This excellent book provides the reader with a broad introduction to, and a powerful advocacy of, behavioral finance. In the tradition of the best of the Clarendon Lecture Series, Andrei Shleifer provides a clear context and motivation for a collection of his influential ideas in this field, emphasizing central themes that link together the wide scope of this work. Topics include: investor sentiment, the limits of arbitrage, the closed-end fund puzzle, positive feedback investment, and both market overreaction and underreaction to news, as well as general discussions on the motivation for this research and promising future directions.

This paper demonstrates that, in a simple setting with managerial concern for reputation and asymmetric information on ability, most managers may refrain from undertaking innovations that stochastically dominate an industry standard. Common components of uncertainty lead to market inferences of managerial ability based on relative performance. Managers who undertake the industry standard are consequently evaluated with a more accurate benchmark than those innovating. Discontinuities in compensation when performance is low lead managers to have differing valuations of an accurate benchmark, depending on type. In particular, very high and very low ability managers are more likely to undertake superior innovations than those of average ability.

We analyze the design and renegotiation of covenants in debt contracts as a specific example of the contractual assignment of property rights under asymmetric information. Specifically, we consider a setting where managers are better informed than lenders regarding potential transfers from debt to equity associated with future investments. This simple adverse-selection problem leads to the allocation of greater ex ante decision rights to the creditor (the uninformed party), i.e., tighter covenants, than would follow under symmetric information. This corresponds well to empirical evidence indicating that covenants are very tight upon inception and are frequently waived (and never tightened) upon renegotiation.

Organizational Design and Technology Choice under Intrafirm Bargaining: Reply by Lars A. Stole and Jeffrey Zwiebel. Published in volume 93, issue 1, pages 456-457 of American Economic Review, March 2003

tag=1 data=Alcohol consumption during prohibition. by Jeffrey A. Miron and Jeffrey Zwiebel tag=2 data=Miron, Jeffrey A.%Zwiebel, Jeffrey tag=3 data=The American Economic Review, tag=4 data=81 tag=5 data=2 tag=6 data=May 1991 tag=7 data=242-247. tag=8 data=ALCOHOL%DRUGS tag=10 data=The burgeoning debate over drug legalisation in the United States has drawn renewed attention to the nation's experience with Prohibition. tag=11 data=1991/3/9 tag=12 data=91/0780 tag=13 data=CAB