each player correctly forecasts the actions that opponents will take along the equilibrium path, but may be mistaken about the way that opponents would respond to deviations. Intuitively, this equilibrium concept models the possible steady states of a learning...

In this paper and its companion, we develop the concept of Markov strategy and Markov equilibrium for general multi-period games. Markov strategies are simple, i.e., they depend only on variables affecting current and future payoffs. By excluding the influence of all but the "important"...