A bilateral trading model with investment is considered. In a "cooperative" investment version of the model, the seller's investment stochastically determines the buyer's valuation of the good. The value and cost of the good are realized only after the investment is made, and the investment...

We examine how the bidding environment may affect the outcome of tax competition between two countries (or two regions) in attracting a firm's foreign direct investment (FDI).We compare the equilibrium location choice and payoffs from an English auction, with both complete and incomplete...

In many cases, the cost of an agent acquiring information is lower than that for the principal. However, because of a private benefit difference between the principal's and agent's preferences, the principal often cannot fully utilize the agent's advantage. This paper considers the cost of...

This paper characterizes the optimal contract when a principal has unverifiable subjective information that is correlated with an agent's private information. We find that the principal's subjective information alleviates the initial information asymmetry only if the correlation is sufficiently...