This paper describes a contract theory of public finance of college education that explains why everyone pays for the college education of a lucky minority. The contract provides gambles that families desire. Optimizing the contract determines the taxes paid by all members of society, fees paid...

This paper shows how the presence of an indivisible good can cause a divisible good to be inferior and possibly Giffen. Indivisibility is shown to be central to a discussion by J. R. Hicks on inferior goods.

A scenario is provided in which a house in Eden Mills, Ontario, is a Giffen good. The conditions derived in the example apply to other indivisible goods as well.

In economies with indivisible commodities, consumers tend to prefer lotteries in commodities. A potential mechanism for satisfying these preferences is unrestricted purchasing and selling of lotteries in decentralized markets, as suggested in Prescott and Townsend [Int. Econ. Rev. 25, 1-20]....

We analyze the role resale creates for zero-value bidders, called speculators, in standard auctions with symmetric independent private values buyers. English/second-price auctions always have equilibria with active resale markets and positive profits for a speculator. In first- price/Dutch...

We show how the interbank payment system can become illiquid following wide-scale disruptions. Two forces are at play in such disruptions-operational problems and changes in participants' behavior. We model the interbank payment system as an n-player game and utilize the concept of a potential...

This paper contributes to the literature on second-price auctions with resale. We add speculators---bidders with value zero---to the standard symmetric independent private values environment. There always exists a continuum of inefficient equilibria that are profitable for a speculator. With no...

The paper examines property insurance contracts in which consumers choose the upper limit on coverage. Exclusions are of two types, and both reduce the demand for insurance of the included perils. A practical implication is that an insurer can raise the demand for fire insurance by offering an...