This paper presents a theoretical model that combines employers learning about worker productivity, human capital acquisition, job-assignment and resolution of worker uncertainty regarding disutility of work from a job, to show how widely documented findings on both wage and promotion dynamics and turnover can be captured in a single set-up. Specifically we show how our model can capture result...

Paralleling regulatory developments, we devise value-at-risk and expected shortfall type risk measures for the potential losses arising from using misspecified models when pricing and hedging contingent claims. Essentially, losses from model risk correspond to losses realized on a perfectly hedged position. Model uncertainty is expressed by a set of pricing models, relative to which potential l...

We study the ordinal content of assuming supermodularity, including conditions under which a binary relation can be represented by a supermodular function. When applied to revealed-preference relations, our results imply that supermodularity is some times not refutable: A consumer’s choices can be rationalized with a supermodular utility function if they can be rationalized with a monotonic uti...

We investigate experimentally the economic effects of wage taxation to finance unemployment benefits for a closed economy and an international economy. The main findings are the following. (i) There is clear evidence of a vicious circle in the dynamic interaction between the wage tax and unemployment. (ii) In the short run employment is boosted by budget deficits. However, subsequent tax rate a...

Contingent ownership structures are prevalent in joint ventures. This paper o ers an explanation based on the investment incentives provided by such an arrangement. We consider a hold-up problem in which two parties make relationshipspeci c investments sequentially in order to generate a joint surplus in the future. In our model, the following ownership structure implements rst best investments...

We show that an auctioneer may prefer to restrict entry by exacting an admission fee to having an extra potential bidder in an auction setting with endogenous bidder entry. We also highlight that admission fees and reserve prices are different instruments in a setting with uncertainty over entry costs, and that optimal mechanisms in such settings may be higher-dimensional than in Myerson (1981)...

We construct a strategic trade model of an international duopoly, whereby production by exporting firms generates a local pollutant. Governments use environmental policies, i.e., an emissions standard or a tax, to control pollution and for rent shifting purposes. Contrary to their firm, however, governments are unable to perfectly foresee the actual level of demand, the cost of abatement and th...

This paper examines the effect on learning in simple decision tasks of the addition of a constant to all payoffs. Experiment 1 reveals that this effect, initially observed in a probability learning task, is not limited to single person decision making under uncertainty. Experiment 2 shows that the effect is not linear. Two additional experiments show that the non-linearity cannot be explained b...

The Pratt-Arrow measure of local risk aversion is generalized for the n-dimensional state-preference model of choice under uncertainty in which the decision maker may have inseparable probabilities and subjective utilities, unobservable stochastic prior wealth, and/or smooth non-expected-utility preferences. Local risk aversion is measured by the matrix of derivatives of the decision maker’s ri...

Performance Pay and Risk Aversion A main prediction of agency theory is the well known risk-incentive trade-off. Incentive contracts should be found in environments with little uncertainty and for agents with low degrees of risk aversion. There is an ongoing debate in the literature about the first trade-off. Due to lack of data, there has so far been hardly any empirical evidence about the sec...