This paper analyzes a sorting model of labor contracts when workers have private information about their own productivities, and firms can test (monitor) workers. We show that sorting considerations alone generate steep wage-tenure profiles, high turnover rates of newly hired workers, and...

Will generous return policies in auctions benefit bidders? We investigate this issue using second-price common-value auctions. Theoretically, we find that the bidding equilibrium is unique unless returns are free, in which case there exist multiple equilibria with different implications for...

To understand reasons for possible failures of 'good' economic reforms, we consider an institution which is always successful in making the best public decision from the utilitarian perspective. We show it is bound to introduce inequality if costs of a reform are privately known: the losers can...

A phantom bidding model is analyzed for a sale auction. The following questions are addressed: the effects of phantom bidding on overall social welfare and buyers' profits. It is shown that social welfare may increase or decrease as the auctioneer switches from the fixed reserve price policy to...

We show that small switching costs can have surprisingly dramatic effects in infinitely repeated games if these costs are large relative to payoffs in a single period. This shows that the results in Lipman and Wang [2000] do have analogs in the case of infinitely repeated games. We also discuss...

In this paper we study a model of rational consumption and quitting in the context of harmful addictive goods. We assume that a person has imperfect information about his ability to resist and terminate the addiction. We first characterize the optimal consumption path of a non-addicted person,...