I evaluate German regulation that requires retail discounters to guarantee the availability of their products in bargain sales. The regulation is meant to prevent loss leaders. Retailers however claim that rationing is due to demand uncertainty and thereby undermine the regulation's rationale....

For mechanism design with independent values, we identify a subclass of Vickrey--Clarke--Groves (VCG) mechanisms that induce efficient ex ante investments even with externalities. The Vickrey second price auction does not belong to this class.

This paper explains why a principal may demand too much paperwork from a subordinate: Due to limited liability and moral hazard a principal is unable to appropriate all rents. Internal paperwork allows a more accurate monitoring of the agent and enables the principal to appropriate a larger part...

In an agency model this paper studies the strategic effect of a difference in timing of verification. A principal may choose between two equally efficient verification procedures: monitoring and auditing. Under auditing the principal receives additional information. Due to a double moral hazard...

This paper studies the effect of book versus fair value accounting on a bank's (re)investment behavior, risk of default, investment value, and the need for regulation. Adopting the wide--spread view that fair value accounting reduces the degree of asymmetric information, it shows that fair value...

We make the observation that cartels which produce goods with lower durability are easier to sustain implicitly. This observation generates the following results: 1) implicit cartels have an incentive to produce goods with an inefficiently low level of durability; 2) a monopoly or explicit...

We analyze the two goals behind the European Bologna Process of increasing student mobility: enabling graduates to develop multi--cultural skills and increasing the quality of universities. We isolate three effects: 1) a competition effect that raises quality; 2) a free rider effect that lowers...

This paper extends the revelation principle to environments in which the mechanism designer cannot fully commit to the outcome induced by the mechanism. We show that he may optimally use a direct mechanism under which truthful revelation is an optimal strategy for the agent. In contrast with the...

In a finitely repeated principal agent relationship with adverse selection I study (exogenous) interim information that is revealed during a long term relationship. Interim information mitigates adverse selection. Verifiability, measured by the cost of signal manipulation, and the signal's...

This paper offers an explanation why governments have limited commitment and are susceptible to the ratchet effect. It analyzes a two period model in which a government with full commitment regulates a firm. Each period is predated by an election. If contracts of previous governments tie newly...