This Paper analyses corporate bond valuation and optimal call and default rules when interest rates and firm value are stochastic. It then uses the results to explain the dynamics of hedging. Bankruptcy rules are important determinants of corporate bond sensitivity to interest rates and firm...

Recent work has suggested that strategic underperformance of debt-service obligations by equity holders can resolve the gap between observed yield spreads and those generated by Merton-style models. We show that this is not quite correct. The value of the option to underperform on debt-service...

In this Paper we provide a strategic explanation for the spontaneous convergence of legal rules, which nevertheless falls short of harmonization across jurisdictions. We identify a free-riding problem and discuss its implications for legal culture, integration, and harmonization. It is argued...

This Paper presents a formal theory of reciprocity. Reciprocity means that people reward kind actions and punish unkind ones. The theory takes into account that people evaluate the kindness of an action not only by its consequences but also by the intention underlying this action. The theory...

In this Paper we show that a simple model of fairness preferences explains major experimental regularities of common pool resource (CPR) experiments. The evidence indicates that in standard CPR games without communication and without sanctioning possibilities inefficient excess appropriation is...

We consider a bargaining model of the interaction between a government and interest groups in which, unlike existing models, neither side is assumed to have all the bargaining power. The government will then find it optimal to constrain itself in the use of transfer policies to improve its...

The centrality of an agent in a network has been shown to be crucial in explaining different behaviors and outcomes. In this paper, we propose an axiomatic approach to characterize a class of centrality measures for which the centrality of an agent is recursively related to the centralities of...

It is a persistent finding in psychology and experimental economics that people's behavior is not only shaped by outcomes but also by decision-making procedures. In this paper we develop a general framework capable of modelling these procedural concerns. Within the context of psychological games...

This Paper discovers significant differences between southern and northern Europeans in a dynamic version of the ‘trust game’ played by Ph.D. students from different nationalities at the European University Institute. Our version of the trust game allows subjects to choose the receivers to...

This paper studies the interactions between an individual's self-esteem and his social environment - in the workplace, at school, and in personal relationships. Because a person generally has only imperfect knowledge of his own abilities, people who derive benefits from his performance (parent,...