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...

Market power in the hands of a supplier — such as a labor union — affects a firm’s optimal debt policy. If a firm maintains a high level of liquidity, workers may be encouraged to raise wage demands. In the presence of external finance constraints, a firm has an incentive to use the cash flow demands of debt service payments to improve its bargaining position. Using both cross-sectional estimat...

Delegation of Authority as an Optimal (In)complete Contract The present paper aims to contribute to the literature on the foundations of incomplete contracts by providing conditions under which simple delegation of authority is the solution to the complete-contracting problem of the parties. We consider a hold-up framework where both parties profit from an investment that raises the value of an...

This paper examines the e¤ects of exclusive dealing contracts o¤ered by an incumbent distributor. The e¤ectiveness of exclusive dealing contracts o¤ered by distributors is quite di¤erent from those o¤ered by incumbent manufacturers. The traditional literature has focused solely on exclusive dealing contracts made by incumbent manufacturers and has derived multiple equilibria within homogeneous ...

Centre for Functional Genomics and Bio-Chips, Institute of Biochemistry, Faculty of Medicine, Zaloska 4, SI-1000 Ljubljana, University of Ljubljana, Slovenia (J.A., D.R.) Lek Pharmaceuticals d. d., Drug Discovery, Verovskova 57, SI-1000 Ljubljana, Slovenia (T.K., M.S., U.U.) L14 Laboratory for Biomolecular Structure, National Institute of Chemistry, EN->FIST Center of Excellence, SI-1000 Ljublj...

Most literature on the hold–up problem assumes that ex post bargaining outcomes are insensitive to prior investment costs. However, many bargaining procedures admit multiple equilibria and hence allow investment costs to affect bargaining outcomes. On the other hand, multiplicity of equilibria leaves scope for coordination failure. We report on three experiments in which unilateral investment i...

Natural gas power plants can further specify their procurement contracts with pipeline distributors using a firm contract option that guarantees delivery at an additional cost. Using transaction level data from 2008-2012 we empirically test what characteristics lead to use of firm contracts and how the premium for firm contracts changes with these characteristics. Using variation in power plant...

A large theoretical literature focuses on the question: What determines Ž rms’ boundaries? Recently, Garicano and Santos and Holmstrom and Milgrom have proposed theories in which Ž rms’ boundaries re ect the division of labor across individuals. This paper discusses strategies for generating and testing empirical propositions from this emerging class of theories. We propose that variation in t...

This paper compares two approaches to the measurement of the resources devoted to the organisational task in the economy, i.e. Porat and Rubin’s ‘Information Economy’ and Wallis and North’s ‘Transaction Sector’. While there have been a number of studies using the information economy approach, it seems to have made way for a narrower focus on the information technology economy in recent years. T...

This paper examines the determinants of commercialization strategy for start-up innovators. We examine whether the returns on innovation are earned through product market competition as opposed to cooperation with more established firms (either through licensing, strategic alliances or outright acquisition). Our key hypotheses are that the relative returns to cooperation are increasing in (a) t...