Microfinance contracts have enormous economic and welfare significance. We study, theoretically and empirically, the problem of effort choice under individual liability (IL) and joint liability (JL) contracts when loan repayments are made either privately, or publicly in front of one’s social...

Standard equilibrium concepts in game theory find it difficult to explain the empirical evidence from a large number of static games, including the prisoner's dilemma game, the hawk-dove game, voting games, public goods games and oligopoly games. Under uncertainty about what others will do in...

We examine the various senses in which economist use the term “rationality” and then outline some of the commonly drawn implications and auxiliary assumptions. Finally, we confront the implications with the empirical evidence, drawing on the insights from the exciting new field of behavioral...

We consider discounted-utility models with a reference stream of outcomes. We provide a common framework for the main empirically supported discount functions in terms of three underlying functions: The delay, speedup and generating functions. Each of the delay and speedup functions can be...

We propose a theoretical model that embeds social identity concerns, as in Akerlof and Kranton (2000), with inequity averse preferences, as in Fehr and Schmidt (1999). We conduct an artefactual ultimatum game experiment with registered members of British political parties, for whom political...

We derive, compare, and test the predictions of three models of gift exchange: Classical (CGE); Augmented (AGE) based on unexpected wage surprises and first order beliefs; and Belief-based (BGE) that uses second order beliefs to formally model guilt-aversion. Motivated by Akerlof (1982), we also...

We formulate a general theory of preferences over outcome-time-probability triplets and decompose uncertainty into risk and hazard. We define the delay, defer, shift and certainty functions that can be uniquely elicited from behaviour. These individually determine stationarity, the common...

This paper develops a hierarchical principal-agent model to explore the influence of corruption, bribery, and politically provided oversight of production on the efficiency and level of output of some publicly provided good. Under full information, an honest politician acheives the first best...

Since Kahneman and Tversky (1979), it has been generally recognized that decision makers overweight low probabilities and underweight high probabilities. Of the several weighting functions that have been proposed, that of Prelec (1998) has the attractions that it is parsimonious, consistent with...

Evidence shows that (i) people overweight low probabilities and underweight high probabilities, but (ii) ignore events of extremely low probability and treat extremely high probability events as certain. Decision models, such as rank dependent utility (RDU) and cumulative prospect theory (CP),...