This paper compares alternative liability rules for allocating losses from defective products when consumers under- estimate these losses and producers may have some market power. If producers do not have any market power, the rule of strict liability .leads to both the first-best accident...

Economic theorists have devoted considerable attention to analyzing models of closely related incentive contracting problems that arise in the study of public procurement, private procurement, regulation, the theory of the firm, the theory of organizations, and managerial compensation. The...

This paper considers the profit maximization problem of a firm that must make sunk investments in long-lived assets to produce output. It is shown that if per period accounting income is calculated by using a particular allocation rule for investment called the relative benefit and replacement...

This paper considers a simple model where a firm must make sunk investments in long-lived assets in order to produce output, there are constant returns to scale within each period, and the replacement cost of assets is weakly falling over time. It is shown that, so long as demand is weakly...

This paper considers the profit maximization problem of a firm that must make sunk investments in long-lived assets to produce output. It is shown that if per period accounting income is calculated using a simple and natural allocation rule for investment called the relative replacement cost...