The paper studies the relative merits of direct and representative legislation in a setting where voters are uncertain both with respect to the likely consequences of different policies and with respect to the political preferences of their fellow citizens. Under representative legislation, the...

This paper discusses the optimal organization of sequential agency problems with contractible control actions under limited liability. In each of two stages, a risk-neutral agent can choose an unobservable effort level. A success in the first stage makes e.ort in the second stage more effective....

In practice, two types of tournaments can be distinguished - U-type and J-type tournaments. In U-type tournaments, workers receive prizes that have been fixed in advance. In J-type tournaments, the employer fixes an aggregate wage bill in advance, which is then shared among the workers according...

Recent contributions on tax competition recognize the interaction between both horizontal and vertical tax externalities in a single federation. In this paper, we extend the theoretical analysis to a framework with multiple federations (a Union). We show that the relative size of a federation in...

A standard hidden information model is considered to study the influence of the a priori productivity distribution on the optimal contract. A priori more productive (hazard rate dominant) agents work less, enjoy lower rents, but generate a higher expected surplus.

This paper reports an experiment on a location game, the so-called "Price-Competition on the Circle." There are n symmetric firms equidistantly located on a circle. Consumers are uniformly distributed. Each consumer buys one and only one unit from that firm whose price, including the cost of...

We investigate a team production problem where two parties sequentially invest to generate a joint surplus. In this framework, it is possible to implement the first best even if the investment return is highly uncertain. The optimal contract entails a basic dichotomy: it is a simple option...

The fact that according to the celebrated Coase Theorem rational parties always try to exploit all gains from trade is usually taken as an argument against the necessity of government intervention through Pigouvian taxation in order to correct externalities. However, we show that the hold-up...

Weekly repo auctions are the European Central Bank's most important policy instrument. Provided that banks bid seriously, these auctions should determine the liquidity of the banking sector in an efficient and transparent way. However, under the fixed rate tender procedure used until June 2000,...

This paper develops a general theory of irreversible investment of a single firm that chooses a dynamic capacity expansion plan in an uncertain environment. The model is set up free of any distributional or any parametric assumptions and hence encompasses all the existing models. As the first...