There is ample evidence to show that choice behavior often deviates from the classical principle of maximization. This evidence raises at least two important questions: (i) how severe the deviation is and (ii) which method is the best for extracting relevant information from the choices of the individual for the purposes of welfare analysis. In this paper we address these two questions by propo...

Two agents can each accept or reject a proposed deal, whose value for each agent depends on an unknown state, and may be positive or negative. The deal takes place only if both accept. Each agent can be imperfectly informed, in an arbitrary way, about both her own value and the other agent’s. In such environments, contagious adverse selection may prevent the deal from being reached even when it...

This paper shows that government anti-smoking campaign can benefit the government in the political bargaining with the tobacco industry by reducing the latter's alternative welfare. Although the equilibrium regulation on the tobacco industry increases as a result of government anti-smoking campaign, the political contribution from the tobacco industry will not necessarily go down. Anti-smoking ...

This paper develops a spatial general equilibrium model to explore the endogenous relations between urban sprawl, job decentralization, and traffic congestion, and then compare the efficiency and welfare impacts of anti-congestion policies. Results suggest that congestion spurs firms to decentralize and agglomerate away from the urban center, with households living more centrally. A congestion-...

We study how the vertical industry structure affects investment in network quality and social welfare, with a focus on the prospective deployment of high-speed broadband access networks (the so-called NGA). We model pros and cons of vertical separation, namely, procompetitive effects and loss of some efficiencies of vertical integration, and distinguish functional separation from ownership sepa...

This paper develops a model of settlement system to study the endogenous structure of settlement networks, and the welfare consequences of clearing agent failure. The equilibrium degree of tiering is endogenously determined by the cost structure and the information structure. The degree of tiering is decreasing in the fixed cost of operating the second-tier network and the availability of publi...

Type 1 and 2 errors of courts deciding in medical malpractice trials a¤ect the physicians’provision of care. The paper at hand uses a principal-agent model to explain why uncertain liability prospects induce a welfare reducing separated equilibrium where altruistic physicians practice defensive medicine and sel…sh physicians act negligently. By minimizing the loss of welfare, it identi…es an op...

Premiums in health insurance markets frequently do not reflect individual differences in costs, either because consumers have private information or because prices are not risk rated. This creates inefficiencies when consumers self-select into plans. We develop a simple econometric model to study this problem and estimate it using data on small employers. We find a welfare loss of 2-11 percent ...