A central tenet of economics is that individuals respond to incentives. For psychologists and sociologists, in contrast, rewards and punishments are often counterproductive, because they undermine "intrinsic motivation". We reconcile these two views, showing how performance incentives offered by...

This article investigates collective denial and willful blindness in groups, organizations, and markets. Agents with anticipatory preferences, linked through an interaction structure, choose how to interpret and recall public signals about future prospects. Wishful thinking (denial of bad news)...

Many incentives in organizations arise not through explicit formal incentive contracts but rather implicitly through career concerns. This paper models career concerns through agents trying to manipulate the market assessment of their future productivity. The information flow from current...

The paper is a first attempt at modeling the idea of group reputation as an aggregate of individual reputations. A member's current incentives are affected by his past behavior and, because his track record is observed only with noise, by the group's past behavior as well. The paper thus studies...

As was shown by M. Dewatripont (1986), optimal long-term contracts under asymmetric information are generally not time-consistent. This paper fully characterizes the equilibrium of a two-period procurement model with commitment and renegotiation. It also analyzes whether renegotiated long-term...

Consider a long-term relationship between a seller and buyer whose valuation (for a durable good) is private. As trade progresses, the valuation will be partially revealed and it may be possible for the parties to commit ex ante not to take advantage of this. The authors analyze this first by...

Pigovian taxation of externalities has limited appeal if the tortfeaser has insufficient resources to pay the damage when it occurs. To defend Pigovian taxation in the presence of judgement-proof agents, its proponents point at the many institutions extending liability to third parties. Yet...