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...

Legal rules for allocating the private costs of civil litigation, or "fee-shifting" rules, provide powerful incentives for settlement. Within the context of a direct-revelation mechanism, the fee-shifting rule that generates the highest probability of settlement bases the allocation of costs...

Two roles for stipulated damage provisions have been debated in the literature: protecting relationship-specific investments and inefficiently excluding competitors. Aghion and Bolton (1987) formally demonstrate the latter effect in a model without investment or renegotiation. Although...

This article presents a principal-agent model in which asymmetric information leads to contractual incompleteness. I show that in the presence of transactions costs, incompleteness may act as a signal of the principal's type. Two types of transactions costs are considered: those incurred ex ante...

The operating agreements of many business ventures include clauses to facilitate the exit of joint owners. In so-called Texas Shootouts, one owner names a single buy-sell price and the other owner is compelled to either buy or sell shares at that named price. Despite their prevalence in...

Consider the symmetric equilibrium of a monopolistically competitive industry in which manufacturers select price and quality to maximize expected profit and consumers maximize utility by conducting costly search among sellers using an optimal sequential search role. Consumers search among...

Since the Food and Drug Administration (FDA) Amendments of 1962, the average time from a drug's first worldwide patent application to its approval by the FDA has risen from 3.5 to 13.5 years. FDA policies and manufacturers' incentives suggest that more important drugs may have reached the market...

Recent attention has been given to the hypothesis that local hospital competition takes the form of costly duplication of specialized services -- the "medical arms race." This contrasts with the hypothesis that the supply of specialized services is determined solely by "the extent of the...

Under the system of hospital reimbursement for Medicare patients, hospitals receive a prospectively determined price that varies according to the diagnosis related group (DRG) to which the patient is assigned. Rate-setting by DRG encourages hospitals to specialize in those DRGs for which they...

We call markets in which intermediaries sell networks of suppliers to consumers who are uncertain about their needs "option demand markets." In these markets, suppliers may grant the intermediaries discounts in order to be admitted to their networks. We derive a measure of each supplier's market...