We find an economic rationale for the common sense answer to the question in our title — courts should not always enforce what the contracting parties write. We describe and analyze a contractual environment that allows a role for an active court. An active court can improve on the outcome that the parties would achieve without it. The institutional role of the court is to maximize the parties’...

We investigate the relation between the transparency of financial statements and the distribution of stock returns. Using earnings management as a measure of opacity, we find that opacity is associated with higher R-squares, indicating less revelation of firm-specific information. Moreover, opaque firms are more prone to stock price crashes, consistent with the prediction of the Jin-Myers (2006...

N.ϕGamma is a strand-specific and site-specific DNA nicking enzyme (YCG↓GT or AC↑CGR). Here we describe the isolation of single and double mutants of N.ϕGamma with attenuated activity. The nicking domains (NDs) of E59A and 11 double mutants were fused to the 5mCG-binding domain of MBD2 and generated fusion enzymes that preferentially nick 5mCG-modified DNA. The CG dinucleotide can be modified b...

We develop a model of complex undescribable contingencies. These are contingencies that are understood by economic agents — their consequences and probabilities are known — but are such that every description of such events necessarily leaves out relevant features that have a non-negligible impact on the parties’ expected utilities. Using a simple co-insurance problem as backdrop, we introduce ...

Trusting beliefs — a players’ subjective probability of not being cheated — can be exploited. However, if a trustful player is cheated too often, she should change her belief and start trusting less, until her beliefs are correct. For this reason we model trust as an equilibrium phenomenon. Players receive an offer to transact and choose whether or not to cheat and steal the entire surplus. Che...

We study a model of pairwise communication in a finite population of Bayesian agents. We show that, in contrast with claims to the contrary in the existing literature, communication under a fair protocol may not lead to commonly known signals, or even consensus. We prove that, in order for commonly known signals to be achieved, individuals must also know the structure of the communication proto...

This paper considers dynamic games in which multiple principals contract sequentially and noncooperatively with the same agent. We first show that when contracting is private, i.e. when downstream principals do not observe the mechanisms offered upstream and the decisions taken in these mechanisms, all PBE outcomes can be characterized through pure-strategy profiles in which the principals offe...

Each item in a given collection is characterized by a set of possible performances. A (ranking) method is a function that assigns an ordering of the items to every performance profile. Ranking by Rating consists in evaluating each item’s performance by using an exogenous rating function, and ranking items according to their performance ratings. Any such method is separable: the ordering of two ...