We study partnership dissolution when valuations are interdependent and only one party is informed. In contrast with the case of private values (Cramton, Gibbons, and Klemperer, 1987), in which efficient trade is feasible whenever initial shares are about equal, there exists a wide class of...

We study games with strategic complementarities, arbitrary numbers of players and actions, and slightly noisy payoff signals. We prove limit uniqueness: as the signal noise vanishes, the game has a unique strategy profile that survives iterative dominance. This generalizes a result of Carlsson...

We study the role of expectations when agents have a preference for segregation and households face moving frictions. In a fixed environment, there are multiple equilibria: agents' expectations determine whether an ethnic transition occurs. However, the outcome is unique if there is a...

Public projects typically generate both monetary revenue and social benefits that cannot be monetized. We show that a government concerned with the credit rating of its debt should put different discount rates on these two aspects. The credit rating reflects the probability of default on the...

This paper begins to explore behavioral mechanism design, replacing equilibrium by a model based on "level-k" thinking, which has strong support in experiments. In representative examples, we consider optimal sealed-bid auctions with two symmetric bidders who have independent private values,...

We study games with strategic complementarities, arbitrary numbers of players and actions, and slightly noisy payoff signals. We prove limit uniqueness: as the signal noise vanishes, the game has a unique strategy profile that survives iterative dominance. This generalizes a result of Carlsson...

<link rid="b12">Diamond and Dybvig (1983)</link> show that while demand-deposit contracts let banks provide liquidity, they expose them to panic-based bank runs. However, their model does not provide tools to derive the probability of the bank-run equilibrium, and thus cannot determine whether banks increase welfare...

This paper shows that the phenomenon of multiple equilibria can be fragile to the introduction of aggregate shocks. We examine a standard dynamic model of sectoral choice with external increasing returns. Without shocks, the outcome is indeterminate: there are multiple rational expectations...

We study a coordination game with randomly changing payoffs and small frictions in changing actions. Using only backwards induction, we find that players must coordinate on the risk-dominant equilibrium. More precisely, a continuum of fully rational players are randomly matched to play a...