A liquidity-constrained entrepreneur raises capital to finance a business activity that may harm bystanders. The entrepreneur raises senior (secured) debt to shield assets from the tort victims in bankruptcy. For a fixed level of borrowing, senior debt creates better incentives for precaution...

This article analyzes the relation between authority and incentives. It extends the standard principal-agent model by a project selection stage in which the principal can either delegate the choice of project to the agent or keep the authority. The agent's subsequent choice of effort depends...

This article develops a theory of how capital, skilled labor, and unskilled labor interact at the plant level. The theory has implications for the relationship between factor allocation and plant size and the effects of trade and growth on the skill premium. The theory is consistent with certain...

This article considers a market served by a monopolist who sells a durable good that depreciates stochastically over time. We show that there exist three types of stationary equilibria: a Coase Conjecture equilibrium, a monopoly equilibrium, and a reputational equilibrium. When the depreciation...

Work-related perks, such as corporate jets, nice offices, and so forth, improve the tradeoff between incentives and insurance that determines the optimal incentive contract. We show that (i) such perks may be offered even if their direct consumption benefits are offset by their costs; (ii) they...

In its landmark ruling in Illinois Brick Co. v. Illinois in 1977, the U.S. Supreme Court restricted standing to sue for recovery of antitrust damages to direct purchasers. However, antitrust damages are typically (in part) passed on to intermediaries lower in the chain of production and...

We analyze the problem of a seller of multiple identical units of a good who faces a set of buyers with unit demands, private information, and identity-dependent externalities. We derive the seller's optimal mechanism and characterize its main properties. We show that the probability that a...

We study the dynamics of an industry subject to aggregate demand shocks where the productivity of a firm's technology evolves stochastically over time. To characterize the intertemporal evolution of the distribution of firms, we discuss in particular how exit decisions, aggregate output,...

This article extends the theory of legal cartels to affiliated private value and common value environments. We show that efficient collusion is always possible in private value environments, but may not be in common value environments with a binding reserve price. In the latter case, collusion...

Contrary to conventional wisdom, this article argues that trade liberalization may facilitate collusion and reduce welfare. With the help of a duopoly model in which firms interact repeatedly in multiple markets, we first show that, if trade costs (i.e., tariffs/transport costs) and discount...