We study the allocation of commodities through a two-stage hierarchy of competitive markets. Groups or countries trade at global prices while individuals within a group trade at local prices. We identify the free trade and the autarky equilibrium as polar cases. We show that no other two-stage...

We study how bankers can elicit lower capital requirements via lobbying: Bankers pledge to politicians a lobbying rate as a fraction of bank revenues, thus relating politicians' welfare to the size of banks. This induces politicians to lower capital requirements, which causes high leverage...

We demonstrate the advantages of a climate treaty based solely on rules for international permit markets when there is uncertainty about abatement costs and environmental damages. Such a ‘Rules Treaty’ comprises a scaling factor and a refunding rule. Each signatory can freely choose the...

Politicians may pander to public opinion and may renounce undertaking beneficial long-term projects. To alleviate this problem, we introduce a triple mechanism involving political information markets, reelection threshold contracts, and democratic elections. An information market is used to...