This paper develops a theory of the endogenous formation of a common market in a three–country, n factor political economy model. Ex ante policies in each of the prospective members are the result of direct democracy, and equilibrium outcomes may include both import restrictions as well as subsidies. The decision to join a common market is modelled as a simultaneous move game between the two pr...

I present a unified framework to analyze debt relief and macroprudential policies in a liquidity trap when households have private information. I develop a model with a deleveragingdriven recession and a liquidity trap in which households differ in their impatience, which is unobservable. Ex post debt relief stimulates the economy, but anticipated debt relief encourages overborrowing ex ante, m...

The real options approach is used to explain discounted utility anomalies as artifacts of the optimizing behavior of an individual with standard preferences, who perceives the utility from consumption in the future as uncertain. For this individual, waiting is valuable because uncertainty is revealed over time. The fair price (or compensation) that the individual agrees to pay (or accept) today...

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...

We use information contained in yield spreads to recover investors’ ex ante required rates of return on corporate securities, and then use these ex ante returns to study the pricing of risky assets. Differently from the standard approach, our asset pricing tests do not rely on the use of ex post average equity returns as proxies for expected equity returns. We Þnd that: (i) the market beta play...

In this paper, we introduce a new family of rank-dependent measures of inequality and social welfare consistent with the Equality of Opportunity (EOp) principle. The proposed framework can be used to measure long-term as well as short-term EOp, depending on whether we let permanent income or snapshots of income form the basis of the analysis. Further, it allows for both an ex-ante and an expost...

• Nash noncooperative theory • Ex ante decision-making and decision criterion for Nash theory A N-person normal form game is given as a triple: