The paper explores strategies that the sponsor of a proposal may employ to convince a qualified majority of members in a group to approve the proposal. Adopting a mechanism design approach to communication, it emphasizes the need to distill information selectively to key group members and to engineer persuasion cascades in which members who are brought on board sway the opinion of others. The paper shows that higher congruence among group members benefits the sponsor. The extent of congruence between the group and the sponsor, and the size and the governance of the group, are also shown to condition the sponsor's ability to get his project approved.

We develop a theory of prosocial behavior that combines heterogeneity in individual altruism and greed with concerns for social reputation or self-respect. Rewards or punishments (whether material or image-related) create doubt about the true motive for which good deeds are performed, and this “overjustification effect” can induce a partial or even net crowding out of prosocial behavior by extrinsic incentives. We also identify the settings that are conducive to multiple social norms and, more generally, those that make individual actions complements or substitutes, which we show depends on whether stigma or honor is (endogenously) the dominant reputational concern. Finally, we analyze the socially optimal level of incentives and how monopolistic or competitive sponsors depart from it. Sponsor competition is shown to potentially reduce social welfare.

We build a simple model to capture the major virtues and drawbacks of making public officials accountable (i.e., subjecting them to reelection): On the one hand, accountability allows the public to screen and discipline their officials; on the other, it may induce those officials to pander to public opinion and put too little weight on minority welfare. We study when decision-making powers should be allocated to the public directly (direct democracy), to accountable officials (called “politicians”), or to nonaccountable officials (called “judges”).

In an earlier paper (Holmstrom and Tirole, 1998) we offered a simple model of aggregate liquidity shortages. Because firms cannot pledge their full income stream to investors, the collateral base of the economy may be too small to support an optimal long-term production plan. Firms want liquidity as insurance against future credit rationing, but in the case of aggregate liquidity shocks, the financial assets of the productive sector do not allow consumers (or their representatives) to offer the desired liquidity. There is too little collateral to back up promises of future financing. We argued that the government could play a useful role as an intermediary between consumers and firms to the extent that it can make commitments on behalf of (future) consumers. Publicly supplied liquidity, however, is costly due to tax distortions. Foreign investors may be in a better position to provide liquidity services, particularly when country shocks are idiosyncratic. The purpose of this paper is to explore how the introduction of a foreign supply of liquidity affects our earlier analysis of liquidity management. How should a country optimally make use of its limited access to foreign and domestic insurance opportunities?

This paper shows that direct (product) competition acts as a tournament between retailers when informational problems (or transaction costs) prevent the manufacturer from using contracts based on their relative performances. Anticompetitive restraints such as exclusive territories and resale price maintenance (which, we show, are not necessarily good substitutes) may or may not be privately desirable. It also shows that privately desirable anticompetitive restraints may not be socially desirable.

The intertemporal CAPM predicts that an asset's price is equal to the expectation of the product of the asset's payoff and a representative consumer's intertemporal marginal rate of substitution. This paper develops an alternative approach to asset pricing based on corporations' desire to hoard liquidity. Our corporate finance approach suggests new determinants of asset prices such as the distribution of wealth within the corporate sector and between the corporate sector and the consumers. Also, leverage ratios, capital adequacy requirements, and the composition of savings affect the corporate demand for liquid assets and, thereby, interest rates.