In this experiment, we analyze strategic delegation in a Cournot duopoly. Owners can choose among two different contracts, which determine their managers’ salaries. One contract simply gives managers incentives to maximize firm profits, while the second contract gives an additional sales bonus. Although theory predicts the second contract to be chosen, it is only rarely chosen in the experiment...

This paper develops an asymmetric information model that provides an economic rational for co-signing. It is shown that banks can solve adverse selection problems by offering a co-signing contract that induces a risky and a safe firm to group together. The equilibrium co-signing debt contract strictly Pareto dominates an equilibrium without a co-signer if the latter entails rationing. The debt ...

The paper studies an incentive contract in a monopolistic and duopolistic credit market where borrowers are different in risk. One lender is in an advantaged position with respect to the other due to past relations with the borrowers. The features of the equilibrium contract are investigated. It is shown that the equilibrium contract drastically changes between the monopolistic and the duopolis...

This paper analyzes a situation in which multiple targets are exposed to a potential terrorist threat. The probability of an attack is determined endogenously in a game theoretic model. Assuming identical targets, the first-best policy requires that the investment in deterrence should be equalized across all targets. As each target tries to divert an attack to others, the symmetric equilibrium ...

We consider patent licensing under a simple model of asymmetric information, where an outsider innovator of a cost-reducing innovation interacts with a monopolist, whose cost is private information. When the innovator is endowed with combinations of fixed fee and royalty, in any optimal menu, the low-cost monopolist is always offered a pure fixed fee contract, while for the contract offered to ...

Extension of Labor Contracts and Optimal Backpay This paper explains why a union and a firm might settle on a contract duration that may later be extended and characterizes the optimal backpay for the holdout period. It is shown that the choice between concluding a shorter contract that may be extended and immediately concluding a longer contract depends on the prevalence of the different types...

In this paper we estimate a time-series model of the financial asset portfolio shares in Egypt, distinguishing between assets of varying degrees of liquidity and between domestic currency and foreign currency deposits. While financial liberalization and financial stability are found to have encouraged domestic residents to increase the share of their portfolio composed of domestic currency asse...

This paper focuses on the theory of uncovered interest rate parity and whether interest-rate differentials have resulted in the higher interest rate currency depreciating over time. Previous literature has empirically rejected the theory indicating that higher interest rate currencies have actually appreciated relative to lower interest rate currencies. In this paper, uncovered interest rate pa...