This paper analyzes optimal wage contracting assuming agents are not subjective expected utility maximizers but are, instead, ambiguity (or uncertainty) averse decision makers who maximize Choquet expected utility. We show that such agents will choose not to include any indexation coverage in their wage contracts even when inflation is uncertain, unless the perceived inflation uncertainty is hi...

We conduct both an approximate Bayesian Model Averaging (BMA) and an exact Bayesian analysis to incorporate break date uncertainty of the mean growth rate into the trend-cycle decomposition of U.S. real GDP. Our results suggest a structural break in mean growth rate of U.S. real GDP in 1970s. Comparing to the models assuming fixed break date, we find higher uncertainty in the posterior density ...

A discrete public good is provided when total contributions exceed the contribution threshold, yet the threshold is often not known with certainty. I show that the relationship between the degree of threshold uncertainty and equilibrium contributions and welfare is not monotonic. For a large class of threshold probability distributions, equilibrium contributions will be higher under increased u...

This paper analyses the effect of piracy on innovation in the presence of R&D competition with technological and market uncertainty. With a single innovating firm facing technological uncertainty, piracy unambiguously retards innovation. However, with R&D competition where firms face market and technological uncertainties, we show that piracy may enhance overall innovation. We also show that if...

This paper deals with hyperbolic discounting in a macro context. Time consistency is discussed in terms of rational behavior and rational expectations. The theory is applied to the intertemporal consumption decision in order to explain undersaving in an economy. Moreover, possible implications on policy makers’ decisions on reforms and budget deficits are evinced. Finally, the Ricardian equival...

In some games, the impact of higher-order uncertainty is very large, implying that present economic theories may rely critically on the strong common knowledge assumptions they make. Focusing on normalform games in which the players’ action spaces are compact metric spaces, we show that our key condition, called “global stability under uncertainty,” implies that the maximum change in equilibriu...

Using more than 112,000 firm-year observations in 33 countries, we find that two Hofstede’s cultural dimensions, uncertainty avoidance and long-term orientation, remain significant in the determination of dividend policy even after controlling for governance and firm-specific factors. When uncertainty avoidance is high, only firms in countries with stronger investor protection pay more dividend...

________________________________________________________________________ Abstract This study examines the sensitivity of equity values of oil producers to changes in the uncertainty of future oil prices. We document that this sensitivity is negatively correlated with a firm's debt ratio and its production costs. These results indicate that companies that are more likely to experience financial ...