"Planned Obsolescence" is the production of goods with uneconomically short useful lives so that customers will have to make repeat purchases. However, rational customers will pay for only the present value of the future services of a product. Therefore, profit maximization seemingly implies producing any given flow of services as cheaply as possible, with production involving efficient useful lives. This paper shows why this analysis is incomplete and therefore incorrect. Monopolists are shown to desire uneconomically short useful lives for their goods. Oligopolists have the monopolist's incentive for short lives as well as a second incentive that may either increase or decrease their chosen durability. However, oligopolists can generally gain by colluding to reduce durability and increase rentals relative to sales. Some evidence is presented that appears to be generally consistent with the predictions of the theory.

Analyses of corporate pension plans often make unstated assumptions about an implicit labor contract. An example of the effect of such an assumption is that many mistakenly believe that if a worker's benefits are tied to final salary, he is protected against inflation until retirement. Also, the value of a worker's claims is often considered to be independent of the status of the firm's pension fund. These “implicit contract†assumptions are examined and questioned. The implications of analyzed pension liabilities in a manner consistent with the analysis of other corporate liabilities are explored.

Durable-goods monopolists face special problems because the sale of their products creates a secondhand market not controlled by the monopolist. To the extent the monopolist is able to rent his product rather than sell it, or to make binding promises about his future production, such problems are ameliorated. Given the inability to do the above, the monopolist is led to producing goods less durable than those produced by either competitive firms or monopolist returns. A reverse Averch-Johnson result--that monopolist sellers may invest less in fixed costs (including plant modernization and research and development) than would the renters--is shown. It is also shown that, even though sellers have less monopoly power than renters and nondurable-goods monopolists, it is possible that the seller will cause a greater deadweight loss than the other types of monopolies.

Durable-goods monopolists face special problems because the sale of their products creates a secondhand market not controlled by the monopolist. To the extent the monopolist is able to rent his product rather than sell it, or to make binding promises about his future production, such problems are ameliorated. Given the inability to do the above, the monopolist is led to producing goods less durable than those produced by either competitive firms or monopolist returns. A reverse Averch-Johnson result--that monopolist sellers may invest less in fixed costs (including plant modernization and research and development) than would the renters--is shown. It is also shown that, even though sellers have less monopoly power than renters and nondurable-goods monopolists, it is possible that the seller will cause a greater deadweight loss than the other types of monopolies.

Which is the more profitable way to sell a company: an auction with no reserve price or an optimally-structured negotiation with one less bidder? We show under reasonable assumptions that the auction is always preferable when bidders' signals are independent. For affiliated signals, the result holds under certain restrictions on the seller's choice of negotiating mechanism. The result suggests that the value of negotiating skill is small relative to the value of additional competition. The paper also shows how the analogies between monopoly theory and auction theory can help derive new results in auction theory.

We show that, under fairly general conditions, lending to small countries must be supported by the direct sanctions available to creditors, and cannot be supported by a country's "reputation for repayment." This distinction is critically important for understanding the true underlying structure of sovereign lending contracts, and comparing policy alternatives for dealing with the developing country debt problem.

Most markets clear through a sequence of sales rather than through a Walrasian auctioneer. Because buyers can decide whether to buy now or later, rather than only now or never, their current "willingness to pay" is much more sensitive to price than the demand curve is. A consequence is that markets will be extremely sensitive to new information, leading to both "frenzies," in which demand feeds on itself, and "crashes," in which price drops discontinuously. The paper also shows how a result from static auction theory, the revenue equivalence theorem, can be applied to solve for a dynamic price path.

We show that the seller's problem in devising an optimal auction is virtually identical to the monopolist's problem in third-degree price discrimination. More generally, many of the important results and elegant techniques developed in the field of mechanism design can be reinterpreted in the language of standard micro theory. We illustrate this by considering the problem of bilateral exchange with privately known values.

We present a dynamic model of international lending in which borrowers cannot commit to future repayments and in which debtors can sometimes successfully negotiate partial defaults or "rescheduling agreements." All parties in a debt rescheduling negotiation realize that today's rescheduling agreement may itself have to be renegotiated in the future. Our bargaining-theoretic approach allows us to handle the effects of uncertainty on sovereign debt contracts in a much more satisfactory way than in earlier analyses. The framework is readily extended to analyze the conflicting interest of different lenders and of banks and creditor country taxpayers.

This paper develops a model of dual labor markets based on employers' need to motivate workers. In order to elicit effort from their workers, employers may find it optimal to pay more than the going wage. This changes fundamentally the character of labor markets. The model is applied to a wide range of labor market phenomena. It provides a coherent framework for understanding the claims of industrial policy advocates. It also can provide the basis for a theory of occupational segregation and discrimination that will not be eroded by market forces. Finally, the model provides the basis for a theory of involuntary unemployment.