Autocratic regimes, democratic majorities, private platforms, and religious or professional organizations can achieve social control by managing the flow of information about individuals’ behavior. Bundling the agents’ political, organizational, or religious attitudes with information about their prosocial conduct makes them care about behaviors that they otherwise would not. The incorporation of the individuals’ social graph in their social score further promotes soft control but destroys the social fabric. Both bundling and guilt by association are most effective in a society that has weak ties and is politically docile. (JEL D64, D72, D83, D91, K38, Z13)

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. (JEL D86, F34, H63)

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

The paper provides a first analysis of market jump starting and its two-way interaction between mechanism design and participation constraints. The government optimally overpays for the legacy assets and cleans up the market of its weakest assets, through a mixture of buybacks and equity injections, and leaves the firms with the strongest legacy assets to the market. The government reduces adverse selection enough to let the market rebound, but not too much, so as to limit the cost of intervention. The existence of a market imposes no welfare cost. (JEL D82, D83, G01, G31, H81)

Thinking about contingencies, designing covenants, and seeing through their implications is costly. Parties to a contract accordingly use heuristics and leave it incomplete. The paper develops a model of limited cognition and examines its consequences for contractual design. (JEL D23, D82, D86, L22)

Studying the implications of uncoordinated borrowing, the paper first looks at whether and when countries borrow too much in the aggregate. It then revisits the “original sin” debate, analyzing whether and when equity portfolio investment, international portfolio diversification, domestic currency denomination and longer maturities enhance borrowing countries’ access to international lending. The paper thereby relates a country’s level and quality of access to international capital markets to a variety of institutional features such as the level of domestic savings, their location, the extent of control rights held by political authorities, and the interests of dominant domestic political forces.

Parties bound by an incomplete contract have an incentive to renegotiate after acquiring new information. The issue of the parties' investment in the relationship before renegotiation is analyzed in a simple two-period procurement model. The firm invests in the first period. It then learns its production cost, and the sponsor learns its value for the project. Williamson's underinvestment presumption is shown to hold under very general assumptions about bargaining and about the ex post asymmetry of information as long as the firm's investment is not observable by the sponsor. The introduction of a cancellation fee may well lead to even less investment contrary to what is sometimes argued. The role of ex ante price fixing as an alternative way to reintroduce some form of commitment and the problem of cost overruns are discussed. Last, it is shown that if investment is observable by the sponsor andthus may become a joint decision variable, the two parties may choose to under- or overinvest.

Parties bound by an incomplete contract have an incentive to renegotiate after acquiring new information. The issue of the parties' investment in the relationship before renegotiation is analyzed in a simple two-period procurement model. The firm invests in the first period. It then learns its production cost, and the sponsor learns its value for the project. Williamson's underinvestment presumption is shown to hold under very general assumptions about bargaining and about the ex post asymmetry of information as long as the firm's investment is not observable by the sponsor. The introduction of a cancellation fee may well lead to even less investment contrary to what is sometimes argued. The role of ex ante price fixing as an alternative way to reintroduce some form of commitment and the problem of cost overruns are discussed. Last, it is shown that if investment is observable by the sponsor andthus may become a joint decision variable, the two parties may choose to under- or overinvest.

A central tenet of economics is that individuals respond to incentives. For psychologists and sociologists, in contrast, rewards and punishments are often counterproductive, because they undermine “intrinsic motivation”. We reconcile these two views, showing how performance incentives offered by an informed principal (manager, teacher, parent) can adversely impact an agent's (worker, child) perception of the task, or of his own abilities. Incentives are then only weak reinforcers in the short run, and negative reinforcers in the long run. We also study the effects of empowerment, help and excuses on motivation, as well as situations of ego bashing reflecting a battle for dominance within a relationship.

We scrutinize the conceptual framework commonly used in the incomplete contract literature. This literature usually assumes that contractual incompleteness is due to the transaction costs of describing—or of even foreseeing—the possible states of nature in advance. We argue, however, that such transaction costs need not interfere with optimal contracting (i.e. transaction costs need not be relevant), provided that agents can probabilistically forecast their possible future payoffs (even if other aspects of the state of the nature cannot be forecast). In other words, all that is required for optimality is that agents be able to perform dynamic programming, an assumption always invoked by the incomplete contract literature. The foregoing optimality result holds very generally provided that parties can commit themselves not to renegotiate. Moreover, we point out that renegotiation may be hard to reconcile with a framework that otherwise presumes perfect rationality. However, even if renegotiation is allowed, the result still remains valid provided that parties are risk averse.