We offer a theory of polarization as an optimal response to ambiguity. Suppose individual A's beliefs first-order stochastically dominate individual B's. They observe a common signal. They exhibit polarization if A's posterior dominates her prior and B's prior dominates her posterior. Given...

We propose and axiomatically characterize update rules for the preferences with multiple priors of Gilboa and Schmeidler (J. of Math. Econ., 18, pp. 141-153, 1989) for decision making under ambiguity. These rules are the first, for any model of preferences over acts, to be able to reconcile...

When do dynamic nonconvexities at the disaggregate level translate into dynamic nonconvexities at the aggregate level? We address this question in a framework where the production of differentiated intermediate inputs is subject to dynamic nonconvexities and show that the answer depends on the...

We consider the problem of inducing agents who are concerned with their careers to reveal their private information about a project which has originated with one of them. A successful project raises the inventor's chance of promotion, at his peer's expense. Thus, the peer has an incentive to...

We use a simple graphical moral hazard model to compare monitored (non-traded) bank loans versus traded (non-monitored) bonds as sources of external funds for industry. We contrast the conditions that theoretically favour each system, such as the size and number of firms, with conditions...

We consider a model where agents work in sequence on a project, share information not available to the principal, and can collude. Due to limited liability the Coase theormem does not apply. The distribution of surplus among the agents is there an important control variable for the principal,...

A social welfare function entitled [`]ordinal Nash' is proposed. It is based on risk preferences and assumes a common, worst social state (origin) for all individuals. The crucial axiom in the characterization of the function is a weak version of independence of irrelevant alternatives. This...