Some regulatory programs are effective only if firms make some irreversible investments which reduce the cost of compliance. A firm potentially subject to regulation may therefore behave strategically - not investing and thus forcing the regulator to void the proposed regulation. We show that...

We study a credit market with adverse selection and moral hazard where sufficient sorting is impossible. The crucial novel feature is the competition between lenders in their choice of contracts offered. Qualities of investment projects are not observable by banks and investment decisions of...

We examine the constitutional design required for democratic societies to overcome poverty traps. Restricting agenda setting by ensuring subsistence levels of consumption and applying simple majority voting as a decision rule will not enable a society to overcome poverty. We show that a...

Tax schemes are more restricted by constitutional rules than subsidies. We introduce a model of public good provision with incentive problems in agenda-setting and identify several advantages of restrictions on tax schemes. In particular, tax rules may prevent the proposal and adoption of...

We present a variant of a general equilibrium model with group formation to study how changes of non-consumptive benefits from group formation impact on the well-being of group members. We identify a human relations paradox: Positive externalities increase, but none of the group members gains in...

We examine repeated collective decisions in which people care about how others are treated. We formulate the notion of preferences for harmony as the desire of a person that others should not suffer repeatedly from the tyranny of majorities. We suggest that minority voting is a suitable scheme...

We develop a model that combines competitive exchange of private commodities across endogenously formed groups with public good provision and global collective decisions. There is a tension between local and global collective decisions. In particular, we show that group formation and collective...

We study the interdependence between campaign contributions, the candidates’ positions, and electoral outcomes. In our model, a candidate who moves away from his firmly established position towards a more risky one generates costs for the voters. Campaign contributions allow the candidates to...