Informal contracting is widely spread, but what makes it work in the absence of institutional enforcement and repetition? According to game-theoretic models of social capital, informal relationships can help agents self-enforce contracts when third-party enforcement is not available, because...

Memory is biased. People, for instance, privilege recalling information that confirms preexisting beliefs. This paper examines how selective memory shapes how people search for information. I propose a bandit model, in which different signal are recalled at different rates of probability....

We develop a finite random assignment model where players know either their cardinal or their ordinal preferences and may make cardinal or ordinal reports to an assignment mechanism. Under truthful reporting, we find that all mechanisms that disregard the cardinal information in players' reports...

This paper studies unmediated communication with partially verifiable types in N-player games of incomplete information. I show that with five or more players, all outcomes that are feasible with the help of a mediator can also be achieved with direct communication between players if verifiable...

We study a two-player game of strategic experimentation with private information in which agents choose the timing of risky investments. Agents learn about future returns through privately observed signals, others' investment decisions and from public experimentation outcomes when returns are...

Empirical studies of commercial relationships between firms reveal that (i) suppliers encounter situations in which they can gain in the short run by acting opportunistically---for example, delivering a lower quality than promised after being paid; and (ii) good conduct is sustained not...

This article explains the roots of financial crises in one of the oldest and most fundamental problems of commercial law: hidden leverage. Common law courts wrestled with this problem for centuries and developed a time - tested solution: the doctrine of secret liens. If the debtor becomes...

In a recent paper, Hart and Moore (2008) introduce new behavioral assumptions that can explain long term contracts and important aspects of the employment relation. However, so far there exists no direct evidence that supports these assumptions and, in particular, Hart and Moore's notion that...

In this paper, we argue that important labor market phenomena can be better understood if one takes (i) the inherent incompleteness and relational nature of most employment contracts and (ii) the existence of reference-dependent fairness concerns among a substantial share of the population into...

In recent years, many social scientists have claimed that trust plays an important role in economic and social transactions. Despite its proposed importance, the measurement and the definition of trust seem to be not fully settled, and the identification of the exact role of trust in economic...