We explore the idea that judgment by representativeness reflects the workings of episodic memory, especially interference. In a new laboratory experiment on cued recall, participants are shown two groups of images with different distributions of colors. We find that i) decreasing the frequency...

We document two new facts about the distributions of answers in famous statistical problems: they are i) multi-modal and ii) unstable with respect to irrelevant changes in the problem. We offer a model in which, when solving a problem, people represent each hypothesis by attending "bottom up" to...

A central requirement in the design of a legal system is the protection of law enforcers from coercion by litigants through either violence or bribes. The higher the risk of coercion, the greater the need for protection and control of law enforcers by the state. This perspective explains why, in...

Contrary to the standard economic advice, many regulations of financial intermediaries, as well as other regulations such as blue laws, fishing rules, zoning restrictions, or pollution controls, take the form of quantity controls rather than taxes. We argue that costs of enforcement are crucial...

We study asset prices in an economy where some investors classify risky assets into different styles and move funds back and forth between these styles depending on their relative performance. Our assumptions imply that news about one style can affect the prices of other apparently unrelated...

We present a simple model of an entrepreneur going public in an environment with poor legal protection of outside shareholders. The model incorporates elements of Becker's (1968) crime and punishment' framework into a corporate finance environment of Jensen and Meckling (1976). We examine the...

The Coase theorem implies that, in a world of positive transaction costs, any of a number of strategies, including judicially enforced private contracts, judicially enforced laws, or even government regulation, may be the cheapest way to bring about efficient resource allocation. Unfortunately,...

We investigate empirically the determinants of the quality of governments in a large cross-section of countries. We assess government performance using measures of government intervention, public sector efficiency, public good provision, size of government, and political freedom. We find that...

Private ownership should generally be preferred to public ownership when the incentives to innovate and to contain costs must be strong. In essence, this is the case for capitalism over socialism, explaining the dynamic vitality' of free enterprise. The great economists of the 1930s and 1940s...

This paper addresses the question of why firms pay dividends, the so-called outline two agency models of dividends. On what we call outcome minority shareholders to force corporate outsiders to disgorge cash. Under this model, stronger minority shareholder rights should be associated with higher...