The debt overhang problem is shown to arise in the context of an entrepreneurial project that requires a sequence of investments financed by an outside lender. The entrepreneur, not internalizing losses accruing to the lender which financed the initial investments, may inefficiently cancel the project and instead pursue an outside opportunity. It is shown that loan commitments (contracts that allow the entrepreneur to borrow a variable amount at a set interest rate in return for a fixed fee) are the optimal financial contracts in this setting, strictly dominating standard debt. The existence of the fixed fee allows loan commitments to set a relatively low interest rate, improving the entrepreneur's incentives to continue the project. The paper specifies the optimal contract fully, derives robust comparative statics properties (using an extension of Milgrom and Roberts (1994)), and extends the results to more realistic settings (e.g., allowing the market risk-free rate to be stochastic).

We examine the effect of buyer merger on bilateral negotiations between a supplier and n buyers. Merger may have bargaining effects in addition to the usual efficiency effects. The effect of merger on the buyers' bargaining position depends on the curvature of the supplier's gross surplus function: merger enhances (worsens) the buyers' bargaining position if the function is concave (convex). Based on a panel of advertising revenue in the cable television industry, our estimates indicate that the gross surplus function for suppliers of program services is convex. This result suggests that cable operators integrate horizontally to realize efficiency gains rather than to enhance their bargaining position vis-a-vis program suppliers.

Does online availability boost citations? Using a panel of citations to economics and business journals, we show that the enormous effects found in previous studies were an artifact of their failure to control for article quality, disappearing once fixed effects are added as controls. The absence of aggregate effects masks heterogeneity across platforms: JSTOR has a uniquely large effect, boosting citations around 10%. We examine other sources of heterogeneity, including whether JSTOR disproportionately increases cites from developing countries or to “long-tail” articles. Our theoretical analysis informs the econometric specification and allows citation increases to be translated into welfare terms.

ing from complicated signaling behavior by informed authors. Lerner and Tirole show that adding upstream private information does not alter their basic analysis (their Proposition 4). 454 AEA PAPERS AND PROCEEDINGS MAY 2005

Up to six months ahead of actual production, U.S. automakers announce plans for their monthly domestic production of cars. A leading industry trade journal publishes the initial plans and then a series of revisions leading up to the month in question. We analyze a panel data set spanning the years 1965–95, matching the production forecasts with data for actual monthly production. We show that a firm's plan announcement affects competitors' later revisions of their own plans and eventual production. The interaction appears to be complementary: large plans or upward revisions cause competitors to revise plans upward and increase production. The results are consistent with theoretical models in which firms share information about common demand parameters.

Preventives are sold ex ante, before disease status is realized, while treatments are sold ex post. Even if the mean of the ex ante distribution of consumer values is the same as that ex post, the shape of the distributions may differ, generating a difference between the surplus each product can extract. If, for example, consumers differ only in ex ante disease risk, then a monopolist would have more difficulty extracting surplus with a preventive than with a treatment because treatment consumers, having contracted the disease, no longer differ in disease risk. We show that the ratio of preventive to treatment producer surplus can be arbitrarily small, in particular when the distribution of consumer values has a Zipf shape and the disease is rare. The firm’s bias toward treatments can be reversed, for example, if the source of private information is disease severity learned ex post. The difference between the producer surplus earned from the products can result in distorted R&D incentives; the deadweight loss from this distortion can be as large as the entire producer-surplus difference. Calibrations for HIV and heart attacks based on risk factors in the U.S. population suggest that the distribution of disease risk is sufficiently Zipf-similar to generate substantial differences between producer surplus from preventives and treatments. Empirically, we find that proxies for the Zipf-similarity of the disease-risk distribution are associated a significantly lower likelihood of vaccine development but not drug development.

Economics papers increasingly report balance, pretrend, placebo, and other “sniff tests,” rejection of which is bad news for authors, undermining the credibility of their main results. We derive nonparametric bounds on the latent proportion of significant sniff tests removed by the publication process (whether by p-hacking or relegation to the file drawer) and the proportion whose significance was due to true misspecification, not bad luck. Using a hand-collected sample of nearly 30,000 sniff tests, we estimate a removal rate of more than 30% for balance tests in randomized controlled trials and a misspecification rate of more than 40% for other tests.

In a privatization competition, private contractors bid against an in-house team to perform a governmental function that is currently performed by the in-house team. The Department of Defense initiated 3,500 privatization competitions from 1978 to 1994, generating estimated annual savings of $1.46 billion. We estimate a reduced-form model of the savings from these competitions that takes into account the premature cancellation of some competitions and the censoring of the in-house bid at current cost. The Department of Defense maintains a list of candidates for future privatization competitions. Using our model, we forecast annual savings of $5.74 billion if privatization competitions were completed for all functions on this list.

We analyze optimal vaccine subsidies in a model integrating disease epidemiology into a market with rational economic agents. The focus is on an intensive vaccine campaign to quell an epidemic in the short run. Across a range of market structures, positive vaccine externalities and optimal subsidies peak for diseases that spread quickly, but not so quickly that everyone is driven to be vaccinated. We assess the practical relevance of this peak—as well as the existence of increasing social returns to vaccination and optimality of universal vaccination—in calibrations to the COVID-19 pandemic.