We study how institutional design influences moral transgression. People are heterogeneous in their feelings of guilt and can share guilt with others. Institutions determine the number of supporters necessary for immoral outcomes to occur. With more supporters required, every supporter can share guilt more easily. This facilitates becoming a supporter. Conversely, an institution requiring more ...

In this paper we study the role of incomplete ex ante contracts for ex post trade. Previous experimental evidence indicates that a contract provides a reference point for entitlements when the terms are negotiated in a competitive market. We show that this finding no longer holds when the terms are determined in a non-competitive way. Our results imply that the presence of a “fundamental transf...

This paper characterizes the optimal contract offered by an uninformed principal to an informed agent when the latter's reservation utility depends on his type. The informational rent is nonmonotonic so that interior types may have a vanishing rent or be excluded from trade. The paper identifies conditions for the optimal contract to be separating, to be nonstochastic, and to induce full partic...

This paper argues that international trade should affect local organization of production in a systematic way. By using the standard Heckscher-Ohlin-Samuelson model we show that the export sector is more likely to demonstrate fragmentation, entrepreneurship and outsourcing compared to the importcompeting sector in a typical labor abundant country. Liberal trade regime will promote entrepreneurs...

This paper studies how privatising service provision (shifting control rights and contractual obligations to providers) a ects accountability. There are two main e ects. (1) Privatisation demotivates governments from investigating and responding to public demands, since providers then hold up service adaptations. (2) Privatisation demotivates the public from mobilising to pressure for service a...

In this article it is demonstrated that voluntary bargaining over a collective decision under asymmetric information may well lead to ex post e$ciency if the default decision is non-trivial. It is argued that the default decision may be interpreted as a &simple' contract that the parties have written ex ante. This result is used in order to show that simple unconditional contracts which are ren...

Corporate organization varies within countries and between countries. We develop a theory which explains the variation in levels of decentralization across firms and links it to the trade environment that firms face. We introduce firms with internal hierarchies in a Melitz and Ottaviano (2008) model of international trade. We show that international trade increases the conflict of interest betw...

A fundamental question for economics is why large firms in market economies usually assign control rights to capital suppliers rather than labor suppliers. A diverse collection of answers can be found in the literature. But unfortunately little theoretical consensus has emerged, and few attempts have been made to resolve this issue through systematic empirical investigation. This paper reviews ...

We consider repeated games with side-payments: players have an endowment of wealth in each period in which transfers can be made. We show that if endowments are large enough and the common discount factor high enough, then a strongly renegotiation–proof equilibrium (SRP) in the sense of Farrell and Maskin exists. As the discount factor goes to 1, the set of SRP payoffs converges to the set of e...

Optimal incentive mechanisms may require that agents be rewarded differentially even when they are completely identical and induced to act the same. We demonstrate this point using a simple incentive model where agents’ decisions about effort exertion are mapped into a probability that the project will succeed. We show that full discrimination across all agents is required if and only if the te...