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...

Traditional insurance theory assumes that the parties involved assign subjective probabilities of losses. Here, we demonstrate that mutually beneficial risk-sharing is possible without the assignment of a probability - it is enough that the sharing parties presume that they are faced with the...

This paper presents an incomplete contracting model to show how judicial corruption and judicial favoritism can lead to distortions in agents' incentives to invest in relation-specific assets and cause inefficiency. I also show that while an increase in the judge's income always increases...

Recent evidence from the field (Hossain and List, 2009) suggests that contracts framed in terms of a loss (a deduction is taken for failing to meet a threshold) lead to greater effort than contracts framed in terms of a gain (a bonus is given for meeting a threshold). We investigate two...

This paper explores the location decisions of final-good producers under imperfect contract enforcement. The legal systems'; quality is measured by the contracting environment in each country. The final producers'; location decisions create different outcomes in terms of efficiency. We find one...

This paper studies the effects that heterogeneous multiple bank financing has on a firm's risk and information policy when the firm tries to maximize credit renegotiation efficiency. We find that a significant, yet limited, degree of relationship lending enables firms with high asset specificity...

This paper considers the role of equity transfer to strategic alliance partners in mitigating the moral-hazard problem that occurs if a participating firm faces some possibility of reallocating a part of the resources devoted to the joint project of the strategic alliance or retreating from the...

We analyze the determinants of the choice between green field joint ventures, full acquisitions, and partial acquisitions in the international expansion of a firm through foreign direct investments. Our results show that this choice is conditioned by transaction-cost factors (particularly the...

Under caveat emptor, buyers effect their measurements prior to exchange. Long-term relations and contracts allow buyers to measure commodities at consumption. Buyers use subjective measurements in long-term relations. Contractual guarantees shift enforcement to the state, but require objective,...