The paper studies the canonical hold-up problem with one-sided investment by the buyer and full ex post bargaining power by the seller. The buyer can covertly choose any distribution of valuations at a cost and privately observes her valuation. The main result shows that in contrast to the...

This paper analyzes strategic information transmission between a sender and a receiver with similar objectives. We provide a first-order approximation of the equilibrium behavior in the general version of the Crawford and Sobel's (1982) model with a small bias. Our analysis goes beyond the usual...

We study the effect of diminishing search frictions in markets with adverse selection by presenting a model in which agents with private information can simultaneously contact multiple trading partners. We highlight a new trade-off: facilitating contacts reduces coordination frictions but also...

A buyer can either buy a good at a local monopolist or search for it in the market at a market price. The more intensely the buyer searches, the more likely he will find the good in the market, whereas if his search fails, he can still buy it from the local monopolist. We show that a buyer with...

In social and economic interactions, individuals often exploit informational asymmetries and behave dishonestly to pursue private ends. In many of these situations the costs and benefits from dishonest behavior do not accrue immediately and at the same time. In this paper, we experimentally...

I propose a theory of debt maturity as an incentive device to motivate innovation when contracts are fundamentally incomplete and shaped by ex-post renegotiation. The financing of innovative firms must balance two goals. On the one hand, since innovation is inherently risky, the entrepreneur...

We study the delegation problem between a principal and an agent, who not only has better information about the performance of the available actions but also has superior awareness of the set of actions that are actually feasible. The agent decides which of the available actions to reveal and...

We study the market interaction between financial intermediaries and retail investors, who not only face uncertainty about the performance of the different investments but also have limited awareness of the available investment opportunities. Intermediaries compete for investors via the menu of...

Credence goods markets – like for health care or repair services – with their informational asymmetries between sellers and customers are prone to fraudulent behavior of sellers and resulting market inefficiencies. We present the first model that considers both diagnostic uncertainty of...

This paper provides necessary and sufficient conditions for the existence of Pareto-improving tax reforms. The conditions can be expressed as sufficient statistics and have a wide range of potential applications in public finance. We discuss one such application in detail: the introduction of...