This paper presents models in which one agent must decide whether to trust another, whose motives are uncertain. Reliability can only be communicated through actions. In this context, it pays for people to build a reputation based on reliable behaviour; someone becomes credible by consistently providing accurate and valuable information or by performing useful services. The theory provides a justification for long-term arrangements without binding contracts. It also describes those situations where it pays an agent to cash in on his reputation.

This paper presents a model of intertemporal price discrimination. A fixed number of sellers produce a homogeneous good. Consumers with different preferences enter the market in each period and leave when they make a purchase. The sellers typically vary their prices over time, charging a high price in most periods, but occasionally cutting the price to sell to a large group of customers with a low reservation price. In some equilibria, all stores lower their price at the same time and to the same level.

This paper presents a simple, multistage model of bargaining wherein a seller makes an offer that can be either accepted or refused.If rejected, the process continues.How the seller's ability to make commitments affects bargaining outcomes is analysed by comparing the commitment equilibria to those arising when commitment is impossible.The effects of increasing uncertainty about preferences and varying the length of the bargaining horizon are analysed.The ways in which the bargaining environment can be changed to improve outcomes are discussed.

This paper is about accidents involving two risk-neutral parties. Both parties engage in actions that are profitable but affect the magnitude of possible bilateral accidents. We analyse how the action choices can be decentralized by liability rules that assign the accident costs to the two parties. If we allow for punitive damages, we can implement the first-best actions by a liability rule even if agents are not identical. Under this liability rule some individuals may be in expectation better off in the event of an accident than in the event of no accident. We provide conditions under which this problem does not arise.

A risk neutral principal wishes to exact a payment from a risk neutral agent whose wealth he does not know, but may verify through a costly auditing procedure. We characterize efficient schemes for the principal when he is allowed to choose schedules for preaudit and postaudit payments and audit probabilities, subject to the constraint that only monetary incentives can be used and that the principal may never make a net payment to the agent. The main results are that efficient schemes involve preaudit payments which are increasing in the agent's wealth, audit probabilities are decreasing in the agent's wealth and also satisfy certain constraints as equalities. In general, such schemes involve stochastic auditing and rebates after an audit.