What does contract negotiation look like when some parties hold private information and negotiation frictions are negligible? This paper analyzes the above question and provides a foundation for renegotiation-proof contracts in a related environment. The model extends the framework of the Coase conjecture to situations in which the quantity or quality of the good is endogenously determined and to more general environments in which the traded goods are complements or substitutes. All equilibria converge to a unique outcome as frictions become negligible, which is separating, efficient, and straightforward to characterize.

This paper combines dynamic social choice and strategic experimentation to study the following question: How does a society, a committee, or, more generally, a group of individuals with potentially heterogeneous preferences, experiment with new opportunities? Each voter recognizes that, during experimentation, other voters also learn about their preferences. As a result, pivotal voters today are biased against experimentation because it reduces their likelihood of remaining pivotal. This phenomenon reduces equilibrium experimentation below the socially efficient level, and may even result in a negative option value of experimentation. However, one can restore efficiency by designing a voting rule that depends deterministically on time. Another main result is that even when payoffs of a reform are independently distributed across the population, good news about any individual's payoff increases other individuals' incentives to experiment with that reform, due to a positive voting externality. Copyright 2010 The Econometric Society.

Modeling intergenerational altruism is crucial to evaluate the long‐term consequences of current decisions, and requires a set of principles guiding such altruism. We axiomatically develop a theory of pure, direct altruism: Altruism is pure if it concerns the total utility (rather than the mere consumption utility) of future generations, and direct if it directly incorporates the utility of all future generations. Our axioms deliver a new class of altruistic, forward‐looking preferences, whose weight put on the consumption of a future generation generally depends on the consumption of other generations. The only preferences lacking this dependence correspond to the quasi‐hyperbolic discounting model, which our theory characterizes. Our approach provides a framework to analyze welfare in the presence of altruistic preferences and addresses technical challenges stemming from the interdependent nature of such preferences.

The single crossing property plays a crucial role in economic theory, yet there are important instances where the property cannot be directly assumed or easily derived. Difficulties often arise because the property cannot be aggregated: the sum or convex combination of two functions with the single crossing property need not have that property. We introduce a new condition characterizing when the single crossing property is stable under aggregation, and also identify sufficient conditions for the preservation of the single crossing property under multidimensional aggregation. We use our results to establish properties of objective functions (convexity, logsupermodularity), the monotonicity of optimal decisions under uncertainty, and the existence of monotone equilibria in Bayesian games.

We present a model for the equilibrium movement of capital between asset markets that are distinguished only by the levels of capital invested in each. Investment in that market with the greatest amount of capital earns the lowest risk premium. Intermediaries optimally trade off the costs of intermediation against fees that depend on the gain they can offer to investors for moving their capital to the market with the higher mean return. The bargaining power of an investor depends on potential access to alternative intermediaries. In equilibrium, the speeds of adjustment of mean returns and of capital between the two markets are increasing in the degree to which capital is imbalanced between the two markets, and can be reduced by competition among intermediaries.

We identify a new way to order functions, called the interval dominance order, that generalizes both the single crossing property and a standard condition used in statistical decision theory. This allows us to provide a unified treatment of the major theorems on monotone comparative statics with and without uncertainty, the comparison of signal informativeness, and a non-Bayesian theorem on the completeness of increasing decision rules. We illustrate the concept and results with various applications, including an application to optimal stopping time problems where the single crossing property is typically violated.

[This article studies performance-sensitive debt (PSD), the class of debt obligations whose interest payments depend on some measure of the borrower's performance. We demonstrate that the existence of PSD obligations cannot be explained by the trade-off theory of capital structure, as PSD leads to earlier default and lower equity value compared to fixed-rate debt of the same market value. We show that, consistent with the pecking-order theory, PSD can be used as an inexpensive screening device, and we find empirically that firms choosing PSD loans are more likely to improve their credit ratings than firms choosing fixed-interest loans. We also develop a method to value PSD obligations allowing for general payment profiles and obtain closed-form pricing formulas for step-up bonds and linear PSD.]

How do discount rates affect agents’ decisions and valuations? This paper provides a general method to analyze this question, allowing stochastic and managed cash flows, stochastic discount rates, and time inconsistency and including arbitrary learning and payoff or utility processes. We show that some of these features can lead to counterintuitive answers (e.g., “a more patient agent stops earlier”), but we also establish, under simple conditions, theorems yielding robust predictions concerning the impact of discount rates on control and stopping decisions and on valuations. We apply our theory to models of search, experimentation, bankruptcy, optimal growth, investment, and social learning.

Abstract We construct mechanisms that can robustly implement any desired social choice function when (1) agents may incur a cost to learn the state of the world, (2) with small probability, agents’ preferences can be arbitrarily different from some baseline known to the mechanism designer, and (3) the mechanism designer does not know agents’ beliefs and higher-order beliefs about one another’s preferences. The mechanisms we propose have a natural interpretation and do not require the mechanism designer to be able to verify the state ex post. We also establish impossibility results for stronger notions of robust implementation.

How do successive, forward-looking agents experiment with interdependent and endogenous technologies? In this article, trying a radically new technology not only is informative of the value of similar technologies, but also reduces the cost of experimenting with them, in effect expanding the space of affordable technologies. Successful radical experimentation has mixed effects: it improves the immediate outlook for further experimentation but decreases the value and the marginal value of experimentation in a longer term, resulting in less ambitious “incremental” experimentation and in a reduced size of radical experimentation. Incremental experimentation lowers the option value of similar technologies, which may spur a new wave of radical experimentation. However, experimentation eventually stagnates for all parameters of the model.