This paper investigates the impact of the competition for funds in capital markets on the risk taking behavior of fund managers. In doing this we …nd what we call an “Other People’s Money”e¤ect, or a tendency of people to invest the funds of others in riskier assets than they would invest their own funds. We …nd that this excessive risk taking is not a result of poorly designed contracts since ...

Reputation is a valuable asset to firms, yet the impact of corporate governance of reputationreliant firms is underexplored. This paper investigates how a firm’s reputation in the product market responds to a change in its controlling shareholder, and derives the optimal firm ownership and control structure. We consider a dynamic model of an experience-goods firm, in which a controlling shareho...

We present an equilibrium model of a moral-hazard economy with a very large firm and financial markets, where a stock and bonds are traded. We show that optimal contracts necessitate the principal to forbid the agent to trade the stock, and that moral hazard problems can result in low interest rates and sometimes in high equity premium. We also obtain a number of striking results: the second be...

Using the Mirrlees optimal income tax model, with no income e¤ects on labour supply, this article shows that the discrete population approach provides new insights into the characterization of the optimal tax system, which complements the previous …ndings. The analysis is based on the "Spence-Mirrlees wedge" which corresponds, at each observed gross income level, to a ratio between the marginal...

Do the Selfish Mimic Cooperators? Experimental Evidence from Finitely-Repeated Labor Markets Experimental studies have consistently shown that cooperative outcomes can emerge even in finitely repeated games. Such outcomes are justified by existing reputation building models, which suggest that cooperative outcomes can be sustained if some subjects have other-regarding preferences. While the exi...

This paper analyses a bilateral trade problem with asymmetric information and ambiguity aversion. There is a buyer and a seller who bargain over the exchange of an indivisible good. The seller is privately informed about the quality of the good, which determines both his valuation and the buyer’s valuation. In the absence of ambiguity, the contract that maximizes the buyer’s payoff is a posted ...