This paper formalizes the idea that more hedging instruments may destabilize markets when traders are heterogeneous and adapt their behavior according to experience based reinforcement learning. We investigate three different economic settings, a simple mean-variance asset pricing model, a...

We develop an economic theory of “flexibility”, which we interpret as the discretion or ability to make a decision that others disagree with. We show that flexibility is essentially an option for the decisionmaker, and can be valued as such. The value of the flexibility option is decreasing...

In this paper we introduce flexibility as an economic concept and apply it to the firm’s security issuance decision and capital structure choice. Flexibility is the ability to make decisions that one thinks are best even when others disagree. The firm’s management values flexibility because...

In this paper we analyze an entrepreneur /manager's choice between private and public ownership in a setting in which management needs some "elbow room" or autonomy to optimally manage the firm. In public capital markets, the corporate governance regime in place exposes the firm to exogenous...

When hiring an adviser (he), a policy maker (she) often faces the problem that she has incomplete information about his preferences. Some advisers are good, in the sense that their preferences are closely aligned to the policy maker's preferences, and some advisers are bad. Recently, some...

Can vanity do any good? It may seem obvious to answer this question in the negative, as economists have shown how reputational concerns lead agents e.g. to ignore valuable information, to herd, and to become overly risk averse. We explore how proud agents may be a social blessing. An agent may...

Fragmentation of production into more and more complex supply chains is a prominent feature of globalisation. It implies that transaction costs as part of total costs of ownership carry a large weight in procurement decisions. An analysis of the various types of transaction costs is also...

Management scholars have sought to answer the question: is there a financial payoff for ad-dressing ecological and social issues? We move beyond this question and include a time com-ponent for corporate financial performance (CFP) and a firm’s innovativeness in order to ask: when does it pay?...

We consider a duopoly in a homogenous goods market where part of the consumers are ex ante uninformed about prices. Information can come through two different channels: advertising and sequential consumer search. We arrive at the following results. First, there is no monotone relationship...

The search literature assumes that consumers know which firms sell products they are looking for, but are unaware of the particular variety and the prices at which each firm sells. In this paper, we consider the situation where consumers are uncertain whether a firm carries the product at all by...