State incentive granting for the purpose of firm retention or recruitment remains highly controversial and is often portrayed as antithetical to long-range economic development planning. This paper uses quasi-experimental methods to measure the impact of state-level economic development incentives on employment growth at the establishment level in North Carolina. Using North Carolina’s rich his...

This paper surveys some economic applications of the decision theoretic framework pioneered by David Schmeidler. We have organized the discussion around three themes: financial markets, contractual arrangements and game theory. The first section discusses papers that have contributed to a better understanding of financial market outcomes based on ambiguity aversion. The second section focusses ...

Mutual Monitoring in Teams: Theory and Experimental Evidence on the Importance of Reciprocity Monitoring by peers is often an effective means of attenuating incentive problems. Most explanations of the efficacy of mutual monitoring rely either on small group size or on a version of the Folk theorem with repeated interactions which requires reasonably accurate public information concerning the b...

This paper examines under what circumstances the market-based compensation scheme is effective in inducing managers’ incentives. We combine the optimal contract theory with the market microstructure literature and endogenize both the optimal compensation scheme and the stock market equilibrium. We analytically show that the incentive pay works better in a more efficient (or more informative) st...

Incentives and Prosocial Behavior We develop a theory of prosocial behavior that combines heterogeneity in individual altruism and greed with concerns for social reputation or self-respect. Rewards or punishments (whether material or image-related) create doubt about the true motive for which good deeds are performed and this “overjustification effect” can induce a partial or even net crowding ...

the conventional theory of adverse selection is not supported by most of the empirical works. these studies conclude that low-risk individuals demand more insurance services than high-risks. they refer to this situation as advantageous selection theory. this theory states that loss ratio of insureds may be lower than the population loss ratio while the conventional theory of adverse selection c...

In the sales law of most countries the duration of the buyer’s claim for remedies is cut off by a statute of limitations. The present article argues that there is a rationale for cutting off the buyer’s claim, and also determines the optimal length of the cut-off period. Essentially, allowing claims strengthens the seller’s incentive to provide goods of durable quality, but may lead the parties...

A principal can observe both the output and input of an agent who works at a job involving multiple tasks. We provide a simple theory that explains why it may be optimal for the principal to use only output-based incentive contract, even though the principal can monitor the agent’s actions perfectly in all but one task and knows exactly which action is optimal for each task. (JEL: D82, M5, J33)

JEL Classification Code(s): J 31, J 71) "Perceptions of Discrimination, Effort to Obtain Psychological Balance, and Relative Wages: Can We Infer a Happiness Gradient?" There is a substantial literature that finds a linkage between happiness and relative economic well being as measured by earnings or wages. There is also a well documented racial gap in wages. One explanation for this is disparat...