When will solidarity, which emerges spontaneously from the fear of spillovers, be reinforced through contracting? The optimal pact between countries that differ substantially in their probability of distress is a simple debt contract with market financing, a borrowing cap, but no joint liability. While joint liability augments total surplus, the borrowing country cannot compensate the deep-pocket guarantor. By contrast, the optimal pact between two countries symmetrically exposed to shocks with an arbitrary correlation is a simple debt contract with joint liability, provided that shocks are sufficiently independent, spillovers sufficiently large, liquidity needs moderate, and available sanctions sufficiently tough.

Industrial organization studies the exercise and control of market power. To this purpose, it builds models that capture the essence of the situation. The predictions of the model can then be tested econometrically and possibly in the lab or the field. In the end, the reasonableness of, and robustness to modeling assumptions and the quality of empirical fit determine how confident economists are in making recommendations to public decision-makers for intervention, and to companies for the design of their business model. Industrial organization has a long tradition: first theoretical, with the work of French “engineer-economists” Antoine Augustin Cournot (1838) and Jules Dupuit (1844); then policy-oriented with the enactment of the Sherman Act (1890) and subsequent legislation; then descriptive with the studies of the Harvard school (“Structure-Conduct-Performance”) comforting and refining the antitrust drive; and finally skeptical with the Chicago school. The Chicago school correctly pointed out the lack of underlying theoretical doctrine and went on to cast doubt on the whole edifice. It however did not develop an alternative antitrust doctrine, perhaps because

A major policy issue in standard setting is that patents that are ex ante not that important, by being included into a standard, may become standard-essential patents. In an attempt to curb the monopoly power that they create, most standard-setting organizations require the owners of patents covered by the standard to make a loose commitment to grant licenses on reasonable terms. Such commitments unsurprisingly are conducive to litigation. This paper builds a framework for the analysis of these patents, identifies several types of inefficiencies attached to the lack of price commitments, and shows how structured price commitments restore competition and why such commitments may not arise spontaneously in the marketplace.