We develop an equilibrium model of industrial structure in which the organization of firms is endogenous. Differentiated consumer products can be produced either by vertically integrated firms or by pairs of specialized companies. Production of each variety of consumer good requires a unique,...

Corruption and imperfect contract enforcement dramatically reduce trade. This paper estimates the reduction, using a structural model of import demand in which transactions costs impose a price markup on traded goods. We find that inadequate institutions constrain trade far more than tariffs do....

This paper develops a theoretical framework for analyzing contracting imperfections in long-term employment relationships. We focus chiefly on limited enforceability and limited worker liquidity. Inefficient severance of employment relationships, payment of efficiency wages, the relative...

Inducing firms to make specialized investments through bilateral contracts can be challenging because of potential hold- up problems. Such contracting difficulties have long been argued to be an important reason for acquisitions. To evaluate the extent to which this motivation leads to mergers,...

We consider dynamic processes of coalition formation in which a principal bargains sequentially with a group of agents. This problem is at the core of a variety of applications in economics and politics, including a lobbyist seeking to pass a bill, an entrepreneur setting up a start-up, or a...

Two parties sign a contract but before they fully perform they modify the contract. Should courts enforce the modified agreement? The modification may enable efficient trade in response to changed circumstances, or one party may have made an efficient relationship-specific investment and then...

This study investigates the role of social networks in aligning the incentives of economic agents in settings with incomplete contracts. We study the New York City taxi industry where taxis are often leased and lessee-drivers have worse driving outcomes than owner-drivers as a result of a moral...

The foundations of incomplete contracts have been questioned using or extending the subgame perfect implementation approach of Moore and Repullo (1988). We consider the robustness of subgame perfect implementation to the introduction of small amounts of asymmetric information. We show that...

We propose a model of equilibrium contracting between two agents who are "boundedly rational" in the sense that they face time-costs of deliberating current and future transactions. We show that equilibrium contracts may be incomplete and assign control rights: they may leave some enforceable...

How do liquidation values affect financial contract renegotiation? While the 'incomplete contracting' theory of financial contracting predicts that liquidation values determine the allocation of bargaining power between creditors and debtors, there is little empirical evidence on financial...