All Courts rule ex-post, after most economic decisions are sunk. This can generate a time-inconsistency problem. From an ex-ante perspective, Courts will have the ex-post temptation to be excessively lenient. This observation is at the root of the rule of precedent, known as stare decisis. Stare decisis forces Courts to weigh the benefits of leniency towards the current parties against the bene...

We study a contracting model with unforeseen contingencies in which the court is an active player. Ex ante, the contracting parties cannot include the risky unforeseen contingencies in the contract they draw up. Ex post, the court observes whether an unforeseen contingency occurred and decides whether to void or uphold the contract. If the contract is voided by the court, the parties can renego...

A general model of dynamic common agency with symmetric information is considered. The set of truthful Markov perfect equilibrium payoffs is characterized and the efficiency properties of the equilibria are established. A condition for the uniqueness of equilibrium payoffs is derived for the static and the dynamic game. The payoff is unique if and only if the payoff of each principal coincides ...

Protection buyers share risk with protection sellers, whose assets are only imperfectly pledgeable because of moral hazard. To mitigate moral hazard, privately optimal contracts involve variation margins. When margins are called, protection sellers must sell some of their assets to other investors. We analyse, in a general equilibrium framework, whether this leads to ine¢ cient …re sales. If ma...

An incomplete information game is defined by a probability distribution + over a type space and payoff functions u. Probability distribution +$ is strategically close to + if, for any bounded payoff functions u and any equilibrium of the game (+, u), there exists an approximate equilibrium of the game (+$, u) under which all players get approximately the same payoffs. This note shows that two p...

In this paper, the structural vector autoregression methodology is used to decompose the euro area nominal short-term interest rate into an expected inflation and an ex-ante real interest rate component. The latter may be a useful indicator of the monetary policy stance of the ECB. To this end, a vector autoregression model comprised of the differenced interest rate series and the stationary co...

An ex ante adoption model of bovine somatotropin (BST) is estimated with survey data of California milk producers. Theoretical justification is developed for incorporation of socioeconomic explanatory variables in a technology-adoption model. The advantages of a multinomial over a binomial ex ante model also are presented. The multinomial logit model is used to predict BST adoption, to test hyp...

Bank crises, by interrupting liquidity provision, have been viewed as resulting in welfare losses. In a model of banking with moral hazard, we show that second best bank contracts that improve on autarky ex ante require costly crises to occur with positive probability at the interim stage. When bank payoffs are partially appropriable, either directly via imposition of fines or indirectly by the...