This paper shows how a series of commonly observed short-term CEO employment contracts can improve cartel stability compared to a long-term employment contract. When a manager's short-term appointment is renewed if and only if the firm hits a certain profit target, then (i) defection from...

We analyze the effect of outsourcing on union wages in a simple two-stage game between a firm and a union. In contrast to public perception the ease with which the firm can outsource parts of their production does not necessarily reduce the wage set by the union. Even in the simple model...

Using the model of Rochet and Vives (2004), this note shows that a prudential regulator can in general not mitigate a bank’s failure risk solely by means of liquidity requirements. However, their effectiveness can be restored if, in addition, minimum capital requirements are met. This provides...

Global games are widely used for equilibrium selection to predict behaviour in complete information games with strategic complementarities. We establish two results on the global game selection. First, we show that it is independent of the payoff functions of the global game embedding, though it...

In illiquid markets, option traders may have an incentive to increase their portfolio value by using their impact on the dynamics of the underlying. We provide a mathematical framework within which to value derivatives under market impact in a multi-player framework by introducing strategic...

With the help of a simple model, we show that the hindsight bias can lead to ineffcient delegation decisions. This prediction is tested experimentally. In an online experiment that was conducted during the FIFA World Cup 2010 participants were asked to predict a number of outcomes of the ongoing...

In an information cascade experiment participants are confronted with artificial predecessors predicting in line with the BHW model (Bikchandani et al. 1992). Using the BDM (Becker et al., 1964) mechanism we study participants' probability perceptions based on maximum prices for participating in...

While virtually all currency crisismodels recognise that the fate of a currency peg depends on how tenaciously policy makers defend it, they seldom model how this is done. We incorporate themechanics of speculation and the interest rate defence against it in the model ofMorris and Shin (American...