We use investment-cash flow regressions to show that both asymmetric-information and agency problems are more severe in Continental Europe than in the Anglo-Saxon countries leading to too little investment by firms with attractive investment opportunities and too much by those with poor...

We study how financial development depends on trade openness and different types of institutions. In our model the elite can repress the financial market to keep their capital costs low and to preclude ordinary citizens from producing capital-intensive goods. Financial repression thus raises the...

Comparative law and finance quantifies differences in the laws governing the business enterprise in various countries. The resulting data can be used to test which legal institutions (if any) matter for financial development. Until recently only cross-sectional data were available. We report the...

It is well established that incumbent firms may try to deter market entry by pretending to be stronger than they really are. In this article, we show that in some cases an incumbent may prefer the opposite, namely to encourage entry by signaling weakness. If the incumbent cannot deter entry of a...

We study information transmission between an informed expert and an uninformed decision-maker when the decision is binary and the expert does not have a systematic bias. Whenever an equilibrium exists where the decision is delegated to the expert, it is ex ante Pareto-dominant. Adding a round of...

We study a rank-order tournament in which employees acquire and use private information for an investment decision. In this environment, competition can turn employees into yes men who make investment decisions that excessively agree with preconceived notions. The specter of yes-man behavior may...

With ideological parties being better informed about the state of the world than voters, the true motivation of policy proposals is hard to judge for the electorate. However, if reform proposals have to be agreed upon by government members with heterogeneous policy preferences, it may become...

In markets for credence goods, such as doctor visits, customers sample a firm for a few periods, before deciding whether to retain or fire that firm. In our model, customers have endogenously determined patience in tolerating bad outcomes from credence-good providers. The more competitive the...

Physicians choose capacity before demand materializes; actual demand may be higher or lower than capacity. If a physician's capacity exceeds demand, she may have an incentive to overtreat, i.e., she may provide unnecessary treatments to use up idle capacity. By contrast, with excess demand she...

The economic analysis of tort law is extended to multi-party accidents with unobservable actions. Due to the requirement of no punitive damages, the problem resembles a team production problem. It is shown that asymmetry in the agents' impact on the stochastic damage function can be exploited to...