We give a formal treatment of optimal risk sharing contracts in the face of ambiguity. The ambiguity in a contract arises from clauses that are interpreted by the parties in di¤erent ways. The cost of ambiguity is represented in terms of perceived dispute costs. Taking the potential for dispute into account, we …nd that risk averse agents may forgo potential gains from risk sharing and choose i...

We study a repeated game with asymmetric information about a dynamic state of nature. In the course of the game, the better informed player can communicate some or all of his information to the other. Our model covers costly and/or bounded communication. We characterize the set of equilibrium payoffs, and contrast these with the communication equilibrium payoffs, which by definition entail no c...

We consider “social contracts” which alter the payoffs of players in a noncoperative game, generating new Nash Equilibria (NE). In the domain of contracts which — in conjunction with their concomitant NE — are “self-financing”, our focus is on those that are (Pareto) optimal. By way of a key example, we examine optimal levels of crime and punishment in a population equilibrium. JEL Classificati...

In a common-values election with two candidates voters receive a signal about which candidate is superior. They can acquire information that improves the precision of the signal. Electors differ in their information acquisition costs. For large electorates a non negligible fraction of voters acquires information, but the quantity of informed voters and the quality of acquired information declin...

When real estate agent effort is unobservable, home sellers do not prefer the lowest possible commission rate because such a rate does not induce sufficient effort from agents. As a result, the optimal commission from the seller’s perspective exhibits downward rigidity, even if there is free entry. The analysis shows that downward rigidity will occur if and only if the quasi-fixed costs of sell...

In this paper the Signalling approach to the explanation of wage di®erentials is analyzed both under a microeconomic and a macroeconomic viewpoint. Departuring from the classical Spence's model, the introduction of inequalities in accessing to education leads to redistributive e®ects among workers and ̄rms. Moreover the existence of factors related both to local and to parental externalities gr...

We explore how taste projection—the tendency to overestimate similar others’ tastes are one’s own—affects bidding in auctions. In first-price auctions with private values, projection leads bidders exaggerate the intensity of competition and, consequently, overbid—irrespective whether values independent, affiliated, or (a)symmetric. Moreover, optimal reserve price is lower than rational benchmar...

Elicitation mechanisms typically presume only money enters utility functions. However, nonmonetary objectives are confounders. In particular, psychologists argue people favor bets where ability is involved over equivalent random bets—a preference for control. Our new elicitation method mitigates control and determines that under the widely used matching probabilities method, subjects report bel...

In 2012, Brazilian public universities were mandated to use affirmative action policies for candidates from racial and income minorities. We show that the policy makes students’ status a strategic choice may reject high-achieving minority students while admitting low-achieving majority students. Empirical data shows evidence consistent with this type of unfairness in more than 49 percent progra...

We consider two Bayesian agents who learn from exogenously provided private signals, as well as the actions of the other. Our main finding is that increased interaction between the agents can lower the speed of learning: when both agents observe each other, learning is significantly slower than it is when one only observes the other. This slowdown is driven by a process in which a consensus on ...