This paper studies moral hazard contracts that may be renegotiated after an agent chooses an unobservable effort. Unlike in previous models, a contract here contains only one compensation scheme, and the agent has all the bargaining power in the renegotiation stage. Using a relatively weak forward-induction refinement, all equilibria are shown tb be (second-best) efficient. Renegotiation occurs in every equilibrium. If the effort set is rich, the only equilibrium initial contract is a sales contract, i.e., a scheme which sells the project to the agent. This captures the idea that a party (the principal) who has an inherently weak renegotiation position will sometimes insist on a simple initial contract.

When selecting amongst a set of investment projects, the decision-maker cannot act as if her decision is made in isolation: Each investment has an impact upon subsequent cash flows and affects with future investments will be feasible and desirable. Our model provides a dynamic context in which her investment decisions can be analyzed. Our model generalizes the multi-period investment models of Gale (1965), Lippman (1970), and Cantor and Lippman (1983), by allowing an arbitrary finite number of projects. We emphasize that neither interest rates, nor net present values, nor internal rates of return are part of our model. However, all three notions arise as a consequence of our basic assumptions. In this paper we introduce a new technique for evaluating bundles of investments, the upper envelope.

We apply nonparametric regression models to estimation of demand curves of the type most often used in applied research.From the demand curve estimators we derive estimates of exact consumers surplus and deadweight loss, that are the most widely used welfare and economic efficiency measures in areas of economics such as public finance.We also develop tests of the symmetry and downward sloping properties of compensated demand.We work out asymptotic normal sampling theory for kernel and series nonparametric estimators, as well as for the parametric case.The paper includes an application to gasoline demand.Empirical questions of interest here are the shape of the demand curve and the average magnitude of welfare loss from a tax on gasoline.In this application we compare parametric and nonparametric estimates of the demand curve, calculate exact and approximate measures of consumers surplus and deadweight loss, and give standard error estimates.We also analyze the sensitivity of the welfare measures to components of nonparametric regression estimators such as the number of terms in a series approximation.

This note is concerned with nonparanetric and semiparametric inference in regression models where regressors are not continuous. In economic practice, few explanatory variables are continuous. Many of the are dummics, qualitative variables, or counts; and others though continuous in nature, are recorded at intervals and can be treated as discrete.

Core allocations may be defined for infinite horizon capital accumulation models. If agents cannot trust each other in the sense of Gale, then agents may renege on their commitments; their decisions appear time inconsistent. A core allocation is a recursive core allocation provided no coalition can improve upon its consumption stream at any time given its accumulation of assets up to that period. We show for every allocation of consumption in the initial core, one can find a distribution of capital stocks among the agents where no coalition of agents will break the initial core contract at any date. It follows that if the proper distribution of the streams of capital is achieved, then the allocation in the core is also in the recursive core. The latter therefore forges a link between the distribution of wealth (capital), the problem of trust, and time consistent intertemporal contracts