We offer a theory of polarization as an optimal response to ambiguity. Suppose individual A's beliefs first-order stochastically dominate individual B's. They observe a common signal. They exhibit polarization if A's posterior dominates her prior and B's prior dominates her posterior. Given...

In the bilateral hold-up model and the moral hazard in teams model, introducing a third party allows implementation of the first-best outcome, even if the agents can renegotiate inefficient outcomes and collude. Fines paid to the third party provide incentives for truth-telling and first-best...

This paper provides an explanation for why the sunk cost bias persists among firms in a competitive environment in which rich learning possibilities are allowed. We envision firms that experiment with cost methodologies that are consistent with real-world accounting practices, including ones...

We consider a model where agents work in sequence on a project, share information not available to the principal, and can collude. Due to limited liability the Coase theormem does not apply. The distribution of surplus among the agents is there an important control variable for the principal,...

We consider the problem of inducing agents who are concerned with their careers to reveal their private information about a project which has originated with one of them. A successful project raises the inventor's chance of promotion, at his peer's expense. Thus, the peer has an incentive to...

We use a simple graphical moral hazard model to compare monitored (non-traded) bank loans versus traded (non-monitored) bonds as sources of external funds for industry. We contrast the conditions that theoretically favour each system, such as the size and number of firms, with conditions...

We study whether the Coase conjecture holds in a model of bargaining during conflict due to Powell and Fearon. Two players, A and B, contest a divisible resource. At any time during the conflict, they can make a binding agreement to share the resource. The conflict continues until they make an...

In many scenarios, a protagonist tries to compel a political leader (the antagonist) to cooperate. The protagonist can impose targeted measures (e.g., "smart" sanctions) that hurt the antagonist directly, and comprehensive measures (e.g., trade embargoes) aimed at provoking a popular uprising...