Related papers: The Screening Cost of Liquidity
Public and private institutions must often allocate scare resources under uncertainty. Banks, for example, extend credit to loan applicants based in part on their estimated likelihood of repaying a loan. But when the quality of information…
This paper studies contracting in the presence of externalities with a non-contractible outsider. Multiple equilibria arise from strategic symmetry between the insider agent and the outsider. To address strategic uncertainty, the principal…
We study a principal-agent problem with adverse selection, where the principal does not know the agent's true cost but must design a contract to optimize a specific criterion. Unlike standard screening frameworks that allow for…
This paper revisits the classic instrument choice problem in a setting with consumption externalities, through the lens of robust mechanism design. A regulator can implement any incentive-compatible policy but is uncertain about how…
An alternative to the dependence on traditional student loans may offer a viable relief from the tremendous burden that those loans usually incur. This article establishes that it is desirable for governmental intervention to grant students…
We explore the deliberate infusion of ambiguity into the design of contracts. We show that when the agent is ambiguity-averse and hence chooses an action that maximizes their minimum utility, the principal can strictly gain from using an…
We investigate a seller's revenue-maximizing mechanism in a setting where a desirable good is sold together with an undesirable bad (e.g., advertisements) that generates third-party revenue. The buyer's private information is…
A principal screens an agent with an arbitrary set of allocations $X$. The agent's preferences over allocations are comonotonic. A subset of allocations $X^*\subseteq X$ is a surplus-elasticity frontier if (i) any other allocation has a…
We study optimal bundling when consumers differ in one dimension. We introduce a partial order on the set of bundles defined by (i) set inclusion and (ii) sales volumes (if sold alone and priced optimally). We show that if the undominated…
We consider the pricing problem facing a seller of a contingent claim. We assume that this seller has some general level of partial information, and that he is not allowed to sell short in certain assets. This pricing problem, which is our…
This paper analyzes the pricing of transit traffic in wireless peer-to-peer networks using the concepts of direct and indirect network externalities. We first establish that without any pricing mechanism, congestion externalities overwhelm…
We study a dynamic contracting problem with multiple agents and limited commitment. A principal seeks to screen efficient agents using one-period contracts, but is tempted to revise contract terms upon knowing an agent's type. Alterations…
We study the production, entry, and technological decisions of firms in the presence of bribery. We find that bribery can be justified even in the absence of bureaucratic inefficiencies. We document substantial technology-specific…
In practice there are temporary arbitrage opportunities arising from the fact that prices for a given asset at different stock exchanges are not instantaneously the same. We will show that even in such an environment there exists a…
We study soft budget constraints in multi-tier public finance when an upper-tier government uses two instruments: an ex-ante grant schedule and an ex-post rescue. Under convex rescue costs and standard primitives, the three-stage…
We adapt Leland's dynamic capital structure model to the context of an insurance company selling participating life insurance contracts explaining the existence of life insurance contracts which provide both a guaranteed payment and surplus…
We study a signaling game between two firms competing to have their product chosen by a principal. The products have qualities drawn i.i.d. from a common prior. The principal aims to choose the better product, but the quality of a product…
We study the gain of an insider having private information which concerns the default risk of a counterparty. More precisely, the default time \tau is modelled as the first time a stochastic process hits a random barrier L. The insider…
The seniority of debt, which determines the order in which a bankrupt institution repays its debts, is an important and sometimes contentious feature of financial crises, yet its impact on system-wide stability is not well understood. We…
Lagrangian duality underlies both classical and modern mechanism design. In particular, the dual perspective often permits simple and detail-free characterizations of optimal and approximately optimal mechanisms. This paper applies this…