We analyze the Moral Hazard problem, assuming that agents are inequity averse. Our results differ from conventional contract theory and are more in line with empirical findings than standard results. We find: First, inequity aversion alters the structure of optimal contracts. Second, there is a...

Ever since the seminal work by Rothschild and Stiglitz (1976) on competitive insurance markets under adverse selection the equilibrium-non-existence problem has been one of the major puzzles in insurance economics. We extend the original analysis by considering firms that face capacity...

Public procurement faces the risk that the contractor goes bankrupt before the completion of the work. The possibility to declare bankruptcy makes the contractors behave more aggressively.This leads to abnormally low tenders and to the break-down of revenue equivalence. Upon this result we...

In a situation where firms compete for a contract of an agency and subcontract part of this contract it is shown that: (i) If the timing of subcontracting is determined by the firms,then the more efficient firms subcontract after the award, while the less efficient firms subcontract before the...

Abstract We model a Hotelling market with multidimensional product differentiation in an evolutionary framework. Both evolutionary stability (in the sense of Schaffer, 1989) and stochastic stability (following [Kandori et al., 1993] and [Young, 1993]) are analyzed. It is shown that firms move...

We consider the design of an optimal auction in which the seller can determine the allocation and the disclosure rule of the mechanism. Thus, in contrast to the standard analysis of a optimal auctions, the seller can explicitly design the disclosure of the information received by each bidder as...

Riley (1979)'s reactive equilibrium concept addresses problems of equilibrium existence in competitive markets with adverse selection. The game-theoretic interpretation of the reactive equilibrium concept in Engers and Fernandez (1987) yields the Rothschild-Stiglitz (1976)/Riley (1979)...