We study a price competition game in which customers are heterogeneous in the rebates they get from either of two firms. We characterize the transition between competitive pricing (without rebates), mixed strategy equilibrium (for intermediate rebates), and monopoly pricing (for larger rebates).

We show that a steeply increasing workload before a deadline is compatible with time-consistent preferences. The key departure from the literature is that we consider a stochastic environment where success of effort is not guaranteed.

We model child development as a multi-stage investment problem, where the child's specific ability is unknown at the early stage of childhood and learnt at the late stage. We show that this form of incomplete information weakens the importance of early investments in children if inter-stage...

We modify the principal-agent model with moral hazard by assuming that the agent is expectation-based loss averse according to Koszegi and Rabin (2006, 2007). The optimal contract is a binary payment scheme even for a rich performance measure, where standard preferences predict a fully...

In an agency model with moral hazard and limited liability, we show that the provision of perks can be inefficient, even if perks are contractible. Interestingly, there can be over- as well as underinvestment in perks. We also demonstrate that perks may actually harm the agent, although perks...