This essay illustrates that if Savage's small world assumption is relaxed, one can construct a theory of bounded rationality that incorporates some of the insights from recent work in cognitive psychology. The theory can be used to explain why contracts are incomplete and the existence of...

An important question about social norms is whether they are created to increase welfare; I address it by examining the characteristics of tipped and non-tipped occupations. Tipping prevalence is negatively correlated with worker’s income and consumer’s monitoring ability and positively with...

Most economic models are based on the self-interest hypothesis that assumes that all people are exclusively motivated by their material self-interest. In recent years experimental economists have gathered overwhelming evidence that systematically refutes the self-interest hypothesis and suggests...

Drawing on the findings of recent research, this note examines the extent to which changes to policy restrictions on foreign direct investment (FDI) in the Indonesian service sector affected the performance of downstream manufacturers during 1997–2009. The analysis uncovers two important...

Brazilian exports of goods and services have grown sharply in recent years, with sales nearly three times higher in 2010 than in 2000. However, Brazil faces considerable competitiveness challenges: its export performance depends mostly on favorable geographical and sector composition effects....

Chapter written for the Handbook of Reciprocity, Gift-Giving and Altruism

Two systems of bus driver compensation exist in Santiago, Chile. Most drivers are paid per passenger transported, while a second system compensates other drivers with a fixed wage. Compared with fixed-wage drivers, per-passenger drivers have incentives to engage in "La Guerra por el Boleto"...